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STAR TWO (SPV-AMC), INC.

,1 Petitioner,
vs.
PAPER CITY CORPORATION OF THE PHILIPPINES, Respondent.
DECISION
PEREZ, J.:
For review before this Court is a Petition for Review on Certiorari filed by Rizal Commercial Banking
Corporation now substituted by Star Two (SPV-AMC), Inc. by virtue of Republic Act No.
91822 otherwise known as the "Special Purpose Vehicle Act of 2002," assailing the 8 March 2005
Decision and 8 August 2005 Resolution of the Special Fourth Division of the Court of Appeals (CA)
in CA-G.R. SP No. 82022 upholding the 15 August 2003 and 1 December 2003 Orders of the
Valenzuela Regional Trial Court (RTC) ruling that the subject machineries and equipments of Paper
City Corporation (Paper City) are movable properties by agreement of the parties and cannot be
considered as included in the extrajudicial foreclosure sale of the mortgaged land and building of
Paper City.3
The facts as we gathered from the records are:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co. (Metrobank) and
Union Bank of the Philippines (Union Bank) are banking corporations duly organized and existing
under the laws of the Philippines.
On the other hand, respondent Paper City is a domestic corporation engaged in the manufacture of
paper products particularly cartons, newsprint and clay-coated paper.4
From 1990-1991, Paper City applied for and was granted the following loans and credit
accommodations in peso and dollar denominations by RCBC: P10,000,000.00 on 8 January
1990,5 P14,000,000.00 on 19 July 1990,6P10,000,000.00 on 28 June 1991,7 and P16,615,000.00 on
28 November 1991.8 The loans were secured by four (4) Deeds of Continuing Chattel Mortgages on
its machineries and equipments found inside its paper plants.
On 25 August 1992, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory
of Merchandise/Stocks-in-Trade was executed by RCBC through its Branch Operation Head Joey P.
Singh and Asst. Vice President Anita O. Abad over the merchandise and stocks-in-trade covered by
the continuing chattel mortgages.9
On 26 August 1992, RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the
trustee bank) entered into a Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper
City acquired an additional loan of One Hundred Seventy Million Pesos (P170,000,000.00) from the
creditor banks in addition to the previous loan from RCBC amounting to P110,000,000.00 thereby
increasing the entire loan to a total of P280,000,000.00. The old loan of P110,000,000.00 was partly
secured by various parcels of land covered by TCT Nos. T-157743, V-13515, V-1184, V-1485, V13518 and V-13516 situated in Valenzuela City pursuant to five (5) Deeds of Real Estate Mortgage
dated 8 January 1990, 27 February 1990, 19 July 1990, 20 February 1992 and 12 March 1992. 10 The
new loan obligation of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate
Mortgage and additional real and personal properties described in an annex to MTI, Annex
"B."11 Annex "B" of the said MTI covered the machineries and equipments of Paper City.12

The MTI was later amended on 20 November 1992 to increase the contributions of the RCBC and
Union Bank toP80,000,000.00 and P70,000,000.00, respectively. As a consequence, they executed
a Deed of Amendment to MTI13 but still included as part of the mortgaged properties by way of a first
mortgage the various machineries and equipments located in and bolted to and/or forming part of
buildings generally described as:
Annex "A"
A. Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"
D. D. Material Handling Equipment
Paper Plant No. 3
A Second Supplemental Indenture to the 26 August 1992 MTI was executed on 7 June 1994 to
increase the amount of the loan from P280,000,000.00 to P408,900,000.00 secured against the
existing properties composed of land, building, machineries and equipments and inventories
described in Annexes "A" and "B."14
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI was executed on 24 January
1995 to increase the existing loan obligation of P408,900,000.00 to P555,000,000.00 with an
additional security composed of a newly constructed two-storey building and other improvements,
machineries and equipments located in the existing plant site. 15
Paper City was able to comply with its loan obligations until July 1997. But economic crisis ensued
which made it difficult for Paper City to meet the terms of its obligations leading to payment
defaults.16 Consequently, RCBC filed a Petition for Extrajudicial Foreclosure Under Act No. 3135
Against the Real Estate Mortgage executed by Paper City on 21 October 1998. 17 This petition was
for the extra-judicial foreclosure of eight (8) parcels of land including all improvements thereon
enumerated as TCT Nos. V-9763, V-13515, V-13516, V-13518, V-1484, V-1485, V-6662 and V-6663
included in the MTI dated 26 August 1992, Supplemental

MTI dated 20 November 1992, Second Supplemental Indenture on the MTI dated 7 June 1994 and
Third Supplemental Indenture on the MTI dated 24 January 1995.18 Paper City then had an
outstanding obligation with the creditor banks adding up to Nine Hundred One Million Eight Hundred
One Thousand Four Hundred Eighty-Four and 10/100 Pesos (P901,801,484.10), inclusive of interest
and penalty charges.19
A Certificate of Sale was executed on 8 February 1999 certifying that the eight (8) parcels of land
with improvements thereon were sold on 27 November 1998 in the amount of Seven Hundred Two
Million Three Hundred Fifty-One Thousand Seven Hundred Ninety-Six Pesos and 28/100
(P702,351,796.28) in favor of the creditor banks RCBC, Union Bank and Metrobank as the highest
bidders.20
This foreclosure sale prompted Paper City to file a Complaint 21 docketed as Civil Case No. 164-V-99
on 15 June 1999 against the creditor banks alleging that the extra-judicial sale of the properties and
plants was null and void due to lack of prior notice and attendance of gross and evident bad faith on
the part of the creditor banks. In the alternative, it prayed that in case the sale is declared valid, to
render the whole obligation of Paper City as fully paid and extinguished. Also prayed for was the
return of P5,000,000.00 as excessive penalty and the payment of damages and attorneys fees.
In the meantime, Paper City and Union Bank entered into a Compromise Agreement which was later
approved by the trial court on 19 November 2001. It was agreed that the share of Union Bank in the
proceeds of the foreclosure shall be up to 34.23% of the price and the remaining possible liabilities
of Paper City shall be condoned by the bank. Paper City likewise waived all its claim and counter
charges against Union Bank and agreed to turn-over its proportionate share over the property within
120 days from the date of agreement.22
On the other hand, the negotiations between the other creditor banks and Paper City remained
pending. During the interim, Paper City filed with the trial court a Manifestation with Motion to
Remove and/or Dispose Machinery on 18 December 2002 reasoning that the machineries located
inside the foreclosed land and building were deteriorating. It posited that since the machineries were
not included in the foreclosure of the real estate mortgage, it is appropriate that it be removed from
the building and sold to a third party.23
Acting on the said motion, the trial court, on 28 February 2003 issued an Order denying the prayer
and ruled that the machineries and equipments were included in the annexes and form part of the
MTI dated 26 August 1992 as well as its subsequent amendments. Further, the machineries and
equipments are covered by the Certificate of Sale issued as a consequence of foreclosure, the
certificate stating that the properties described therein with improvements thereon were sold to
creditor banks to the defendants at public auction.24
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was favorably granted by the
trial court in its Order dated 15 August 2003. The court justified the reversal of its order on the finding
that the disputed machineries and equipments are chattels by agreement of the parties through their
inclusion in the four (4) Deeds of Chattel Mortgage dated 28 January 1990, 19 July 1990, 28 June
1991 and 28 November 1991. It further ruled that the deed of cancellation executed by RCBC on 25
August 1992 was not valid because it was done unilaterally and without the consent of Paper City
and the cancellation only refers to the merchandise/stocks-in-trade and not to machineries and
equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade the court to reverse its 15 August 2003
Order. However, the same was denied by the trial court through its 1 December 2003 Order
reiterating the finding and conclusion of the previous Order.27

Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65 to annul the Orders dated
15 August 2003 and 1 December 2003 of the trial court, 28 for the reasons that:
I. Paper City gave its conformity to consider the subject machineries and equipment as real
properties when the president and Executive Vice President of Paper City signed the
Mortgage Trust Indenture as well as its subsequent amendments and all pages of the
annexes thereto which itemized all properties that were mortgaged. 29
II. Under Section 8 of Act No. 1508, otherwise known as "The Chattel Mortgage Law" the
consent of the mortgagor (Paper City) is not required in order to cancel a chattel mortgage.
Thus the "Cancellation of Deed of Continuing Chattel Mortgage on Inventory of
Merchandise/Stocks-in-Trade" dated August 25, 1992 is valid and binding on the Paper City
even assuming that it was executed unilaterally by petitioner RCBC. 30
III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes "A" to "D" to the
December 18, 2003 "Manifestation with Motion to Remove and/or Dispose of Machinery"
were executed from January 8, 1990 until November 28, 1991. On the other hand, the
"Cancellation of Deed of Continuing Chattel Mortgage" was executed on August 25, 1992
while the MTI and the subsequent supplemental amendments thereto were executed from
August 26, 1992 until January 24, 1995. It is of the contention of RCBC that Paper Citys
unreasonable delay of ten
(10) years in assailing that the disputed machineries and equipments were personal
amounted to estoppel and ratification of the characterization that the same were real
properties.31
IV. The removal of the subject machineries or equipment is not among the reliefs prayed for
by the Paper City in its June 11, 1999 Complaint. The Paper City sought the removal of the
subject machineries and equipment only when it filed its December 18, 2002 Manifestation
with Motion to Remove and/or Dispose of Machinery.32
V. Paper City did not specify in its various motions filed with the respondent judge the subject
machineries and equipment that are allegedly excluded from the extrajudicial foreclosure
sale.33
VI. The machineries and equipments mentioned in the four (4) Deeds of Chattel Mortgage
that were attached on the Manifestation with Motion to Remove and/or Dispose of Machinery
are the same machineries and equipments included in the MTI and supplemental
amendments, hence, are treated by agreement of the parties as real properties. 34
In its Comment,35 Paper City refuted the claim of RCBC that it gave its consent to consider the
machineries and equipments as real properties. It alleged that the disputed properties remained
within the purview of the existing chattel mortgages which in fact were acknowledged by RCBC in
the MTI particularly in Section 11.07 which reads:
Section 11.07. This INDENTURE in respect of the MORTGAGE OBLIGATIONS in the additional
amount not exceeding TWO HUNDRED TWENTY MILLION SIX HUNDRED FIFTEEN THOUSAND
PESOS (P220,615,000.00) shall be registered with the Register of Deeds of Valenzuela, Metro
Manila, apportioned based on the corresponding loanable value of the MORTGAGED
PROPERTIES, viz:

a. Real Estate Mortgage P206,815,000.00


b. Chattel Mortgage P13,800,000.0036
Paper City argued further that the subject machineries and equipments were not included in the
foreclosure of the mortgage on real properties particularly the eight (8) parcels of land. Further, the
Certificate of Sale of the Foreclosed Property referred only to "lands and improvements" without any
specification and made no mention of the inclusion of the subject properties. 37
In its Reply,38 RCBC admitted that there was indeed a provision in the MTI mentioning a chattel
mortgage in the amount of P13,800,000.00. However, it justified that its inclusion in the MTI was
merely for the purpose of ascertaining the amount of the loan to be extended to Paper City.39 It
reiterated its position that the machineries and equipments were no longer treated as chattels but
already as real properties following the MTI.40
On 8 March 2005, the CA affirmed41 the challenged orders of the trial court. The dispositive portion
reads:
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant
petition is hereby DISMISSED for lack of merit. The assailed Orders dated 15 August and 2
December 2003, issued by Hon. Judge Floro P. Alejo are hereby AFFIRMED. No costs at this
instance.42
The CA relied on the "plain language of the MTIs:
Undoubtedly, nowhere from any of the MTIs executed by the parties can we find the alleged
"express" agreement adverted to by petitioner. There is no provision in any of the parties MTI, which
expressly states to the effect that the parties shall treat the equipments and machineries as real
property. On the contrary, the plain and unambiguous language of the aforecited MTIs, which
described the same as personal properties, contradicts petitioners claims. 43
It was also ruled that the subject machineries and equipments were not included in the extrajudicial
foreclosure sale. The claim of inclusion was contradicted by the very caption of the petition itself,
"Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended." It
opined further that this inclusion was further stressed in the Certificate of Sale which enumerated
only the mortgaged real properties bought by RCBC without the subject properties. 44
RCBC sought reconsideration but its motion was denied in the CAs Resolution dated 8 August 2005.
RCBC before this Court reiterated all the issues presented before the appellate court:
1. Whether the unreasonable delay of ten (10) years in assailing that the disputed
machineries and equipments were personal properties amounted to estoppel on the part of
Paper City;
2. Whether the Cancellation of Deed of Continuing Mortgage dated 25 August 1992 is valid
despite the fact that it was executed without the consent of the mortgagor Paper City;
3. Whether the subsequent contracts of the parties such as Mortgage Trust Indenture dated
26 August 1992 as well as the subsequent supplementary amendments dated 20 November

1992, 7 June 1992, and 24 January 1995 included in its coverage of mortgaged properties
the subject machineries and equipment; and
4. Whether the subject machineries and equipments were included in the extrajudicial
foreclosure dated 21 October 1998 which in turn were sold to the creditor banks as
evidenced by the Certificate of Sale dated 8 February 1999.
We grant the petition.
By contracts, all uncontested in this case, machineries and equipments are included in the mortgage
in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on foreclosure also
in favor of petitioner.
The mortgage contracts are the original MTI of 26 August 1992 and its amendments and
supplements on 20 November 1992, 7 June 1994, and 24 January 1995. The clear agreements
between RCBC and Paper City follow:
The original MTI dated 26 August 1992 states that:
MORTGAGE TRUST INDENTURE
This MORTGAGE TRUST INDENTURE, executed on this day of August 26, 1992, by and between:
PAPER CITY CORPORATION OF THE PHILIPPINES, x x x hereinafter referred to as the
"MORTGAGOR");
-andRIZAL COMMERCIAL BANKING CORPORATION, x x x (hereinafter referred to as the "TRUSTEE").
xxxx
WHEREAS, against the same mortgaged properties and additional real and personal properties
more particularly described in ANNEX "B" hereof, the MORTGAGOR desires to increase their
borrowings to TWO HUNDRED EIGHTY MILLION PESOS (P280,000,000.00) or an increase of
ONE HUNDRED SEVENTY MILLION PESOS (P170,000,000.00) xxx from various banks/financial
institutions;
xxxx
GRANTING CLAUSE
NOW, THEREFORE, this INDENTURE witnesseth:
THAT the MORTGAGOR in consideration of the premises and of the acceptance by the TRUSTEE
of the trust hereby created, and in order to secure the payment of the MORTGAGE OBLIGATIONS
which shall be incurred by the MORTGAGOR pursuant to the terms hereof xxx hereby states that
with the execution of this INDENTURE it will assign, transfer and convey as it has hereby
ASSIGNED, TRANSFERRED and CONVEYED by way of a registered first mortgage unto RCBC x x
x the various parcels of land covered by several Transfer Certificates of Title issued by the Registry
of Deeds, including the buildings and existing improvements thereon, as well as of the machinery

and equipment more particularly described and listed that is to say, the real and personal properties
listed in Annexes "A" and "B" hereof of which the MORTGAGOR is the lawful and registered
owner.45(Emphasis and underlining ours)
The Deed of Amendment to MTI dated 20 November 1992 expressly provides:
NOW, THEREFORE, premises considered, the parties considered have amended and by these
presents do further amend the Mortgage Trust Indenture dated August 26, 1992 including the Real
Estate Mortgage as follows:
xxxx
2. The Mortgage Trust Indenture and the Real Estate Mortgage are hereby amended to include as
part of the Mortgage Properties, by way of a first mortgage and for pari-passu and pro-rata benefit of
the existing and new creditors, various machineries and equipment owned by the Paper City, located
in and bolted to and forming part of the following, generally describes as x x x more particularly
described and listed in Annexes "A" and "B" which are attached and made integral parts of this
Amendment. The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the Mortgage Trust
Indenture and the Real Estate Mortgage.46 (Emphasis and underlining ours)
A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June 1994 to increase
the amount of loan from P280,000,000.00 to P408,900,000.00 also contains a similar provision in
this regard:
WHEREAS, the Paper City desires to increase its borrowings to be secured by the INDENTURE
from PESOS: TWO HUNDRED EIGHTY MILLION (P280,000,000.00) to PESOS: FOUR HUNDRED
EIGHT MILLION NINE HUNDRED THOUSAND (P408,900,000.00) or an increase of PESOS: ONE
HUNDRED TWENTY EIGHT MILLION NINE HUNDRED THOUSAND (P128,900,000.00) x x x
which represents additional loan/s granted to the Paper City to be secured against the existing
properties composed of land, building, machineries and equipment and inventories more particularly
described in Annexes "A" and "B" of the INDENTURE x x x.47
(Emphasis and underlining ours)
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI executed on 24 January 1995
contains a similar provision:
WHEREAS, in order to secure NEW/ADDITIONAL LOAN OBLIGATION under the Indenture, there
shall be added to the collateral pool subject of the Indenture properties of the Paper City composed
of newly constructed two (2)-storey building, other land improvements and machinery and equipment
all of which are located at the existing Plant Site in Valenzuela, Metro Manila and more particularly
described in Annex "A" hereof x x x.48 (Emphasis and underlining ours)
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various
parcels of land including the buildings and existing improvements thereon as well as the machineries
and equipments, which as stated in the granting clause of the original mortgage, are "more
particularly described and listed that is to say, the real and personal properties listed in Annexes A
and B x x x of which the Paper City is the lawful and registered owner." Significantly, Annexes "A"
and "B" are itemized listings of the buildings, machineries and equipments typed single spaced in
twenty-seven pages of the document made part of the records.

As held in Gateway Electronics Corp. v. Land Bank of the Philippines,49 the rule in this jurisdiction is
that the contracting parties may establish any agreement, term, and condition they may deem
advisable, provided they are not contrary to law, morals or public policy. The right to enter into lawful
contracts constitutes one of the liberties guaranteed by the Constitution.
It has been explained by the Supreme Court in Norton Resources and Development Corporation v.
All Asia Bank Corporation50 in reiteration of the ruling in Benguet Corporation v. Cabildo51 that:
x x x A court's purpose in examining a contract is to interpret the intent of the contracting parties, as
objectively manifested by them. The process of interpreting a contract requires the court to make a
preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms
of the contract are not ambiguous and can only be read one way, the court will interpret the contract
as a matter of law. x x x
Then till now the pronouncement has been that if the language used is as clear as day and readily
understandable by any ordinary reader, there is no need for construction. 52
The case at bar is covered by the rule.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other
creditor banks and Paper City intended from the very first execution of the indentures that the
machineries and equipments enumerated in Annexes "A" and "B" are included. Obviously, with the
continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had
to offer all valuable properties acceptable to the creditor banks.
The plain and obvious inclusion in the mortgage of the machineries and equipments of Paper City
escaped the attention of the CA which, instead, turned to another "plain language of the MTI" that
"described the same as personal properties." It was error for the CA to deduce from the "description"
exclusion from the mortgage.
1. The MTIs did not describe the equipments and machineries as personal property. Had the CA
looked into Annexes "A" and "B" which were referred to by the phrase "real and personal properties,"
it could have easily noted that the captions describing the listed properties were "Buildings,"
"Machineries and Equipments," "Yard and Outside," and "Additional Machinery and Equipment." No
mention in any manner was made in the annexes about "personal property." Notably, while
"personal" appeared in the granting clause of the original MTI, the subsequent Deed of Amendment
specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements
listed above and located on the parcels of land subject of the Mortgage Trust Indenture and the Real
Estate Mortgage.
The word "personal" was deleted in the corresponding granting clauses in the Deed of Amendment
and in the First, Second and Third Supplemental Indentures.
2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage
extends to the improvements.
Article 2127 of the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and
the rents or income not yet received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a
third person. (Underlining ours)
In the early case of Bischoff v. Pomar and Cia. General de Tabacos,53 the Court ruled that even if the
machinery in question was not included in the mortgage expressly, Article 111 of the old Mortgage
Law provides that chattels permanently located in a building, either useful or ornamental, or for the
service of some industry even though they were placed there after the creation of the mortgage shall
be considered as mortgaged with the estate, provided they belong to the owner of said estate. The
provision of the old Civil Code was cited. Thus:
Article 1877 provides that a mortgage includes the natural accessions, improvements, growing fruits,
and rents not collected when the obligation is due, and the amount of the indemnities granted or due
the owner by the underwriters of the property mortgaged or by virtue of the exercise of eminent
domain by reason of public utility, with the declarations, amplifications, and limitations established by
law, in case the estate continues in the possession of the person who mortgaged it, as well as when
it passes into the hands of a third person.54
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. 55 relied on this provision. The issue was
whether the machineries and accessories were included in the mortgage and the subsequent sale
during public auction. This was answered in the affirmative by the Court when it ruled that the
machineries were integral parts of said sugar central hence included following the principle of law
that the accessory follows the principal.
Further, in the case of Manahan v. Hon. Cruz,56 this Court denied the prayer of Manahan to nullify the
order of the trial court including the building in question in the writ of possession following the public
auction of the parcels of land mortgaged to the bank. It upheld the inclusion by relying on the
principles laid upon in Bischoff v. Pomar and Cia. General de Tabacos 57 and Cu Unjieng e Hijos v.
Mabalacat Sugar Co.58
In Spouses Paderes v. Court of Appeals,59 we reiterated once more the Cu Unjieng e Hijos ruling and
approved the inclusion of machineries and accessories installed at the time the mortgage, as well as
all the buildings, machinery and accessories belonging to the mortgagor, installed after the
constitution thereof.
3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the
machineries and equipments of respondent. While captioned as a "Petition for Extra-Judicial
Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended," the averments state that the
petition is based on "x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage
Trust Indenture, the Second Supplemental Indenture to the Mortgage Trust Indenture, and the Third
Supplemental Indenture to the Mortgage Trust Indenture (hereinafter collectively referred to as the
Indenture) duly notarized and entered as x x x."60 Noting that herein respondent has an outstanding
obligation in the total amount of Nine Hundred One Million Eight Hundred One Thousand Four
Hundred Eighty Four and 10/100 Pesos (P901,801,484.10), the petition for foreclosure prayed that a
foreclosure proceedings "x x x on the aforesaid real properties, including all improvements thereon
covered by the real estate mortgage be undertaken and the appropriate auction sale be conducted x
x x."61

Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly
states through the Deed of Amendment that the machineries and equipments listed in Annexes "A"
and "B" form part of the improvements listed and located on the parcels of land subject of the
mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in the petition.
Indeed, the lower courts ought to have noticed the fact that the chattel mortgages adverted to were
dated 8 January 1990, 19 July 1990, 28 June 1991 and 28 November 1991. The real estate
mortgages which specifically included the machineries and equipments were subsequent to the
chattel mortgages dated 26 August 1992, 20 November 1992, 7 June 1994 and 24 January 1995.
Without doubt, the real estate mortgages superseded the earlier chattel mortgages.
1wphi1

The real estate mortgage over the machineries and equipments is even in full accord with the
classification of such properties by the Civil Code of the Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(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;
WHEREFORE, the petition is GRANTED. Accordingly, the Decision and Resolution of the Court of
Appeals dated 8 March 2005 and 8 August 2005 upholding the 15 August 2003 and 1 December
2003 Orders of the Valenzuela Regional Trial Court are hereby REVERSED and SET ASIDE and the
original Order of the trial court dated 28 February 2003 denying the motion of respondent to remove
or dispose of machinery is hereby REINSTATED.
SO ORDERED.

MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and


ROSALINA GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:

Petitioner was issued a writ of possession in Civil Case No. 6643 for Sum
of Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ
of possession was, however, nullified by the Court of Appeals in CA-G.R. SP
No. 65891 because it included a parcel of land which was not among those
explicitly enumerated in the Certificate of Sale issued by the Deputy Sheriff,
but on which stand the immovables covered by the said Certificate. Petitioner
[1]

[2]

contends that the sale of these immovables necessarily encompasses the


land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent
Ricardo Galit contracted
a
loan
from
petitioner
Marcelo Soriano, in the total sum of P480,000.00, evidenced by four
promissory notes in the amount of P120,000.00 each dated August 2, 1996;
August 15, 1996; September 4, 1996 andSeptember 14, 1996. This loan
was secured by a real estate mortgage over a parcel of land covered by
Original Certificate of Title No. 569. After he failed to pay his
obligation, Soriano filed a complaint for sum of money against him with
the Regional Trial Court ofBalanga City, Branch 1, which was docketed as
Civil Case No. 6643.
[3]

[4]

[5]

[6]

[7]

[8]

Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their
answer. Hence, upon motion of Marcelo Soriano, the trial court declared the
spouses in default and proceeded to receive evidence for
petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1
rendered judgment in favor of petitioner Soriano, the dispositive portion of
which reads:
[9]

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed
from the dates of maturity of the promissory notes until the same are
fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and
3. the costs of suit.
SO ORDERED.

[10]

The judgment became final and executory. Accordingly, the trial court
issued a writ of execution in due course, by virtue of which, Deputy

Sheriff Renato E. Robles


the Galit spouses:

levied on the following real properties

of

1. A parcel of land covered by Original Certificate of Title No. T-569


(Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by Lot
No. 3, Cad. 145; containing an area of THIRTY FIVE THOUSAND
SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS, more
or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong
materials G.I. roofing situated at Centro I, Orani, Bataan,
x x x containing an area of 30 sq. meters, more or less x x x (constructed
on TCT No. T40785);
3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing,
situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq.
m. more or less x x x.
[11]

At the sale of the above-enumerated properties at public auction held


on December 23, 1998, petitioner was the highest and only bidder with a bid
price of P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff
Robles issued a Certificate of Sale of Execution of Real Property, which
reads:
[12]

CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY


TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued
in the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the
Provincial Sheriff of Bataan or her authorized Deputy Sheriff to cause to be made
(sic) the sum of P350,000.00 plus 12% interest to be computed from the date of
maturity of the promissory notes until the same are fully paid; P20,000.00 as attorneys
fees plus legal expenses in the implementation of the writ of execution, the
undersigned Deputy Sheriff sold at public auction on December 23, 1998 the rights
and interests of defendantsSps. Ricardo and Rosalina Galit, to the plaintiff
Marcelo Soriano, the highest and only bidder for the amount of FOUR HNDRED

EIGHTY THREE THOUSAND PESOS (P483,000.00, Philippine Currency), the


following real estate properties more particularly described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No. 3,
Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED
FIFTY NINE (35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing
situated at Centro I, Orani, Bataan x x x containing an area of 30 sq. meters, more or
less x x (constructed on TCT No. 40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in
Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,
Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff of Bataan the
amount of P483,000.00, the sale price of the above-described property which amount
was credited to partial/full satisfaction of the judgment embodied in the writ of
execution.
The period of redemption of the above described real properties together with all the
improvements thereon will expire One (1) year from and after the registration of this
Certificate of Sale with the Register of Deeds.
This Certificate of Sheriffs Sale is issued to the highest and lone bidder,
Marcelo Soriano, under guarantees prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the Certificate of
Sale on Execution of Real Property with the Registry of Deeds.

The said Certificate of Sale registered with the Register of Deeds includes
at the dorsal portion thereof the following entry, not found in the Certificate of
Sale on file with Deputy Sheriff Renato E. Robles:
[13]

ORIGINAL CERTIFICATE OF TITLE NO. T-40785


A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the
improvements thereon, situated in the Municipality of Orani, Bounded on the NE;
by Calle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle Washington; and on
the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139)
SQUARE METERS, more or less. All points referred to are indicated on the plan;
bearing true; declination 0 deg. 40E., date of survey, February 191-March 1920.
On February 23, 2001, ten months from the time the Certificate of Sale on
Execution was registered with the Registry of Deeds, petitioner moved for
the issuance of a writ of possession. He averred that the one-year period of
redemption had elapsed without the respondents having redeemed the
properties sold at public auction; thus, the sale of said properties had already
become final. He also argued that after the lapse of the redemption period, the
titles to the properties should be considered, for all legal intents and purposes,
in his name and favor.
[14]

[15]

On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1


granted the motion for issuance of writ of possession. Subsequently, on July
18, 2001, a writ of possession was issued in petitioners favor which reads:
[16]

[17]

WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the
Issuance of Writ of Possession;

WHEREAS on June 4, 2001, this court issued an order granting the issuance of the
Writ of Possession;
WHEREFORE, you are hereby commanded to place the herein plaintiff
Marcelo Soriano in possession of the property involved in this case situated (sic) more
particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at Centro
1, Orani, Bataan covered by TCT No. 40785;
2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters
under Tax Declaration No. 86 situated at Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134 square meters
known as Lot No. 1103 of the Cadastral Survey of Orani
against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic)
heirs, successors, assigns and all persons claiming rights and interests adverse to the
petitioner and make a return of this writ every thirty (30) days from receipt hereof
together with all the proceedings thereon until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this
18th day of July 2001, at Balanga City.
(Sgd)
GILBERT S. ARGONZA
OI
C
Respondents filed a petition for certiorari with the Court of Appeals, which
was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel
of land covered by Transfer Certificate of Title No. T-40785 among the list of
real properties in the writ of possession. Respondents argued that said
property was not among those sold on execution by Deputy Sheriff Renato E.
Robles as reflected in the Certificate of Sale on Execution of Real Property.
[18]

In opposition, petitioner prayed for the dismissal of the petition because


respondent spouses failed to move for the reconsideration of the assailed
order prior to the filing of the petition. Moreover, the proper remedy against the

assailed order of the trial court is an appeal, or a motion to quash the writ of
possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of
possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18 July
2001 is declared NULL and VOID.
In the event that the questioned writ of possession has already been implemented, the
Deputy Sheriff of the Regional Trial Court of Balanga City, Branch 1, and private
respondent Marcelo Soriano are hereby ordered to cause the redelivery of Transfer
Certificate of Title No. T-40785 to the petitioners.
SO ORDERED.

[19]

Aggrieved, petitioner now comes to this Court maintaining that


1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS
NOT THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE
RESPONDENTS IN ASSAILING THE WRIT OF POSSESSION
ISSUED BY THE LOWER COURT BUT THERE WERE STILL
OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE
NOT RESORTED TO LIKE THE FILING OF A MOTION FOR
RECONSIDERATION OR MOTION TO QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
DECLARAING THE CERTIFICATE OF SALE ON EXECUTION OF
REAL PROPERTY AS NULL AND VOID AND SUBSEQUENTLY
THE WRIT OF POSSESSION BECAUSE THE SAME IS A PUBLIC
DOCUMENT WHICH ENJOYS THE PRESUMPTION OF
REGULARITY AND IT CANNOT BE OVERCOME BY A MERE
STRANGE FEELING THAT SOMETHING IS AMISS ON ITS
SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON
THE FRONT PAGE AND AT THE DORSAL PORTION THEREOF IS
DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF TO
USE THE DORSAL PORTION OF THE FIRST PAGE BECAUSE THE
SECOND PAGE IS MERELY HALF FILLED AND THE NOTATION
ON THE DORSAL PORTION COULD STILL BE MADE AT THE
SECOND PAGE.

On the first ground, petitioner contends that respondents were not without
remedy before the trial court. He points out that respondents could have filed
a motion for reconsideration of the Order dated June 4, 1999, but they did not
do so. Respondents could also have filed an appeal but they, likewise, did not
do so. When the writ of possession was issued, respondents could have filed
a motion to quash the writ. Again they did not. Respondents cannot now avail
of the special civil action for certiorari as a substitute for these remedies. They
should suffer the consequences for sleeping on their rights.
We disagree.
Concededly, those who seek to avail of the procedural remedies provided
by the rules must adhere to the requirements thereof, failing which the right to
do so is lost. It is, however, equally settled that the Rules of Court seek to
eliminate undue reliance on technical rules and to make litigation as
inexpensive as practicable and as convenient as can be done. This is in
accordance with the primary purpose of the 1997 Rules of Civil Procedure as
provided in Rule 1, Section 6, which reads:
[20]

Section 6. Construction. These rules shall be liberally construed in order to promote


their objective of securing a just, speedy and inexpensive determination of every
action and proceeding.
[21]

The rules of procedure are not to be applied in a very rigid, technical


sense and are used only to help secure substantial justice. If a technical and
rigid enforcement of the rules is made, their aim would be defeated. They
should be liberally construed so that litigants can have ample opportunity to
prove their claims and thus prevent a denial of justice due to technicalities.
Thus, in China Banking Corporation v. Members of the Board of Trustees of
Home Development Mutual Fund, it was held:
[22]

[23]

[24]

while certiorari as a remedy may not be used as a substitute for an appeal, especially
for a lost appeal, this rule should not be strictly enforced if the petition is genuinely
meritorious. It has been said that where the rigid application of the rules would
frustrate substantial justice, or bar the vindication of a legitimate grievance, the
courts are justified in exempting a particular case from the operation of the rules.
(Emphasis ours)
[25]

[26]

Indeed, well-known is the rule that departures from procedure may be


forgiven where they do not appear to have impaired the substantial rights of
the parties. Apropos in this regard is Cometa v. CA, where we said that
[27]

[28]

There is no question that petitioners were remiss in attending with dispatch to the
protection of their interests as regards the subject lots, and for that reason the case in
the lower court was dismissed on a technicality and no definitive pronouncement on
the inadequacy of the price paid for the levied properties was ever made. In this
regard, it bears stressing that procedural rules are not to be belittled or dismissed
simply because their non-observance may have resulted in prejudice to a
partys substantive rights as in this case. Like all rules, they are required to be
followed except when only for the most persuasive of reasons they may be relaxed
to relieve a litigant of an injustice not commensurate with the degree of his
thoughtlessness in not complying with the procedure prescribed. (emphasis and
italics supplied.)
[29]

In short, since rules of procedure are mere tools designed to facilitate the
attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice must
always be avoided. Technicality should not be allowed to stand in the way of
equitably and completely resolving the rights and obligations of the parties.
[30]

[31]

Eschewing, therefore, the procedural objections raised by petitioner, it


behooves us to address the issue of whether or not the questioned writ of
possession is in fact a nullity considering that it includes real property not
expressly mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition that since the
certificate of sale is a public document, it enjoys the presumption of regularity
and all entries therein are presumed to be done in the performance of regular
functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of
Real Properties issued on February 4, 1999 involved, namely: (a) copy which
is on file with the deputy sheriff; and (b) copy registered with the Registry of
Deeds. The object of scrutiny, however, is not the copy of the Certificate of
Sale on Execution of Real Properties issued by the deputy sheriff on February
4, 1999, but the copy thereof subsequently registered by petitioner with the
[32]

Registry of Deeds on April 23, 1999, which included an entry on the dorsal
portion of the first page thereof describing a parcel of land covered by OCT
No. T-40785 not found in the Certificate of Sale of Real Properties on file with
the sheriff.
[33]

True, public documents by themselves may be adequate to establish the


presumption of their validity. However, their probative weight must be
evaluated not in isolation but in conjunction with other evidence adduced by
the parties in the controversy, much more so in this case where
the contents of a copy thereof subsequently registered for documentation
purposes is being contested. No reason has been offered how and why the
questioned entry was subsequently intercalated in the copy of the certificate of
sale subsequently registered with the Registry of Deeds. Absent any
satisfactory explanation as to why said entry was belatedly inserted, the
surreptitiousness of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of petitioners copy of the
Certificate of Sale. Thus, it has been held that while a public document like a
notarized deed of sale is vested with the presumption of regularity, this is not
a guarantee of the validity of its contents.
[34]

It must be pointed out in this regard that the issuance of a Certificate of


Sale is an end result of judicial foreclosure where statutory requirements are
strictly adhered to; where even the slightest deviations therefrom will
invalidate the proceeding and the sale. Among these requirements is an
explicit enumeration and correct description of what properties are to be sold
stated in the notice. The stringence in the observance of these requirements
is such that an incorrect title number together with a correct technical
description of the property to be sold and vice versa is deemed a substantial
and fatal error which results in the invalidation of the sale.
[35]

[36]

[37]

The certificate of sale is an accurate record of what properties were


actually sold to satisfy the debt. The strictness in the observance of accuracy
and correctness in the description of the properties renders the enumeration
in the certificate exclusive. Thus, subsequently including properties which
have not been explicitly mentioned therein for registration purposes under
suspicious circumstances smacks of fraud. The explanation that the land on
which the properties sold is necessarily included and, hence, was belatedly
typed on the dorsal portion of the copy of the certificate subsequently
registered is at best a lame excuse unworthy of belief.

The appellate court correctly observed that there was a marked difference
in the appearance of the typewritten words appearing on the first page of the
copy of the Certificate of Sale registered with the Registry of Deeds and
those appearing at the dorsal portion thereof. Underscoring the irregularity of
the intercalation is the clearly devious attempt to let such an insertion pass
unnoticed by typing the same at the back of the first page instead of on the
second page which was merely half-filled and could accommodate the entry
with room to spare.
[38]

The argument that the land on which the buildings levied upon in
execution is necessarily included is, likewise, tenuous. Article 415 of the Civil
Code provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
xxxxxxxxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking them material or deterioration of the
object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a manner that it reveals
the intention to attach them permanently to the tenements;
(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;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention to
have them permanently attached to the land, and forming a permanent part of it; the
animals in these places are also included;
xxxxxxxxx
(9) Docks and structures which, though floating, are intended by their nature and
object to remain at a fixed place on a river, lake or coast;

x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and
buildings separately. This can only mean that a building is, by itself,
considered immovable. Thus, it has been held that
[39]

. . . 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 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. (emphasis and
italics supplied)
[40]

In this case, considering that what was sold by virtue of the writ of
execution issued by the trial court was merely the storehouse
and bodega constructed on the parcel of land covered by Transfer Certificate
of Title No. T-40785, which by themselves are real properties of respondents
spouses, the same should be regarded as separate and distinct from the
conveyance of the lot on which they stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED
for lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in
CA-G.R. SP No. 65891, which declared the writ of possession issued by
the Regional Trial Court of BalangaCity, Branch 1, on July 18, 2001, null and
void, is AFFIRMED in toto.
SO ORDERED.
G.R. No. 168557

February 16, 2007

FELS ENERGY, INC., Petitioner,


vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628

February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,


vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his

capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which
were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution 2 dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision 3 and
November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed
on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW
diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years.
Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of the
Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to
or in relation to the performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its
employees and (ii) construction permit fees, environmental permit fees and other similar fees and
charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered
those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property assessment of
the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors
decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment. 8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount ofP56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency. The LBAA also pointed out that the owner of
the bargesFELS, a private corporationis the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not justify the
exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS.
Finally, the LBAA also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant
by Distraint13over the power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before
the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that
the judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas
is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List
of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby
directed to act accordingly.
SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution 22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CAG.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as
G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition
was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to

sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a Resolution 26 dated January 19,
2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of
FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since
FELS had lost the right to question the assessment, the right of the Provincial Government to collect
the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February
5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated
November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising
the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment
on the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:
I

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.
1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare
involved in the present controversy, the Court was prompted to dispense with the said pleadings,
with the end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995,
the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the
60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on
the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits
or documents submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file
a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination made
by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes subject to appeal before the LBAA. 33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160, 35 the last action of the local
assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals
before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices
of assessment, the owners chose to bring their requests for a review/readjustment before the city
assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption
in the system of appraisal and assessment. It conveniently courts a graft-prone situation where
values of real property may be initially set unreasonably high, and then subsequently reduced upon
the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off
cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or
lawful possessor of real property of its revised assessed value, the former shall no longer have any
jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the
aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the
60-day period for making the appeal to the LBAA runs without interruption. This is what We held in
SP 67490 and reaffirm today in SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect
the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the
period to appeal.38 It also bears stressing that the taxpayers failure to question the assessment in
the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of
time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary
is the rule that the perfection of an appeal within the period therefor is both mandatory and
jurisdictional, and failure in this regard renders the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the filing
of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was
not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As

to the issue of forum shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it
to the interest of the State that there should be an end to litigation republicae ut sit litium; and (2)
the hardship on the individual of being vexed twice for the same cause nemo debet bis vexari et
eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to
the preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon
Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a
court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights
of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party should
not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter
and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and
the second actions, identity of parties, subject matter and causes of action. The application of the
doctrine of res judicata does not require absolute identity of parties but merely substantial identity of
parties. There is substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first case did not
implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding
real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as
G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court was the decision of the appellate court in
CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is
binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when,
as a result of an adverse judgment in one forum, a party seeks another and possibly favorable
judgment in another forum other than by appeal or special civil action or certiorari. There is also
forum shopping when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable disposition. 44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after
the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying
to get a favorable decision from one of the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets
of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding particulars is such
that any judgment rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other.47
Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners
are presumed correct and made in good faith, with the taxpayer having the burden of proving
otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their
field, are generally binding and conclusive upon the Court; we will not assume to interfere with the
sensible exercise of the judgment of men especially trained in appraising property. Where the judicial
mind is left in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find no reason to
depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power
company brought an action to review property tax assessment. On the citys motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation,
and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which have
been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power
Barges to convert such Fuel into electricity in accordance with Part A of Article 7. 53
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption.
The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of
Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited
in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it.57 The right of local government units to collect taxes due must always be upheld

to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the
autonomy of local governments58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest development as
self-reliant communities and make them effective partners in the attainment of national goals. 59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed
revenues to finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.
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 LopezCastelo 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:
xxx

xxx

xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which the
refection was made, and only with respect to other credits different from those mentioned in
four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building, said
article must be construed as to embrace both the land and the building or structure adhering thereto.
We cannot subscribe to this view, for while it is true that generally, real estate connotes the land and
the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real 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.
G.R. Nos. L-10837-38

May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,


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

Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house
of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in
Caloocan, Rizal, which they purchased on installment basis from the Philippine Realty Corporation.
On November 6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed
a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance
and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an
alleged chattel mortgage on the aforementioned house in favor of the surety company, which
encumbrance was duly registered with the Chattel Mortgage Register of Rizal on December 6, 1951.
It is admitted that at the time said undertaking took place, the parcel of land on which the house is
erected was still registered in the name of the Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the Valinos were able to secure on October 18, 1958, a
certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952,
the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real
estate mortgage over the lot and the house in favor of Isabel Iya, which was duly registered and
annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety
company demanded reimbursement from the spouses Valino, and as the latter likewise failed to do
so, the company foreclosed the chattel mortgage over the house. As a result thereof, a public sale
was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the property was
awarded to the surety company for P8,000.00, the highest bid received therefor. The surety
company then caused the said house to be declared in its name for tax purposes (Tax Declaration
No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage
over the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety
company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and
Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of
the residential house from the real estate mortgage in favor of defendant Iya and the declaration and
recognition of plaintiff's right to ownership over the same in virtue of the award given by the
Provincial Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise
asked the Court to sentence the spouses Valino to pay said surety moral and exemplary damages,
attorney's fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging among
other things, that in virtue of the real estate mortgage executed by her co-defendants, she acquired
a real right over the lot and the house constructed thereon; that the auction sale allegedly conducted
by the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house
was null and void for non-compliance with the form required by law. She, therefore, prayed for the
dismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She also
demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her
co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and denied
the others. They, however, prayed for the dismissal of the action for lack of cause of action, it being
alleged that plaintiff was already the owner of the house in question, and as said defendants
admitted this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company
(Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of
mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of
P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in
4 years, extendible for only one year; that to secure payment thereof, said defendants mortgaged

the house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a
party defendant because it claimed to have an interest on the residential house also covered by said
mortgage; that it was stipulated in the aforesaid real estate mortgage that default in the payment of
the interest agreed upon would entitle the mortgagee to foreclose the same even before the lapse of
the 4-year period; and as defendant spouses had allegedly failed to pay the interest for more than 6
months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with
interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum
equivalent to 20% of the total obligation as damages, and for costs. As an alternative in case such
demand may not be met and satisfied plaintiff prayed for a decree of foreclosure of the land, building
and other improvements thereon to be sold at public auction and the proceeds thereof applied to
satisfy the demands of plaintiff; that the Valinos, the surety company and any other person claiming
interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of
redemption in said properties; and for deficiency judgment in case the proceeds of the sale of the
mortgaged property would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building, arguing
that as the lot on which the house was constructed did not belong to the spouses at the time the
chattel mortgage was executed, the house might be considered only as a personal property and that
the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the
provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said
building be excluded from the real estate mortgage and its right over the same be declared superior
to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon, it being
contended that it was already encumbered in favor of the surety company before the real estate
mortgage was executed, a fact made known to plaintiff during the preparation of said contract and to
which the latter offered no objection. As a special defense, it was asserted that the action was
premature because the contract was for a period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and
superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that
as the Valinos were not yet the registered owner of the land on which the building in question was
constructed at the time the first encumbrance was made, the building then was still a personality and
a chattel mortgage over the same was proper. However, as the mortgagors were already the owner
of the land at the time the contract with Isabel Iya was entered into, the building was transformed
into a real property and the real estate mortgage created thereon was likewise adjudged as proper. It
is to be noted in this connection that there is no evidence on record to sustain the allegation of the
spouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or
knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to the
surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel
Iya, although the latter could exercise the right of a junior encumbrance. So the spouses Valino were
ordered to pay the amount demanded by said mortgagee or in their default to have the parcel of land
subject of the mortgage sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages; controversy arise

as to which of these encumbrances should receive preference over the other. The decisive factor in
resolving the issue presented by this appeal is the determination of the nature of the structure
litigated upon, for where it be considered a personality, the foreclosure of the chattel mortgage and
the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law
would be valid and the right acquired by the surety company therefrom would certainly deserve prior
recognition; otherwise, appellant's claim for preference must be granted. The lower Court, deciding
in favor of the surety company, based its ruling on the premise that as the mortgagors were not the
owners of the land on which the building is erected at the time the first encumbrance was made, said
structure partook of the nature of a personal property and could properly be the subject of a chattel
mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed
thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in
the enumeration of what may constitute real properties (Art. 415, new Civil Code) could only
mean one thing that a building is byitself an immovable property . . . Moreover, and in
view of the absence of any specific provision to the contrary, a building is an immovable
property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which it
is constructed belongs to another. To hold it the other way, the possibility is not remote that it would
result in confusion, for to cloak the building with an uncertain status made dependent on the
ownership of the land, would create a situation where a permanent fixture changes its nature or
character as the ownership of the land changes hands. In the case at bar, as personal properties
could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure
in question is not one, the execution of the chattel mortgage covering said building is clearly invalid
and a nullity. While it is true that said document was correspondingly registered in the Chattel
Mortgage Register of Rizal, this act produced no effect whatsoever for where the interest conveyed
is in the nature of a real property, the registration of the document in the registry of chattels is merely
a futile act. Thus, the registration of the chattel mortgage of a building of strong materials produce no
effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor
can we give any consideration to the contention of the surety that it has acquired ownership over the
property in question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as this
Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by virtue
of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding
the rights of the surety company, over the building superior to that of Isabel Iya and excluding the
building from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to
foreclose not only the land but also the building erected thereon is hereby recognized, and the
proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be applied to
the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any right
that the Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and
Lucia Valino on account of the mortgage of said building they executed in favor of said surety
company. Without pronouncement as to costs. It is so ordered.
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 plaintiffsappellees. 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 ..." 24Although 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 defendantsappellants 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 judgmentdebtor 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.
ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA,
LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,

vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.
Ernesto Parol for defendants-appellees.
MAKALINTAL, J.:
This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the
complaint filed by appellants, upon motion of defendants-appellate on the ground that the action was
within the exclude (original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the same
province.
The complaint alleges in substance that appellants were the owners of the house, worth P200.00,
built on and owned by them and situated in the said municipality Lagangilang; that sometime in
January 1957 appealed forcibly demolished the house, claiming to be the owners thereof; that the
materials of the house, after it was dismantled, were placed in the custody of the barrio lieutenant of
the place; and that as a result of appellate's refusal to restore the house or to deliver the material
appellants the latter have suffered actual damages the amount of P200.00, plus moral and
consequential damages in the amount of P600.00. The relief prayed for is that "the plaintiffs be
declared the owners of the house in question and/or the materials that resulted in (sic) its
dismantling; (and) that the defendants be orders pay the sum of P200.00, plus P600.00 as damages,
the costs."
The issue posed by the parties in this appeal is whether the action involves title to real property, as
appellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A.
296, as amended), whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated
in the order appealed from, since there is no real property litigated, the house having ceased to
exist, and the amount of the demand does exceed P2,000.00 (Sec. 88, id.)1
The dismissal of the complaint was proper. A house is classified as immovable property by reason of
its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true
regardless of the fact that the house may be situated on land belonging to a different owner. But
once the house is demolished, as in this case, it ceases to exist as such and hence its character as
an immovable likewise ceases. It should be noted that the complaint here is for recovery of
damages. This is the only positive relief prayed for by appellants. To be sure, they also asked that
they be declared owners of the dismantled house and/or of the materials. However, such declaration
in no wise constitutes the relief itself which if granted by final judgment could be enforceable by
execution, but is only incidental to the real cause of action to recover damages.
The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs
are adjudged.
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.
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 BALUYUTMAGCALE, 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.
G.R. No. L-18456

November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,


vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to
Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, having a
floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.

San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which was
registered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within which to
pay. Came June 30, defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension, defendant Pineda in a
document entitled "Promise", categorically stated that in the remote event he should fail to make
good the obligation on such date (July 30, 1960), the defendant would no longer ask for further
extension and there would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage contract. In spite of
said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on the
principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First
Cause of Action which states that the defendants unreasonably failed and refuse to pay their
obligation to the plaintiff the truth being the defendants are hard up these days and pleaded
to the plaintiff to grant them more time within which to pay their obligation and the plaintiff
refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to pay
their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated damages;
that the instrument had been registered in the Registry of Property and Motor Vehicles Office, both of
the province of Tarlac; that the only issue in the case is whether or not the residential house, subject
of the mortgage therein, can be considered a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the copy of

this decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal sum and interests
are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the
warning that in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent provisions of
Act 3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to the
Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A", immediately
after the lapse of the ninety (90) days above-mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages appended to the complaint is
valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was made
the subject of the chattel mortgage, for the reason that it is erected on a land that belongs to
a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building; the
fact that the land belongs to another is immaterial, it is enough that the house adheres to the land;
that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner of the land, the only criterion
being the union or incorporation with the soil. In other words, it is claimed that "a building is an
immovable property, irrespective of whether or not said structure and the land on which it is adhered
to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since only
movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the mortgage in
question which is the basis of the present action, cannot give rise to an action for foreclosure,
because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838,
May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on
the ground that the house mortgaged was erected on the land which belonged to a third person, but
also and principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed materials of sawali and
wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415 and
416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that under
certain conditions, "a property may have a character different from that imputed to it in said articles.
It is undeniable that the parties to a contract may by agreement, treat as personal property that
whichby nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632633)."There can not be any question that a building of mixed materials may be the subject of a
chattel mortgage, in which case, it is considered as between the parties as personal property. ... The
matter depends on the circumstances and the intention of the parties". "Personal property may retain
its character as such where it is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18,
1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to

consider a house as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the principles of estoppel ..." (Evangelista
v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented land, was
held to be a personal property, not only because the deed of mortgage considered it as such, but
also because it did not form part of the land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now
well settled that an object placed on land by one who has only a temporary right to the same, such
as a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another person, it may be
mortgaged as a personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on statements by the
owner declaring his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The
doctrine, therefore, gathered from these cases is that although in some instances, a house of mixed
materials has been considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are not parties to the contract,
and specially in execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property, by the parties
to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of light construction materials: G.I.
sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya cases (L-1083738, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached permanently to
the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the contract of mortgages
who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.
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 crossarms 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;
xxx

xxx

xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the


tenement for an industry or works which may be carried in a building or on a piece of land,
and which tends directly to meet the needs of the said industry or works;
xxx

xxx

xxx

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
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 abovementioned 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:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the


tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on the
sugar industry for which it has been established must necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they
are essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals
and are not and should not be considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments. Airline companies use forklifts,
jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus
retain their movable nature. On the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments, its business may be
carried on, as petitioner has carried on, without such equipments, before the war. The transportation
business could be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the


tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code of
the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industry or
works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment
in question declared not subject to assessment as real estate for the purposes of the real estate tax.
Without costs.
So ordered.
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.

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 ..........................


8 .....................................................................

150.00
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.
xxx

xxx

xxx

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.
.R. No. L-17898

October 31, 1962

PASTOR D. AGO, petitioner,


vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First
Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R
entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:
In this case for certiorari and prohibition with preliminary injunction, it appears from the
records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering
the execution without valid and formal notice of the decision.
A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,
G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is


not appealable and is immediately executory, unless a motion is filed on the ground fraud,
mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L10089, July 31, 1957)
Petitioner's claim that he was not notified or served notice of the decision is untenable. The
judgment on the compromise agreement rendered by the court below dated January 28,
1959, was given in open court. This alone is a substantial compliance as to notice. (De los
Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction
in ordering the execution of the judgment. The petition for certiorari is hereby dismissed and
the writ of preliminary injunction heretofore dissolved, with costs against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,
executing a chattel mortgage over said machineries and equipments to secure the payment of
balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on installment
basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc.
instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure,
petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance of Agusan. The
parties to the case arrived at a compromise agreement and submitted the same in court in writing,
signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of
the Court of First Instance of Agusan, then presiding, dictated a decision in open court on January
28, 1959.
Petitioner continued to default in his payments as provided in the judgment by compromise, so
Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was granted by
the court on August 15, 1959. A writ of execution, dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by the
lower court, levied upon and ordered the sale of the sawmill machineries and equipments in
question. These machineries and equipments had been taken to and installed in a sawmill building
located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom,
petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of the lower
court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with preliminary
injunction with respondent Court of Appeals, alleging that a copy of the aforementioned judgment
given in open court on January 28, 1959 was served upon counsel for petitioner only on September
25, 1959 (writ of execution is dated September 23, 1959); that the order and writ of execution having
been issued by the lower court before counsel for petitioner received a copy of the judgment, its
resultant last order that the "sheriff may now proceed with the sale of the properties levied
constituted a grave abuse of discretion and was in excess of its jurisdiction; and that the respondent

Provincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution by levying
the same upon the sawmill machineries and equipments which have become real properties of the
Golden Pacific sawmill, Inc., and is about to proceed in selling the same without prior publication of
the notice of sale thereof in some newspaper of general circulation as required by the Rules of
Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in question,
on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was the only
bidder for P15,000.00, although the certificate sale was not yet executed. The Court of Appeals
constructed the sheriff to suspend the issuance of a certificate of sale of the said sawmill
machineries and equipment sold by him on December 4, 1959 until the final decision of the case. On
November 9, 1960 the Court of Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition of
judgment on compromise in open court on January 1959 was a sufficient notice; and (2) in not
resolving the other issues raised before it, namely, (a) the legality of the public auction sale made by
the sheriff, and (b) the nature of the machineries in question, whether they are movables or
immovables.
The Court of Appeals held that as a judgment was entered by the court below in open court upon the
submission of the compromise agreement, the parties may be considered as having been notified of
said judgment and this fact constitutes due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of the court, and is the fact the petitioner
herein was present in open court was the judgment was dictated, sufficient notice thereof? The
provisions of the Rules of Court decree otherwise. Section 1 of Rule 35 describes the manner in
which judgment shall be rendered, thus:
SECTION 1. How judgment rendered. All judgments determining the merits of cases shall
be in writing personally and directly prepared by the judge, and signed by him, stating clearly
and distinctly the facts and the law on which it is based, filed with the clerk of the court.
The court of first instance being a court of record, in order that a judgment may be considered as
rendered, must not only be in writing, signed by the judge, but it must also be filed with the clerk of
court. The mere pronouncement of the judgment in open court with the stenographer taking note
thereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be presumed that the
judgment that was dictated in open court will be the judgment of the court, the court may still modify
said order as the same is being put into writing. And even if the order or judgment has already been
put into writing and signed, while it has not yet been delivered to the clerk for filing it is still subject to
amendment or change by the judge. It is only when the judgment signed by the judge is actually filed
with the clerk of court that it becomes a valid and binding judgment. Prior thereto, it could still be
subject to amendment and change and may not, therefore, constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment
in open court, is not a valid notice of said judgment. If rendition thereof is constituted by the filing
with the clerk of court of a signed copy (of the judgment), it is evident that the fact that a party or an
attorney heard the order or judgment being dictated in court cannot be considered as notice of the
real judgment. No judgment can be notified to the parties unless it has previously been rendered.

The notice, therefore, that a party has of a judgment that was being dictated is of no effect because
at the time no judgment has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. Final orders or judgments shall be served
either personally or by registered mail.
In accordance with this provision, a party is not considered as having been served with the judgment
merely because he heard the judgment dictating the said judgment in open court; it is necessary that
he be served with a copy of the signed judgment that has been filed with the clerk in order that he
may legally be considered as having been served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in
open court, is not sufficient to constitute the service of judgement as required by the above-quoted
section 7 of Rule 2 the signed judgment not having been served upon the petitioner, said judgment
could not be effective upon him (petitioner) who had not received it. It follows as a consequence that
the issuance of the writ of execution null and void, having been issued before petitioner her was
served, personally or by registered mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by the Court of Appeals,
concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and
equipments at public auction with a notice of the sale having been previously published.
The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries
and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his
subscription to the shares of stock of said corporation. Thereafter the sawmill machinery and
equipments were installed in a building and permanently attached to the ground. By reason of such
installment in a building, the said sawmill machineries and equipment became real estate properties
in accordance with the provision of Art. 415 (5) of the Civil Code, thus:
ART. 415. The following are immovable property:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements tended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or works;
This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu
Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the central of
the Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the company,
converted the said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the sawmill machineries in
the building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried on in said building,
the same became a necessary and permanent part of the building or real estate on which the same
was constructed, converting the said machineries and equipments into real estate within the
meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00
appear to have been sold without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:
SEC. 16. Notice of sale of property on execution. Before the sale of property on
execution, notice thereof must be given as follows:
xxx

xxx

xxx

(c) In case of real property, by posting a similar notice particularly describing the property for
twenty days in three public places in the municipality or city where the property is situated,
and also where the property is to be sold, and, if the assessed value of the property exceeds
four hundred pesos, by publishing a copy of the notice once a week, for the same period, in
some newspaper published or having general circulation in the province, if there be one. If
there are newspapers published in the province in both the English and Spanish languages,
then a like publication for a like period shall be made in one newspaper published in the
English language, and in one published in the Spanish language.
the sale made by the sheriff must be declared null and void.
WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and
We declare that the issuance of the writ of execution in this case against the sawmill machineries
and equipments purchased by petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as
well as the sale of the same by the Sheriff of Surigao, are null and void. Costs shall be against the
respondent Grace Park Engineering, Inc.
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.
G.R. No. L-8437

March 23, 1915

THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellee,


vs.
ALDECOA & CO., in liquidation, JOAQUIN IBAEZ DE ALDECOA Y PALET, ZOILO IBAEZ DE
ALDECOA Y PALET, CECILIA IBAEZ DE ALDECOA Y PALET, and ISABEL PALET DE
GABARRO, defendants-appellants.
WILLIAM URQUHART, intervener-appellant.
Antonio Sanz and Chicote and Miranda for appellants.
Hausermann, Cohn and Fisher for appellee.

TRENT, J.:
This action was brought on January 31, 1911, by the plaintiff bank against the above-named
defendants for the purpose of recovering from the principal defendant, Aldecoa & Co., an amount
due from the latter as the balance to its debit in an account current with the plaintiff, and to enforce
the subsidiary liability of the other defendants for the payment of this indebtedness, as partners of
Aldecoa & Co., and to foreclose certain mortgages executed by the defendants to secure the
indebtedness sued upon.
Judgment was entered on the 10th of August, 1912, in favor of the plaintiff and against the
defendants for the sum of P344,924.23, together with interest thereon at the rate of 7 per cent per
annum from the date of the judgment until paid, and for costs, and for the foreclosure of the
mortgages. The court decreed that in the event of there being a deficiency, after the foreclosure of
the mortgages, the plaintiff must resort to and exhaust the property of the principal defendant before
taking out execution against the individual defendants held to be liable in solidumwith the principal
defendant, but subsidiarily. Judgment was also entered denying the relief sought by the intervener.
All of the defendants and the intervener have appealed.
The defendants, Joaquin Ibaez de Alcoa, Zoilo Ibaez de Alcoa, and Cecilia Ibaez de Alcoa, were
born in the Philippine Islands on March 27, 1884, July 4, 1885, and . . . , 1887, respectively, the
legitimate children of Zoilo Ibaez de Alcoa and the defendant, Isabel Palet. Both parents were
native of Spain. The father's domicile was in Manila, and he died here on October 4, 1895. The
widow, still retaining her Manila domicile, left the Philippine Islands and went to Spain in 1897
because of her health, and did not return until the latter part of 1902. the firm of Aldecoa & Co., of
which Zoilo Ibaez de Aldecoa, deceased, had been a member and managing director, was
reorganized in December, 1896, and the widow became one of the general or "capitalistic" partners
of the firm. The three children, above mentioned, appear in the articles of agreement as industrial
partners.
On July 31, 1903, Isabel Palet, the widowed mother of Joaquin Ibaez de Aldecoa and Zoilo Ibaez
de Aldecoa, who were then over the age of 18 years, went before a notary public and executed two
instruments (Exhibits T and U), wherein and whereby she emancipated her two sons, with their
consent and acceptance. No guardian of the person or property of these two sons had ever been
applied for or appointed under or by virtue of the provisions of the Code of Civil Procedure since the
promulgation of the Code in 1901. After the execution of Exhibit T and U, both Joaquin Ibaez de
Aldecoa and Zoilo Ibaez de Aldecoa participated in the management of Aldecoa and Co, as
partners by being present and voting at meetings of the partners of the company upon matters
connected with its affairs.
On the 23rd of February, 1906, the defendant firm of Aldeco and Co. obtained from the bank a credit
in account current up to the sum of P450,000 upon the terms and conditions set forth in the
instrument executed on that date (Exhibit A). Later it was agreed that the defendants, Isabel Palet
and her two sons, Joaquin and Zoilo, should mortgage, in addition to certain securities of Aldecoa
and Co., as set forth in Exhibit A, certain of their real properties as additional security for the
obligations of Aldecoa and Co. So, on March 23, 1906, the mortgage, Exhibit B, was executed
wherein certain corrections in the description of some of the real property mortgaged to the bank by
Exhibit A were made and the amount for which each of the mortgaged properties should be liable
was set forth. These two mortgages, Exhibits A and B, were duly recorded in the registry of property
of the city of Manila on March 23, 1906.
On the 31st day of December, 1906, the firm of Aldecoa and Co. went into liquidation on account of
the expiration of the term for which it had been organized, and the intervener, Urquhart, was duly

elected by the parties as liquidator, and be resolution dated January 24, 1907, he was granted the
authority expressed in that resolution (Exhibit G).
On June 30, 1907, Aldeco and Co. in liquidation, for the purposes of certain litigation about to be
commenced in its behalf, required an injunction bond in the sum of P50,000, which was furnished by
the bank upon the condition that any liability incurred on the part of the bank upon this injunction
bond would be covered by the mortgage of February 23, 1906. An agreement to this effect was
executed by Aldecoa and Co. in liquidation, by Isabel Palet, by Joaquin Ibaez de Aldecoa, who had
then attained his full majority, and by Zoilo Ibaez de Aldecoa, who was not yet twenty-three years of
age. In 1908, Joaquin Ibaez de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de Aldecoa
commenced an action against their mother, Isabel Palet, and Aldecoa and Co., in which the bank
was not a party, and in September of that year procured a judgment of the Court of First Instance
annulling the articles of copartnership of Aldecoa and Co., in so far as they were concerned, and
decreeing that they were creditors and not partners of that firm.
The real property of the defendant Isabel Palet, mortgaged to the plaintiff, corporation by the
instrument of March 23, 1906 (Exhibit B), was, at the instance of the defendant, registered under the
provisions of the Land Registration Act, subject to the mortgage thereon in favor of the plaintiff, by
decree, of the land court dated March 8, 1907.
On the 6th of November, 1906, the defendants, Isabel Palet and her three children, Joaquin Ibaez
de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de Aldecoa, applied to the land court for the
registration of their title to the real property described in paragraph 4 of the instrument of March 23,
1906 (Exhibit B), in which application they stated that the undivided three-fourths of said properties
belonging to the defendants, Isabel Palet, Joaquin Ibaez de Aldecoa, and Zoilo Ibaez de Aldecoa,
were subject to the mortgage in favor of the plaintiff to secure the sum of P203,985.97 under the
terms of the instrument dated March 22, 1906. Pursuant to this petition the Court of Land
Registration, by decree dated September 8, 1907, registered the title to the undivided three-fourths
interest therein pertaining to the defendants, Isabel Palet and her two sons, Joaquin and Zoilo, to the
mortgage in favor of the plaintiff to secure the sun of P203,985.97.
On December 22, 1906, Aldecoa and Co., by a public instrument executed before a notary public, as
additional security for the performance of the obligations in favor of the plaintiff under the terms of
the contracts Exhibits A and B, mortgaged to the bank the right of mortgage pertaining to Aldecoa
and Co. upon certain real property in the Province of Albay, mortgaged to said company by one
Zubeldia to secure an indebtedness to that firm. Subsequent to the execution of this instrument,
Zubeldia caused his title to the mortgaged property to be registered under the provisions of the Land
Registration Act, subject to a mortgage of Aldecoa and Co. to secure the sum of P103,943.84 and to
the mortgage of the mortgage right of Aldecoa and Co. to the plaintiff.
As the result of the litigation Aldecoa and Co. and A. S. Macleod, wherein the injunction bond for
P50,000 was made by the bank in the manner and for the purpose above set forth, Aldecoa and Co.
became the owner, through a compromise agreement executed in Manila on the 14th of August,
1907, of the shares of the Pasay Estate Company Limited (referred to in the contract of March 13,
1907, Exhibit V), and on the 30th day of August of that year Urquhart, as liquidator, under the
authority vested in him as such, and in compliance with the terms of the contract of June 13, 1907,
mortgaged to the plaintiff, by way of additional security for the performance of the obligations set
forth in Exhibits A and B, the 312 shares of the Pasay Estate Company, Limited, acquired by Aldecoa
and Co.
On the 31st day of March, 1907, Aldecoa and Co. mortgaged, as additional security for the
performance of those obligations, to the plaintiff the right of mortgage, pertaining to the firm of

Aldecoa and Co., upon certain real estate in that Province of Ambos Camarines, mortgaged to
Aldecoa and Co. by one Andres Garchitorena to secure a balance of indebtedness to that firm of the
sum of P20,280.19. The mortgage thus created in favor of the bank was duly recorded in the registry
of deeds f that province. On the 31st day of March, 1907, Aldecoa and Co. mortgaged as further
additional security for the performance of the obligations set forth in Exhibits A and B, the right of
mortgage pertaining to the firm of Aldecoa and Co. upon other real property in the same province,
mortgaged by the firm of Tremoya Hermanos and Liborio Tremoya, to secure the indebtedness of
that firm to the firm of Aldecoa and Co. of P43,117.40 and the personal debt of the latter of
P75,463.54. the mortgage thus created in favor of the bank was filed for record with the registrar of
deeds of that province.
On the 30th day of January, 1907, Aldecoa and Co. duly authorized the bank to collect from certain
persons and firms, named in the instrument granting this authority, any and all debts owing by them
to Aldecoa and Co. and to apply all amounts so collected to the satisfaction, pro tanto, of any
indebtedness of Aldecoa and Co. to the bank.
By a public instrument dated February 18, 1907, Aldecoa and Co. acknowledged as indebtedness to
Joaquin Ibaez de Aldecoa in the sum of P154,589.20, a like indebtedness to Zoilo Ibaez de
Aldecoa in the sum of P89,177.07. On September 30, 1908, Joaquin, Zoilo, and Cecilia recovered a
judgment in the Court of First Instance of Manila for the payment to them f the sum of P155,127.31,
as the balance due them upon the indebtedness acknowledged in the public instrument dated
February 18, 1907.
On November 30, 1907, Joaquin, Zoilo, and Cecilia instituted an action in the Court of First Instance
of the city of the Manila against the plaintiff bank for the purpose of obtaining a judicial declaration to
the effect that the contract whereby Aldecoa and Co. mortgaged to the bank the shares of the Pasay
Estate Company recovered from Alejandro S. Macleod, was null and void, and for a judgment of that
these shares be sold and applied to the satisfaction of their judgment obtained on September 30,
1908. Judgment was rendered by the lower court in favor of the plaintiffs in that action in accordance
with their prayer, but upon appeal this court reversed that judgment and declared that the mortgage
of the shares of stock in the Pasay Estate Co. to the bank was valid.
In October, 1908, Joaquin and Zoilo Ibaez de Aldecoa instituted an action against the plaintiff bank
for the purpose of obtaining a judgment annulling the mortgages created by them upon their interest
in the properties described in Exhibits A and B, upon the ground that the emancipation buy their
mother was void and of no effect, and that, therefore, they were minors incapable of creating a valid
mortgage upon their real property. The Court of First Instance dismissed the complaint as to Joaquin
upon the ground that he had ratified those mortgages after becoming of age, but entered a judgment
annulling said mortgages with respect to Zoilo. Both parties appealed from this decision and the
case was given registry No. 6889 in the Supreme Court.1
On the 31st day of December, 1906, on which date the defendant Aldecoa and Co. went into
liquidation, the amount of indebtedness to the bank upon the overdraft created by the terms of the
contract, Exhibit A, was P516,517.98. Neither the defendant Aldecoa and Co., nor any of the
defendants herein, have paid or caused to be paid to the bank the yearly partial payments due under
the terms of the contract, Exhibit A. But from time to time the bank has collected and received from
provincial debtors of Aldecoa and Co. the various sums shown in Exhibit Q, all of which sums so
received have been placed to the credit of Aldecoa and Co. and notice duty given. Also, the bank,
from time to time, since the date upon which Aldecoa and Co. went into liquidation, has received
various other sums from, or for the account of, Aldecoa and Co., all of which have been duly placed
to the credit of that firm, including the sum of P22,552.63, the amount of the credit against one
Achaval, assigned to the bank by Aldecoa and Co. The balance to the credit of the bank on the 31st

day of December, 1911, as shown on the books of Aldecoa and Co., was for the sum of
P416.853.46. It appeared that an error had been committed by the bank in liquidating the interest
charged to Aldecoa and Co., and this error was corrected so that the actual amount of the
indebtedness of Aldecoa and Co. to the plaintiff on the 15th of February, 1912, with interest to
December 10, 1912, the date of the judgment, the amount was P344,924.23.
The trial court found that there was no competent evidence that the bank induced, or attempted to
induce, any customer of Aldecoa and Co. to discontinue business relations with that company. The
court further found that Urquhart had failed to show that he had any legal interest in the matter in
litigation between plaintiff and defendants, or in the success of either of the parties, or an interest
against both, as required by section 121 of the Code of Civil Procedure. No further findings, with
respect to the facts alleged in the complaint of the intervener, were made.
Aldecoa and Co. insist that the court erred:
1. In overruling the defendant's demurrer based upon the alleged ambiguity and vagueness
of the complaint.
2. In ruling that there was no competent evidence that the plaintiff had induced Aldecoa and
Co.'s provincial debtors to cease making consignments to that firm.
3. In rendering a judgment in a special proceeding for the foreclosure of a mortgage, Aldecoa
and Co. not having mortgaged any real estate of any kind within the jurisdiction of the trial
court, and the obligation of the persons who had signed the contract of suretyship in favor of
the bank having been extinguished by operation of law.
The argument on behalf of the defendant in support of its first assignment of error from the complaint
that Aldecoa and Co. authorized the plaintiff bank, by the instrument Exhibit G, to make collections
on behalf of this defendant, and that the complaint failed to specify the amount obtained by the bank
in the exercise of the authority conferred upon it, the complaint was thereby rendered vague and
indefinite. Upon this point it is sufficient to say that the complaint alleges that a certain specific
amount was due from the defendant firm as a balance of its indebtedness to the plaintiff, and this
necessarily implies that there were no credits in favor of the defendant firm of any kind whatsoever
which had not already been deducted from the original obligation.
With respect to the contention set forth in the second assignment of error to the effect that the bank
has prejudiced Aldecoa and Co. by having induced customers of the latter to cease their commercial
relations with this defendant, the ruling of the court that there is no evidence to show that there was
any such inducement is fully supported by the record. It may be possible that some of Aldecoa and
Co.'s customers ceased doing business with that firm after it went into liquidation. This is the
ordinary effect of a commercial firm going consideration, for the reason that it was a well known fact
that Aldecoa and Co. was insolvent. It is hardly probable that the bank, with so large a claim against
Aldecoa and Co. and with unsatisfactory security for the payment of its claim, would have taken any
action whatever which might have had the effect of diminishing Aldecoa and Co.'s ability to
discharge their claim. The contention that the customers of Aldecoa and Co. included in the list of
debtors ceased to make consignments to the firm because they had been advised by the bank that
Aldecoa and Co. had authorized the bank to collect these credits from the defendant's provincial
customers and apply the amounts so collected to the partial discharge of the indebtedness of the
defendant to the bank. Furthermore, the bank was expressly empowered to take any steps which
might be necessary, judicially or extrajudicially, for the collection of these credits. The real reason
which caused the defendant's provincial customers to cease making shipments was due to the fact
that the defendant, being out of funds, could not give its customers any further credit. It is therefore

clear that the bank, having exercised the authority conferred upon it by the company in a legal
manner, is not responsible for any damages which might have resulted from the failure of the
defendant's provincial customers to continue doing business with that firm.
In the third assignments of errors two propositions are insisted upon: (1) that in these foreclosure
proceedings the court was without jurisdiction to render judgment against Aldecoa and Co. for the
reason that firm had mortgaged no real property within the city of Manila to the plaintiff; and (2) that
the mortgages given by this defendant have been extinguished by reason of the fact that the bank
extended the time within which the defendant's provincial debtors might make their payments.
We understand that the bank is not seeking to exercise its mortgages rights upon the mortgages
which the defendant firm holds upon certain real properties in the Provinces of Albay and Ambros
Camarines and to sell these properties at public auction in these proceedings. Nor do we understand
that the judgment of the trial courts directs that this be done. Before that property can be sold the
original mortgagors will have to be made parties. The banks is not trying to foreclose, in this section,
any mortgages on real property executed by Aldecoa and Co. It is true that the bank sought and
obtained a money judgment against that firm, and at the same time and in the same action obtained
a foreclosure judgment against the other defendants. If two or more persons are in solidumthe
debtors mortgage any of their real property situate in the jurisdiction of the court, the creditor, in case
of the solidary debtors in the same suit and secure a joint and several judgment against them, as
well as judgments of foreclosure upon the respective mortgages.
The contention that the extensions granted to Aldecoa and Co.'s debtors, with the consent and
authority of that firm itself, has resulted in extinguishment of the mortgages created by Aldecoa and
Co. or of the mortgages created by partners of that company to secure its liabilities to the bank, is
not tenable. The record shows that all the sureties were represented by Urquhart, the person elected
by them as liquidator of the firm, when he agreed with the bank upon the extensions granted to
those debtors. The authority to grant these extensions was conferred upon the bank by the
liquidator, and he was given authority by all the sureties to authorized the bank to proceed in this
manner.
With respect to the contention that the bank should be required to render an account of collections
made under authority of Exhibit G, it is sufficient to say that the bank has properly accounted for all
amounts collected from the defendant's debtors, and has applied all such amounts to the partial
liquidation of the defendant's debt die to the bank. It is true that the sum for which judgment was
rendered against Aldecoa and Co. is less than the amount originally demanded in the complaint, but
this difference is due to the fact that certain amounts which had been collected from Aldecoa and
Co.'s provincial debtors by the bank were credited to the latter between the date on which the
complaint was filed and the date when the case came on for trial, and the further fact that it was
necessary to correct an entry concerning one of the claims inasmuch as it appears that this claim
had been assigned to the bank absolutely, and not merely for the purposes of collection, as the
bookkeeper of the bank supposed, the result being that instead of crediting Aldecoa and Co. with the
full face value of this claim, the bookkeeper had merely credited from time to time the amounts
collected from this debtor. We, therefore, find no error prejudicial to the rights of this defendant.
Doa Isabel Palt makes the following assignment of errors:
1. That the court erred in failing to hold that her obligation as surety had been extinguished in
accordance with the provisions of article 1851 of the Civil Code.

2. That the court erred in refusing to order for the benefit of this appellant that the property of
Aldecoa and Co. should be exhausted before the plaintiff firm should be entitled to have
recourse to the property of this defendant and appellant for the satisfaction of its judgment.
This appellant does not contend that she is not personally liable in solidum with Aldecoa and Co. for
the liability of the latter firm to the plaintiff in the event that the appeal taken by Aldecoa and Co.
should unsuccessful. We have just held that the judgment appealed from by Aldecoa and Co. should
be affirmed. But Doa Isabel Palet does not contend that her liability as a partner for the obligations
of Aldecoa and Co., although solidary, is subsidiary, and that she is entitled to insist that the property
of Aldecoa and Co. be first applied in its entirety to the satisfaction of the firm's obligations before the
bank shall proceed against her in the execution of its judgment.
The trial court directed that the mortgaged properties, including the properties mortgaged in the
event that Aldecoa and Co. should fail to pay into court the amount of the judgment within the time
designated for that purpose. the court recognized the subsidiary character of the personal liability of
Doa Isabel Palet as a member of the firm of Aldecoa and Co. and decreed that as to any deficiency
which might result after the sale of the mortgaged properties, execution should not issue against the
properties of Doa Isabel Palet until all the property of Aldecoa and Co. shall have been exhausted.
The properties mortgaged by Doa Isabel Palet were so mortgaged not merely as security for the
performance of her own solidary subsidiary obligation as a partner bound for all the debts of Aldecoa
and Co., but for the purpose of securing the direct obligation of the firm itself to the bank. We are,
therefore, of the opinion that the trial court committed no error upon this point.
It is urged on behalf of Doa Isabel Palet that the mortgages executed by her upon her individual
property have been canceled. The ground for this contention is that Aldecoa and Co. undertook by
the contract of February 23, 1906, to discharge its liability to the plaintiff bank at the rate of not less
than P50,000 per annum, and that therefore it was the duty of the bank to sue Aldecoa and Co. as
soon as that firm failed to pay at maturity any one of the partial payments which it had promised to
make, and to apply the proceeds, from the sale of the property of Aldecoa and Co. to the satisfaction
of this indebtedness, and that the fact that the bank failed to do so is equivalent to an extension of
the term of the principal debtor, and that the effect of this extension has been to extinguish the
obligation of this defendant as a surety of Aldecoa and Co. It is also contended that the bank
expressly extended the term within which Aldecoa and Co. was to satisfy its obligation by allowing
Aldecoa and Co. to furnish additional security. Doa Isabel Palet alleges that all these acts were
done without her knowledge or consent.
The extension of the term which, in accordance with the provisions of article 1851 of the Civil Code
produces the extinction of the liability of the surety must of necessity be based on some new
agreement between the creditor and principal debtor, by virtue of which the creditor deprives himself
of his right to immediately bring an action for the enforcement of his claim. The mere failure to bring
an action upon a credit, as soon as the same or any part of its matures, does not constitute an
extension of the term of the obligation.
Doa Isabel Palet is a personal debtor jointly and severally with Aldecoa and Co. for the whole
indebtedness of the latter firm to the bank, and not a mere surety of the performance of the
obligations of Aldecoa and Co. without any solidary liability. It is true that certain additional deeds of
mortgage and pledge were executed by Aldecoa and Co. in favor of the bank as additional security
after Aldecoa and Co. had failed to meet its obligation to pay the first installment due under the
agreement of February 23, 1906, but there is no stipulation whatever in any of these documents or
deeds which can in any way be interpreted in the sense of constituting an extension which would
bind the bank to waiter for the expiration of any new term before suing upon its claim against
Aldecoa and Co. We find nothing in the record showing either directly or indirectly that the bank at

any time has granted any extension in favor of Aldecoa and Co. for the performance of its
obligations. The liquidator of Aldecoa and Co. authorized the bank to grant certain extensions to
some of the provincial debtors of Aldecoa and Co. whose debts were to be paid to the bank under
the authority conferred upon the bank by Aldecoa and Co. There is a marked difference between the
extension of time within which Aldecoa and Co.'s debtors might pay their respective debts, and the
extension of time for the payment of Aldecoa and Co.'s own obligations to the bank. If the bank was
had brought suit on its credit against Aldecoa and Co., for the amount then due, on the day following
the extension of the time of Aldecoa and Co.'s debtors for the payments of their debts, it is evident
that the fact of such extension having been granted could not served in any sense as a defense in
favor of Aldecoa and Co. against the bank's action, although this extension would have been
available to Aldecoa and Co.'s debtors if suit had been brought to enforce their liabilities to Aldecoa
and Co. We must, therefore, conclude that the judgment appealed from, in so far as it relates to
Doa Isabel Palet, must likewise be affirmed.
The intervener, William Urquhart, assigns these errors:
1. The court erred in holding that the proof fails to show a case for intervention within the
meaning of section 121 of the Code of Civil Procedure.
2. The court erred in failing to give preference to the credit of the liquidator Urquhart for his
salary.
The trial court found, as we have said, that Urquhart had failed to show that he had any legal interest
in the matter in litigation between the plaintiffs and the defendants, or in the success of any of the
parties, or any interest against both. The proof upon this branch of the case consists of the following
agreed statement of facts:
Mr. Urquhart is a creditor of Aldecoa and Co. in the sum of P21,000 due him for money
loaned by him to Aldecoa and Co. before they went into liquidation.
Aldecoa and Co., in liquidation, owe Mr. Urquhart the liquidator P14,000 as salary.
Section 121 of the Code of civil Procedure provides that:
A person may, at any period of a trial, upon motion, be permitted by the court to intervene in
an action or proceeding, if he has legal interest in the matter in litigation, or in the success of
either of the parties, or an interest against both.
The intervener is seeking to have himself declared a preferred creditor over the bank. According to
the above- quoted agreed statement of facts, he is a mere creditor of Aldecoa and Co. for the sum of
P21,000, loaned that firm before it went into liquidation. This amount is not evidenced by a public
document, or any document for that matter, nor secured by pledge or mortgage, while the amount
due the bank appears in a public instrument and is also secured by pledges and mortgages on the
property of Aldecoa and Co., out of which the intervener seeks to have his indebtedness satisfied. It
is, therefore, clear that the intervener is not entitled to the relief sought, in so far as the P21,000 is
concerned.
The bank insists that, as the intervener had been in the employ of Aldecoa and Co. for several years
prior to the time that the latter went into liquidation, it cannot be determined what part of the P14,000
is for salary as such employee and what part is for salary as liquidator. We find no trouble in
reaching the conclusion that all of the P14,000 represents Urquhart's salary as liquidator of the firm

of Aldecoa and Co. The agreed statement of facts clearly supports this view. It is there stated that
Aldecoa and Co. in liquidation owed the liquidator P14,000 as salary. The agreement does not say,
nor can it be even inferred from the same, that Aldecoa and Co. owed Urquhart P14,000, or any
other sum for salary as an employee of that firm before it went into liquidation. Under these facts, is
the intervener a preferred creditor over the bank for this amount?
In support of his contention that he should be declared a preferred creditor over the bank for the
P14,000, the appellant cites the decision of the supreme court of Spain of March 16, 1897, and
quotes the following from the syllabus of that case:
That the expense of maintenance of property is bound to affect such persons as have an
interest therein, whether they be the owners or creditors of the property; therefore payment
for this object has preference over any other debt, since such other debts are recoverable to
the extent that the property is preserved and maintained.
There can be no question about the correctness of this ruling of the supreme court of Spain to the
effect that the fees of a receiver, appointed by the court to preserve property in litigation, must be
paid in preference to the claims of creditors. But this is not at all the case under consideration, for
the reason that Urquhart was elected liquidator by the members of the firm of Aldecoa and Co.
Neither do we believe that the contention of the appellant can be sustained under article 1922 of the
Civil Code, which provides that, with regard to specified personal property of the debtor, the following
are preferred:
1. Credits for the construction, repair, preservation, or for the amount of the sale of personal
property which may be in the possession of the debtor to the extent of the value of the same.
The only personal property of Aldecoa and Co. is 16 shares of the stock of the Banco-EspaolFilipino; 450 shares of the stock of the Compaia Maritima; 330 shares of the stock of the Pasay
Estate Co., Ltd; and certain claims against debtors of Aldecoa and Co., mentioned in Exhibit G.
The shares of stock in the Banco Espaol-Filipino and the Compaia Maritima were pledged to the
bank before Aldecoa and Co. went into liquidation, so Urquhart had nothing to do with the
preservation of these. The stock of the Pasay Estate co., Ltd., was pledged to the bank on August
30, 1907, on the same day that it came into the possession of Aldecoa and Co. and by the terms of
the pledge the bank was authorized to collect all dividends on the stock and apply the proceeds to
the satisfaction of its claim against Aldecoa and Co. The credits set forth in Exhibit G were assigned
to the bank on January 30, 1907, so, it will be seen, that the Pasay Estate shares were in the
possession of Aldecoa and Co., or its liquidator, only one day. Urquhart had been liquidator twentyeight days when the credits, mentioned in Exhibit G, were assigned to the bank. If it could be held
that these two items bring him within the above quoted provisions of article 1922, he could not be
declared a preferred creditor over the bank for the P14,000 salary for the reason that, according to
his own showing, he had been paid for his services as liquidator up to January, 1910. It is the salary
since that date which is now in question. The only property of Aldecoa and Co. which the liquidator
had anything to do with after 1910 was the real estate mortgages on real property cannot be
regarded as personal property, and it is only of personal property that article 1922 speaks.
The judgment appealed from, in so far as it relates to Urquhart, being in accordance with the law and
the merits of the case, is hereby affirmed.
The appellants, Joaquin and Zoilo Ibaez de Aldecoa, make the following assignments of error:

1. The court erred in not sustaining the plea of lis pendens with respect to the validity of
mortgages claimed by the plaintiff, which plea was set up as a special defense by the
defendants Joaquin and Zoilo Ibaez de Aldecoa, and in taking jurisdiction of the case and in
deciding therein a matter already submitted for adjudication and not yet finally disposed of.
2. The court erred in hot sustaining the plea of res adjudicata set up as a special defense by
these defendants with respect to the contention of plaintiff that these defendants are
industrial and general partners of the firm of Aldecoa and Co.
3. The court erred in holding that the defendants Joaquin and Zoilo Ibaez de Aldecoa were
general partners (socios colectivos) of the firm of Aldecoa and Co., and is rendering
judgment against them subsidiarily for the payment of the amount claimed in the complaint.
The basis of the first alleged error is the pendency of an action instituted by the appellants, Joaquin
and Zoilo, in 1908, to have the mortgages which the bank seeks to foreclose in the present action
annulled in so far as their liability thereon is concerned. That action was pending in this Supreme
Court on appeal when the present action was instituted (1911), tried, and decided in the court below.
The principle upon which plea of another action pending is sustained is that the latter action is
deemed unnecessary and vexatious. (Williams vs. Gaston, 148 Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1
R. C. L., sec. 1.) A statement of the rule to which the litigant to its benefits, and which has often met
with approval, is found in Watson vs. Jones (13 Wall., 679, 715; 20 L. ed., 666):
But when the pendency of such a suit is set up to defeat another, the case must be the
same. There must be the same parties, or at least such as represent the same interest, there
must be the same rights asserted, and the same relief prayed for. This relief must be
founded on the same facts, and the title or essential basis of the relief sought must be the
same. The identity in these particulars should be such that if the pending case has already
been disposed of, it could be pleaded in bar as a former adjudication of the same matter
between the same parties.
It will be noted that the cases must be identical in a number of ways. It will be conceded that in so far
as the plea is concerned, the parties are the same in the case at bar as they were in the action to
have the mortgages annulled. Their position is simple reversed, the defendants there being the
plaintiffs here, and vice versa. This fact does not affect the application of the rule. The inquiry must
therefore proceed to the other requisites demanded by the rule. Are the same rights asserted? Is the
same relief prayed for?
The test of identity in these respects is thus stated in 1 Cyc., 28:
A plea of the pendency of a prior action is not available unless the prior action is of such a
character that, had a judgment been rendered therein on the merits, such a judgment would
be conclusive between the parties and could be pleaded in bar of the second action.
This test has been approved, citing the quotation, in Williams vs. Gaston (148 Ala., 214; 42 Sou.,
552); Van Vleck vs. Anderson (136 Iowa, 366; 113 N. W., 853); Wetzstein vs. Mining Co. (28 Mont.,
451; 72 P., 865). It seems to us that unless the pending action, which the appellants refer to, can be
shown to approach the action at bar to this extent, the plea ought to fail.
The former suit is one to annul the mortgages. The present suit is one for the foreclosure of the
mortgages. It may be conceded that if the final judgment in the former action is that the mortgages

be annulled, such an adjudication will deny the right of the bank to foreclose the mortgages. But will
a decree holding them valid prevent the bank from foreclosing them. Most certainly not. In such an
event, the judgment would not be a bar to the prosecution of the present action. The rule is not
predicated upon such a contingency. It is applicable, between the same parties, only when the
judgment to be rendered in the action first instituted will be such that, regardless of which party is
successful, it will amount to res adjudicata against the second action. It has often been held that a
pending action upon an insurance policy to recover its value is not a bar to the commencement of an
action to have the policy reformed. The effect is quite different after final judgment has been
rendered in an action upon the policy. Such a judgment may be pleaded in bar to an action seeking
to reform the policy. The case are collected in the note toNational Fire Insurance Co. vs. Hughes (12
L. R. A., [N. S.], 907). So, it was held in the famous case of Sharon vs. Hill (26 Fed., 337), that the
action brought by Miss hill for the purpose of establishing the genuineness of a writing purporting to
be a declaration of marriage and thereby establishing the relation of husband and wife between the
parties could not be pleaded in abatement of Senator Sharon's action seeking to have the writing
declared false and forged. The court said:
This suit and the action of Sharon vs. Sharon are not brought on the same claim or demand.
The subject matter and the relief sought are not identical. This suit is brought to cancel and
annul an alleged false and forged writing, and enjoin the use of it by the defendant to the
prejudice and injury of the plaintiff, while the other is brought to establish the validity of said
writing as a declaration of marriage, as well as the marriage itself, and also to procure a
dissolution thereof, and for a division of the common property, and for alimony.
Incidentally, it was held in this case that a judgment of the trial court declaring the writing genuine
was not res adjudicata after an appeal had been taken from the judgment of the Supreme Court. So,
in the case ta bar, the fact that the trial court in the former action holds the mortgages invalid as to
one of the herein appellants is not final by reason of the appeal entered by the bank from that
judgment.
Cases are also numerous in which an action for separation has been held not to be a bar to an
action for divorce or vice versa. (Cook vs. Cook, [N. C.], 40 L. R. S., [N. S.], 83, and cases collected
in the note.) In Cook vs. Cook it was held that a pending action for absolute divorce was not a bar to
the commencement of an action for separation. The above authorities are so analogous in principle
to the case at bar that we deem the conclusion irresistible, that the pending action to annul the
liability of the two appellant children on the mortgages cannot operates as a plea in abatement in the
case in hand which seeks to foreclose these mortgages. The subject matter and the relief asked for
are entirely different. The facts do not conform to the rule and it is therefore not applicable.
With reference to the second alleged error, it appears that a certified copy of the judgment entered in
the former case, wherein it was declared that these two appellants, together with their sister Cecilia,
were creditors and partners of Aldecoa and Co., was offered in evidence and marked Exhibit 5. This
evidence was objected to by the plaintiff on the ground that it was res inter alios acta and not
competent evidence against the plaintiff or binding upon it in any way because it was not a party to
that action. This objection was sustained and the proffered evidence excluded. If the evidence had
been admitted, what would be its legal effect? That was an action inpersonam and the bank was not
a party. The judgment is, therefore, binding only upon the parties to the suit and their successors in
interest (sec. 306, Code of Civil Procedure, No. 2).
The question raised by the third assignment of errors will be dealt with in a separate opinion wherein
the appeal of Cecilia Ibaez de Aldecoa will be disposed of.

The appellants whose appeals are herein determined will pay their respective portions of the cost.
So ordered.
Arellano, C. J., Torres and Araullo, JJ., concur.
Moreland, J.. concurs in the result.
Johnson, J., dissents.

TRENT, J.:
In Hongkong and Shanghai Banking Corporation vs. Aldecoa and Co. et al., R. G. No. 8437, just
decided, we said that the correctness of the judgment declaring that the defendants, Joaquin, Zoilo,
and Cecilia Ibaez de Aldecoa, are subsidiarily liable to the bank as industrial partners of Aldecoa
and Co. for the debts of the latter, would be determined in a separate opinion.
The facts are these: Joaquin, Zoilo, and Cecilia Ibaez de Aldecoa were born in the Philippine
Islands, being the legitimate children of Zoilo Ibaez de Aldecoa and Isabel Palet. Both parent were
native of Spain, but domiciled in Manila, where the father died in 1895. At the time of his death the
father was a member and managing director of an ordinary general mercantile partnership known as
Adecoa and Co. In December, 1896, Isabel Palet, for herself and as the parent of her above-named
three children, exercising the patria potestad, entered into a new contract with various persons
whereby the property and good will, together with the liabilities of the firm of which her husband was
a partner, were taken over. The new firm was also an ordinary general mercantile partnership and
likewise denominated Aldecoa and Co. Although having the same name, the new firm was entirely
distinct from the old one and was, in fact, a new enterprise. The widow entered into the new
partnership as a capitalistic partner and caused her three children to appear in the articles of
partnership as industrial partners. At the time of the execution of this new contract Joaquin was
twelve years of age, Zoilo eleven, and Cecilia nine.
Clauses 9 and 12 of the new contract of partnership read:
9. The industrial partners shall bear in proportion to the shares the losses which may result
to the partnership from bad business, but only from the reserve fund which shall be
established, as set forth in the 12th clause, and if the loss suffered shall exhaust said fund
the balance shall fall exclusively upon the partners furnishing the capital.
12. The industrial partner shall likewise contribute 50 per cent of his net profits to the
formation of said reserve fund, but may freely dispose of the other 50 per cent.
The question is presented, Could the mother of the three children legally bind them as industrial
partners of the firm of Aldecoa and Co. under the above facts? If so, are they liable jointly and
severally with all their property, both real and personal, for the debts of the firm? That all industrial
partners of an ordinary general mercantile partnership are liable with all their property, both personal
and real, for all the debts of the firm owing to third parties precisely as a capitalistic partner has long
since been definitely settled in this jurisdiction, notwithstanding provisions to the contrary in the
articles of agreement. (Compaia Maritima vs. Muoz, 9 Phil. Re., 326.)

There are various provisions of law, in force in 1896, which must be considered in determining
whether or not the mother had the power to make her children industrial partners of the new firm
Aldecoa and Co.
Article 5 of the Code of Commerce reads:
Persons under twenty-one years of age and incapacitated persons may continue, through
their guardians, the commerce which their parents or persons from whom the right is derived
may have been engaged in. If the guardians do not have legal capacity to trade, or have
some incompatibility, they shall be under the obligation to appoint one or more factors who
possess the legal qualifications, and we shall take their places in the trade.
As the firm of which it is claimed the children are industrial partners was not a continuation of the
firm of which their deceased father was a member, but was a new partnership operating under its
own articles of agreement, it is clear that article 5, supra, does not sustain the mother's power to
bind her children as industrial partners of the new firm.
Article 4 of the Code of Commerce reads:
The persons having the following conditions shall have legal capacity to customarily engage
in commerce:
1. Those who have reached the age of twenty-one years.
2. Those who are not subject to the authority of a father or mother or to a marital authority.
3. Those who have the free disposition of their property.
The appellant children had not a single one of these qualifications in 1896 when the mother
attempted to enter them as industrial partners of the firm of Aldecoa and Co.
It is claimed that the power of the mother to bind her children as industrial partners is within her
parental authority as defined by the Civil Code. Articles 159 to 166 which compose chapter 3 of the
Civil Code, entitled "Effect of parental authority with regard to the property of the children," defined
the extent of the parental authority over the property of minor children. Article 159 provides that the
father, or, in his absence, the mother, is the legal administrator of the property of this children who
are under their authority. Article 160 gives to such parent the administration and usufruct of property
acquired by the child by its work or industry or for any good consideration. We take it that all the
property possessed by the children at the time the contract of partnership was entered into in 1896
had been acquired by them either by their work or industry or for a good consideration. The children
were at that time under the authority of their mother.
Article 164 reads:
The father, or the mother in a proper case, cannot alienate the real property of the child, the
usufruct or administration of which belongs to them, nor encumber the same, except for
sufficient reasons of utility or necessity, and after authorization from the judge of the
domicile, upon hearing by the department of public prosecution, excepting the provisions
which, with regard to the effects of transfers, the mortgage law establishes.

The mother did not secure judicial approval to enter into the contract of partnership on behalf of her
children. Does member ship in an ordinary general mercantile partnership alienate or encumber the
real property of an industrial partner? Clearly a partner alienates what he contributes to the firm as
capital by transferring its ownership to the firm. But this, in the case of an industrial partner, is
nothing. An industrial partner does not alienate any portion of his property by becoming a member of
such a firm. Therefore, the mother did not violate this prohibition of article 164 in attempting to make
her children industrial partners. But the article in question also prohibited her fromencumbering their
real property. This undoubtedly prohibits formal encumbrances such as mortgages, voluntary
easements, usufructuary rights, and others which create specific liens upon specific real property. it
has been held to prohibit the creation of real rights, and especially registrable leases in favor of third
persons. (Res., Aug. 30, 1893.) The same word is used in article 317 of the Civil Code in placing
restrictions upon the capacity of a child emancipated by the concession of the parent to deal with his
own property. In commenting on this latter article, Manresa asks the question, "To what
encumbrances does the code in speaking of emancipated children?" and answers it as follows:
The prohibition against encumbering real property is so explicit . . . that we consider it
unnecessary to enumerate what are the incumbrances to which the law refers. All that
signifies a limitation upon property, such as the creation, modification, or extinction of the
right of usufruct, use, habituation, emphyteusis, mortgages, annuities, easements, pensions
affecting real property, bonds, etc., is, in an express consent of the persons who are
mentioned in the said article 317. (Vol. 2, p. 689.)
In commenting upon the same article, Sanchez Roan says practically the same thing. (Vol. 5, p.
1179.) Neither of these commentators refers to the right of an emancipated child to enter into a
contract of partnership without the parent's consent. The question, in so far as we have been able to
ascertain, does not appear to have ever been discussed, either by the courts or the commentators. It
is significant, however, that a contract of surety is placed by both the above mentioned
commentators among the prohibited contracts. The encumbrance placed upon the real property of a
surety is precisely the same as the encumbrance placed upon the real property of an industrial
partner. That is, prior to judgment on the principal obligation or judgment against the partnership, the
property is not specifically liable, and the creditor has n preferred lien thereon or right thereto by
reason of the bond or partnership contract, as the case may be. After judgment, the property of the
surety or of the industrial partner, both real and personal, is subsidiarily subject to execution. The
evident purpose of both article 164, prohibiting the parent from encumbering the real property of his
child without judicial approval, and of article 317, placing the same prohibition upon the emancipated
child in the absence of the parent's approval, is the same. It is desired that the child's real property
shall be frittered away by hasty and ill-advised contracts entered into by the one having the
administration thereof. Both articles would fail of their purpose if the parent or the child, as the case
might be, could do indirectly what could not be done directly. In other words, there would be little
purpose in prohibiting a formal encumbrance by means of a mortgage, for instance, when a
subsidiary liability by means of a bond or membership in a partnership could as effectually deprive
the child of its real property. This proposition rests upon the theory that the mother could have freely
disposed of the child's personal property in 1896 and that the only recourse open to them would
have been an action against their mother for the value of such property. If this theory be true, the
result would not be changed for the reason that children were either industrial partners or they were
not. If they were, they are liable to the extent of both their real and personal property for the debts of
the firm. If they were not, they are in no way liable. There can be only two kinds or classes of
partners in a firm of this kind, capitalistic and industrial. Both are personally liable to third persons for
the debts of such a firm. To say that the children are industrial partners, but liable only to the extent
of their personal property, would be to place them in a different class of partners. As the mother did
not secure judicial approval, the contract wherein she attempted to make her children industrial
partners, with all the consequences flowing therefrom, was, therefore, defective and that act of itself
in no way made the children liable for the debts of the new firm.

The question remains, Did any of the children validly ratify the contract after acquiring capacity to do
so? Cecilia was never emancipated and there is no evidence indicating that she has ever ratified the
contract by word or deed. She is, therefore, completely exonerated from liability for the debts of
Aldecoa and Co.
The other two children, Joaquin and Zoilo, were emancipated by their mother after they had reached
the age of eighteen and prior to seeking annullment of the contract of partnership had participated by
vote and otherwise in the management of the firm, as is evidenced by Exhibits W, Y, and Z. These
various acts sufficiently show a ratification of the partnership contract and would have the effect of
making the two children industrial partners if they had been of age at that time. Ratification is in the
nature of the contract. It is the adoption of, and assent to be bound by, the act of another. (Words
and Phrases, vol. 7, p. 5930.) From the effect of emancipation it cannot be doubted that the two
children had capacity, with their mother's consent, to enter into a contract of partnership, and, by so
doing, make themselves industrial partners, thereby encumbering their property. Conceding that the
children under these circumstances could enter into such a contract with their mother, her express
consent to the ratification of the contract by the two children does not appear of record. The result
flowing from the ratification being the encumbrance of their property, their mother's express consent
was necessary.
For the foregoing reasons the judgment appealed from, in so far as it holds the three children liable
as industrial partners, is reversed, without costs in so far as this branch of the case is concerned. So
ordered.
Arellano, C. J., Torres and Araullo, JJ., concur.
Moreland, J., concurs in the result.
Johnson, J., dissents.