Assigned Cases

this court, speaking through Mr. Justice Torres, said ". . . the right of the
ownership of electric current is secured by article 517 and 518 of the Penal
Code; the application of these articles in cases of subtraction of gas, a fluid
used for lighting, and in some respects resembling electricity, is confirmed by
the rule laid down in the decisions of the supreme court of Spain of January
20, 1887, and April 1, 1897, construing and enforcing the provisions of
articles 530 and 531 of the Penal Code of that country, articles identical with
articles 517 and 518 of the code in force in these Islands." These
expressions were used in a case which involved the subtraction and
appropriation of electrical energy and the court held, in accordance with the
analogy of the case involving the theft of gas, that electrical energy could
also be the subject of theft. The same conclusion was reached in U.S. vs.
Carlos (21 Phil., 553), which was also a case of prosecution for stealing
electricity.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16513

January 18, 1921

THE UNITED STATES, plaintiff-appellee,

vs.
MANUEL TAMBUNTING, defendant-appellant.

The precise point whether the taking of gas may constitute larceny has
never before, so far as the present writer is aware, been the subject of
adjudication in this court, but the decisions of Spanish, English, and
American courts all answer the question in the affirmative. (See U.S. vs.
Carlos, 21 Phil., 553, 560.)

Manuel Garcia Goyena for appellant.

Acting Attorney-General Feria for appellee.
STREET, J.:

In this connection it will suffice to quote the following from the topic
"Larceny," at page 34, Vol. 17, of Ruling Case Law:

This appeal was instituted for the purpose of reversing a judgment of the
Court of First Instance of the city of Manila, finding the accused, Manuel
Tambunting, guilty of stealing a quantity of gas belonging to the Manila Gas
Corporation, and sentencing him to undergo imprisonment for two months
and one day, of arresto mayor, with the accessories prescribed by law; to
indemnify the said corporation in the sum of P2, with subsidiary
imprisonment in case of insolvency; and to pay the costs.

There is nothing in the nature of gas used for illuminating purposes which
renders it incapable of being feloniously taken and carried away. It is a
valuable article of merchandise, bought and sold like other personal
property, susceptible of being severed from a mass or larger quantity and of
being transported from place to place. Likewise water which is confined in
pipes and electricity which is conveyed by wires are subjects of larceny."

The evidence submitted in behalf of the prosecution shows that in January

of the year 1918, the accused and his wife became occupants of the upper
floor of the house situated at No. 443, Calle Evangelista, in the city of
Manila. In this house the Manila Gas Corporation had previously installed
apparatus for the delivery of gas on both the upper and lower floors,
consisting of the necessary piping and a gas meter, which last mentioned
apparatus was installed below. When the occupants at whose request this
installation had been made vacated the premises, the gas company
disconnected the gas pipe and removed the meter, thus cutting off the
supply of gas from said premises.

As to the amount and value of the gas appropriated by the accused in the
period during which he admits having used it, the proof is not entirely
satisfactory. Nevertheless we think the trial court was justified in fixing the
value of the gas at P2 per month, which is the minimum charge for gas
made by the gas company, however small the amount consumed. That is to
say, no person desiring to use gas at all for domestic purposes can purchase
the commodity at a lower rate per month than P2. There was evidence
before the court showing that the general average of the monthly bills paid
by consumers throughout the city for the use of gas in a kitchen equipped
like that used by the accused is from P18 to 20, while the average minimum
is about P8 per month. We think that the facts above stated are competent
evidence; and the conclusion is inevitable that the accused is at least liable
to the extent of the minimum charge of P2 per month. The market value of
the property at the time and place of the theft is of court the proper value to
be proven (17 R.C.L., p. 66); and when it is found that the least amount that
a consumer can take costs P2 per months, this affords proof that the amount
which the accused took was certainly worth that much. Absolute certainty as
to the full amount taken is of course impossible, because no meter wad
used; but absolute certainty upon this point is not necessary, when it is
certain that the minimum that could have been taken was worth a
determinable amount.

Upon June 2, 1919, one of the inspectors of the gas company visited the
house in question and found that gas was being used, without the
knowledge and consent of the gas company, for cooking in the quarters
occupied by the defendant and his wife: to effect which a short piece of iron
pipe had been inserted in the gap where the gas meter had formerly been
placed, and piece of rubber tubing had been used to connect the gas pipe of
rubber tubing had been used to connect the gas pipe in kitchen with the gas
stove, or plate, used for cooking.
At the time this discovery was made, the accused, Manuel Tambunting, was
not at home, but he presently arrived and admitted to the agent to the gas
company that he had made the connection with the rubber tubing between
the gas pipe and the stove, though he denied making the connection below.
He also admitted that he knew he was using gas without the knowledge of
the company and that he had been so using it for probably two or three
months.
The clandestine use of gas by the accused in the manner stated is thus
established in our opinion beyond a doubt; and inasmuch as the animo
lucrandi is obvious, it only remains to consider, first, whether gas can be the
subject to larceny and, secondly, whether the quantity of gas appropriated in
the two months, during which the accused admitted having used the same,
has been established with sufficient certainty to enable the court to fix an
appropriate penalty.

It appears that before the present prosecution was instituted, the accused
had been unsuccessfully prosecuted for an infraction of section 504 of the
Revised Ordinances of the city of Manila, under a complaint charging that
the accused, not being a registered installer of gas equipment had placed a
gas installation in the house at No. 443, Calle Evangelista. Upon this it is
argued for the accused that, having been acquitted of that charge, he is not
now subject to prosecution for the offense of theft, having been acquitted of
the former charge. The contention is evidently not well-founded, since the
two offenses are of totally distinct nature. Furthermore, a prosecution for
violation of a city ordinance is not ordinarily a bar to a subsequent
prosecution for the same offense under the general law of the land. (U.S. vs.
Garcia Gavieres, 10 Phil., 694.)

Some legal minds, perhaps more academic than practical, have entertained
doubt upon the question whether gas can be the subject of larceny; but no
judicial decision has been called to our attention wherein any respectable
court has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175),

The conclusion is that the accused is properly subject to punishment, under

No. 5 of article 518 of the Penal Code, for the gas taken in the course of two
months a the rate of P2 per month. There being no aggravating or
attenuating circumstance to be estimated, it results that the proper penalty is

two months and one day of arresto mayor, as fixed by the trial court. The
judgment will therefore be affirmed, with costs against the appellant, it being
understood that the amount of the indemnity which the accused shall pay to
the gas company is P4, instead of P2, with subsidiary imprisonment for one
day in case of insolvency. So ordered.

and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the
additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc.,
applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said B.A.
Green and installed in the sugar central after the execution of the original
mortgage deed, on April 27, 1927, together with whatever additional
equipment acquired with said loan. B.A. Green failed to obtain said loan.

Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

Article 1877 of the Civil Code provides as follows.

EN BANC
G.R. No. L-41643

ART. 1877. A mortgage includes all natural accessions,

improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or
due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the
declarations, amplifications, and limitations established by law,
whether the estate continues in the possession of the person
who mortgaged it or whether it passes into the hands of a third
person.

July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,

vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE
COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE
SHERIFF OF PAMPANGA, defendants-appellees.

In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12
Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:

Briones and Martinez for appellant.

Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES

IMPROVEMENTS AND FIXTURES. It is a rule, established by
the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in
a mortgage of real estate, the improvements on the same are
included; therefore, all objects permanently attached to a
mortgaged building or land, although they may have been placed
there after the mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil
Code; decision of U.S. Supreme Court in the matter of Royal
Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct.
Rep., 46; 199 U.S., 353].)

VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment
of the Court of First Instance of Manila, dismissing said plaintiff's complaint
against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage deed executed in
favor of the defendants Cu Unjieng e Hijos.

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC.

In order that it may be understood that the machinery and
other objects placed upon and used in connection with a
mortgaged estate are excluded from the mortgage, when it was
stated in the mortgage that the improvements, buildings, and
machinery that existed thereon were also comprehended, it is
indispensable that the exclusion thereof be stipulated between
the contracting parties.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co.,
Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained
from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage
constituted on two parcels and land "with all its buildings, improvements,
sugar-cane mill, steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of said sugar-cane mill,
steel railway, telephone line, now existing or that may in the future exist is
said lots."

The appellant contends that the installation of the machinery and equipment
claimed by him in the sugar central of the Mabalacat Sugar Company, Inc.,
was not permanent in character inasmuch as B.A. Green, in proposing to
him to advance the money for the purchase thereof, made it appear in the
letter, Exhibit E, that in case B.A. Green should fail to obtain an additional
loan from the defendants Cu Unjieng e Hijos, said machinery and equipment
would become security therefor, said B.A. Green binding himself not to
mortgage nor encumber them to anybody until said plaintiff be fully
reimbursed for the corporation's indebtedness to him.

On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar
central by buying additional machinery and equipment, so that instead of
milling 150 tons daily, it could produce 250. The estimated cost of said
additional machinery and equipment was approximately P100,000. In order
to carry out this plan, B.A. Green, president of said corporation, proposed to
the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising to reimburse him as
soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a
letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th
of the same year, delivered the sum of P1,710 to B.A. Green, president of
the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A.
Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of
P22,000 against said corporation for unpaid salary. With the loan of P25,750

Upon acquiring the machinery and equipment in question with money

obtained as loan from the plaintiff-appellant by B.A. Green, as president of
the Mabalacat Sugar Co., Inc., the latter became owner of said machinery
and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly adapted
to meet the requirements of such trade or industry.

If the installation of the machinery and equipment in question in the central

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

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for
appellant.
D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:
First of all the reason why the case has been decided by the court in
banc needs explanation. A motion was presented by counsel for the
appellant in which it was asked that the case be heard and determined by
the court sitting in banc because the admiralty jurisdiction of the court was
involved, and this motion was granted in regular course. On further
investigation it appears that this was error. The mere mortgage of a ship is a
contract entered into by the parties to it without reference to navigation or
perils of the sea, and does not, therefore, confer admiralty jurisdiction.
(Bogart vs. Steamboat John Jay [1854], 17 How., 399.)

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

Coming now to the merits, it appears that on varying dates the Philippine
Refining Co., Inc., and Francisco Jarque executed three mortgages on the
motor vessels Pandan and Zaragoza. These documents were recorded in
the record of transfers and incumbrances of vessels for the port of Cebu and
each was therein denominated a "chattel mortgage". Neither of the first two
mortgages had appended an affidavit of good faith. The third mortgage
contained such an affidavit, but this mortgage was not registered in the
customs house until May 17, 1932, or within the period of thirty days prior to
the commencement of insolvency proceedings against Francisco Jarque;
also, while the last mentioned mortgage was subscribed by Francisco
Jarque and M. N. Brink, there was nothing to disclose in what capacity the
said M. N. Brink signed. A fourth mortgage was executed by Francisco
Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in
the chattel mortgage registry of the register of deeds on May 12, 1932, or
again within the thirty-day period before the institution of insolvency
proceedings. These proceedings were begun on June 2, 1932, when a
petition was filed with the Court of First Instance of Cebu in which it was
prayed that Francisco Jarque be declared an insolvent debtor, which soon
thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.

As to the alleged sale of said machinery and equipment to the plaintiff and
appellant after they had been permanently incorporated with sugar central of
the Mabalacat Sugar Co., Inc., and while the mortgage constituted on said
sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central
with which said machinery and equipment had been incorporated, was
transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos
under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That
the installation of a machinery and equipment in a mortgaged sugar central,
in lieu of another of less capacity, for the purpose of carrying out the
industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery
and equipment to the mortgage constituted thereon (article 1877, Civil
Code); (2) that the fact that the purchaser of the new machinery and
equipment has bound himself to the person supplying him the purchase
money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment
with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a loan,
to the person who supplied the money, after the incorporation thereof with
the mortgaged sugar central, does not vest the creditor with ownership of
said machinery and equipment but simply with the right of redemption.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure

of the mortgages, but on the contrary sustained the special defenses of fatal
defectiveness of the mortgages. In so doing we believe that the trial judge
acted advisedly.
Vessels are considered personal property under the civil law. (Code of
Commerce, article 585.) Similarly under the common law, vessels are
personal property although occasionally referred to as a peculiar kind of
personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic
Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term
"personal property" includes vessels, they are subject to mortgage
agreeably to the provisions of the Chattel Mortgage Law. (Act No. 1508,
section 2.) Indeed, it has heretofore been accepted without discussion that a
mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco
Espaol-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil.,
511.) The only difference between a chattel mortgage of a vessel and a
chattel mortgage of other personalty is that it is not now necessary for a
chattel mortgage of a vessel to be noted n the registry of the register of
deeds, but it is essential that a record of documents affecting the title to a
vessel be entered in the record of the Collector of Customs at the port of
entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de
Sane, supra.) Otherwise a mortgage on a vessel is generally like other
chattel mortgages as to its requisites and validity. (58 C.J., 92.)

Wherefore, finding no error in the appealed judgment, it is affirmed in all its

parts, with costs to the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41506

March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant,

vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ &
CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the
insolvent Francisco Jarque, appellee.

The Chattell Mortgage Law in its section 5, in describing what shall be

deemed sufficient to constitute a good chattel mortgage, includes the
requirement of an affidavit of good faith appended to the mortgage and
recorded therewith. The absence of the affidavit vitiates a mortgage as
against creditors and subsequent encumbrancers. (Giberson vs. A. N.
Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico
& Co. and Provincial Sheriff of Occidental Negros [1923], 46 Phil., 753.) As a
consequence a chattel mortgage of a vessel wherein the affidavit of good

faith required by the Chattel Mortgage Law is lacking, is unenforceable

against third persons.

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;

In effect appellant asks us to find that the documents appearing in the record
do not constitute chattel mortgages or at least to gloss over the failure to
include the affidavit of good faith made a requisite for a good chattel
mortgage by the Chattel Mortgage Law. Counsel would further have us
disregard article 585 of the Code of Commerce, but no reason is shown for
holding this article not in force. Counsel would further have us revise
doctrines heretofore announced in a series of cases, which it is not desirable
to do since those principles were confirmed after due liberation and
constitute a part of the commercial law of the Philippines. And finally counsel
would have us make rulings on points entirely foreign to the issues of the
case. As neither the facts nor the law remains in doubt, the seven assigned
errors will be overruled.

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";

Judgment affirmed, the costs of this instance to be paid by the appellant.

(d) Black and Decker Grinder, appearing in the
attached photograph, marked Annex "D";

Avancea, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial,

Butte, and Goddard, JJ., concur.

(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

Republic of the Philippines

SUPREME COURT
Manila

(g) D-Engine Waukesha-M-Fuel, appearing in the

attached photograph, marked Annex "G".

EN BANC
G.R. No. L-17870

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;

September 29, 1962

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX
APPEALS of Cagayan de Oro City,respondents.

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;

Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.

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

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.

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.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400

petitioner's above-mentioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax Appeals on the ground that the
same are not realty. The Board of Tax Appeals of the City sustained the city
assessor, so petitioner herein filed with the Court of Tax Appeals a petition
for the review of the assessment.

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.

In the Court of Tax Appeals the parties submitted the following stipulation of
facts:

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

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;

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:

(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.)

Art. 415. The following are immovable properties:

xxx

xxx

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.

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.)

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.

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:

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.

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."

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.

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 ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and
Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.
Republic of the Philippines
SUPREME COURT
Manila

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.

EN BANC
G.R. No. L-40411

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

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven
for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:

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 issue in this case, as announced in the opening sentence of the

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

The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx

xxx

August 7, 1935

xxx

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

It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building erected
on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant, but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted as
the agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:

That on the expiration of the period agreed upon, all the

improvements and buildings introduced and erected by the party
of the second part shall pass to the exclusive ownership of the
party of the first part without any obligation on its part to pay any
amount for said improvements and buildings; also, in the event
the party of the second part should leave or abandon the land
leased before the time herein stipulated, the improvements and
buildings shall likewise pass to the ownership of the party of the
first part as though the time agreed upon had expired: Provided,
however, That the machineries and accessories are not included
in the improvements which will pass to the party of the first part
on the expiration or abandonment of the land leased.

To determine this question involves fixing the nature and

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

In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the
sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.
As connecting up with the facts, it should further be explained that the
Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in favor of
third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to
the Code, real property consists of
1. Land, buildings, roads and constructions of all kinds adhering
to the soil;
xxx

xxx

xxx

5. Machinery, liquid containers, instruments or implements

intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of
such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right
in their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must
further be pointed out that while not conclusive, the characterization of the
property as chattels by the appellant is indicative of intention and impresses
upon the property the character determined by the parties. In this connection
the decision of this court in the case of Standard Oil Co. of New Yorkvs.
Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the
key to such a situation.

xxx

xxx

xxx

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

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 BajacBajac, 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

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

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

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

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

Republic of the Philippines

SUPREME COURT
Manila

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).

FIRST DIVISION

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:

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

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

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.

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.

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.

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

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.

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.

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.

2. THE PROPERTY hereby conveyed by way of

MORTGAGE includes the right of occupancy on the

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).

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.

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).

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.

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).

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.

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).

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.

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.

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:

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.

... 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 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.

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.

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 plaintiffsappellees, 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

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.

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

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

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, plaintiffsappellees 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 defendantsappellants 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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-30173 September 30, 1971

... 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

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffsappellees,

vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.

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

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.

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 nonpayment of rentals on the land on which the house was constructed.

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.

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

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

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.

... 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.

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;

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

(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 defendantsappellants who are entitled to possession and not plaintiffs-appellees.
Therefore, it is argued by defendants-appellants, the issue of ownership will
have to be adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First Instance which
has jurisdiction and not the municipal court.

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

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

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 defendantsappellants 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

10

house stood on a rented lot to which defendats-appellants merely had a

temporary right as lessee, and although this can not in itself alone determine
the status of the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the mortgagors,
intended to treat the house as personalty. Finally unlike in the Iya
cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F.
L. Strong Machinery and Williamson, 26 wherein third persons assailed the
validity of the chattel mortgage, 27 it is the defendants-appellants themselves,
as debtors-mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore applies to the
herein defendants-appellants, having treated the subject house as
personalty.

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.

(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.

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

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.

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.

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).

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.

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.

Footnotes
1 Exhibit "A," page 1, Folder of Exhibits.
2 See paragraph "G," Exhibit "A," supra.
3 Exhibit "B," page 4, Folder of Exhibits.
4 Page 2, Defendants' Record on appeal, page 97, Rollo.

In other words, before the expiration of the 1-year

period within which the judgment-debtor or
mortgagor may redeem the property, the purchaser
thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the
Rules of Court allow the purchaser to receive the
rentals if the purchased property is occupied by
tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be,
for the amount so received and the same will be duly
credited against the redemption price when the said
debtor or mortgagor effects the
redemption.Differently stated, the rentals receivable
from tenants, although they may be collected by the
purchaser during the redemption period, do not
belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to

5 Page 20, Id., page 115, Rollo.

6 Now Section 2, Rule 70, Revised Rules of Court, which reads
that
"SEC. 2. Landlord, to proceed against tenant only after demand.
No landlord, or his legal representative or assign, shall bring
such action against a tenant for failure to pay rent due or to
comply with the conditions of his lease, unless the tenant shall
have failed to pay such rent or comply with such conditions for a
period of ... five (5) days in the case of building, after demand
therefor, made upon him personally, or by serving written notice
of such demand upon the person found on the premises, or by
posting such notice on the premises if no persons be found
thereon."

11

7 See CFI order of 20 February 1957, pages 21-25, Defendants'

Record on Appeal.

to the mortgage or deed of trust under which the property is

sold, may redeem the same at any time within the term of one
year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundredand
sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, in so far as these are not inconsistent with the
provisions of this Act." (Emphasis supplied) .

8 Page 31, Defendants' Record on Appeal, page 213, Rollo.

9 See Municipal court decision, pages 17-18, Defendants'
Record on Appeal, pages 199-200, Rollo.

32 Section 7, Act No. 3135, as amended, states: .

10 59 Phil. 320-321.
"In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance of the province or place
where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or
without complying with the requirements of this Act..." (Emphasis
supplied) .

11 Emphasis supplied.
12 L-19200, 27 February 1958, 22 SCRA 834; See also Aquino
vs. Deala, 63 Phil. 582 and De los Reyes vs. Elepao, et al.,
G.R. No. L-3466, 13 October 1950.
13 See Canaynay vs. Sarmiento, L-1246, 27 August 1947, 79
Phil. 36.

33 See De Gracia vs. San Jose, et al., No. L-6493, 25 March

1954.

14 Last paragraph, Article 1290, N.C.C., supra.

34 "SEC. 34. Rents and profits pending redemption. Statement

thereof and credit therefor on redemption. The purchaser,
from the time of the sale until a redemption, and a redemptioner,
from the time of his redemption until another redemption, is
entitled to receive the rents of the property sold or the value of
the use and occupation thereof when such property is in
possession of a tenant. But when any such rents and profits
have been received by the judgment creditor or purchaser, or by
a redemptioner, or by the assignee or either of them, from
property thus sold preceding such redemption, the amounts of
such rents and profits shall be a credit upon the redemption
money to be paid; ..."

15 No. L-10817-18, 28 February 1958, 103 Phil. 98.

16 No. L-10827-38, 30 May 1958, 103 Phil. 972.
17 No. L-8133, 18 May 1956, 99 Phil. 109.
18 No. L-20329, 16 March 1923, 44 Phil. 632.
19 Emphasis supplied.
20 No. L-4637, 30 June 1952, 91 Phil. 531.

35 See Reyes vs. Hamada, No. L-19967, 31 May 1965, 14

SCRA 215; Emphasis supplied.

21 No. L-18456, 30 November 1963, 9 SCRA 631.

36 No. L-16777, 20 April 1961, 1 SCRA 1004.

22 Emphasis supplied.

37 Saura Import & Export Co. vs. Philippine International Surety

Co., et al., No. L-15184, 31 May 1963, 8 SCRA 143, 148;
Hernandez vs. Andal, 78 Phil.198, See also Sec. 7, Rule 51, of
the Revised Rules of Court. Cf. Santaells vs.Otto Lange Co., 155
Fed. 719; Mast vs. Superior Drill Co., 154 Fed., 45, Francisco,
Rules of Court (1965 Ed), Vol. 3, page 765.

23 Emphasis supplied.
24 See paragraph 2 of Exhibit "A," page 1, Folder of Exhibits.
25 Supra.

Republic of the Philippines

SUPREME COURT
Manila

26 Supra.
27 See Navarro vs. Pineda, supra.

EN BANC
28 Effective 1 August 1906.
29 See Luna vs. Encarnacion, et al., No. L-4637, 30 June 1952,
91 Phil. 531.

G.R. No. 106041 January 29, 1993

30 See paragraph "G," Exhibit "A," supra.

BENGUET CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR OF
ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN
MARCELINO, respondents.

31 Section 6, Act No. 3135, as amended, provides:

"In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his successor
in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

12

(a) that the tailings dam has no value separate from and
independent of the mine; hence, by itself it cannot be considered an
improvement separately assessable;

CRUZ, J.:

(b) that it is an integral part of the mine;

The realty tax assessment involved in this case amounts to P11,319,304.00.

It has been imposed on the petitioner's tailings dam and the land thereunder
over its protest.

(c) that at the end of the mining operation of the petitioner

corporation in the area, the tailings dam will benefit the local
community by serving as an irrigation facility;

The controversy arose in 1985 when the Provincial Assessor of Zambales

assessed the said properties as taxable improvements. The assessment
was appealed to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was dismissed mainly on the
ground of the petitioner's "failure to pay the realty taxes that fell due during
the pendency of the appeal."

(d) that the building of the dam has stripped the property of any
commercial value as the property is submerged under water wastes
from the mine;
(e) that the tailings dam is an environmental pollution control device
for which petitioner must be commended rather than penalized with
a realty tax assessment;

The petitioner seasonably elevated the matter to the Central Board of

Assessment Appeals, 1 one of the herein respondents. In its decision dated
March 22, 1990, the Board reversed the dismissal of the appeal but, on the
merits, agreed that "the tailings dam and the lands submerged thereunder
(were) subject to realty tax."

(f) that the installation and utilization of the tailings dam as a

pollution control device is a requirement imposed by law;

For purposes of taxation the dam is considered as

real property as it comes within the object mentioned
in paragraphs (a) and (b) of Article 415 of the New
Civil Code. It is a construction adhered to the soil
which cannot be separated or detached without
breaking the material or causing destruction on the
land upon which it is attached. The immovable nature
of the dam as an improvement determines its
character as real property, hence taxable under
Section 38 of the Real Property Tax Code. (P.D. 464).

(2) as regards the valuation of the tailings dam and the submerged
lands:
(a) that the subject properties have no market value as they cannot
be sold independently of the mine;
(b) that the valuation of the tailings dam should be based on its
incidental use by petitioner as a water reservoir and not on the
alleged cost of construction of the dam and the annual build-up
expense;

Although the dam is partly used as an anti-pollution

device, this Board cannot accede to the request for
tax exemption in the absence of a law authorizing the
same.

(c) that the "residual value formula" used by the Provincial Assessor
and adopted by respondent CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for
realty tax purposes:

xxx xxx xxx

We find the appraisal on the land submerged as a
result of the construction of the tailings dam, covered
by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with
the Schedule of Market Values for Zambales which
was reviewed and allowed for use by the Ministry
(Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by PetitionerAppellant Benguet Corporation to impugn its
reasonableness, i.e., that the P50.00 per square
meter applied by Respondent-Appellee Provincial
Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market value
applied by Respondent Appellee Provincial Assessor
of Zambales on the properties of Petitioner-Appellant
Benguet Corporation covered by Tax Declaration
Nos. 002-0260 and 002-0266.

(a) that where a tax is not paid in an honest belief that it is not due,
no penalty shall be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a
tailings dam have been made to declare the dam for realty tax
purposes.
The petitioner does not dispute that the tailings dam may be considered
realty within the meaning of Article 415. It insists, however, that the dam
cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and
maintaining it.
To support its theory, the petitioner cites the following cases:

This petition for certiorari now seeks to reverse the above ruling.
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court
considered the dikes and gates constructed by the taxpayer in connection
with a fishpond operation as integral parts of the fishpond.

The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land within
the meaning of the Real Property Tax Code. More particularly, it is claimed

2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil.

303), involving a road constructed by the timber concessionaire in the area,
where this Court did not impose a realty tax on the road primarily for two
reasons:

(1) as regards the tailings dam as an "improvement":

13

In the first place, it cannot be disputed that the ownership of the

road that was constructed by appellee belongs to the
government by right of accession not only because it is
inherently incorporated or attached to the timber land . . . but
also because upon the expiration of the concession said road
would ultimately pass to the national government. . . . In the
second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive,
for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound to
allow the free use of forest products within the concession for the
personal use of individuals residing in or within the vicinity of the
land. . . . In other words, the government has practically reserved
the rights to use the road to promote its varied activities. Since,
as above shown, the road in question cannot be considered as
an improvement which belongs to appellee, although in part is
for its benefit, it is clear that the same cannot be the subject of
assessment within the meaning of Section 2 of C.A.
No. 470.

The pipeline system in question is indubitably a construction

adhering to the soil. It is attached to the land in such a way that it
cannot be separated therefrom without dismantling the steel
pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as a
tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16
N.E. 742).
The oil tanks are structures within the statute, that they are
designed and used by the owner as permanent improvement of
the free hold, and that for such reasons they were properly
assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property"
and simply says that the realty tax is imposed on "real property, such as
lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, we apply Article 415 of the
Civil Code, the pertinent portions of which state:

Apparently, the realty tax was not imposed not because the road was an
integral part of the lumber concession but because the government had the
right to use the road to promote its varied activities.

Art. 415. The following are immovable property.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American
case, where it was declared that the reservoir dam went with and formed
part of the reservoir and that the dam would be "worthless and useless
except in connection with the outlet canal, and the water rights in the
reservoir represent and include whatever utility or value there is in the dam
and headgates."

(1) Lands, buildings and constructions of all kinds

adhered to the soil;
xxx xxx xxx

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United
States. This case involved drain tunnels constructed by plaintiff when it
expanded its mining operations downward, resulting in a constantly
increasing flow of water in the said mine. It was held that:

(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.

Whatever value they have is connected with and in

fact is an integral part of the mine itself. Just as much
so as any shaft which descends into the earth or an
underground incline, tunnel, or drift would be which
was used in connection with the mine.

Section 2 of C.A. No. 470, otherwise known as the Assessment Law,

provides that the realty tax is due "on the real property, including land,
buildings, machinery and other improvements" not specifically exempted in
Section 3 thereof. A reading of that section shows that the tailings dam of the
petitioner does not fall under any of the classes of exempt real properties
therein enumerated.

On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of the
mine. The primary function of the dam is to receive, retain and hold the
water coming from the operations of the mine, and it also enables the
petitioner to impound water, which is then recycled for use in the plant.

Is the tailings dam an improvement on the mine? Section 3(k) of the Real
Property Tax Code defines improvement as follows:
(k) Improvements is a valuable addition made to
property or an amelioration in its condition,
amounting to more than mere repairs or replacement
of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adopt it for
new or further purposes.

There is also ample jurisprudence to support this view, thus:

. . . The said equipment and machinery, as appurtenances to the
gas station building or shed owned by Caltex (as to which it is
subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station
would be useless and which have been attached or affixed
permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code. (Caltex [Phil.]
Inc. v. CBAA, 114 SCRA 296).

The term has also been interpreted as "artificial alterations of the physical
condition of the ground that arereasonably permanent in character." 2
The Court notes that in the Ontario case the plaintiff admitted that the mine
involved therein could not be operated without the aid of the drain tunnels,
which were indispensable to the successful development and extraction of
the minerals therein. This is not true in the present case.

We hold that while the two storage tanks are not embedded in
the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it
useful to the oil industry. It is undeniable that the two tanks have
been installed with some degree of permanence as receptacles
for the considerable quantities of oil needed by MERALCO for its
operations. (Manila Electric Co. v. CBAA, 114 SCRA 273).

Even without the tailings dam, the petitioner's mining operation can still be
carried out because the primary function of the dam is merely to receive and
retain the wastes and water coming from the mine. There is no allegation
that the water coming from the dam is the sole source of water for the
mining operation so as to make the dam an integral part of the mine. In fact,
as a result of the construction of the dam, the petitioner can now impound
and recycle water without having to spend for the building of a water

14

reservoir. And as the petitioner itself points out, even if the petitioner's mine
is shut down or ceases operation, the dam may still be used for irrigation of
the surrounding areas, again unlike in the Ontario case.

of discretion calling for the intervention of this Court in the exercise of its
own powers of review. There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot
take cognizance of the issue of the propriety of the penalties imposed upon
it, which was raised by the petitioner for the first time only on appeal. The
CBAA held that this "is an entirely new matter that petitioner can take up with
the Provincial Assessor (and) can be the subject of another protest before
the Local Board or a negotiation with the local sanggunian . . ., and in case
of an adverse decision by either the Local Board or the local sanggunian, (it
can) elevate the same to this Board for appropriate action."

As correctly observed by the CBAA, the Kendrick case is also not applicable
because it involved water reservoir dams used for different purposes and for
the benefit of the surrounding areas. By contrast, the tailings dam in
question is being used exclusively for the benefit of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has
no separate existence, just as vigorously contends that at the end of the
mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the mine.

There is no need for this time-wasting procedure. The Court may resolve the
issue in this petition instead of referring it back to the local authorities. We
have studied the facts and circumstances of this case as above discussed
and find that the petitioner has acted in good faith in questioning the
assessment on the tailings dam and the land submerged thereunder. It is
clear that it has not done so for the purpose of evading or delaying the
payment of the questioned tax. Hence, we hold that the petitioner is not
subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax
purposes.

From the definitions and the cases cited above, it would appear that whether
a structure constitutes an improvement so as to partake of the status of
realty would depend upon the degree of permanence intended in its
construction and use. The expression "permanent" as applied to an
improvement does not imply that the improvement must be used perpetually
but only until the purpose to which the principal realty is devoted has been
accomplished. It is sufficient that the improvement is intended to remain as
long as the land to which it is annexed is still used for the said purpose.

WHEREFORE, the petition is DISMISSED for failure to show that the

questioned decision of respondent Central Board of Assessment Appeals is
tainted with grave abuse of discretion except as to the imposition of
penalties upon the petitioner which is hereby SET ASIDE. Costs against the
petitioner. It is so ordered.

The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both
the value and utility of petitioner's mine. Moreover, the immovable nature of
the dam defines its character as real property under Article 415 of the Civil
Code and thus makes it taxable under Section 38 of the Real Property Tax
Code.

Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Grio-Aquino, Regalado,

Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur.

The Court will also reject the contention that the appraisal at P50.00 per
square meter made by the Provincial Assessor is excessive and that his use
of the "residual value formula" is arbitrary and erroneous.

Feliciano, J., took no part.

Respondent Provincial Assessor explained the use of the "residual value

formula" as follows:
Republic of the Philippines
SUPREME COURT
Manila

A 50% residual value is applied in the computation because,

while it is true that when slime fills the dike, it will then be
covered by another dike or stage, the stage covered is still there
and still exists and since only one face of the dike is filled, 50%
or the other face is unutilized.

SECOND DIVISION
G.R. No. L-50466 May 31, 1982

In sustaining this formula, the CBAA gave the following justification:

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR
OF PASAY, respondents.

We find the appraisal on the land submerged as a result of the

construction of the tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule
of Market Values for San Marcelino, Zambales, which is fifty
(50.00) pesos per square meter for third class industrial land
(TSN, page 17, July 5, 1989) and Schedule of Market Values for
Zambales which was reviewed and allowed for use by the
Ministry (Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by Petitioner-Appellant
Benguet Corporation to impugn its reasonableness, i.e, that the
P50.00 per square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market value applied by
Respondent-Appellee Provincial Assessor of Zambales on the
properties of Petitioner-Appellant Benguet Corporation covered
by Tax Declaration Nos. 002-0260 and 002-0266.

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:

It has been the long-standing policy of this Court to respect the conclusions
of quasi-judicial agencies like the CBAA, which, because of the nature of its
functions and its frequent exercise thereof, has developed expertise in the
resolution of assessment problems. The only exception to this rule is where
it is clearly shown that the administrative body has committed grave abuse

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

15

compressor is attached in the wall of the shed or at the concrete

wall fence.

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 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.

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).

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 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.

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.

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.

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.

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 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 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.

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).

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:

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.

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 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 Code contains the following definitions in its section 3:

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.

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.

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

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,

16

together with all other equipment designed for or

essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f], Assessment
Law).

Republic of the Philippines

SUPREME COURT
Manila

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.

SECOND DIVISION
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.

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).

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

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).

Jose V. Mancella for respondent.

DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R.
No. SP-12731, setting aside certain Orders later specified herein, of Judge
Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution
dated September 22, 1981 of the said appellate court, denying petitioner's
motion for reconsideration.

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).

It appears that in order to obtain financial accommodations from herein

petitioner Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several receivables
with the former under a Receivable Purchase Agreement. To secure the
collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a
machinery described as an Artos Aero Dryer Stentering Range.

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.

Upon private respondent's default, petitioner filed a petition for extrajudicial

foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private
respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as
Civil Case No. 36040, the case before the lower court.

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).

Acting on petitioner's application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained
upon private respondent's filing of a motion for reconsideration. After several
incidents, the lower court finally issued on February 11, 1981, an order lifting
the restraining order for the enforcement of the writ of seizure and an order
to break open the premises of private respondent to enforce said writ. The
lower court reaffirmed its stand upon private respondent's filing of a further
motion for reconsideration.

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.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.

SO ORDERED.

The Court of Appeals, in certiorari and prohibition proceedings subsequently

filed by herein private respondent, set aside the Orders of the lower court
and ordered the return of the drive motor seized by the sheriff pursuant to
said Orders, after ruling that the machinery in suit cannot be the subject of

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.

Concepcion, Jr. and Abad Santos, JJ., took no part.

17

replevin, much less of a chattel mortgage, because it is a real property

pursuant to Article 415 of the new Civil Code, the same being attached to
the ground by means of bolts and the only way to remove it from
respondent's plant would be to drill out or destroy the concrete floor, the
reason why all that the sheriff could do to enfore the writ was to take the
main drive motor of said machinery. The appellate court rejected petitioner's
argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.

really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine,
the Court of Appeals lays stress on the fact that the house involved therein
was built on a land that did not belong to the owner of such house. But the
law makes no distinction with respect to the ownership of the land on which
the house is built and We should not lay down distinctions not contemplated
by law.

A motion for reconsideration of this decision of the Court of Appeals having

been denied, petitioner has brought the case to this Court for review by writ
of certiorari. It is contended by private respondent, however, that the instant
petition was rendered moot and academic by petitioner's act of returning the
subject motor drive of respondent's machinery after the Court of Appeals'
decision was promulgated.

It must be pointed out that the characterization of the subject machinery as

chattel by the private respondent is indicative of intention and impresses
upon the property the character determined by the parties. As stated
inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable
that the parties to a contract may by agreement treat as personal property
that which by nature would be real property, as long as no interest of third
parties would be prejudiced thereby.

The contention of private respondent is without merit. When petitioner

returned the subject motor drive, it made itself unequivocably clear that said
action was without prejudice to a motion for reconsideration of the Court of
Appeals decision, as shown by the receipt duly signed by respondent's
representative. 1 Considering that petitioner has reserved its right to question
the propriety of the Court of Appeals' decision, the contention of private
respondent that this petition has been mooted by such return may not be
sustained.

Private respondent contends that estoppel cannot apply against it because it

had never represented nor agreed that the machinery in suit be considered
as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the
subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover,
even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract
voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not refuted
by respondent, the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another. Private
respondent could not now therefore, be allowed to impugn the efficacy of the
chattel mortgage after it has benefited therefrom,

The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point of
view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null
and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA
143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to
the subject house as personal property, yet by
ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that
they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which
defendants-appellants merely had a temporary right
as lessee, and although this can not in itself alone
determine the status of the property, it does so when
combined with other factors to sustain the
interpretation that the parties, particularly the
mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L.
Strong Machinery & Williamson, wherein third
persons assailed the validity of the chattel mortgage,
it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of
the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendantsappellants, having treated the subject house as
personality.

From what has been said above, the error of the appellate court in ruling that
the questioned machinery is real, not personal property, becomes very
apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v.
CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the
case at bar, the nature of the machinery and equipment involved therein as
real properties never having been disputed nor in issue, and they were not
the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears
more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ.,
concur.
Abad Santos, J., concurs in the result.

Examining the records of the instant case, We find no logical justification to

exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is

Republic of the Philippines

SUPREME COURT
Manila

18

EN BANC
G.R. No. L-11139

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.)

April 23, 1958

SANTOS EVANGELISTA, petitioner,

vs.
ALTO SURETY & INSURANCE CO., INC., respondent.

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."

Gonzalo D. David for petitioner.

Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:

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."

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.

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. . . ."

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.

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:

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 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.

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

These considerations notwithstanding, we hold that the rules on

execution do not allow, and, we should notinterpret them in such

19

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.

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.

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.

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.

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.

Wherefore, the decision of the Court of Appeals is hereby reversed, and

another one shall be entered affirming that of the Court of First Instance of
Manila, with the costs of this instance against respondent, the Alto Surety
and Insurance Co., Inc. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Reyes, J.B.L., Endencia and Felix, JJ.,concur.
Republic of the Philippines
SUPREME COURT
Manila

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

FIRST DIVISION
G.R. No. 120098

October 2, 2001

RUBY L. TSAI, petitioner,

vs.

20

HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO

R VILLALUZ, respondents.

I. TCT # 372097 - RIZAL

xxx

xxx

xxx

x---------------------------------------------------------x
II. Any and all buildings and improvements now existing or
hereafter to exist on the above-mentioned lot.

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.

III. MACHINERIES & EQUIPMENT situated, located and/or

installed on the above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .

QUISUMBING, J.:

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

These consolidated cases assail the decision1 of the Court of Appeals in CAG.R. CV No. 32986, affirming the decision2 of the Regional Trial Court of
Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent
court's resolution denying petitioners' motion for reconsideration.

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)

obtained a three million peso (P3,000,000.00) loan from petitioner Philippine
Bank of Communications (PBCom). As security for the loan, EVERTEX
executed in favor of PBCom, a deed of Real and Chattel Mortgage over the
lot under TCT No. 372097, where its factory stands, and the chattels located
therein as enumerated in a schedule attached to the mortgage contract. The
pertinent portions of the Real and Chattel Mortgage are quoted below:

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases
and accretions to above properties.
xxx

MORTGAGE

xxx

xxx
After April 23, 1979, the date of the execution of the second mortgage
mentioned above, EVERTEX purchased various machines and equipments.

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way

of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of
land, together with all the buildings and improvements now
existing or which may hereafter exist thereon, situated in . . .

On November 19, 1982, due to business reverses, EVERTEX filed

insolvency proceedings docketed as SP Proc. No. LP-3091-P before the
defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued
an order on November 24, 1982 declaring the corporation insolvent. All its
assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as
abovementioned.

"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in
favor of PBCommunications continued)

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom,

the latter commenced extrajudicial foreclosure proceedings against
EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale
of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of
Sheriff's Sale was issued on December 1, 1982.

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins
made in Hongkong:
Serial Numbers Size of Machines
xxx

xxx

On December 15, 1982, the first public auction was held where petitioner
PBCom emerged as the highest bidder and a Certificate of Sale was issued
in its favor on the same date. On December 23, 1982, another public auction
was held and again, PBCom was the highest bidder. The sheriff issued a
Certificate of Sale on the same day.

xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in

Taiwan.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to

EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. These listed properties
were similar to those listed in Annex A of the first mortgage deed.

(REAL AND CHATTEL)

xxx

xxx

On March 7, 1984, PBCom consolidated its ownership over the lot and all
the properties in it. In November 1986, it leased the entire factory premises
to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom
sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including
the contested machineries.

xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx

xxx

On March 16, 1989, EVERTEX filed a complaint for annulment of sale,

reconveyance, and damages with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was
in violation of the Insolvency Law. EVERTEX claimed that no rights having
been transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai acquired no rights over such assets sold to her, and should
reconvey the assets.

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx

Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real
and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of

SCHEDULE "A"

21

April 23, 1979, and neither were those properties included in the Notice of
Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated
December 15, 1982.

II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN HOLDING THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART
OF THE MORTGAGE DESPITE THE CLEAR IMPORT OF
THE EVIDENCE AND APPLICABLE RULINGS OF THE
SUPREME COURT.

The disputed properties, which were valued at P4,000,000.00, are: 14

Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not included in the
schedules attached to the mortgage contracts. The trial court decreed:

III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN DEEMING PETITIONER A PURCHASER IN BAD
FAITH.

WHEREFORE, judgment is hereby rendered in favor of plaintiff

corporation and against the defendants:

IV
1. Ordering the annulment of the sale executed by defendant
Philippine Bank of Communications in favor of defendant Ruby
L. Tsai on May 3, 1988 insofar as it affects the personal
properties listed in par. 9 of the complaint, and their return to the
plaintiff corporation through its assignee, plaintiff Mamerto R.
Villaluz, for disposition by the Insolvency Court, to be done within
ten (10) days from finality of this decision;

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.
V

2. Ordering the defendants to pay jointly and severally the

plaintiff corporation the sum of P5,200,000.00 as compensation
for the use and possession of the properties in question from
November 1986 to February 1991 and P100,000.00 every month
thereafter, with interest thereon at the legal rate per annum until
full payment;

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS
ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:

3. Ordering the defendants to pay jointly and severally the

plaintiff corporation the sum of P50,000.00 as and for attorney's
fees and expenses of litigation;

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

4. Ordering the defendants to pay jointly and severally the

plaintiff corporation the sum of P200,000.00 by way of exemplary
damages;
5. Ordering the dismissal of the counterclaim of the defendants;
and
6. Ordering the defendants to proportionately pay the costs of
suit.

II

SO ORDERED.4

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN

QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER
TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO
HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE
SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES.
IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST
ENRICHMENT?7

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which
issued its decision dated August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary
damages, and reduction of the actual damages, from P100,000.00 to
P20,000.00 per month, from November 1986 until subject personal
properties are restored to appellees, the judgment appealed from is hereby
AFFIRMED, in all other respects. No pronouncement as to costs. 5

The principal issue, in our view, is whether or not the inclusion of the
questioned properties in the foreclosed properties is proper. The secondary
issue is whether or not the sale of these properties to petitioner Ruby Tsai is
valid.

Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for
review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the
respondent court:

For her part, Tsai avers that the Court of Appeals in effect made a contract
for the parties by treating the 1981 acquired units of machinery as chattels
instead of real properties within their earlier 1975 deed of Real and Chattel
Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that
respondent court erred in holding that the disputed 1981 machineries are not
real properties.9 Finally, she contends that the Court of Appeals erred in
holding against petitioner's arguments on prescription and laches 10 and in
assessing petitioner actual damages, attorney's fees and expenses of
litigation, for want of valid factual and legal basis. 11

I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN EFFECT MAKING A CONTRACT FOR THE
PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES
AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN
THEIR EARLIER 1975 DEED OF REAL AND CHATTEL
MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

Essentially, PBCom contends that respondent court erred in affirming the

lower court's judgment decreeing that the pieces of machinery in dispute

22

were not duly foreclosed and could not be legally leased nor sold to Ruby
Tsai. It further argued that the Court of Appeals' pronouncement that the
pieces of machinery in question were personal properties have no factual
and legal basis. Finally, it asserts that the Court of Appeals erred in
assessing damages and attorney's fees against PBCom.

9 SCRA 631 (1963), an immovable may be considered a personal property if

there is a stipulation as when it is used as security in the payment of an
obligation where a chattel mortgage is executed over it, as in the case at
bar.
In the instant case, the parties herein: (1) executed a contract styled as
"Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate
Mortgage" if indeed their intention is to treat all properties included therein
as immovable, and (2) attached to the said contract a separate "LIST OF
MACHINERIES & EQUIPMENT". These facts, taken together, evince the
conclusion that the parties' intention is to treat these units of machinery as
chattels. A fortiori, the contested after-acquired properties, which are of the
same description as the units enumerated under the title "LIST OF
MACHINERIES & EQUIPMENT," must also be treated as chattels.

In opposition, private respondents argue that the controverted units of

machinery are not "real properties" but chattels, and, therefore, they were
not part of the foreclosed real properties, rendering the lease and the
subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find
the petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition
for review on certiorari under Rule 45 of the Revised Rules of Court is
limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record or the
assailed judgment is based on misapprehension of facts. 13 This rule is
applied more stringently when the findings of fact of the RTC is affirmed by
the Court of Appeals.14

Accordingly, we find no reversible error in the respondent appellate court's

ruling that inasmuch as the subject mortgages were intended by the parties
to involve chattels, insofar as equipment and machinery were concerned,
the Chattel Mortgage Law applies, which provides in Section 7 thereof that:
"a chattel mortgage shall be deemed to cover only the property described
therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding."

The following are the facts as found by the RTC and affirmed by the Court of
Appeals that are decisive of the issues: (1) the "controverted machineries"
are not covered by, or included in, either of the two mortgages, the Real
Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties appended to the
Notice of Sale, and neither were they included in the Sheriff's Notice of Sale
of the foreclosed properties.15

And, since the disputed machineries were acquired in 1981 and could not
have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject
machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title
passed in its favor. Consequently, the sale thereof to Tsai is also a nullity
under the elementary principle of nemo dat quod non habet, one cannot give
what one does not have.17

Petitioners contend that the nature of the disputed machineries, i.e., that
they were heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3)
and (5) of the New Civil Code. This assertion, however, does not settle the
issue. Mere nuts and bolts do not foreclose the controversy. We have to look
at the parties' intent.

Petitioner Tsai also argued that assuming that PBCom's title over the
contested properties is a nullity, she is nevertheless a purchaser in good
faith and for value who now has a better right than EVERTEX.

While it is true that the controverted properties appear to be immobile, a

perusal of the contract of Real and Chattel Mortgage executed by the parties
herein gives us a contrary indication. In the case at bar, both the trial and the
appellate courts reached the same finding that the true intention of PBCOM
and the owner, EVERTEX, is to treat machinery and equipment as chattels.
The pertinent portion of respondent appellate court's ruling is quoted below:

To the contrary, however, are the factual findings and conclusions of the trial
court that she is not a purchaser in good faith. Well-settled is the rule that
the person who asserts the status of a purchaser in good faith and for value
has the burden of proving such assertion.18 Petitioner Tsai failed to discharge
this burden persuasively.

As stressed upon by appellees, appellant bank treated the

machineries as chattels; never as real properties. Indeed, the
1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants' posture. It should be
noted that the printed form used by appellant bank was mainly
for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in
capital letters, immediately following the printed caption of
mortgage, of the phrase "real and chattel." So also, the
"machineries and equipment" in the printed form of the bank had
to be inserted in the blank space of the printed contract and
connected with the word "building" by typewritten slash marks.
Now, then, if the machineries in question were contemplated to
be included in the real estate mortgage, there would have been
no necessity to ink a chattel mortgage specifically mentioning as
part III of Schedule A a listing of the machineries covered
thereby. It would have sufficed to list them as immovables in the
Deed of Real Estate Mortgage of the land and building involved.

Moreover, a purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or
interest in such property and pays a full and fair price for the same, at the
time of purchase, or before he has notice of the claims or interest of some
other person in the property.19 Records reveal, however, that when Tsai
purchased the controverted properties, she knew of respondent's claim
thereon. As borne out by the records, she received the letter of respondent's
counsel, apprising her of respondent's claim, dated February 27,
1987.20 She replied thereto on March 9, 1987. 21 Despite her knowledge of
respondent's claim, she proceeded to buy the contested units of machinery
on May 3, 1988. Thus, the RTC did not err in finding that she was not a
purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to
sale of lands and not to sale of properties situated therein. Likewise, the
mere fact that the lot where the factory and the disputed properties stand is
in PBCom's name does not automatically make PBCom the owner of
everything found therein, especially in view of EVERTEX's letter to Tsai
enunciating its claim.

As regards the 1979 contract, the intention of the parties is clear

and beyond question. It refers solely tochattels. The inventory list
of the mortgaged properties is an itemization of sixty-three (63)
individually described machineries while the schedule listed only
machines and 2,996,880.50 worth of finished cotton fabrics and
natural cotton fabrics.16

Finally, petitioners' defense of prescription and laches is less than

convincing. We find no cogent reason to disturb the consistent findings of
both courts below that the case for the reconveyance of the disputed
properties was filed within the reglementary period. Here, in our view, the
doctrine of laches does not apply. Note that upon petitioners' adamant
refusal to heed EVERTEX's claim, respondent company immediately filed an
action to recover possession and ownership of the disputed properties.
There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of time, it would be
inequitable to allow a party to enforce his legal rights. Moreover, except for

In the absence of any showing that this conclusion is baseless, erroneous or

uncorroborated by the evidence on record, we find no compelling reason to
depart therefrom.
Too, assuming arguendo that the properties in question are immovable by
nature, nothing detracts the parties from treating it as chattels to secure an
obligation under the principle of estoppel. As far back as Navarro v. Pineda,

23

very strong reasons, this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.22

included in the mortgages, is equally oppressive and tainted with bad faith.
Thus, we are in agreement with the RTC that an award of exemplary
damages is proper.

As to the award of damages, the contested damages are the actual

compensation, representing rentals for the contested units of machinery, the
exemplary damages, and attorney's fees.

The amount of P200,000.00 for exemplary damages is, however, excessive.

Article 2216 of the Civil Code provides that no proof of pecuniary loss is
necessary for the adjudication of exemplary damages, their assessment
being left to the discretion of the court in accordance with the circumstances
of each case.29 While the imposition of exemplary damages is justified in this
case, equity calls for its reduction. In Inhelder Corporation v. Court of
Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid
down the rule that judicial discretion granted to the courts in the assessment
of damages must always be exercised with balanced restraint and measured
objectivity. Thus, here the award of exemplary damages by way of example
for the public good should be reduced to P100,000.00.

As regards said actual compensation, the RTC awarded P100,000.00

corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on
the accepted practice in banking and finance, business and investments that
the rental price must take into account the cost of money used to buy them.
The Court of Appeals did not give full credence to Chua's projection and
reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not
only be capable of proof but must actually be proven with reasonable degree
of certainty, premised upon competent proof or best evidence obtainable of
the actual amount thereof.23 However, the allegations of respondent
company as to the amount of unrealized rentals due them as actual
damages remain mere assertions unsupported by documents and other
competent evidence. In determining actual damages, the court cannot rely
on mere assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence obtainable regarding
the actual amount of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:

By the same token, attorney's fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC's
award of P50,000.00 as attorney's fees and expenses of litigation is
reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED
WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and
Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile
Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the
use and possession of the properties in question from November 1986 31 until
subject personal properties are restored to respondent corporation; (2)
P100,000.00 by way of exemplary damages, and (3) P50,000.00 as
attorney's fees and litigation expenses. Costs against petitioners.

. . . In the award of actual damages under scrutiny, there is

nothing on record warranting the said award of P5,200,000.00,
representing monthly rental income of P100,000.00 from
November 1986 to February 1991, and the additional award of
P100,000.00 per month thereafter.

SO ORDERED.

As pointed out by appellants, the testimonial evidence,

consisting of the testimonies of Jonh (sic) Chua and Mamerto
Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of unrealized
rental income of subject machineries and equipments.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

The testimony of John Cua (sic) is nothing but an opinion or

projection based on what is claimed to be a practice in business
and industry. But such a testimony cannot serve as the sole
basis for assessing the actual damages complained of. What is
more, there is no showing that had appellant Tsai not taken
possession of the machineries and equipments in question,
somebody was willing and ready to rent the same for
P100,000.00 a month.
xxx

xxx

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 137705

xxx

August 22, 2000

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,

vs.
PCI LEASING AND FINANCE, INC., respondent.

Then, too, even assuming arguendo that the said machineries

and equipments could have generated a rental income of
P30,000.00 a month, as projected by witness Mamerto Villaluz,
the same would have been a gross income. Therefrom should be
deducted or removed, expenses for maintenance and repairs . . .
Therefore, in the determination of the actual damages or
unrealized rental income sued upon, there is a good basis to
calculate that at least four months in a year, the machineries in
dispute would have been idle due to absence of a lessee or
while being repaired. In the light of the foregoing rationalization
and computation, We believe that a net unrealized rental income
of P20,000.00 a month, since November 1986, is more realistic
and fair.25

DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX

which the Court of Appeals deleted. But according to the CA, there was no
clear showing that petitioners acted malevolently, wantonly and oppressively.
The evidence, however, shows otherwise.It is a requisite to award
exemplary damages that the wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or
malevolent manner.27 As previously stressed, petitioner Tsai's act of
purchasing the controverted properties despite her knowledge of
EVERTEX's claim was oppressive and subjected the already insolvent
respondent to gross disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on March 24, 1987. 28 Thus,
PBCom's act of taking all the properties found in the factory of the financially
handicapped respondent, including those properties not covered by or

The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and its
February 26, 1999 Resolution3 denying reconsideration. The decretal portion
of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated February
18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-9833500 are hereby AFFIRMED. The writ of preliminary injunction issued on
June 15, 1998 is hereby LIFTED."4

24

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon
City (Branch 218)6 issued a Writ of Seizure.7 The March 18, 1998
Resolution8 denied petitioners Motion for Special Protective Order, praying
that the deputy sheriff be enjoined "from seizing immobilized or other real
properties in (petitioners) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or equipments he may
have removed."9

In their Memorandum, petitioners submit the following issues for our

consideration:
"A. Whether or not the machineries purchased and imported by SERGS
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease. "12

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

In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of replevin.
As a preliminary matter, the Court will also address briefly the procedural
points raised by respondent.

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI
Leasing" for short) filed with the RTC-QC a complaint for [a] sum of money
(Annex E), with an application for a writ of replevin docketed as Civil Case
No. Q-98-33500.

The Courts Ruling

The Petition is not meritorious.

"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent

judge issued a writ of replevin (Annex B) directing its sheriff to seize and
deliver the machineries and equipment to PCI Leasing after 5 days and
upon the payment of the necessary expenses.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.

"On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would]
return for the other machineries.

There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is "Petition for
Review on Certiorari."13

"On March 25, 1998, petitioners filed a motion for special protective order
(Annex C), invoking the power of the court to control the conduct of its
officers and amend and control its processes, praying for a directive for the
sheriff to defer enforcement of the writ of replevin.

While Judge Laqui should not have been impleaded as a

respondent,14 substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it
proper to remove, motu proprio, the name of Judge Laqui from the caption of
the present case.

"This motion was opposed by PCI Leasing (Annex F), on the ground that
the properties [were] still personal and therefore still subject to seizure and a
writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties
agreement to the contrary notwithstanding. They argued that to give effect to
the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact
real property. Serious policy considerations, they argue, militate against a
contrary characterization.

"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.

Rule 60 of the Rules of Court provides that writs of replevin are issued for
the recovery of personal property only.15Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond,
the court shall issue an order and the corresponding writ of replevin
describing the personal property alleged to be wrongfully detained and
requiring the sheriff forthwith to take such property into his custody."

"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals

On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:

Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the "words of the contract are clear
and leave no doubt upon the true intention of the contracting parties."
Observing that Petitioner Goquiolay was an experienced businessman who
was "not unfamiliar with the ways of the trade," it ruled that he "should have
realized the import of the document he signed." The CA further held:

"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;

"Furthermore, to accord merit to this petition would be to preempt the trial

court in ruling upon the case below, since the merits of the whole matter are
laid down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is attacked
by the other a matter x x x which respondent court is in the best position to
determine."

xxx

xxx

x x x"

In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own land.
Indisputably, they were essential and principal elements of their chocolatemaking industry. Hence, although each of them was movable or personal
property on its own, all of them have become "immobilized by destination
because they are essential and principal elements in the industry." 16 In that

Hence, this Petition.11

The Issues

25

Indeed, in La Tondea Distillers v. CA,27 the Court explained that the policy
under Rule 60 was that questions involving title to the subject property
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule
60 was either to post a counter-bond or to question the sufficiency of the
plaintiffs bond. They were not allowed, however, to invoke the title to the
subject property. The Court ruled:

sense, petitioners are correct in arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the Civil Code. 17
Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal. 18After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth
of any material fact found therein.

"In other words, the law does not allow the defendant to file a motion to
dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at
issue the matter of the title or right of possession over the specific chattel
being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits." 28

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties
to treat a house as a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:

Besides, these questions require a determination of facts and a presentation

of evidence, both of which have no place in a petition for certiorari in the CA
under Rule 65 or in a petition for review in this Court under Rule 45. 29

"x x x. Although there is no specific statement referring to the subject house

as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand by claiming
otherwise."

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings,
which had ironically been instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the parties.

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.

Wearever Textile Mills20 also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a
writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Courts ruling are reproduced hereunder:

Makati Leasing and Finance Corporation30 is also instructive on this point. In

that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent had
allegedly been required "to sign a printed form of chattel mortgage which
was in a blank form at the time of signing." The Court rejected the argument
and relied on the Deed, ruling as follows:

"x x x. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract
so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage."

"x x x. Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. x x x"

In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:21

Alleged Injustice Committed on the Part of Petitioners

"12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent."

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

Clearly then, petitioners are estopped from denying the characterization of

the subject machines as personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.

Petitioners arguments do not preclude the implementation of the

Writ.1wphi1 As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the filing
of a counter-bond. The provision states:

It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement is good
only insofar as the contracting parties are concerned. 22 Hence, while the
parties are bound by the Agreement, third persons acting in good faith are
not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party
would be adversely affected.

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency

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

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.24 Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from "intrinsic ambiguity which places in serious doubt the intention
of the parties and the validity of the lease agreement itself." 25 In their Reply
to respondents Comment, they further allege that the Agreement is invalid. 26

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.

These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the
merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.

SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

26

filed a motion to quash said warrants in the court that issued them. 3 But this
procedural flaw notwithstanding, we take cognizance of this petition in view
of the seriousness and urgency of the constitutional issues raised not to
mention the public interest generated by the search of the "We Forum"
offices, which was televised in Channel 7 and widely publicized in all
metropolitan dailies. The existence of this special circumstance justifies this
Court to exercise its inherent power to suspend its rules. In the words of the
revered Mr. Justice Abad Santos in the case of C. Vda. de Ordoveza v.
Raymundo, 4 "it is always in the power of the court [Supreme Court] to
suspend its rules or to except a particular case from its operation, whenever
the purposes of justice require it...".

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-64261 December 26, 1984
JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO and J.
BURGOS MEDIA SERVICES, INC.,petitioners,
vs.
THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, THE
CHIEF, PHILIPPINE CONSTABULARY, THE CHIEF LEGAL OFFICER,
PRESIDENTIAL SECURITY COMMAND, THE JUDGE ADVOCATE
GENERAL, ET AL.,respondents.

Respondents likewise urge dismissal of the petition on ground of laches.

Considerable stress is laid on the fact that while said search warrants were
issued on December 7, 1982, the instant petition impugning the same was
filed only on June 16, 1983 or after the lapse of a period of more than six [6]
months.

Lorenzo M. Taada, Wigberto E. Taada, Martiniano Vivo, Augusto

Sanchez, Joker P. Arroyo, Jejomar Binay and Rene Saguisag for petitioners.

Laches is failure or negligence for an unreasonable and unexplained length

of time to do that which, by exercising due diligence, could or should have
been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. 5

The Solicitor General for respondents.

Petitioners, in their Consolidated Reply, explained the reason for the delay in
the filing of the petition thus:
ESCOLIN, J.:

Respondents should not find fault, as they now do [p. 1, Answer,

p. 3, Manifestation] with the fact that the Petition was filed on
June 16, 1983, more than half a year after the petitioners'
premises had been raided.

Assailed in this petition for certiorari prohibition and mandamus with

preliminary mandatory and prohibitory injunction is the validity of two [2]
search warrants issued on December 7, 1982 by respondent Judge Ernani
Cruz-Pano, Executive Judge of the then Court of First Instance of Rizal
[Quezon City], under which the premises known as No. 19, Road 3, Project
6, Quezon City, and 784 Units C & D, RMS Building, Quezon Avenue,
Quezon City, business addresses of the "Metropolitan Mail" and "We Forum"
newspapers, respectively, were searched, and office and printing machines,
equipment, paraphernalia, motor vehicles and other articles used in the
printing, publication and distribution of the said newspapers, as well as
numerous papers, documents, books and other written literature alleged to
be in the possession and control of petitioner Jose Burgos, Jr. publishereditor of the "We Forum" newspaper, were seized.

The climate of the times has given petitioners no other choice. If

they had waited this long to bring their case to court, it was
because they tried at first to exhaust other remedies. The events
of the past eleven fill years had taught them that everything in
this country, from release of public funds to release of detained
persons from custody, has become a matter of executive
benevolence or largesse
Hence, as soon as they could, petitioners, upon suggestion of
persons close to the President, like Fiscal Flaminiano, sent a
letter to President Marcos, through counsel Antonio Coronet
asking the return at least of the printing equipment and vehicles.
And after such a letter had been sent, through Col. Balbino V.
Diego, Chief Intelligence and Legal Officer of the Presidential
Security Command, they were further encouraged to hope that
the latter would yield the desired results.

Petitioners further pray that a writ of preliminary mandatory and prohibitory

injunction be issued for the return of the seized articles, and that
respondents, "particularly the Chief Legal Officer, Presidential Security
Command, the Judge Advocate General, AFP, the City Fiscal of Quezon
City, their representatives, assistants, subalterns, subordinates, substitute or
successors" be enjoined from using the articles thus seized as evidence
against petitioner Jose Burgos, Jr. and the other accused in Criminal Case
No. Q- 022782 of the Regional Trial Court of Quezon City, entitled People v.
Jose Burgos, Jr. et al. 1

After waiting in vain for five [5] months, petitioners

finally decided to come to Court. [pp. 123-124, Rollo]
Although the reason given by petitioners may not be flattering to our judicial
system, We find no ground to punish or chastise them for an error in
judgment. On the contrary, the extrajudicial efforts exerted by petitioners
quite evidently negate the presumption that they had abandoned their right
to the possession of the seized property, thereby refuting the charge of
laches against them.

In our Resolution dated June 21, 1983, respondents were required to

answer the petition. The plea for preliminary mandatory and prohibitory
injunction was set for hearing on June 28, 1983, later reset to July 7, 1983,
on motion of the Solicitor General in behalf of respondents.
At the hearing on July 7, 1983, the Solicitor General, while opposing
petitioners' prayer for a writ of preliminary mandatory injunction, manifested
that respondents "will not use the aforementioned articles as evidence in the
aforementioned case until final resolution of the legality of the seizure of the
aforementioned articles. ..." 2 With this manifestation, the prayer for
preliminary prohibitory injunction was rendered moot and academic.

Respondents also submit the theory that since petitioner Jose Burgos, Jr.
had used and marked as evidence some of the seized documents in
Criminal Case No. Q- 022872, he is now estopped from challenging the
validity of the search warrants. We do not follow the logic of respondents.
These documents lawfully belong to petitioner Jose Burgos, Jr. and he can
do whatever he pleases with them, within legal bounds. The fact that he has
used them as evidence does not and cannot in any way affect the validity or
invalidity of the search warrants assailed in this petition.

Respondents would have this Court dismiss the petition on the ground that
petitioners had come to this Court without having previously sought the
quashal of the search warrants before respondent judge. Indeed, petitioners,
before impugning the validity of the warrants before this Court, should have

27

Several and diverse reasons have been advanced by petitioners to nullify

the search warrants in question.

[c] Property used or intended to be used as the

means of committing an offense.

1. Petitioners fault respondent judge for his alleged failure to conduct an

examination under oath or affirmation of the applicant and his witnesses, as
mandated by the above-quoted constitutional provision as wen as Sec. 4,
Rule 126 of the Rules of Court . 6 This objection, however, may properly be
considered moot and academic, as petitioners themselves conceded during
the hearing on August 9, 1983, that an examination had indeed been
conducted by respondent judge of Col. Abadilla and his witnesses.

The above rule does not require that the property to be seized should be
owned by the person against whom the search warrant is directed. It may or
may not be owned by him. In fact, under subsection [b] of the above-quoted
Section 2, one of the properties that may be seized is stolen property.
Necessarily, stolen property must be owned by one other than the person in
whose possession it may be at the time of the search and seizure.
Ownership, therefore, is of no consequence, and it is sufficient that the
person against whom the warrant is directed has control or possession of
the property sought to be seized, as petitioner Jose Burgos, Jr. was alleged
to have in relation to the articles and property seized under the warrants.

2. Search Warrants No. 20-82[a] and No. 20- 82[b] were used to search two
distinct places: No. 19, Road 3, Project 6, Quezon City and 784 Units C & D,
RMS Building, Quezon Avenue, Quezon City, respectively. Objection is
interposed to the execution of Search Warrant No. 20-82[b] at the latter
address on the ground that the two search warrants pinpointed only one
place where petitioner Jose Burgos, Jr. was allegedly keeping and
concealing the articles listed therein, i.e., No. 19, Road 3, Project 6, Quezon
City. This assertion is based on that portion of Search Warrant No. 20- 82[b]
which states:

4. Neither is there merit in petitioners' assertion that real properties were

seized under the disputed warrants. Under Article 415[5] of the Civil Code of
the Philippines, "machinery, receptables, 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" are considered immovable
property. In Davao Sawmill Co. v. Castillo 9 where this legal provision was
invoked, this Court ruled that machinery which is movable by nature
becomes immobilized when placed by the owner of the tenement, property
or plant, but not so when placed by a tenant, usufructuary, or any other
person having only a temporary right, unless such person acted as the agent
of the owner.

Which have been used, and are being used as

instruments and means of committing the crime of
subversion penalized under P.D. 885 as amended
and he is keeping and concealing the same at 19
Road 3, Project 6, Quezon City.

In the case at bar, petitioners do not claim to be the owners of the land
and/or building on which the machineries were placed. This being the case,
the machineries in question, while in fact bolted to the ground remain
movable property susceptible to seizure under a search warrant.

The defect pointed out is obviously a typographical error. Precisely, two

search warrants were applied for and issued because the purpose and intent
were to search two distinct premises. It would be quite absurd and illogical
for respondent judge to have issued two warrants intended for one and the
same place. Besides, the addresses of the places sought to be searched
were specifically set forth in the application, and since it was Col. Abadilla
himself who headed the team which executed the search warrants, the
ambiguity that might have arisen by reason of the typographical error is
more apparent than real. The fact is that the place for which Search Warrant
No. 20- 82[b] was applied for was 728 Units C & D, RMS Building, Quezon
Avenue, Quezon City, which address appeared in the opening paragraph of
the said warrant. 7 Obviously this is the same place that respondent judge
had in mind when he issued Warrant No. 20-82 [b].

5. The questioned search warrants were issued by respondent judge upon

application of Col. Rolando N. Abadilla Intelligence Officer of the P.C.
Metrocom. 10 The application was accompanied by the Joint Affidavit of
Alejandro M. Gutierrez and Pedro U. Tango, 11 members of the Metrocom
Intelligence and Security Group under Col. Abadilla which conducted a
surveillance of the premises prior to the filing of the application for the
search warrants on December 7, 1982.
It is contended by petitioners, however, that the abovementioned documents
could not have provided sufficient basis for the finding of a probable cause
upon which a warrant may validly issue in accordance with Section 3, Article
IV of the 1973 Constitution which provides:

In the determination of whether a search warrant describes the premises to

be searched with sufficient particularity, it has been held "that the executing
officer's prior knowledge as to the place intended in the warrant is relevant.
This would seem to be especially true where the executing officer is the
affiant on whose affidavit the warrant had issued, and when he knows that
the judge who issued the warrant intended the building described in the
affidavit, And it has also been said that the executing officer may look to the
affidavit in the official court file to resolve an ambiguity in the warrant as to
the place to be searched." 8

SEC. 3. ... and no search warrant or warrant of arrest

shall issue except upon probable cause to be
determined by the judge, or such other responsible
officer as may be authorized by law, after
examination under oath or affirmation of the
complainant and the witnesses he may produce, and
particularly describing the place to be searched and
the persons or things to be seized.

3. Another ground relied upon to annul the search warrants is the fact that
although the warrants were directed against Jose Burgos, Jr. alone, articles
b belonging to his co-petitioners Jose Burgos, Sr., Bayani Soriano and the J.
Burgos Media Services, Inc. were seized.

We find petitioners' thesis impressed with merit. Probable cause for a search
is defined as such facts and circumstances which would lead a reasonably
discreet and prudent man to believe that an offense has been committed
and that the objects sought in connection with the offense are in the place
sought to be searched. And when the search warrant applied for is directed
against a newspaper publisher or editor in connection with the publication of
subversive materials, as in the case at bar, the application and/or its
supporting affidavits must contain a specification, stating with particularity
the alleged subversive material he has published or is intending to publish.
Mere generalization will not suffice. Thus, the broad statement in Col.
Abadilla's application that petitioner "is in possession or has in his control
printing equipment and other paraphernalia, news publications and other
documents which were used and are all continuously being used as a
means of committing the offense of subversion punishable under
Presidential Decree 885, as amended ..." 12 is a mere conclusion of law and
does not satisfy the requirements of probable cause. Bereft of such

Section 2, Rule 126 of the Rules of Court, enumerates the personal

properties that may be seized under a search warrant, to wit:
Sec. 2. Personal Property to be seized. A search
warrant may be issued for the search and seizure of
the following personal property:
[a] Property subject of the offense;
[b] Property stolen or embezzled and other proceeds
or fruits of the offense; and

28

particulars as would justify a finding of the existence of probable cause, said

allegation cannot serve as basis for the issuance of a search warrant and it
was a grave error for respondent judge to have done so.

for being too general. In like manner, directions to "seize any evidence in
connectionwith the violation of SDC 13-3703 or otherwise" have been held
too general, and that portion of a search warrant which authorized the
seizure of any "paraphernalia which could be used to violate Sec. 54-197 of
the Connecticut General Statutes [the statute dealing with the crime of
conspiracy]" was held to be a general warrant, and therefore invalid. 17 The
description of the articles sought to be seized under the search warrants in
question cannot be characterized differently.

Equally insufficient as basis for the determination of probable cause is the

statement contained in the joint affidavit of Alejandro M. Gutierrez and Pedro
U. Tango, "that the evidence gathered and collated by our unit clearly shows
that the premises above- mentioned and the articles and things abovedescribed were used and are continuously being used for subversive
activities in conspiracy with, and to promote the objective of, illegal
organizations such as the Light-a-Fire Movement, Movement for Free
Philippines, and April 6 Movement." 13

In the Stanford case, the U.S. Supreme Courts calls to mind a notable
chapter in English history: the era of disaccord between the Tudor
Government and the English Press, when "Officers of the Crown were given
roving commissions to search where they pleased in order to suppress and
destroy the literature of dissent both Catholic and Puritan Reference herein
to such historical episode would not be relevant for it is not the policy of our
government to suppress any newspaper or publication that speaks with "the
voice of non-conformity" but poses no clear and imminent danger to state
security.

In mandating that "no warrant shall issue except upon probable cause to be
determined by the judge, ... after examination under oath or affirmation of
the complainant and the witnesses he may produce; 14 the Constitution
requires no less than personal knowledge by the complainant or his
witnesses of the facts upon which the issuance of a search warrant may be
justified. In Alvarez v. Court of First Instance, 15 this Court ruled that "the
oath required must refer to the truth of the facts within the personal
knowledge of the petitioner or his witnesses, because the purpose thereof is
to convince the committing magistrate, not the individual making the affidavit
and seeking the issuance of the warrant, of the existence of probable
cause." As couched, the quoted averment in said joint affidavit filed before
respondent judge hardly meets the test of sufficiency established by this
Court in Alvarez case.

As heretofore stated, the premises searched were the business and printing
offices of the "Metropolitan Mail" and the "We Forum newspapers. As a
consequence of the search and seizure, these premises were padlocked
and sealed, with the further result that the printing and publication of said
newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship abhorrent to
the freedom of the press guaranteed under the fundamental law, 18 and
constitutes a virtual denial of petitioners' freedom to express themselves in
print. This state of being is patently anathematic to a democratic framework
where a free, alert and even militant press is essential for the political
enlightenment and growth of the citizenry.

Another factor which makes the search warrants under consideration

constitutionally objectionable is that they are in the nature of general
warrants. The search warrants describe the articles sought to be seized in
this wise:
1] All printing equipment, paraphernalia, paper, ink, photo
(equipment, typewriters, cabinets, tables,
communications/recording equipment, tape recorders,
dictaphone and the like used and/or connected in the printing of
the "WE FORUM" newspaper and any and all documents
communication, letters and facsimile of prints related to the "WE
FORUM" newspaper.

Respondents would justify the continued sealing of the printing machines on

the ground that they have been sequestered under Section 8 of Presidential
Decree No. 885, as amended, which authorizes "the sequestration of the
property of any person, natural or artificial, engaged in subversive activities
against the government and its duly constituted authorities ... in accordance
with implementing rules and regulations as may be issued by the Secretary
of National Defense." It is doubtful however, if sequestration could validly be
effected in view of the absence of any implementing rules and regulations
promulgated by the Minister of National Defense.

2] Subversive documents, pamphlets, leaflets, books, and other

publication to promote the objectives and piurposes of the
subversive organization known as Movement for Free
Philippines, Light-a-Fire Movement and April 6 Movement; and,

Besides, in the December 10, 1982 issue of the Daily Express, it was
reported that no less than President Marcos himself denied the request of
the military authorities to sequester the property seized from petitioners on
December 7, 1982. Thus:

3] Motor vehicles used in the distribution/circulation of the "WE

FORUM" and other subversive materials and propaganda, more
particularly,

The President denied a request flied by government

prosecutors for sequestration of the WE FORUM
newspaper and its printing presses, according to
Information Minister Gregorio S. Cendana.

1] Toyota-Corolla, colored yellow with Plate No. NKA

892;

On the basis of court orders, government agents

went to the We Forum offices in Quezon City and
took a detailed inventory of the equipment and all
materials in the premises.

2] DATSUN pick-up colored white with Plate No. NKV

969
3] A delivery truck with Plate No. NBS 524;

Cendaa said that because of the denial the

newspaper and its equipment remain at the disposal
of the owners, subject to the discretion of the
court. 19

4] TOYOTA-TAMARAW, colored white with Plate No.

PBP 665; and,
5] TOYOTA Hi-Lux, pick-up truck with Plate No. NGV
427 with marking "Bagong Silang."

That the property seized on December 7, 1982 had not been sequestered is
further confirmed by the reply of then Foreign Minister Carlos P. Romulo to
the letter dated February 10, 1983 of U.S. Congressman Tony P. Hall
addressed to President Marcos, expressing alarm over the "WE FORUM "
case. 20 In this reply dated February 11, 1983, Minister Romulo stated:

In Stanford v. State of Texas 16 the search warrant which authorized the

search for "books, records, pamphlets, cards, receipts, lists, memoranda,
pictures, recordings and other written instruments concerning the
Communist Party in Texas," was declared void by the U.S. Supreme Court

29

2. Contrary to reports, President Marcos turned down

the recommendation of our authorities to close the
paper's printing facilities and confiscate the
equipment and materials it uses. 21

Subversive documents, pamphlets, leaflets, books

and other publication to promote the objectives and
purposes of the subversive organizations known as
Movement for Free Philippines, Light-a-Fire
Movement and April 6 Movement.

IN VIEW OF THE FOREGOING, Search Warrants Nos. 20-82[a] and 2082[b] issued by respondent judge on December 7, 1982 are hereby declared
null and void and are accordingly set aside. The prayer for a writ of
mandatory injunction for the return of the seized articles is hereby granted
and all articles seized thereunder are hereby ordered released to petitioners.
No costs.

The obvious question is: Why were the documents, pamphlets, leaflets,
books, etc. subversive? What did they contain to make them subversive?
There is nothing in the applications nor in the warrants which answers the
questions. I must, therefore, conclude that the warrants are general warrants
which are obnoxious to the Constitution.

SO ORDERED.

In point of fact, there was nothing subversive published in the WE FORUM

just as there is nothing subversive which has been published in MALAYA
which has replaced the former and has the same content but against which
no action has been taken.

Fernando, C.J., Teehankee, Makasiar, Concepcion, Jr., Melencio-Herrera,

Plana, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.

Conformably with existing jurisprudence everything seized pursuant to the

warrants should be returned to the owners and all of the items are subject to
the exclusionary rule of evidence.

Aquino, J., took no part.

Teehankee, J., concur.

Separate Opinions

Separate Opinions
ABAD SANTOS, J., concurring
ABAD SANTOS, J., concurring
I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At
the same time I wish to state my own reasons for holding that the search
warrants which are the subject of the petition are utterly void.

I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At

the same time I wish to state my own reasons for holding that the search
warrants which are the subject of the petition are utterly void.

The action against "WE FORUM" was a naked suppression of press

freedom for the search warrants were issued in gross violation of the
Constitution.

The action against "WE FORUM" was a naked suppression of press

freedom for the search warrants were issued in gross violation of the
Constitution.

The Constitutional requirement which is expressed in Section 3, Article IV,

stresses two points, namely: "(1) that no warrant shall issue but upon
probable cause, to be determined by the judge in the manner set forth in
said provision; and (2) that the warrant shall particularly describe the things
to be seized." (Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383
[1967].)

The Constitutional requirement which is expressed in Section 3, Article IV,

stresses two points, namely: "(1) that no warrant shall issue but upon
probable cause, to be determined by the judge in the manner set forth in
said provision; and (2) that the warrant shall particularly describe the things
to be seized." (Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383
[1967].)

Any search warrant is conducted in disregard of the points mentioned above

will result in wiping "out completely one of the most fundamental rights
guaranteed in our Constitution, for it would place the sanctity of the domicile
and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers." (Ibid, p. 748.)

Any search warrant is conducted in disregard of the points mentioned above

will result in wiping "out completely one of the most fundamental rights
guaranteed in our Constitution, for it would place the sanctity of the domicile
and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers." (Ibid, p. 748.)

The two search warrants were issued without probable cause. To satisfy the
requirement of probable cause a specific offense must be alleged in the
application; abstract averments will not suffice. In the case at bar nothing
specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the
offense of subversion punishable under P.D. No. 885, as amended. There is
no mention of any specific provision of the decree. I n the words of Chief
Justice C Concepcion, " It would be legal heresy of the highest order, to
convict anybody" of violating the decree without reference to any
determinate provision thereof.

The two search warrants were issued without probable cause. To satisfy the
requirement of probable cause a specific offense must be alleged in the
application; abstract averments will not suffice. In the case at bar nothing
specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the
offense of subversion punishable under P.D. No. 885, as amended. There is
no mention of any specific provision of the decree. I n the words of Chief
Justice C Concepcion, " It would be legal heresy of the highest order, to
convict anybody" of violating the decree without reference to any
determinate provision thereof.

The search warrants are also void for lack of particularity. Both search
warrants authorize Col. Rolando Abadilla to seize and take possession,
among other things, of the following:

The search warrants are also void for lack of particularity. Both search
warrants authorize Col. Rolando Abadilla to seize and take possession,
among other things, of the following:

30

Subversive documents, pamphlets, leaflets, books

and other publication to promote the objectives and
purposes of the subversive organizations known as
Movement for Free Philippines, Light-a-Fire
Movement and April 6 Movement.

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.

The obvious question is: Why were the documents, pamphlets, leaflets,
books, etc. subversive? What did they contain to make them subversive?
There is nothing in the applications nor in the warrants which answers the
questions. I must, therefore, conclude that the warrants are general warrants
which are obnoxious to the Constitution.
In point of fact, there was nothing subversive published in the WE FORUM
just as there is nothing subversive which has been published in MALAYA
which has replaced the former and has the same content but against which
no action has been taken.
Conformably with existing jurisprudence everything seized pursuant to the
warrants should be returned to the owners and all of the items are subject to
the exclusionary rule of evidence.

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.

Teehankee, J., concur.

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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10817-18

February 28, 1958

ENRIQUE LOPEZ, petitioner,

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

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.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.

Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc.
Jose B. Macatangay for respondent Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the
trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente
Orosa, Jr., also a resident of the same province, dropped at Lopez' house
and invited him to make an investment in the theatre business. It was
intimated that Orosa, his family and close friends were organizing a
corporation to be known as Plaza Theatre, Inc., that would engage in such
venture. Although Lopez expressed his unwillingness to invest of the same,
he agreed to supply the lumber necessary for the construction of the
proposed theatre, and at Orosa's behest and assurance that the latter would
be personally liable for any account that the said construction might incur,
Lopez further agreed that payment therefor would be on demand and not
cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered

31

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.

specification delimiting the lien to the building, said article must be construed
as to embrace both the land and the building or structure adhering thereto.
We cannot subscribe to this view, for while it is true that generally, real
estate connotes the land and the building constructed thereon, it is obvious
that the inclusion of the building, separate and distinct from the land, in the
enumeration of what may constitute real properties1 could mean only one
thing that a building is by itself an immovable property, a doctrine already
pronounced by this Court in the case of Leung Yee vs. Strong Machinery
Co., 37 Phil., 644. Moreover, and in view of the absence of any specific
provision of law to the contrary, a building is an immovable property,
irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant
reveals that the law gives preference to unregistered refectionary credits
only with respect to the real estate upon which the refection or work was
made. This being so, the inevitable conclusion must be that the lien so
created attaches merely to the immovable property for the construction or
repair of which the obligation was incurred. Evidently, therefore, the lien in
favor of appellant for the unpaid value of the lumber used in the construction
of the building attaches only to said structure and to no other property of the
obligors.

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.

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.

Footnotes
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.

Article 415 of the new Civil Code (Art. 334 of the old)
enumerates what are considered immovable property, among
which are land, buildings, roads and constructions of all kinds
adhered to the soil.
1

Republic of the Philippines

SUPREME COURT
Manila

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:

FIRST DIVISION
G.R. No. L-32917 July 18, 1988
JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAADA, etc., and GOULDS PUMPS
INTERNATIONAL (PHIL.), INC., respondents.

ART. 1923. With respect to determinate real property and real

rights of the debtor, the following are preferred:

Paterno P. Natinga for private respondent.

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.

NARVASA, J.:
The petition for review on certiorari at bar involves two (2) Orders of
respondent Judge Taada 1 in Civil Case No. 10984. The first, dated
September 16, 1970, denied petitioner Yap's motion to set aside execution

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

32

sale and to quash alias writ of execution. The second, dated November 21,
1970, denied Yap's motion for reconsideration. The issues concerned the
propriety of execution of a judgment claimed to be "incomplete, vague and
non-final," and the denial of petitioner's application to prove and recover
damages resulting from alleged irregularities in the process of execution.

that Yap had again sought postponement of this last hearing by another
eleventh-hour motion on the plea that an amicable settlement would be
explored, yet he had never up to that time ever broached the matter, 10 and
that this pattern of seeking to obtain last-minute postponements was
discernible also in the proceedings before the City Court. In its opposition,
Goulds also adverted to the examination made by it of the pump, on
instructions of the City Court, with a view to remedying the defects claimed
to exist by Yap; but the examination had disclosed the pump's perfect
condition. Yap's motion for reconsideration was denied by Order dated
October 10, 1969, notice of which was received by Yap on October 4,
1969. 11

The antecedents will take some time in the telling. The case began in the
City Court of Cebu with the filing by Goulds Pumps International (Phil.), Inc.
of a complaint 2 against Yap and his wife 3 seeking recovery of P1,459.30
representing the balance of the price and installation cost of a water pump in
the latter's premises. 4 The case resulted in a judgment by the City Court on
November 25, 1968, reading as follows:

On October 15, 1969 Judge Taada issued an Order granting Goulds'

Motion for Issuance of Writ of Execution dated October 14, 1969, declaring
the reasons therein alleged to be meritorious. 12 Yap forthwith filed an
"Urgent Motion for Reconsideration of Order" dated October 17,
1969, 13 contending that the judgment had not yet become final, since
contrary to Goulds' view, his motion for reconsideration was not pro
forma for lack of an affidavit of merit, this not being required under Section 1
(a) of Rule 37 of the Rules of Court upon which his motion was grounded.
Goulds presented an opposition dated October 22, 1969. 14 It pointed out
that in his motion for reconsideration Yap had claimed to have a valid
defense to the action, i.e., ".. discrepancy as to price and breach of seller's
warranty," in effect, that there was fraud on Goulds' paint; Yap's motion for
reconsideration should therefore have been supported by an affidavit of
merit respecting said defenses; the absence thereof rendered the motion for
reconsideration fatally defective with the result that its filing did not interrupt
the running of the period of appeal. The opposition also drew attention to the
failure of the motion for reconsideration to specify the findings or conclusions
in the judgment claimed to be contrary to law or not supported by the
evidence, making it a pro forma motion also incapable of stopping the
running of the appeal period. On October 23, 1969, Judge Taada denied
Yap's motion for reconsideration and authorized execution of the
judgment. 15 Yap sought reconsideration of this order, by another motion
dated October 29, 1969. 16 This motion was denied by Order dated January
26, 1970. 17 Again Yap moved for reconsideration, and again was rebuffed,
by Order dated April 28, 1970. 18

When this case was called for trial today, Atty. Paterno Natinga
appeared for the plaintiff Goulds and informed the court that he
is ready for trial. However, none of the defendants appeared
despite notices having been served upon them.
Upon petition Atty. Natinga, the plaintiff is hereby allowed to
present its evidence ex-parte.
After considering the evidence of the plaintiff, the court hereby
renders judgment in favor of the plaintiff and against the
defendant (Yap), ordering the latter to pay to the former the sum
of Pl,459.30 with interest at the rate of 12% per annum until fully
paid, computed from August 12, 1968, date of the filing of the
complaint; to pay the sum of P364.80 as reasonable attorney's
fees, which is equivalent " to 25% of the unpaid principal
obligation; and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to
the sala of respondent Judge Taada. For failure to appear for pre-trial on
August 28, 1968, this setting being intransferable since the pre-trial had
already been once postponed at his instance, 5 Yap was declared in default
by Order of Judge Taada dated August 28, 1969, 6 reading as follows:

In the meantime the Sheriff levied on the water pump in question, 19 and by
notice dated November 4, 1969, scheduled the execution sale thereof on
November 14, 1969. 20 But in view of the pendency of Yap's motion for
reconsideration of October 29, 1969, suspension of the sale was directed by
Judge Taada in an order dated November 6, 1969. 21

When this case was called for pre-trial this morning, the plaintiff
and counsel appeared, but neither the defendants nor his counsel
appeared despite the fact that they were duly notified of the pretrial set this morning. Instead he filed an Ex-Parte Motion for
Postponement which this Court received only this morning, and on
petition of counsel for the plaintiff that the Ex-Parte Motion for
Postponement was not filed in accordance with the Rules of Court
he asked that the same be denied and the defendants be declared
in default; .. the motion for the plaintiff being well- grounded, the
defendants are hereby declared in default and the Branch Clerk of
Court ..is hereby authorized to receive evidence for the plaintiff
and .. submit his report within ten (10) days after reception of
evidence.

Counsel for the plaintiff is hereby given 10 days time

to answer the Motion, dated October 29, 1969, from
receipt of this Order and in the meantime, the Order
of October 23, 1969, insofar as it orders the sheriff to
enforce the writ of execution is hereby suspended.
It appears however that a copy of this Order was not transmitted to the
Sheriff "through oversight, inadvertence and pressure of work" of the Branch
Clerk of Court. 22 So the Deputy Provincial Sheriff went ahead with the
scheduled auction sale and sold the property levied on to Goulds as the
highest bidder. 23 He later submitted the requisite report to the Court dated
November 17, 1969, 24 as well as the "Sheriffs Return of Service" dated
February 13, 1970, 25 in both of which it was stated that execution had been
"partially satisfied." It should be observed that up to this time, February,
1970, Yap had not bestirred himself to take an appeal from the judgment of
August 29, 1969.

Goulds presented evidence ex parte and judgment by default was rendered

the following day by Judge Taada requiring Yap to pay to Goulds (1)
Pl,459.30 representing the unpaid balance of the pump purchased by him;
(2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other
expenses in prosecuting the action. Notice of the judgment was served on
Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he
insisted that his motion for postponement should have been granted since it
expressed his desire to explore the possibility of an amicable settlement;
that the court should give the parties time to arrive at an amicable settlement
failing which, he should be allowed to present evidence in support of his
defenses (discrepancy as to the price and breach of warranty). The motion
was not verified or accompanied by any separate affidavit. Goulds opposed
the motion. Its opposition 9 drew attention to the eleventh-hour motion for
postponement of Yap which had resulted in the cancellation of the prior
hearing of June 30, 1969 despite Goulds' vehement objection, and the resetting thereof on August 28, 1969 with intransferable character; it averred

On May 9, 1970 Judge Taada ordered the issuance of an alias writ of

execution on Gould's ex parte motion therefor. 26 Yap received notice of the
Order on June 11. Twelve (1 2) days later, he filed a "Motion to Set Aside
Execution Sale and to Quash Alias Writ of Execution." 27 As regards
the original, partial execution of the judgment, he argued that
1) "the issuance of the writ of execution on October 16, 1969 was contrary to
law, the judgment sought to be executed not being final and executory;" and

33

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the
New Rules of Court," i.e., notice by publication in case of execution sale of
real property, the pump and its accessories being immovable because
attached to the ground with character of permanency (Art. 415, Civil Code).

2) ignoring the fact that the execution sale was carried out although it (the
Court) had itself ordered suspension of execution on November 6, 1969;
3) declining to annul the execution sale of the pump and accessories subject
of the action although made without the requisite notice prescribed for the
sale of immovables; and

And with respect to the alias writ, he argued that it should not have issued
because

4) refusing to allow the petitioner to prove irregularities in the process of

execution which had resulted in damages to him.

1) "the judgment sought to be executed is null and void" as "it deprived the
defendant of his day in court" and "of due process;"

Notice of the Trial Court's judgment was served on Yap on September 1,

1969. His motion for reconsideration thereof was filed 15 days thereafter, on
September 16, 1969. Notice of the Order denying the motion was received
by him on October 14, 1969. The question is whether or not the motion for
reconsideration which was not verified, or accompanied by an affidavit of
merits (setting forth facts constituting his meritorious defenses to the suit) or
other sworn statement (stating facts excusing his failure to appear at the
pre-trial was pro forma and consequently had not interrupted the running of
the period of appeal. It is Yap's contention that his motion was notpro
forma for lack of an affidavit of merits, such a document not being required
by Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was
based. This is incorrect.

2) "said judgment is incomplete and vague" because there is no starting

point for computation of the interest imposed, or a specification of the "other
expenses incurred in prosecuting this case" which Yap had also been
ordered to pay;
3) "said judgment is defective because it contains no statement of facts but a
mere recital of the evidence; and
4) "there has been a change in the situation of the parties which makes
execution unjust and inequitable" because Yap suffered damages by reason
of the illegal execution.

Section 2, Rule 37 precisely requires that when the motion for new trial is
founded on Section 1 (a), it should be accompanied by an affidavit of merit.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter

denied by Order dated September 16, 1970. Judge Taada pointed out that
the motion had "become moot and academic" since the decision of August
29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was
promulgated on October 15, 1969." His Honor also stressed that

xxx xxx xxx

When the motion is made for the causes mentioned
in subdivisions (a) and (b) of the preceding section, it
shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be
attached to a motion for the cause mentioned in
subdivision (a) which may be rebutted by counteraffidavits.

The defendant's Motion for Reconsideration of the Courts

decision was in reality one for new trial. Regarded as motion for
new trial it should allege the grounds for new trial, provided for in
the Rules of Court, to be supported by affidavit of merits; and this
the defendant failed to do. If the defendant sincerely desired for
an opportunity to submit to an amicable settlement, which he
failed to do extra judicially despite the ample time before him, he
should have appeared in the pre- trial to achieve the same
purpose.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on
Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable
negligence which ordinary prudence could not have guarded against and by
reason of which ... (the) aggrieved party has probably been impaired in his
rights" this being in any event clear from a perusal of the motion which
theorizes that he had "been impaired in his rights" because he was denied
the right to present evidence of his defenses (discrepancy as to price and
breach of warranty) it was a fatal omission to fail to attach to his motion
an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions)
constituting the valid x x defense which the movant may prove in case a new
trial is granted." 34 The requirement of such an affidavit is essential because
obviously "a new trial would be a waste of the court's time if the complaint
turns out to be groundless or the defense ineffective." 35

Judge Taada thereafter promulgated another Order dated September 21,

1970 granting a motion of Goulds for completion of execution of the
judgment of August 29, 1969 to be undertaken by the City Sheriff of Cebu.
Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the
setting aside not only of this Order of September 21, 1970 but also that
dated September 16, 1970, denying his motion to set aside execution dated
June 23, 1970. He contended that the Order of September 21, 1970
(authorizing execution by the City Sheriff) was premature, since the 30-day
period to appeal from the earlier order of September 16, 1970 (denying his
motion to set aside) had not yet expired. He also reiterated his view that his
motion for reconsideration dated September 15, 1969 did not require that it
be accompanied by an affidavit of merits. This last motion was also denied
for "lack of merits," by Order dated November 21, 1970. 29

In his motion for reconsideration, Yap also contended that since he had
expressed a desire to explore the possibility of an amicable settlement, the
Court should have given him time to do so, instead of declaring him in
default and thereafter rendering judgment by default on Gould's ex
parte evidence.

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his

intention to appeal to the Supreme Court on certiorari only on questions of
law, "from the Order ... of September 16, 1970 ... and from the Order ... of
November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971,
after obtaining an extension therefor. 30

The bona fides of this desire to compromise is however put in doubt by the
attendant circumstances. It was manifested in an eleventh-hour motion for
postponement of the pre-trial which had been scheduled with intransferable
character since it had already been earlier postponed at Yap's instance; it
had never been mentioned at any prior time since commencement of the
litigation; such a possible compromise (at least in general or preliminary
terms) was certainly most appropriate for consideration at the pre-trial; in
fact Yap was aware that the matter was indeed a proper subject of a pre-trial
agenda, yet he sought to avoid appearance at said pre-trial which he knew
to be intransferable in character. These considerations and the dilatory

The errors of law he attributes to the Court a quo are the following: 31
1) refusing to invalidate the execution pursuant to its Order of October 16,
1969 although the judgment had not then become final and executory and
despite its being incomplete and vague;

34

tactics thus far attributable to him-seeking postponements of hearings, or

failing to appear therefor despite notice, not only in the Court of First
Instance but also in the City Court proscribe belief in the sincerity of his
avowed desire to negotiate a compromise. Moreover, the disregard by Yap
of the general requirement that "(n)otice of a motion shall be served by the
applicant to all parties concerned at least three (3) days before the hearing
thereof, together with a copy of the motion, and of any affidavits and other
papers accompanying it," 36 for which no justification whatever has been
offered, also militates against the bona fides of Yap's expressed wish for an
amicable settlement. The relevant circumstances do not therefore justify
condemnation, as a grave abuse of discretion, or a serious mistake, of the
refusal of the Trial Judge to grant postponement upon this proferred ground.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the
Orders of September 16, 1970 and November 21, 1970 subject thereof,
AFFIRMED in toto. Costs against petitioner.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

The motion for reconsideration did not therefore interrupt the running of the
period of appeal. The time during which it was pending before the court
from September 16, 1969 when it was filed with the respondent Court until
October 14, 1969 when notice of the order denying the motion was received
by the movant could not be deducted from the 30-day period of
appeal. 37 This is the inescapable conclusion from a consideration of Section
3 of Rule 41 which in part declares that, "The "time during which a motion to
set aside the judgment or order or for a new trial has been pending shall be
deducted, unless such motion fails to satisfy the requirements of Rule 37. 38

EN BANC
G.R. No. L-7057

October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO
PECSON, JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA,
IPO LIMESTONE CO., INC., and ANTONIO VILLARAMA, respondents.

Notice of the judgment having been received by Yap on September 1, 1969,

and the period of appeal therefrom not having been interrupted by his
motion for reconsideration filed on September 16, 1969, the reglementary
period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then
became final and executory; Yap could no longer take an appeal therefrom
or from any other subsequent orders; and execution of judgment correctly
issued on October 15, 1969, "as a matter of right." 39

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.
CONCEPCION, J.:

The next point discussed by Yap, that the judgment is incomplete and
vague, is not well taken. It is true that the decision does not fix the starting
time of the computation of interest on the judgment debt, but this is
inconsequential since that time is easily determinable from the opinion, i.e.,
from the day the buyer (Yap) defaulted in the payment of his obligation, 40 on
May 31, 1968. 41 The absence of any disposition regarding his counterclaim
is also immaterial and does not render the judgment incomplete. Yap's
failure to appear at the pre-trial without justification and despite notice, which
caused the declaration of his default, was a waiver of his right to controvert
the plaintiff s proofs and of his right to prove the averments of his answer,
inclusive of the counterclaim therein pleaded. Moreover, the conclusion in
the judgment of the merit of the plaintiff s cause of action was necessarily
and at the same time a determination of the absence of merit of the
defendant's claim of untenability of the complaint and of malicious
prosecution.

This is an appeal by certiorari, taken by petitioner Machinery and

Engineering Supplies Inc., from a decision of the Court of Appeals denying
an original petition for certiorari filed by said petitioner against Hon.
Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the
respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from
which we quote:
On March 13, 1953, the herein petitioner filed a complaint for
replevin in the Court of First Instance of Manila, Civil Case No.
19067, entitled "Machinery and Engineering Supplies, Inc.,
Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama,
defendants", for the recovery of the machinery and equipment
sold and delivered to said defendants at their factory in barrio
Bigti, Norzagaray, Bulacan. Upon application ex-parte of the
petitioner company, and upon approval of petitioner's bond in the
sum of P15,769.00, on March 13,1953, respondent judge issued
an order, commanding the Provincial Sheriff of Bulacan to seize
and take immediate possession of the properties specified in the
order (Appendix I, Answer). On March 19, 1953, two deputy
sheriffs of Bulacan, the said Ramon S. Roco, and a crew of
technical men and laborers proceeded to Bigti, for the purpose of
carrying the court's order into effect. Leonardo Contreras,
Manager of the respondent Company, and Pedro Torres, in
charge thereof, met the deputy sheriffs, and Contreras handed to
them a letter addressed to Atty. Leopoldo C. Palad, ex-oficio
Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the
defendants therein, protesting against the seizure of the
properties in question, on the ground that they are not personal
properties. Contending that the Sheriff's duty is merely
ministerial, the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and Torres, went to the
factory. Roco's attention was called to the fact that the equipment
could not possibly be dismantled without causing damages or
injuries to the wooden frames attached to them. As Roco insisted
in dismantling the equipment on his own responsibility, alleging
that the bond was posted for such eventuality, the deputy sheriffs

Yap's next argument that the water pump had become immovable property
by its being installed in his residence is also untenable. The Civil Code
considers as immovable property, among others, anything "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." 42 The
pump does not fit this description. It could be, and was in fact separated
from Yap's premises without being broken or suffering deterioration.
Obviously the separation or removal of the pump involved nothing more
complicated than the loosening of bolts or dismantling of other fasteners.
Yap's last claim is that in the process of the removal of the pump from his
house, Goulds' men had trampled on the plants growing there, destroyed the
shed over the pump, plugged the exterior casings with rags and cut the
electrical and conduit pipes; that he had thereby suffered actual-damages in
an amount of not less than P 2,000.00, as well as moral damages in the sum
of P 10,000.00 resulting from his deprivation of the use of his water supply;
but the Court had refused to allow him to prove these acts and recover the
damages rightfully due him. Now, as to the loss of his water supply, since
this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly
is not entitled to claim moral or any other form of damages therefor.

35

directed that some of the supports thereof be cut (Appendix 2).

On March 20, 1953, the defendant Company filed an urgent
motion, with a counter-bond in the amount of P15,769, for the
return of the properties seized by the deputy sheriffs. On the
same day, the trial court issued an order, directing the Provincial
Sheriff of Bulacan to return the machinery and equipment to the
place where they were installed at the time of the seizure
(Appendix 3). On March 21, 1953, the deputy sheriffs returned
the properties seized, by depositing them along the road, near
the quarry, of the defendant Company, at Bigti, without the
benefit of inventory and without re-installing hem in their former
position and replacing the destroyed posts, which rendered their
use impracticable. On March 23, 1953, the defendants' counsel
asked the provincial Sheriff if the machinery and equipment,
dumped on the road would be re-installed tom their former
position and condition (letter, Appendix 4). On March 24, 1953,
the Provincial Sheriff filed an urgent motion in court, manifesting
that Roco had been asked to furnish the Sheriff's office with the
expenses, laborers, technical men and equipment, to carry into
effect the court's order, to return the seized properties in the
same way said Roco found them on the day of seizure, but said
Roco absolutely refused to do so, and asking the court that the
Plaintiff therein be ordered to provide the required aid or relieve
the said Sheriff of the duty of complying with the said order dated
March 20, 1953 (Appendix 5). On March 30, 1953, the trial court
ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original
condition in which they were found before their removal at the
expense of the Plaintiff (Appendix 7). An urgent motion of the
Provincial Sheriff dated April 15, 1953, praying for an extension
of 20 days within which to comply with the order of the Court
(appendix 10) was denied; and on May 4, 1953, the trial court
ordered the Plaintiff therein to furnish the Provincial Sheriff within
5 days with the necessary funds, technical men, laborers,
equipment and materials to effect the repeatedly mentioned reinstallation (Appendix 13). (Petitioner's brief, Appendix A, pp. IIV.)

have known what is inherently right and inherently wrong, more

so when, as in this particular case, the deputy sheriffs were
shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not
subject to seizure by the terms of the order. While it may be
conceded that this was a question of law too technical to decide
on the spot, it would not have costs the Sheriff much time and
difficulty to bring the letter to the court's attention and have the
equipment and machinery guarded, so as not to frustrate the
order of seizure issued by the trial court. But acting upon the
directives of the president of the Petitioner, to seize the
properties at any costs, in issuing the order sought to be
annulled, had not committed abuse of discretion at all or acted in
an arbitrary or despotic manner, by reason of passion or
personal hostility; on the contrary, it issued said order, guided by
the well known principle that of the property has to be returned, it
should be returned in as good a condition as when taken
(Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one
had gone beyond the scope of his authority, it is the respondent
Provincial Sheriff. But considering that fact that he acted under
the pressure of Ramon S. Roco, and that the order impugned
was issued not by him, but by the respondent Judge, We simply
declare that said Sheriff' act was most unusual and the result of
a poor judgment. Moreover, the Sheriff not being an officer
exercising judicial functions, the writ may not reach him,
forcertiorari lies only to review judicial actions.
The Petitioner complains that the respondent Judge had
completely disregarded his manifestation that the machinery and
equipment seized were and still are the Petitioner's property until
fully paid for and such never became immovable. The question
of ownership and the applicability of Art. 415 of the new Civil
Code are immaterial in the determination of the only issue
involved in this case. It is a matter of evidence which should be
decided in the hearing of the case on the merits. The question as
to whether the machinery or equipment in litigation are
immovable or not is likewise immaterial, because the only issue
raised before the trial court was whether the Provincial Sheriff of
Bulacan, at the Petitioner's instance, was justified in destroying
the machinery and in refusing to restore them to their original
form , at the expense of the Petitioner. Whatever might be the
legal character of the machinery and equipment, would not be in
any way justify their justify their destruction by the Sheriff's and
the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No.
11248-R, entitled "Machinery and Engineering Supplies, Inc. vs. Honorable
Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc.,
and Antonio Villarama." In the petition therein filed, it was alleged that, in
ordering the petitioner to furnish the provincial sheriff of Bulacan "with
necessary funds, technical men, laborers, equipment and materials, to effect
the installation of the machinery and equipment" in question, the Court of
Firs Instance of Bulacan had committed a grave abuse if discretion and
acted in excess of its jurisdiction, for which reason it was prayed that its
order to this effect be nullified, and that, meanwhile, a writ of preliminary
injunction be issued to restrain the enforcement o said order of may 4, 1953.
Although the aforementioned writ was issued by the Court of Appeals, the
same subsequently dismissed by the case for lack of merit, with costs
against the petitioner, upon the following grounds:

A motion for reconsideration of this decision of the Court of Appeals having

been denied , petitioner has brought the case to Us for review by writ
of certiorari. Upon examination of the record, We are satisfied, however that
the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is
applicable only to "personal property".

While the seizure of the equipment and personal properties was

ordered by the respondent Court, it is, however, logical to
presume that said court did not authorize the petitioner or its
agents to destroy, as they did, said machinery and equipment, by
dismantling and unbolting the same from their concrete
basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless
those parts removed, cut and sawed be replaced, which the
petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in
obedience to the insistent proddings of the president of the
Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It
was the bounden duty of the respondent Judge to give redress to
the respondent Company, for the unlawful and wrongful acts
committed by the petitioner and its agents. And as this was the
true object of the order of March 30, 1953, we cannot hold that
same was within its jurisdiction to issue. The ministerial duty of
the Sheriff should have its limitations. The Sheriff knew or must

Ordinarily replevin may be brought to recover any specific

personal property unlawfully taken or detained from the owner
thereof, provided such property is capable of identification and
delivery; but replevin will not lie for the recovery of real
property or incorporeal personal property. (77 C. J. S. 17)
(Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co.,
Inc., machinery and equipment in question appeared to be attached to the
land, particularly to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be separated from the latter
"without breaking the material or deterioration of the object." Hence, in order
to remove said outfit, it became necessary, not only to unbolt the same, but ,
also, to cut some of its wooden supports. Moreover, said machinery and
equipment were "intended by the owner of the tenement for an industry"
carried on said immovable and tended." For these reasons, they were
already immovable property pursuant to paragraphs 3 and 5 of Article 415 of
Civil Code of the Philippines, which are substantially identical to paragraphs

36

3 and 5 of Article 334 of the Civil Code of Spain. As such immovable

property, they were not subject to replevin.

that the restitution of said property to respondent company might be ordered

under said provision of the Rules of Court, and that, consequently, it may
become necessary for petitioner to meet the liabilities incident to such
return.

In so far as an article, including a fixture annexed by a tenant, is

regarded as part of the realty, it is not the subject for
personality; . . . .

Lastly, although the parties have not cited, and We have not found, any
authority squarely in point obviously real property are not subject to
replevin it is well settled that, when the restitution of what has been
ordered, the goods in question shall be returned in substantially the same
condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the
machinery and equipment involved in this case were duly installed and
affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it
follows that petitioner must also do everything necessary to the reinstallation
of said property in conformity with its original condition.

. . . the action of replevin does not lie for articles so annexed to

the realty as to be part as to be part thereof, as, for example, a
house or a turbine pump constituting part of a building's cooling
system; . . . (36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove the property in
question, petitioner's agent and president, Mr. Ramon Roco, insisted "on the
dismantling at his own responsibility," stating that., precisely, "that is the
reason why plaintiff posted a bond ." In this manner, petitioner clearly
assumed the corresponding risks.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with

costs against the petitioner. So ordered.

Such assumption of risk becomes more apparent when we consider that,

pursuant to Section 5 of Rule 62 of the Rules of Court, the defendant in an
action for replevin is entitled to the return of the property in dispute upon the
filing of a counterbond, as provided therein. In other words, petitioner knew

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and
Reyes, J.B.L., JJ., concur.
Paras, C.J., concurs in the result.

37