PROPERTY

CASES:
A. PUBLIC PROPERTY
CASE DIGEST
1. Province of Zamboanga del Norte vs
Zamboanga City 22 SCRA 1334
Facts:
Prior to its incorporation as a chartered city,
the Municipality
of
Zamboanga
used
to be
the provincial
capital
of
the
then
ZamboangaProvince.On
October
12,
1936,
Commonwealth Act 39 was approved converting the
Municipality of Zamboanga into ZamboangaCity. Sec.
50 of the Act also provided that

Buildings and properties which the province shall

abandon upon the transfer of the capital to another
place will be acquired and paid for by the City of
Zamboanga at a price to be fixed by the
Auditor General. The properties and buildings referred
to consisted of 50 lots and some buildings constructed
there on, located in the City of Zamboanga and
covered individually by Torrens certificates of title in
the name of Zamboanga Province. On June 6, 1952,
Republic Act 711 was approved dividing the province of
Zamboanga into two (2): Zamboanga del Norte and
Zamboanga del Sur. Properties and the obligations of
the province of Zamboanga shall be divided equitably
between the Province of Zamboanga del Norte and the
Province of Zamboanga del Sur by the President of the
Philippines, upon the recommendation of the Auditor
General. However, on June 17, 1961, Republic Act 3039
was approved amending Sec. 50 of Commonwealth Act
39 by providing that

all buildings, properties and assets belonging to the

former province of Zamboanga and located within the
City of Zamboanga are hereby transferred, free of
charge, in favor of the said City of Zamboanga.
Issue: WON Zamboanga del Norte is deprived of
its private properties without due process and just
compensation.
Ruling: The fact that the 26 lots are registered
strengthens the proposition that they are truly private
in nature. On the other hand, that the 24 lots used
for governmental purposes are also registered is of no
significance since registration cannot convert public
property to private. Applying, Art.424 of NCC, all the
properties in question, except the two (2) lots used as
High School playgrounds, could be considered as
patrimonial properties of the former Zamboanga
province. Even the capital site, the hospital and
leprosarium sites, and the school sites will be
considered patrimonial for they are not for public use.
They would fall under the phrase "public works
for public service"
PROVINCE OF ZAMBOANGA DEL NORTE VS. CITY
OF ZAMBOANGA, digested
FACTS: After the incorporation of the Municipality of
Zamboanga as a chartered city, petitioner province

contends that facilities belonging to the latter and

located within the City of Zamboanga will be acquired
and paid for by the said city.
However, respondent city avers that pursuant to RA
No. 3039 providing for the transfer free of charge of all
buildings, properties and assets belonging to the
former province of Zamboanga and located within the
City of Zamboanga to the said City.
ISSUE: Whether or not facilities which the province
shall abandon will be acquired by the city upon just
compensation.
HELD: Yes, If the property is owned by the municipality
in its public and governmental capacity, the property is
public and can be transferred free of charge. But if the
property is owned in its private or proprietary capacity,
then it is patrimonial and can be expropriated upon
payment of just compensation.
FULL CASE
G.R. No. L-24440

March 28, 1968

THE PROVINCE OF ZAMBOANGA DEL

NORTE, plaintiff-appellee,
vs.
CITY OF ZAMBOANGA, SECRETARY OF FINANCE
and COMMISSIONER OF INTERNAL
REVENUE,defendants-appellants.
BENGZON, J.P., J.:
Prior to its incorporation as a chartered city, the
Municipality of Zamboanga used to be the provincial
capital of the then Zamboanga Province. On October
12, 1936, Commonwealth Act 39 was approved
converting the Municipality of Zamboanga into
Zamboanga City. Sec. 50 of the Act also provided that

Buildings and properties which the province

shall abandon upon the transfer of the capital to
another place will be acquired and paid for by the City
of Zamboanga at a price to be fixed by the Auditor
General.
The properties and buildings referred to
consisted of 50 lots and some buildings constructed
thereon, located in the City of Zamboanga and covered
individually by Torrens certificates of title in the name
of Zamboanga Province. As far as can be gleaned from
the records, 1 said properties were being utilized as
follows
No.
of
Use
Lots
1 ................................................
3 ................................................
3 ................................................
3 ................................................
1 ................................................

Capitol Site
School Site
Hospital Site
Leprosarium
Curuan School

1 ................................................ Trade School

2 ................................................ Burleigh School
................................................ High School
2
Playground
9 ................................................ Burleighs
........................................ Hydro-Electric Site
1
(Magay)
1 ................................................ San Roque
23 ................................................ vacant
It appears that in 1945, the capital of
Zamboanga
Province
was
transferred
to
Dipolog. 2 Subsequently, or on June 16, 1948, Republic
Act 286 was approved creating the municipality of
Molave and making it the capital of Zamboanga
Province.
On May 26, 1949, the Appraisal Committee
formed by the Auditor General, pursuant to
Commonwealth Act 39, fixed the value of the
properties and buildings in question left by Zamboanga
Province in Zamboanga City at P1,294,244.00. 3
On June 6, 1952, Republic Act 711 was approved
dividing the province of Zamboanga into two (2):
Zamboanga del Norte and Zamboanga del Sur. As to
how the assets and obligations of the old province were
to be divided between the two new ones, Sec. 6 of that
law provided:
Upon the approval of this Act, the funds,
assets and other properties and the obligations of the
province of Zamboanga shall be divided equitably
between the Province of Zamboanga del Norte and the
Province of Zamboanga del Sur by the President of the
Philippines, upon the recommendation of the Auditor
General.
Pursuant thereto, the Auditor General, on
January 11, 1955, apportioned the assets and
obligations of the defunct Province of Zamboanga as
follows: 54.39% for Zamboanga del Norte and 45.61%
for Zamboanga del Sur. Zamboanga del Norte therefore
became entitled to 54.39% of P1,294,244.00, the total
value of the lots and buildings in question, or
P704,220.05 payable by Zamboanga City.
On March 17, 1959, the Executive Secretary, by
order of the President, issued a ruling 4 holding that
Zamboanga del Norte had a vested right as owner
(should be co-owner pro-indiviso) of the properties
mentioned in Sec. 50 of Commonwealth Act 39, and is
entitled to the price thereof, payable by Zamboanga
City. This ruling revoked the previous Cabinet
Resolution of July 13, 1951 conveying all the said 50
lots and buildings thereon to Zamboanga City for
P1.00, effective as of 1945, when the provincial capital
of the then Zamboanga Province was transferred to
Dipolog.
The Secretary of Finance then authorized the
Commissioner of Internal Revenue to deduct an
amount equal to 25% of the regular internal revenue
allotment for the City of Zamboanga for the quarter
ending March 31, 1960, then for the quarter ending
June 30, 1960, and again for the first quarter of the
fiscal year 1960-1961. The deductions, all aggregating
P57,373.46, was credited to the province of

Zamboanga del Norte, in partial payment of the

P764,220.05 due it.
However, on June 17, 1961, Republic Act 3039
was approved amending Sec. 50 of Commonwealth Act
39 by providing that
All buildings, properties and assets belonging
to the former province of Zamboanga and located
within the City of Zamboanga are hereby
transferred, free of charge, in favor of the said City
of Zamboanga. (Stressed for emphasis).
Consequently, the Secretary of Finance, on July
12, 1961, ordered the Commissioner of Internal
Revenue to stop from effecting further payments to
Zamboanga del Norte and to return to Zamboanga City
the sum of P57,373.46 taken from it out of the internal
revenue allotment of
Zamboanga del
Norte.
Zamboanga City admits that since the enactment of
Republic Act 3039, P43,030.11 of the P57,373.46 has
already been returned to it.
This constrained plaintiff-appellee Zamboanga
del Norte to file on March 5, 1962, a complaint entitled
"Declaratory Relief with Preliminary Mandatory
Injunction" in the Court of First Instance of Zamboanga
del Norte against defendants-appellants Zamboanga
City, the Secretary of Finance and the Commissioner of
Internal Revenue. It was prayed that: (a) Republic Act
3039 be declared unconstitutional for depriving
plaintiff province of property without due process and
just compensation; (b) Plaintiff's rights and obligations
under said law be declared; (c) The Secretary of
Finance and the Internal Revenue Commissioner be
enjoined from reimbursing the sum of P57,373.46 to
defendant City; and (d) The latter be ordered to
continue paying the balance of P704,220.05 in
quarterly installments of 25% of its internal revenue
allotments.
On June 4, 1962, the lower court ordered the
issuance of preliminary injunction as prayed for. After
defendants filed their respective answers, trial was
held. On August 12, 1963, judgment was rendered, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered
declaring Republic Act No. 3039 unconstitutional
insofar as it deprives plaintiff Zamboanga del Norte
of its private properties, consisting of 50 parcels of
land and the improvements thereon under
certificates of title (Exhibits "A" to "A-49") in the
name of the defunct province of Zamboanga;
ordering defendant City of Zamboanga to pay to
the plaintiff the sum of P704,220.05 payment
thereof to be deducted from its regular quarterly
internal revenue allotment equivalent to 25%
thereof every quarter until said amount shall have
been fully paid; ordering defendant Secretary of
Finance to direct defendant Commissioner of
Internal Revenue to deduct 25% from the regular
quarterly internal revenue allotment for defendant
City of Zamboanga and to remit the same to
plaintiff Zamboanga del Norte until said sum of
P704,220.05 shall have been fully paid; ordering
plaintiff Zamboanga del Norte to execute through
its proper officials the corresponding public
instrument deeding to defendant City of
Zamboanga the 50 parcels of land and the
improvements thereon under the certificates of

title (Exhibits "A" to "A-49") upon payment by the

latter of the aforesaid sum of P704,220.05 in full;
dismissing the counterclaim of defendant City of
Zamboanga; and declaring permanent the
preliminary mandatory injunction issued on June 8,
1962, pursuant to the order of the Court dated June
4, 1962. No costs are assessed against the
defendants.
It is SO ORDERED.
Subsequently, but prior to the perfection of
defendants' appeal, plaintiff province filed a motion to
reconsider praying that Zamboanga City be ordered
instead to pay the P704,220.05 in lump sum with 6%
interest per annum. Over defendants' opposition, the
lower court granted plaintiff province's motion.
The defendants then brought the case before Us
on appeal.
Brushing aside the procedural point concerning
the property of declaratory relief filed in the lower
court on the assertion that the law had already been
violated and that plaintiff sought to give it coercive
effect, since assuming the same to be true, the Rules
anyway authorize the conversion of the proceedings to
an ordinary action, 5 We proceed to the more important
and principal question of the validity of Republic Act
3039.
The validity of the law ultimately depends on the
nature of the 50 lots and buildings thereon in question.
For, the matter involved here is the extent of legislative
control over the properties of a municipal corporation,
of which a province is one. The principle itself is
simple: If the property is owned by the municipality
(meaning municipal corporation) in its public and
governmental capacity, the property is public and
Congress has absolute control over it. But if the
property is owned in its private or proprietary capacity,
then it is patrimonial and Congress has no absolute
control. The municipality cannot be deprived of it
without
due
process
and
payment
of
just
compensation. 6
The capacity in which the property is held is,
however, dependent on the use to which it is intended
and devoted. Now, which of two norms, i.e., that of the
Civil Code or that obtaining under the law of Municipal
Corporations, must be used in classifying the
properties in question?
The Civil Code classification is embodied in its
Arts. 423 and 424 which provide:1wph1.t
ART. 423. The property of provinces,
cities, and municipalities is divided into
property for public use and patrimonial
property.
ART. 424. Property for public use, in the
provinces, cities, and municipalities, consists of
the provincial roads, city streets, municipal
streets, the squares, fountains, public waters,
promenades, and public works for public
service paid for by said provinces, cities, or
municipalities.

All other property possessed by any of them is

patrimonial and shall be governed by this
Code, without prejudice to the provisions of
special laws. (Stressed for emphasis).
Applying the above cited norm, all the properties
in question, except the two (2) lots used as High School
playgrounds, could be considered as patrimonial
properties of the former Zamboanga province. Even
the capital site, the hospital and leprosarium sites, and
the school sites will be considered patrimonial for they
are not for public use. They would fall under the phrase
"public works for public service" for it has been held
that under theejusdem generis rule, such public works
must be for free and indiscriminate use by anyone, just
like the preceding enumerated properties in the first
paragraph of Art 424. 7 The playgrounds, however,
would fit into this category.
This was the norm applied by the lower court.
And it cannot be said that its actuation was without
jurisprudential precedent for in Municipality
of
Catbalogan v. Director of Lands, 8 and in Municipality of
Tacloban v. Director of Lands, 9 it was held that the
capitol site and the school sites in municipalities
constitute their patrimonial properties. This result is
understandable because, unlike in the classification
regarding State properties, properties for public service
in the municipalities are not classified as public.
Assuming then the Civil Code classification to be the
chosen norm, the lower court must be affirmed except
with regard to the two (2) lots used as playgrounds.
On the other hand, applying the norm obtaining
under the principles constituting the law of Municipal
Corporations, all those of the 50 properties in question
which are devoted to public service are deemed public;
the rest remain patrimonial. Under this norm, to be
considered public, it is enough that the property be
held and, devoted for governmental purposes like local
administration, public education, public health, etc. 10
Supporting jurisprudence are found in the
following cases: (1) HINUNANGAN V. DIRECTOR OF
LANDS, 11where it was stated that "... where the
municipality has occupied lands distinctly for public
purposes, such as for the municipal court house, the
public school, the public market, or other necessary
municipal building, we will, in the absence of proof to
the contrary, presume a grant from the States in favor
of the municipality; but, as indicated by the wording,
that rule may be invoked only as to property which is
used distinctly for public purposes...." (2) VIUDA DE
TANTOCO V. MUNICIPAL COUNCIL OF ILOILO 12 held that
municipal properties necessary for governmental
purposes are public in nature. Thus, the auto trucks
used by the municipality for street sprinkling, the
police patrol automobile, police stations and concrete
structures with the corresponding lots used as markets
were declared exempt from execution and attachment
since they were not patrimonial properties. (3)
MUNICIPALITY OF BATANGAS VS. CANTOS 13 held
squarely that a municipal lot which had always been
devoted to school purposes is one dedicated to public
use and is not patrimonial property of a municipality.
Following this classification, Republic Act 3039 is
valid insofar as it affects the lots used as capitol site,
school sites and its grounds, hospital and leprosarium
sites and the high school playground sites a total of
24 lots since these were held by the former

Zamboanga province in its governmental capacity and

therefore are subject to the absolute control of
Congress. Said lots considered as public property are
the following:
We noticed that the eight Burleigh lots above
described are adjoining each other and in turn are
between the two lots wherein the Burleigh schools are
built, as per records appearing herein and in the
Bureau of Lands. Hence, there is sufficient basis for
holding that said eight lots constitute the appurtenant
grounds of the Burleigh schools, and partake of the
nature of the same.
Regarding the several buildings existing on the
lots above-mentioned, the records do not disclose
whether they were constructed at the expense of the
former Province of Zamboanga. Considering however
the fact that said buildings must have been erected
even before 1936 when Commonwealth Act 39 was
enacted and the further fact that provinces then had
no power to authorize construction of buildings such as
those in the case at bar at their own expense, 14 it can
be assumed that said buildings were erected by the
National Government, using national funds. Hence,
Congress could very well dispose of said buildings in
the same manner that it did with the lots in question.
But even assuming that provincial funds were
used, still the buildings constitute mere accessories to
the lands, which are public in nature, and so, they
follow the nature of said lands, i.e., public. Moreover,
said buildings, though located in the city, will not be for
the exclusive use and benefit of city residents for they
could be availed of also by the provincial residents. The
province then and its successors-in-interest are
not really deprived of the benefits thereof.
But Republic Act 3039 cannot be applied to
deprive Zamboanga del Norte of its share in the value
of the rest of the 26 remaining lots which are
patrimonial properties since they are not being utilized
for distinctly, governmental purposes. Said lots are:
(deleted by shy2 hehe)
Moreover, the fact that these 26 lots
are registered strengthens the proposition that they
are truly private in nature. On the other hand, that the
24 lots used for governmental purposes are also
registered is of no significance since registration
cannot convert public property to private. 16
We are more inclined to uphold this latter view.
The controversy here is more along the domains of the
Law of Municipal Corporations State vs. Province
than along that of Civil Law. Moreover, this Court is not
inclined to hold that municipal property held and
devoted to public service is in the same category as
ordinary private property. The consequences are dire.
As ordinary private properties, they can be levied upon
and attached. They can even be acquired thru adverse
possession all these to the detriment of the local
community. Lastly, the classification of properties other
than those for public use in the municipalities as
patrimonial under Art. 424 of the Civil Code is "...
without prejudice to the provisions of special laws." For
purpose of this article, the principles, obtaining under
the Law of Municipal Corporations can be considered as
"special laws". Hence, the classification of municipal
property devoted for distinctly governmental purposes

as public should prevail over

classification in this particular case.

the

Civil

Code

Defendants' claim that plaintiff and its

predecessor-in-interest are "guilty of laches is without
merit. Under Commonwealth Act 39, Sec. 50, the cause
of action in favor of the defunct Zamboanga Province
arose only in 1949 after the Auditor General fixed the
value of the properties in question. While in 1951, the
Cabinet resolved transfer said properties practically for
free to Zamboanga City, a reconsideration thereof was
seasonably sought. In 1952, the old province was
dissolved. As successor-in-interest to more than half of
the properties involved, Zamboanga del Norte was able
to get a reconsideration of the Cabinet Resolution in
1959. In fact, partial payments were effected
subsequently and it was only after the passage of
Republic Act 3039 in 1961 that the present controversy
arose. Plaintiff brought suit in 1962. All the foregoing,
negative laches.
It results then that Zamboanga del Norte is still
entitled to collect from the City of Zamboanga the
former's 54.39% share in the 26 properties which are
patrimonial in nature, said share to computed on the
basis of the valuation of said 26 properties as
contained in Resolution No. 7, dated March 26, 1949, of
the Appraisal Committee formed by the Auditor
General.
Plaintiff's share, however, cannot be paid in lump
sum, except as to the P43,030.11 already returned to
defendant City. The return of said amount to defendant
was without legal basis. Republic Act 3039 took effect
only on June 17, 1961 after a partial payment of
P57,373.46 had already been made. Since the law did
not provide for retroactivity, it could not have validly
affected a completed act. Hence, the amount of
P43,030.11 should be immediately returned by
defendant City to plaintiff province. The remaining
balance, if any, in the amount of plaintiff's 54.39%
share in the 26 lots should then be paid by defendant
City in the same manner originally adopted by the
Secretary of Finance and the Commissioner of Internal
Revenue, and not in lump sum. Plaintiff's prayer,
particularly pars. 5 and 6, read together with pars. 10
and 11 of the first cause of action recited in the
complaint 17 clearly shows that the relief sought was
merely the continuance of the quarterly payments from
the internal revenue allotments of defendant City. Art.
1169 of the Civil Code on reciprocal obligations invoked
by plaintiff to justify lump sum payment is inapplicable
since there has been so far in legal contemplation no
complete delivery of the lots in question. The titles to
the registered lots are not yet in the name of
defendant Zamboanga City.
WHEREFORE, the decision appealed from is
hereby set aside and another judgment is hereby
entered as follows:.
(1) Defendant Zamboanga City is hereby ordered
to return to plaintiff Zamboanga del Norte in lump sum
the amount of P43,030.11 which the former took back
from the latter out of the sum of P57,373.46 previously
paid to the latter; and
(2) Defendants are hereby ordered to effect
payments in favor of plaintiff of whatever balance
remains of plaintiff's 54.39% share in the 26
patrimonial properties, after deducting therefrom the

sum of P57,373.46, on the basis of Resolution No. 7

dated March 26, 1949 of the Appraisal Committee
formed by the Auditor General, by way of quarterly
payments from the allotments of defendant City, in the
manner originally adopted by the Secretary of Finance
and the Commissioner of Internal Revenue. No costs.
So ordered.

City of Manila, for some reasons, brought an action to

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar,

Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J., is on leave.

Trial court declared RA 4118 to be unconstitutional and

restrain, prohibit, and enjoin Land Authority and

Register of Deeds from implementing RA 4118, and
praying

for

the

declaration

of

RA

4118

as

unconstitutional.

invalid on the ground that it deprived City of its

property without due process of law and payment of
just compensation.

2.

RAFAEL

S. SALAS, in his

as

Land Authority and Register of Deeds argued that the

F.

land is a communal land, or a portion of public domain

ESTRELLA, in his capacity as Governor of

owned by State; that the land has not been used by

the Land Authority; and LORENZO GELLA,

City of Manila for any public purpose; that it was

in his capacity as Register of Deeds of

originally a communal land not because it was needed

Manila, petitioners-appellants, vs.

in connection with its organisation as a municipality

Executive

Secretary;

capacity

CONRADO

but rather for the common use of its inhabitants; that

HON. HILARION U. JARENCIO, as Presiding
Judge of Branch XXIII, Court of First Instance
of Manila; ANTONIO J. VILLEGAS, in his
capacity as Mayor of the City of Manila; and
the CITY OF MANILA, respondents-appellees.

the City mayor merely enjoys the usufruct over said

land and its exercise of acts of ownership by selling
parts thereof did not necessarily convert the land into a
patrimonial property of City of Manila nor divert the
State of its paramount title.

Facts:
Issue:
City of Manila owner in fee simple of a parcel of land

Whether the aforementioned land is a private or

known as Lot 1, Block 557 of Cadastral Survey of City

patrimonial property of the City of Manila.

of Manila, containing an area of 9689.80 sqm. On

various dates in 1927, City of Manila sold portions of
the parcel of land. When the last sale was effected
August

1924,

Transfer

Certificate

of

Title

22547

covering the residue of the land 7490.10 sam was

issued in the name of City of Manila.
On

September

1960,

Municipal

Held: The land is public property.

As a general rule, regardless of the source or
classification of the land in the possession of
municipality, excepting those which it acquired in its
own funds in its private or corporate capacity, such

Board

of

Manila

property is held for the State for the benefit of its

adopted a resolution requesting the President to

inhabitants, whether it be for governmental or

consider the feasibility of declaring the land under

proprietary purposes. The legal situation is the same if

Transfer Certificate of Title 25545-25547 as patrimonial

the State itself holds the property and puts it to a

property of Manila for the purpose of selling these lots

different use.

to the actual occupants thereof. The resolution was

then transmitted to the Congress. The bill was then
passed by Congress and approved by President, and
became Republic Act 4118, converting the land from
communal property to disposable and alienable land of

When it comes to property of municipality which it did

not acquire in its private or corporate capacity with its
own funds (the land was originally given to City by
Spain), the legislature can transfer its administration

State.

and disposition to an agency of the National

To implement RA 4118, Land Authority requested City

discretion. Here it did so in obedience to the

of Manila to deliver the Citys TCT 22547 in order to

constitutional mandate of promoting social justice to

obtain title thereto in the name of Land Authority. The

insure the well-being and economic security of the

request was granted with the knowledge and consent

people.

of City mayor, cancelling TCT 22547 and issuing TCT

80876 in the name of Land Authority.

Government to be disposed of according to its

The property was not acquired by the City of Manila

with its own funds in its private or proprietary capacity.
The land was part of the territory of City of Manila

granted by sovereign in its creation. Furthermore, City

expressly recognised the paramount title of the State
over its land when it requested the President to
consider the feasibility of declaring the lot as
patrimonial property for selling.
There could be no more blatant recognition of the fact
that said land belongs to the State and was simply
granted in usufruct to the City of Manila for municipal
purposes. But since the City did not actually use said
land for any recognized public purpose and allowed it
to remain idle and unoccupied for a long time until it
was overrun by squatters, no presumption of State
grant of ownership in favor of the City of Manila may
be acquiesced in to justify the claim that it is its own
private or patrimonial property.
WHEREFORE, the appealed decision is hereby
reversed, and petitioners shall proceed with the free
and untrammeled implementation of Republic Act No.
4118 without any obstacle from the respondents.
Without costs.

3.

CHAVEZ V. PUBLIC ESTATES AUTHORITY 384

SCRA 152

FACTS:
President Marcos through a presidential decree
created PEA, which was tasked with the
development, improvement, and acquisition, lease,
and sale of all kinds of lands. The then president also
transferred to PEA the foreshore and offshore lands of
Manila Bay under the Manila-Cavite Coastal
Road and Reclamation Project.
Thereafter, PEA was granted patent to the
reclaimed areas of land and then, years later, PEA
entered into a JVA with AMARI for the development of
the Freedom Islands. These two entered into a
joint venture in the absence of any public bidding.
Later, a privilege speech was given by
Senator President Maceda denouncing the JVA as the
grandmother of all scams. An investigation was
conducted and it was concluded that the lands that
PEA was conveying to AMARI were lands of the
public domain; the certificates of title over the
Freedom Islands were void; and the JVA itself was
illegal. This prompted Ramos to form an investigatory
committee on the legality of the JVA.

Petitioner now comes and contends that the

government stands to lose billions by the
conveyance or sale of the reclaimed areas to
AMARI. He also asked for the full disclosure of the
renegotiations happening between the parties.
ISSUE:
W/N stipulations in the amended JVA for the
transfer to AMARI of the lands, reclaimed or to be
reclaimed, violate the Constitution.
HELD:
The ownership of lands reclaimed from foreshore and
submerged areas is rooted in the Regalian doctrine,
which holds that the State owns all lands and waters of
the public domain.
The 1987 Constitution recognizes the Regalian
doctrine. It declares that all natural resources are
owned by the State and except for alienable
agricultural lands of the public domain, natural
resources cannot be alienated.
The Amended JVA covers a reclamation area of 750
hectares. Only 157.84 hectares of the 750 hectare
reclamation project have been reclaimed, and the rest
of the area are still submerged areas forming part of
Manila Bay. Further, it is provided that AMARI will
reimburse the actual costs in reclaiming the areas of
land and it will shoulder the other reclamation costs to
be incurred.
The foreshore and submerged areas of Manila Bay are
part of the lands of the public domain, waters and
other natural resources and consequently owned by
the State. As such, foreshore and submerged areas
shall not be alienable unless they are classified as
agricultural lands of the public domain. The mere
reclamation of these areas by the PEA doesnt convert
these inalienable natural resources of the State
into alienable and disposable lands of the public
domain. There must be a law or presidential
proclamation officially classifying these reclaimed
lands as alienable and disposable if the law has
reserved them for some public or quasi-public use.

CEBU OXYGEN AND ACETYLENE CO. V. BERCILLES

66 SCRA 431
FACTS:
The land sought to be registered in this case was
formerly a part of a street. Through a resolution, it
was declared to be an abandoned road and not part of
the City development plan. Thereafter, it was sold
through a public bidding and petitioner was the
highest bidder. He then sought to register said
land but his application was dismissed.
HELD:
The portion of the city street subject to
petitioners application for registration of title was

withdrawn from public use.

Then it follows that
such
withdrawn
portion
becomes
patrimonial
property of the State. It is also very clear from the
Charter that property thus withdrawn from public
servitude may be used or conveyed for any
purpose for which other real property belonging to
the City may be lawfully used or conveyed.
FULL CASE
[G.R. No. L-40474. August 29, 1975.]
CEBU OXYGEN & ACETYLENE CO.,
INC., Petitioner, v. HON. PASCUAL A. BERCILLES,
Presiding Judge, Branch XV, 14th Judicial District,
and JOSE L. ESPELETA, Assistant Provincial
Fiscal, Province of Cebu, representing the
Solicitor Generals Office and the Bureau of
Lands,Respondents.
Jose Antonio B. Conde for Petitioner.
Acting Solicitor General Hugo E. Gutierrez, Jr.,
Assistant Solicitor General Octavio R. Ramirez
and Trial Attorney David R. Hilario
for Respondents.
SYNOPSIS
Petitioner applied for registration of title over a portion
of M. Gorces Street in Cebu City. Said portion was
declared an abandoned road by the City Council of
Cebu the same not being included in the Cebu
Development Plan, and later, by authority of the City
Council, was sold by the Acting Mayor to petitioner who
was the highest bidder at a public bidding.
The trial court dismissed petitioners application on
motion of the Assistant Provincial Fiscal on the ground
that the property sought to be registered being a
public road intended of public use is considered part of
the public domain and therefore outside the commerce
of
men.
On petition for review, the Supreme Court set aside the
trial courts order the directed the latter to proceed
with the hearing of petitions application for
registration of title.
SYLLABUS
1. MUNICIPAL CORPORATIONS; STREETS; POWER OF
MUNICIPAL COUNCIL TO WITHDRAW PORTION OF
STREET FROM PUBLIC USE. Where a portion of the
city street is withdrawn from public use by the city
council, which under the city charter is empowered to
close any city road, street or alley, boulevard, avenue,
park or square, the property thus withdraw from public
servitude become patrimonial property and be used or
conveyed for any purpose for which any real property
belonging to the city may be lawfully used or
conveyed.
2. PROPERTY; PROPERTY OF PUBLIC DOMAIN MAY BE
CONVERTED INTO PATRIMONIAL PROPERTY. Under
Article 422 of the Civil Code, "property of public
dominion, when no longer intended for public service,
shall form part of the patrimonial property of the State.
DECISION
CONCEPCION, JR., J.:

This is a petition for the review of the order of the

Court of First Instance of Cebu dismissing petitioners
application for registration of title over a parcel of land
situated in the City of Cebu.
The parcel of land sought to be registered was
originally a portion of M. Borces Street, Mabolo, Cebu
City. On September 23, 1968, the City Council of Cebu,
through Resolution No. 2193, approved on October 3,
1968, declared the terminal portion of M. Borces Street,
Mabolo, Cebu City, as an abandoned road, the same
not being included in the City Development Plan. 1
Subsequently, on December 19, 1968, the City Council
of Cebu passed Resolution No. 2755, authorizing the
Acting City Mayor to sell the land through a public
bidding. 2 Pursuant thereto, the lot was awarded to the
herein petitioner being the highest bidder and on
March 3, 1969, the City of Cebu, through the Acting
City Mayor, executed a deed of absolute sale to the
herein petitioner for a total consideration of
P10,800.00. 3 By virtue of the aforesaid deed of
absolute sale, the petitioner filed an application with
the Court of First Instance of Cebu to have its title to
the land registered. 4
On June 26, 1974, the Assistant Provincial Fiscal of
Cebu filed a motion to dismiss the application on the
ground that the property sought to be registered being
a public road intended for public use is considered part
of the public domain and therefore outside the
commerce of man, Consequently, it cannot be subject
to registration by any private individual. 5
After hearing the parties, on October 11, 1914 the trial
court issued an order dismissing the petitioners
application for registration of title. 6 Hence, the instant
petition for review.
For the resolution of this case, the petitioner poses the
following questions:chanrob1es virtual 1aw library
(1) Does the City Charter of Cebu City (Republic Act No.
3857) under Section 31, paragraph 34, give the City of
Cebu the valid right to declare a road as abandoned?
and
(2) Does the declaration of the road, as abandoned,
make it the patrimonial property of the City of Cebu
which may be the object of a common contract?
(1) The pertinent portions of the Revised Charter of
Cebu City provides:jgc:chanrobles.com.ph
"Section 31. Legislative Powers. Any provision of law
and executive order to the contrary notwithstanding,
the City Council shall have the following legislative
powers:chanrob1es virtual 1aw library
x
x
x
(34) . . .; to close any city road, street or alley,
boulevard, avenue, park or square. Property thus
withdrawn from public servitude may be used or
conveyed for any purpose for which other real property
belonging to the City may be lawfully used or
conveyed."cralaw virtua1aw library
From the foregoing, it is undoubtedly clear that the City
of Cebu is empowered to close a city road or street. In
the case of Favis v. City of Baguio, 7 where the power
of the city Council of Baguio City to close city streets
and to vacate or withdraw the same from public use
was similarly assailed, this court
said:jgc:chanrobles.com.ph

"5. So it is, that appellant may not challenge the city

councils act of withdrawing a strip of Lapu-Lapu Street
at its dead end from public use and converting the
remainder thereof into an alley. These are acts well
within the ambit of the power to close a city street. The
city council, it would seem to us, is the authority
competent to determine whether or not a certain
property is still necessary for public use.
"Such power to vacate a street or alley is discretionary,
And the discretion will not ordinarily be controlled or
interfered with by the courts, absent a plain case of
abuse or fraud or collusion. Faithfulness to the public
trust will be presumed. So the fact that some private
interests may he served incidentally will not invalidate
the vacation ordinance."cralaw virtua1aw library
(2) Since that portion of the city street subject of
petitioners application for registration of title was
withdrawn from public use, it follows that such
withdrawn portion becomes patrimonial property which
can be the object of an ordinary contract.
Article 422 of the Civil Code expressly provides that
"Property of public dominion, when no longer intended
for public use or for public service, shall form part of
the patrimonial property of the State."cralaw virtua1aw
library
Besides, the Revised Charter of the City of Cebu
heretofore quoted, in very clear and unequivocal
terms, states that: "Property thus withdrawn from
public servitude may be used or conveyed for any
purpose for which other real property belonging to the
City may be lawfully used or conveyed."cralaw
virtua1aw library
Accordingly, withdrawal of the property in question
from public use and its subsequent sale to the
petitioner is valid. Hence, the petitioner has a
registerable title over the lot in question.
WHEREFORE, the order dated October 11, 1974,
rendered by the respondent court in Land Reg. Case
No. N-948, LRC Rec. No. N-44531 is hereby set aside,
and the respondent court is hereby ordered to proceed
with the hearing of the petitioners application for
registration of title.

4. IMMOVABLES PROPERTIES
Berkenkotter v. Cu UnjiengFacts:
On 26 April 1926, the Mabalacat Sugar
Company obtained from Cu Unjieng e Hijos, a
loan securedby a first mortgage constituted on
2 parcels of land "with all its buildings,
improvements, sugar-canemill, steel railway,
telephone line, apparatus, utensils and
whatever forms part or is a
necessarycomplement of said sugar-cane
mill, steel railway, telephone line, now
existing or that may in thefuture exist in
said lots.On 5 October 1926, the
Mabalacat Sugar Company decided to
increase the capacity of its sugar central
by buying additional machinery and
equipment, so that instead of milling 150
tons daily, itcould produce 250. Green
proposed to the Berkenkotter, to advance the

necessary amount for thepurchase of said

machinery and equipment, promising to
reimburse him as soon as he could obtainan
additional loan from the mortgagees, Cu
Unjieng e Hijos, and that in case Green
should fail toobtain an additional loan
from Cu Unjieng e Hijos, said machinery
and equipment would becomesecurity
therefore, said Green binding himself not to
mortgage nor encumber them to anybody
untilBerkenkotter be fully reimbursed for the
corporation's indebtedness to him.Having
agreed to said proposition made in a
letter dated 5 October 1926, Berkenkotter, on 9
October 1926, delivered the sum of P1,710 to
Green, the total amount supplied by him to
Green having beenP25,750. Furthermore,
Berkenkotter had a credit of P22,000
against said corporation for unpaid salary.
With the loan of P25,750 and said credit of P22,000, the
Mabalacat Sugar Co., Inc., purchasedthe additional
machinery and equipment.On 10 June 1927, Green
applied to Cu Unjieng e Hijos for an additional
loan of P75,000 offering assecurity the
additional machinery and equipment acquired
by said Green and installed in the sugar central
after the execution of the original mortgage
deed, on 27 April 1927, together with whatever
additional equipment acquired with
said loan. Green failed to obtain said
loan.
H e n c e , a b o v e mentioned mortgage was in effect.
Issue:
Are the additional machines also considered
mortgaged?
Held:
Article 1877 of the Civil Code provides that
mortgage includes all natural accessions,
improvements,g r o w i n g f r u i t s , a n d r e n t s n o t
collected when the obligation falls due,
a n d t h e a m o u n t o f a n y 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, amplifi cations, and
limitations established by law, whether the state
continues in the possession of the person who
mortgaged it or
w
h
e
t
h
e
r
i
t
p
a
s
s
e
s
i
n
t
o
t
h
e
h
a
n
d
s
o
f
a
t
h
i
r
d
p
e
r
s
o
n
.
It is a
rule, that in a mortgage of real estate, the
improvements on the same are included; therefore,
allobjects permanently attached to a mortgaged
building or land, although they may have been
placedthere after the mortgage was constituted,
are also included.Article 334, paragraph 5, of the
Civil Code gives the character of real property to
machinery, liquidcontainers, 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 tomeet the
requirements of such trade or industry. The
installation of a machinery and equipment in
amortgaged sugar central, in lieu of another
of less capacity, for the purpose of carrying
out theindustrial functions of the latter and
increasing production, constitutes a permanent
improvement onsaid sugar central and subjects said

machinery and equipment to the mortgage constituted

thereon.
Full Case:
G.R. No. L-41643

July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,

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

VILLA-REAL, J.: This is an appeal taken by the

plaintiff, B.H. Berkenkotter, from the judgment of the
Court of First Instance of Manila, dismissing said
plaintiff's complaint against Cu Unjiengs e Hijos et al.,
with costs.
In support of his appeal, the appellant assigns six
alleged errors as committed by the trial court in its
decision in question which will be discussed in the
course of this decision.
The first question to be decided in this appeal, which is
raised in the first assignment of alleged error, is
whether or not the lower court erred in declaring that
the additional machinery and equipment, as
improvement incorporated with the central are subject
to the mortgage deed executed in favor of the
defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the
Mabalacat Sugar Co., Inc., owner of the sugar central
situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on two parcels and land
"with all its buildings, improvements, sugar-cane mill,
steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of
said sugar-cane mill, steel railway, telephone line, now
existing or that may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had
been constituted, the Mabalacat Sugar Co., Inc.,
decided to increase the capacity of its sugar central by
buying additional machinery and equipment, so that
instead of milling 150 tons daily, it could produce 250.
The estimated cost of said additional machinery and
equipment was approximately P100,000. In order to
carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H.
Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising
to reimburse him as soon as he could obtain an
additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said
proposition made in a letter dated October 5, 1926
(Exhibit E), B.H. Berkenkotter, on October 9th of the

same year, delivered the sum of P1,710 to B.A. Green,

president of the Mabalacat Sugar Co., Inc., the total
amount supplied by him to said B.A. Green having
been P25,750. Furthermore, B.H. Berkenkotter had a
credit of P22,000 against said corporation for unpaid
salary. With the loan of P25,750 and said credit of
P22,000, the Mabalacat Sugar Co., Inc., purchased the
additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the
Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos
for an additional loan of P75,000 offering as security
the additional machinery and equipment acquired by
said B.A. Green and installed in the sugar central after
the execution of the original mortgage deed, on April
27, 1927, together with whatever additional equipment
acquired with said loan. B.A. Green failed to obtain said
loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural
accessions, improvements, growing fruits, and
rents not collected when the obligation falls due,
and the amount of any indemnities paid or due the
owner by the insurers of the mortgaged property or
by virtue of the exercise of the power of eminent
domain, with the declarations, amplifications, and
limitations established by law, whether the estate
continues in the possession of the person who
mortgaged it or whether it passes into the hands of
a third person.
In the case of Bischoff vs. Pomar and Compaia
General de Tabacos (12 Phil., 690), cited with approval
in the case of Cea vs. Villanueva (18 Phil., 538), this
court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE
INCLUDES IMPROVEMENTS AND FIXTURES. It
is a rule, established by the Civil Code and also
by the Mortgage Law, with which the decisions
of the courts of the United States are in accord,
that in a mortgage of real estate, the
improvements on the same are included;
therefore, all objects permanently attached to
a mortgaged building or land, although they
may have been placed there after the
mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and
1877 of the Civil Code; decision of U.S.
Supreme Court in the matter of Royal
Insurance Co. vs. R. Miller, liquidator, and
Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF
MACHINERY, ETC. In order that it may be
understood that the machinery and other
objects placed upon and used in connection
with a mortgaged estate are excluded from the
mortgage, when it was stated in the mortgage
that the improvements, buildings, and
machinery that existed thereon were also

comprehended, it is indispensable that the

exclusion thereof be stipulated between the
contracting parties.
The appellant contends that the installation of the
machinery and equipment claimed by him in the sugar
central of the Mabalacat Sugar Company, Inc., was not
permanent in character inasmuch as B.A. Green, in
proposing to him to advance the money for the
purchase thereof, made it appear in the letter, Exhibit
E, that in case B.A. Green should fail to obtain an
additional loan from the defendants Cu Unjieng e Hijos,
said machinery and equipment would become security
therefor, said B.A. Green binding himself not to
mortgage nor encumber them to anybody until said
plaintiff be fully reimbursed for the corporation's
indebtedness to him.
Upon acquiring the machinery and equipment in
question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the
Mabalacat Sugar Co., Inc., the latter became owner of
said machinery and equipment, otherwise B.A. Green,
as such president, could not have offered them to the
plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the
character of real property to "machinery, liquid
containers, instruments or implements intended by the
owner of any building or land for use in connection with
any industry or trade being carried on therein and
which are expressly adapted to meet the requirements
of such trade or industry.
If the installation of the machinery and equipment in
question in the central of the Mabalacat Sugar Co., Inc.,
in lieu of the other of less capacity existing therein, for
its sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in
character because, as essential and principal elements
of a sugar central, without them the sugar central
would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the
central is permanent in character, the necessary
machinery and equipment installed for carrying on the
sugar industry for which it has been established must
necessarily be permanent.

been permanently incorporated with sugar central of

the Mabalacat Sugar Co., Inc., and while the mortgage
constituted on said sugar central to Cu Unjieng e Hijos
remained in force, only the right of redemption of the
vendor Mabalacat Sugar Co., Inc., in the sugar central
with which said machinery and equipment had been
incorporated, was transferred thereby, subject to the
right of the defendants Cu Unjieng e Hijos under the
first mortgage.
For the foregoing considerations, we are of the opinion
and so hold: (1) That the installation of a machinery
and equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing
production, constitutes a permanent improvement on
said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article
1877, Civil Code); (2) that the fact that the purchaser
of the new machinery and equipment has bound
himself to the person supplying him the purchase
money to hold them as security for the payment of the
latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the
permanent character of the incorporation of said
machinery and equipment with the central; and (3)
that the sale of the machinery and equipment in
question by the purchaser who was supplied the
purchase money, as a loan, to the person who supplied
the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor
with ownership of said machinery and equipment but
simply with the right of redemption.
Wherefore, finding no error in the appealed judgment,
it is affirmed in all its parts, with costs to the appellant.
So ordered.

Case Digest:
PHILIPPINE REFINING COMPANY V. JARQUE
FACTS:
Plaintiff Philippine Refining Co. and defendant Jarque
executed three mortgages on the motor vessels
Pandan and Zargazo. The documents were recorded as

Furthermore, the fact that B.A. Green bound himself to

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

transfer and encumbrances of the vessels for the port

of Cebu and each was denominated a chattel
mortgage.

The first two mortgages did not have an affidavit of

good faith. A fourth mortgage was executed by Jarque
and Ramon Aboitiz over motorship Zaragoza and was
entered in the Chattel Mortgage Registry on May 12,
1932, within the period of 30 days prior to the
foreclosure/institution of the insolvency proceedings.

Jose Curaminas filed with the CFI of Cebu a petition

praying that Francisco Jarque be declared an insolvent
debtor. This was granted and Jarques properties were
then assigned to Curaminas.
A problem arose when Judge Jose Hontiveros declined
to order the foreclosure of the mortgages, and instead,
ruled that they were defective because they did not
have affidavits of good faith.
ISSUE:
1.

Whether or not the mortgages of the vessels

are governed by the Chattel Mortgage Law

2.

Whether or not an affidavit of good faith is

needed to enforce achattel mortgage on a
vessel

RULING:
Yes. Personal property includes vessels. They are
subject to the provisions of the Chattel Mortgage Law.
The Chattel Mortgage Law says that a good chattel
mortgage includes an affidavit of good faith. The
absence of such affidavit makes mortgage
unenforceable against creditors and subsequent
encumbrances. The judge was correct.

Note: A mortgage on a vessel is generally like other

chattel mortgages. The only difference between a

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.)
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 thirtyday 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.

chattel mortgage of a vessel and a chattel mortgage of

other personalty is that the first must be noted in the
registry of the register of deeds.
Full Case:
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.
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

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

it was established. We may here distinguish

those movables, which are essential and principal
elements of an industry, from those which may not
be so considered immobilized by destination
because they are merely incidental, not essential and
principal.
In the case at bar, the tools and equipments in
question are by their nature not essential and principal
elements of petitioners business of transporting
passengers and cargoes by motor trucks. They are
merely incidentals.
Case Digest:
Mindanao Bus Co. v. City Assessor Digest

G.R. No. L-17870 29 September 1962

Facts: Petitioner is a public utility company engaged in
the transport of passengers and cargo by motor
vehicles in Mindanao with main offices in Cagayan de
Oro (CDO). Petitioner likewise owned a land where it
maintains a garage, a repair shop and blacksmith or
carpentry shops. The machineries are placed thereon
in wooden and cement platforms. The City Assessor of
CDO then assessed a P4,400 realty tax on said
machineries and repair equipment. Petitioner appealed
to the Board of Tax Appeals but it sustained the City
Assessor's decision, while the Court of Tax Appeals
(CTA) sustained the same.
Note: This is merely a case digest to aid in
remembering the important points of a case. It is still
advisable for any student of law to read the full text of
assigned cases.

Case Digest:
MINDANAO BUS COMPANY V. CITY ASSESSOR
AND TREASURER 6 SCRA 197
FACTS:

Issue: Whether or not the machineries and

equipments are considered immobilized and thus
subject to a realty tax
Held: The Supreme Court decided otherwise and held
that said machineries and equipments are not subject
to the assessment of real estate tax.

Petitioner is engaged in a public utility business,

solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in
Mindanao. It owns a main office and branch offices. To
be found in their offices are machineries and
equipment, which were assessed by the City Assessor
as real properties.
HELD:

Said equipments are not considered immobilized as

they are merely incidental, not esential and principal to
the business of the petitioner. The transportation
business could be carried on without repair or service
shops of its rolling equipment as they can be repaired
or services in another shop belonging to another
.

Movable equipments to be immobilized in

contemplation of law must first be essential and
principal elements of an industry or works without

Full Case: G.R. No. L-17870

1962

September 29,

which such industry or works would be unable to

function or carry on the industrial purpose for which

MINDANAO BUS COMPANY, petitioner,

vs.

THE CITY ASSESSOR & TREASURER and the

BOARD OF TAX APPEALS of Cagayan de Oro
City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.

LABRADOR, J.:
This is a petition for the review of the decision of the
Court of Tax Appeals in C.T.A. Case No. 710 holding that
the petitioner Mindanao Bus Company is liable to the
payment of the realty tax on its maintenance and
repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City
assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of
the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for
the review of the assessment.
In the Court of Tax Appeals the parties submitted the
following stipulation of facts:
Petitioner and respondents, thru their
respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely
engaged in transporting passengers and
cargoes by motor trucks, over its authorized
lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;
2. That petitioner has its main office and shop
at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao;
Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed
by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine,
appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in
the attached photograph, marked Annex
"C";
(d) Black and Decker Grinder, appearing in
the attached photograph, marked Annex
"D";
(e) PEMCO Hydraulic Press, appearing in the
attached photograph, marked Annex "E";

(f) Battery charger (Tungar charge machine)

appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in
the attached photograph, marked Annex "G".
4. That these machineries are sitting on cement
or wooden platforms as may be seen in the
attached photographs which form part of this
agreed stipulation of facts;
5. That petitioner is the owner of the land where
it maintains and operates a garage for its TPU
motor trucks; a repair shop; blacksmith and
carpentry shops, and with these machineries
which are placed therein, its TPU trucks are made;
body constructed; and same are repaired in a
condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or
were never used as industrial equipments to
produce finished products for sale, nor to repair
machineries, parts and the like offered to the
general public indiscriminately for business or
commercial purposes for which petitioner has
never engaged in, to date.1awphl.nt
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the case
to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the
questioned assessments are valid; and that
said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the
movable equipments are taxable realties, by
reason of their being intended or destined for
use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate
taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's
motion for reconsideration.
Respondents contend that said equipments, tho
movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New
Civil Code which provides:
Art. 415. The following are immovable
properties:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or

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

transporting passengers and cargoes by motor trucks.

They are merely incidentals acquired as movables
and used only for expediency to facilitate and/or
improve its service. Even without such tools and
equipments, its business may be carried on, as
petitioner has carried on, without such equipments,
before the war. The transportation business could be
carried on without the repair or service shop if its
rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the question
at issue is as follows:
Art. 415. The following are immovable
property:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or

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

G.R. No. L-40411

August 7, 1935

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

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

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo

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

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

The Davao Saw Mill Co., Inc., is the holder of a lumber

concession from the Government of the Philippine
Islands. It has operated a sawmill in the sitio of Maa,
barrio of Tigatu, municipality of Davao, Province of
Davao. However, the land upon which the business was
conducted belonged to another person. On the land the
sawmill company erected a building which housed the
machinery used by it. Some of the implements thus
used were clearly personal property, the conflict
concerning machines which were placed and mounted
on foundations of cement. In the contract of lease
between the sawmill company and the owner of the
land there appeared the following provision:
That on the expiration of the period agreed
upon, all the improvements and buildings
introduced and erected by the party of the
second part shall pass to the exclusive
ownership of the party of the first part without
any obligation on its part to pay any amount
for said improvements and buildings; also, in
the event the party of the second part should
leave or abandon the land leased before the
time herein stipulated, the improvements and
buildings shall likewise pass to the ownership
of the party of the first part as though the time
agreed upon had expired: Provided, however,
That the machineries and accessories are not
included in the improvements which will pass
to the party of the first part on the expiration
or abandonment of the land leased.
In another action, wherein the Davao Light & Power
Co., Inc., was the plaintiff and the Davao, Saw, Mill Co.,
Inc., was the defendant, a judgment was rendered in
favor of the plaintiff in that action against the
defendant in that action; a writ of execution issued
thereon, and the properties now in question were
levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the
sales thereof as is borne out by the record made by the
plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession
of the machinery and other properties described in the
corresponding certificates of sale executed in its favor
by the sheriff of Davao.

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

To determine this question involves fixing the

nature and character of the property from the
point of view of the rights of Valdes and its
nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of
the Altagracia Company and the rights derived
by them from the execution levied on the
machinery placed by the corporation in the
plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real)
property, not only land and buildings, but also
attributes immovability in some cases to
property of a movable nature, that is, personal
property, because of the destination to which it
is applied. "Things," says section 334 of the
Porto Rican Code, "may be immovable either
by their own nature or by their destination or
the object to which they are applicable."
Numerous illustrations are given in the fifth
subdivision of section 335, which is as follows:
"Machinery, vessels, instruments or
implements intended by the owner of the
tenements for the industrial or works that they
may carry on in any building or upon any land
and which tend directly to meet the needs of
the said industry or works." (See also Code
Nap., articles 516, 518 et seq. to and inclusive
of article 534, recapitulating the things which,
though in themselves movable, may be
immobilized.) So far as the subject-matter with
which we are dealing machinery placed in
the plant it is plain, both under the
provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is
movable in its nature only becomes
immobilized when placed in a plant by the
owner of the property or plant. Such result
would not be accomplished, therefore, by the
placing of machinery in a plant by a tenant or a
usufructuary or any person having only a
temporary right. (Demolombe, Tit. 9, No. 203;
Aubry et Rau, Tit. 2, p. 12, Section 164;
Laurent, Tit. 5, No. 447; and decisions quoted
in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that
one only having a temporary right to the
possession or enjoyment of property is not
presumed by the law to have applied movable
property belonging to him so as to deprive him
of it by causing it by an act of immobilization to
become the property of another. It follows that
abstractly speaking the machinery put by the
Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable
property and become immovable by
destination. But in the concrete immobilization
took place because of the express provisions of
the lease under which the Altagracia held,
since the lease in substance required the
putting in of improved machinery, deprived the
tenant of any right to charge against the lessor
the cost such machinery, and it was expressly
stipulated that the machinery so put in should

become a part of the plant belonging to the

owner without compensation to the lessee.
Under such conditions the tenant in putting in
the machinery was acting but as the agent of
the owner in compliance with the obligations
resting upon him, and the immobilization of the
machinery which resulted arose in legal effect
from the act of the owner in giving by contract
a permanent destination to the machinery.
xxx

xxx

xxx

The machinery levied upon by Nevers &

Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as
regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it
under the execution upon the judgment in their
favor, and the exercise of that right did not in a
legal sense conflict with the claim of Valdes,
since as to him the property was a part of the
realty which, as the result of his obligations
under the lease, he could not, for the purpose
of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192],
225 U.S., 58.)
Finding no reversible error in the record, the judgment
appealed from will be affirmed, the costs of this
instance to be paid by the appellant.

DAVAO SAW MILL CO. VS. CASTILLO 61 SCRA 709

FACTS:
Petitioner is the holder of a lumber concession. It
operated a sawmill on a land, which it doesnt own.
Part of the lease agreement was a stipulation in which
after the lease agreement, all buildings and
improvements would pass to the ownership of the
lessor, which would not include machineries and
accessories. In connection to this, petitioner had
in its sawmill machineries and other equipment
wherein some were bolted in foundations of cement.
HELD:
The machinery must be classified as personal
property.
The lessee placed the machinery in the building
erected on land belonging to another, with the
understanding that the machinery was not included in
the improvements which would pass to the lessor on
the expiration of the lease agreement. The lessee
also treated the machinery as personal
property in executing chattel mortgages in favor
of third persons. The machinery was levied upon by
the sheriff as personalty pursuant to a writ of execution
obtained without any protest being registered.

Furthermore, machinery only becomes immobilized

when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant,
usufructuary, or any person having temporary
right, unless such person acted as the agent of the
owner.
DAVAO SAW MILL CO. VS. CASTILLO
G.R. No. L-40411

August 7, 1935

MALCOLM, J.:
FACTS:
Petitioner is the holder of a lumber concession. It
operated a sawmill on a land, which it doesnt own.
Part of the lease agreement was a stipulation in which
after the lease agreement, all buildings and
improvements would pass to the ownership of the
lessor, which would not include machineries and
accessories. In connection to this, petitioner had
in its sawmill machineries and other equipment
wherein some were bolted in foundations of cement.
Issue:
Whether or not the trial judge erred in finding that the
subject properties are personal in nature.
HELD:
The machinery must be classified as personal property.

The lessee placed the machinery in the building

erected on land belonging to another, with the
understanding that the machinery was not included in
the improvements which would pass to the lessor on
the expiration of the lease agreement. The lessee
also treated the machinery as personal
property in executing chattel mortgages in favor
of third persons. The machinery was levied upon by
the sheriff as personalty pursuant to a writ of execution
obtained without any protest being registered.

Furthermore, machinery only becomes immobilized

when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant,
usufructuary, or any person having temporary
right, unless such person acted as the agent of the
owner.

information about the sales patent applied for by the

spouses for the lot to which the building stood. After
securing the first loan, the spouses secured another
from the same bank. To secure payment, another real
estate mortgage was executed over the same
properties.
The Secretary of Agriculture then issued a
Miscellaneous Sales Patent over the land which was
later on mortgaged to the bank.
The spouses then failed to pay for the loan and the
REM was extrajudicially foreclosed and sold in public
auction despite opposition from the spouses. The
respondent court held that the REM was null and void.
ISSUE:
Whether or not a valid RE mortgage can be constituted
on the building erected on the belonging to another.
HELD:
A real estate mortgage can be constituted on the
building erected on the land belonging to another.
The inclusion of building distinct and separate from the
land in the Civil Code can only mean that the building
itself is an immovable property.
While it is true that a mortgage of land necessarily
includes in the absence of stipulation of the
improvements thereon, buildings, still a building in
itself may be mortgaged by itself apart from the land
on which it is built. Such a mortgage would still be
considered as a REM for the building would still be
considered as immovable property even if dealt with
separately and apart from the land.
The original mortgage on the building and right to
occupancy of the land was executed before the
issuance of the sales patent and before the
government was divested of title to the land. Under the
foregoing, it is evident that the mortgage executed by
private respondent on his own
building was a valid mortgage.
As to the second mortgage, it was done after the sales
patent was issued and thus prohibits pertinent
provisions of the Public Land Act.
PRUDENTIAL BANK v. PANIS
An Real Estate Mortgage can be constituted on
the building erected on the land belonging to
another.

PRUDENTIAL BANK V. PANIS, 153 SCRA 390

FACTS:
Spouses Magcale secured a loan from Prudential Bank.
To secure payment, they executed a real estate
mortgage over a residential building. The mortgage
included also the right to occupy the lot and the

FACTS:
Spouses Magcale secured a loan with Prudential Bank.
To further secure said loan, the spouses executed
a Real Estate Mortgageover the residential building,
with a right to occupy the lot. The Real Estate
Mortgage also included information about the Sales

Patent applied for by the spouses for the lot to which

the building stood. The spouses got another loan,
which was secured by another Real Estate
Mortgage over the same properties.

The Sec. of Agriculture issued a Miscellaneous Sales

Patent over the lot which was then mortgaged to the
bank in favor of the Macales.

The spouses defaulted on both loans. Thus, the Real

Estate Mortgage was extrajudicially foreclosed, and
sold in a public auction.

The RTC held that the Real Estate Mortgage was null
and void.
ISSUE:
Whether or not a Real Estate Mortgage can be
constituted on the building erected on a lot belonging
to another?
HELD:

described the said equipment and machinery in this

manner:
A gasoline service station is a piece of lot where a
building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists
are placed in an adjacent shed, an air compressor
is attached in the wall of the shed or at the
concrete wall fence.
The controversial underground tank, depository of
gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed.
This is done to prevent conflagration because
gasoline and other combustible oil are very
inflammable.
This underground tank is connected with a steel
pipe to the gasoline pump and the gasoline pump
is commonly placed or constructed under the
shed. The footing of the pump is a cement pad
and this cement pad is imbedded in the pavement
under the shed, and evidence that the gasoline
underground tank is attached and connected to
the shed or building through the pipe to the pump
and the pump is attached and affixed to the
cement pad and pavement covered by the roof of
the building or shed.

Yes. The fact that the spouses executed the Real

Estate Mortgage over the building before executing
the second Real Estate Mortgageover the land
proved that the spouses intended for the building to be
an immovable separate and distinct from the land on
which it is built.

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

CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and
CITY ASSESSOR OF PASAY, respondents.
AQUINO, J.: This case is about the realty tax on
machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased
land.
The machines and equipment consists of underground
tanks, elevated tank, elevated water tanks, water
tanks, gasoline pumps, computing pumps, water
pumps, car washer, car hoists, truck hoists, air
compressors and tireflators. The city assessor

The building or shed, the elevated water tank, the

car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon
lights signboard, concrete fence and pavement
and the lot where they are all placed or erected,
all of them used in the pursuance of the gasoline
service station business formed the entire
gasoline service-station.
As to whether the subject properties are attached
and affixed to the tenement, it is clear they are,
for the tenement we consider in this particular
case are (is) the pavement covering the entire lot
which was constructed by the owner of the
gasoline station and the improvement which holds
all the properties under question, they are
attached and affixed to the pavement and to the
improvement.
The pavement covering the entire lot of the
gasoline service station, as well as all the
improvements, machines, equipments and
apparatus are allowed by Caltex (Philippines)
Inc. ...
The underground gasoline tank is attached to the
shed by the steel pipe to the pump, so with the
water tank it is connected also by a steel pipe to
the pavement, then to the electric motor which
electric motor is placed under the shed. So to say
that the gasoline pumps, water pumps and
underground tanks are outside of the service
station, and to consider only the building as the

service station is grossly erroneous. (pp. 58-60,

Rollo).
The said machines and equipment are loaned by Caltex
to gas station operators under an appropriate lease
agreement or receipt. It is stipulated in the lease
contract that the operators, upon demand, shall return
to Caltex the machines and equipment in good
condition as when received, ordinary wear and tear
excepted.
The lessor of the land, where the gas station is located,
does not become the owner of the machines and
equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said
items of gas station equipment and machinery as
taxable realty. The realty tax on said equipment
amounts to P4,541.10 annually (p. 52, Rollo). The city
board of tax appeals ruled that they are personalty.
The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of
Finance Cesar Virata as chairman, Acting Secretary of
Justice Catalino Macaraig, Jr. and Secretary of Local
Government and Community Development Jose Roo,
held in its decision of June 3, 1977 that the said
machines and equipment are real property within the
meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, and that the definitions of
real property and personal property in articles 415 and
416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister
Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion
for reconsideration, a copy of which was received by its
lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition
wherein it prayed for the setting aside of the Board's
decision and for a declaration that t he said machines
and equipment are personal property not subject to
realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax
Appeals has exclusive appellate jurisdiction over this
case is not correct. When Republic act No. 1125
created the Tax Court in 1954, there was as yet no
Central Board of Assessment Appeals. Section 7(3) of
that law in providing that the Tax Court had jurisdiction
to review by appeal decisions of provincial or city
boards of assessment appeals had in mind the local
boards of assessment appeals but not
the Central Board of Assessment Appeals which under
the Real Property Tax Code has appellate jurisdiction
over decisions of the said local boards of assessment
appeals and is, therefore, in the same category as the
Tax Court.

Section 36 of the Real Property Tax Code provides that

the decision of the Central Board of Assessment
Appeals shall become final and executory after the
lapse of fifteen days from the receipt of its decision by
the appellant. Within that fifteen-day period, a petition
for reconsideration may be filed. The Code does not
provide for the review of the Board's decision by this
Court.
Consequently, the only remedy available for seeking a
review by this Court of the decision of the Central
Board of Assessment Appeals is the special civil action
of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.
The issue is whether the pieces of gas station
equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved
primarily under the provisions of the Assessment Law
and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the
realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the
Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There
shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land,
buildings, machinery and other improvements
affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definitions in its
section 3:
k) Improvements is a valuable addition made to
property or an amelioration in its condition,
amounting to more than mere repairs or
replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or
to adapt it for new or further purposes.
m) Machinery shall embrace machines,
mechanical contrivances, instruments,
appliances and apparatus attached to the real
estate. It includes the physical facilities
available for production, as well as the
installations and appurtenant service facilities,
together with all other equipment designed for
or essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f],
Assessment Law).
We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty tax)
and which fixtures are necessary to the operation of
the gas station, for without them the gas station would

be useless, and which have been attached or affixed

permanently to the gas station site or embedded
therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the
Real Property Tax Code.
Caltex invokes the rule that machinery which is
movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant
but not when so placed by a tenant, a usufructuary, or
any person having only a temporary right, unless such
person acted as the agent of the owner (Davao Saw
Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article
415 of the Civil Code regarding machinery that
becomes real property by destination. In the Davao
Saw Mills case the question was whether the
machinery mounted on foundations of cement and
installed by the lessee on leased land should be
regarded as real property forpurposes of execution of a
judgment against the lessee. The sheriff treated the
machinery as personal property. This Court sustained
the sheriff's action. (Compare with Machinery &
Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil.
70, where in a replevin case machinery was treated as
realty).
Here, the question is whether the gas station
equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are
indubitably taxable realty) should be subject to the
realty tax. This question is different from the issue
raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty
even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and
41). "It is a familiar phenomenon to see things classed
as real property for purposes of taxation which on
general principle might be considered personal
property" (Standard Oil Co. of New York vs. Jaramillo,
44 Phil. 630, 633).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., 119 Phil.
328, where Meralco's steel towers were considered
poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The
steel towers were considered personalty because they
were attached to square metal frames by means of
bolts and could be moved from place to place when
unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery
the same as tools and equipment in the repair shop of
a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co.
vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not
commit a grave abuse of discretion in upholding the

city assessor's is imposition of the realty tax on

Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of
the Central Board of Assessment Appeals are affirmed.
The petition for certiorari is dismissed for lack of merit.
No costs. SO ORDERED.

Case Digest:
Caltex (Philippines), Inc. vs. Central Board of
Assessment Appeals and City Assessor of Pasay
G.R. No. L-50466
May 31, 1982
FACTS:
Various machines and equipments are loaned by Caltex
to gas station operators under an appropriate lease
agreement or receipt. These are underground tanks,
gasoline pumps, water pumps, car washer and air
compressors, among others. 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. The lessor of the land,
where the gas station is located, does not become the
owner of the machines and equipment installed
therein. Caltex retains the ownership thereof during the
term of the lease. The city assessor of Pasay City
characterized the said items of gas station equipment
and machinery as taxable realty. However, the city
board of tax appeals ruled that they are personalty.
The City Board of Tax Appeals decided that the
definitions of realty and personalty under the Civil
Code do not apply in this case. Instead, the definition
under the Real Property Tax Code should be followed.
Thus, the property in controversy are real in nature and
subject to realty tax.
ISSUE:
Whether the pieces of gas station equipment and
machinery already enumerated are subject to realty
tax.
HELD:
The Court held 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. Under the Real Property Tax
Code, improvements are defined as 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. On the other

hand, machinery is embraces machines, mechanical

contrivances, instruments, appliances and apparatus
attached to the real estate. Improvements on land
are commonly taxed as realty even though for some
purposes they might be considered personalty.

BENGUET CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF ZAMBALES,
PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE
OF ZAMBALES, and MUNICIPALITY OF SAN
MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los
Angeles for petitioner.
CRUZ, J.: The realty tax assessment involved in this
case amounts to P11,319,304.00. It has been imposed
on the petitioner's tailings dam and the land
thereunder over its protest.
The controversy arose in 1985 when the Provincial
Assessor of Zambales assessed the said properties as
taxable improvements. The assessment was appealed
to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was
dismissed mainly on the ground of the petitioner's
"failure to pay the realty taxes that fell due during the
pendency of the appeal."
The petitioner seasonably elevated the matter to the
Central Board of Assessment Appeals, 1 one of the
herein respondents. In its decision dated March 22,
1990, the Board reversed the dismissal of the appeal
but, on the merits, agreed that "the tailings dam and
the lands submerged thereunder (were) subject to
realty tax."
For purposes of taxation the dam is considered as
real property as it comes within the object
mentioned in paragraphs (a) and (b) of Article 415
of the New Civil Code. It is a construction adhered
to the soil which cannot be separated or detached
without breaking the material or causing
destruction on the land upon which it is attached.
The immovable nature of the dam as an
improvement determines its character as real
property, hence taxable under Section 38 of the
Real Property Tax Code. (P.D. 464).
Although the dam is partly used as an antipollution device, this Board cannot accede to the
request for tax exemption in the absence of a law
authorizing the same.
xxx xxx xxx

We find the appraisal on the land submerged as a

result of the construction of the tailings dam,
covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with
the Schedule of Market Values for Zambales which
was reviewed and allowed for use by the Ministry
(Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to
impugn its reasonableness, i.e., that the P50.00 per
square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and
unconscionable. Hence, we find no cause to disturb
the market value applied by Respondent Appellee
Provincial Assessor of Zambales on the properties
of Petitioner-Appellant Benguet Corporation
covered by Tax Declaration Nos. 002-0260 and
002-0266.
This petition for certiorari now seeks to reverse the
above ruling.
The principal contention of the petitioner is that the
tailings dam is not subject to realty tax because it is
not an "improvement" upon the land within the
meaning of the Real Property Tax Code. More
particularly, it is claimed
(1) as regards the tailings dam as an
"improvement":
(a) that the tailings dam has no value separate
from and independent of the mine; hence, by
itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the
petitioner corporation in the area, the tailings dam
will benefit the local community by serving as an
irrigation facility;
(d) that the building of the dam has stripped the
property of any commercial value as the property
is submerged under water wastes from the mine;
(e) that the tailings dam is an environmental
pollution control device for which petitioner must
be commended rather than penalized with a
realty tax assessment;
(f) that the installation and utilization of the
tailings dam as a pollution control device is a
requirement imposed by law;
(2) as regards the valuation of the tailings dam and
the submerged lands:
(a) that the subject properties have no market
value as they cannot be sold independently of
the mine;

(b) that the valuation of the tailings dam

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

other words, the government has practically

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

considered as improvements on the land,

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

(k) Improvements is a valuable addition made

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

permanent in character and it enhances both the value

and utility of petitioner's mine. Moreover, the
immovable nature of the dam defines its character as
real property under Article 415 of the Civil Code and
thus makes it taxable under Section 38 of the Real
Property Tax Code.
The Court will also reject the contention that the
appraisal at P50.00 per square meter made by the
Provincial Assessor is excessive and that his use of the
"residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of
the "residual value formula" as follows:
A 50% residual value is applied in the computation
because, while it is true that when slime fills the
dike, it will then be covered by another dike or
stage, the stage covered is still there and still
exists and since only one face of the dike is filled,
50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following
justification:
We find the appraisal on the land submerged as a
result of the construction of the tailings dam,
covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with
the Schedule of Market Values for San Marcelino,
Zambales, which is fifty (50.00) pesos per square
meter for third class industrial land (TSN, page 17,
July 5, 1989) and Schedule of Market Values for
Zambales which was reviewed and allowed for use
by the Ministry (Department) of Finance in the
1981-1982 general revision. No serious attempt
was made by Petitioner-Appellant Benguet
Corporation to impugn its reasonableness, i.e, that
the P50.00 per square meter applied by
Respondent-Appellee Provincial Assessor is indeed
excessive and unconscionable. Hence, we find no
cause to disturb the market value applied by
Respondent-Appellee Provincial Assessor of
Zambales on the properties of Petitioner-Appellant
Benguet Corporation covered by Tax Declaration
Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to
respect the conclusions of 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 of discretion calling for the intervention of
this Court in the exercise of its own powers of review.
There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent
CBAA that it cannot take cognizance of the issue of the
propriety of the penalties imposed upon it, which was
raised by the petitioner for the first time only on

appeal. The CBAA held that this "is an entirely new

matter that petitioner can take up with the Provincial
Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the
local sanggunian . . ., and in case of an adverse
decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this
Board for appropriate action."
There is no need for this time-wasting procedure. The
Court may resolve the issue in this petition instead of
referring it back to the local authorities. We have
studied the facts and circumstances of this case as
above discussed and find that the petitioner has acted
in good faith in questioning the assessment on the
tailings dam and the land submerged thereunder. It is
clear that it has not done so for the purpose of evading
or delaying the payment of the questioned tax. Hence,
we hold that the petitioner is not subject to penalty for
its
non-declaration of the tailings dam and the submerged
lands for realty tax purposes.
WHEREFORE, the petition is DISMISSED for failure to
show that the questioned decision of respondent
Central Board of Assessment Appeals is tainted with
grave abuse of discretion except as to the imposition of
penalties upon the petitioner which is hereby SET
ASIDE. Costs against the petitioner. It is so ordered.

TUMALAD V. VICENCIO 41 SCRA 143

FACTS:
Vicencio and Simeon executed a chattel mortgage in
favor of plaintiffs Tumalad over their house, which was
being rented by Madrigal and company. This was
executed to guarantee a loan, payable in one year with
a 12% per annum interest.
The mortgage was extrajudicially foreclosed upon
failure to pay the loan. The house was sold at a public
auction and the plaintiffs were the highest bidder. A
corresponding certificate of sale was issued.
Thereafter, the plaintiffs filed an action for ejectment
against the defendants, praying that the latter vacate
the house as they were the proper owners.
ISSUE: W/N the chattel mortgage was null and void ab
initio because only personal properties can be subject
of a chattel mortgage.
HELD:
Certain deviations have been allowed from the general
doctrine that buildings are immovable property such as
when through stipulation, parties may agree to treat as
personal property those by their nature would be real
property. This is partly based on the principle of
estoppel wherein the principle is predicated on
statements by the owner declaring his house as
chattel, a conduct that may conceivably stop him from
subsequently claiming otherwise.
In the case at bar, though there be no specific
statement referring to the subject house as personal

property, yet by ceding, selling or transferring a

property through chattel mortgage could only have
meant that defendant conveys 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.

Serg's v. PCI Leasing

Sergs Products, Inc. vs. PCI Leasing G.R. No. 137705.
August 22, 2000
FACTS:
PCI Leasing and Finance filed a complaint for sum of
money, with an application for a writ of replevin.
Judge issued a writ of replevin 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.
The sheriff proceeded to petitioner's factory, seized
one machinery, with word that he would return for
other machineries.
Petitioner (Sergs Products) filed a motion for special
protective order to defer enforcement of the writ of
replevin.
PCI Leasing opposed the motion on the ground that the
properties were still personal and therefore can still be
subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized
were immovable as defined in Article 415 of the Civil
Code.
Sheriff was still able to take possession of two more
machineries

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.They
were essential and principal elements of their
chocolate-making industry.Hence, although each of
them was movable or personal property on its own, all
of them have become immobilized by destination
because they are essential and principal elements in
the industry.
However, contracting parties may validly stipulate that
a real property be considered as personal. After
agreeing to such stipulation, they are consequently
estopped from claiming otherwise.Under the principle
of estoppel, a party to a contract is ordinarily precluded
from denying the truth of any material fact found
therein.
Section 12.1 of the Agreement between the parties
provides 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.
The machines are personal property and they are
proper subjects of the Writ of Replevin

In its decision on the original action for certiorari filed

by the Petitioner, the appellate court, Citing the
Agreement of the parties, held that the subject
machines were personal property, and that they had
only been leased, not owned, by petitioners; and ruled
that the "words of the contract are clear and leave no
doubt upon the true intention of the contracting
parties."
ISSUE: Whether or not the machineries became real
property by virtue of immobilization.
Ruling:
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.

b. MOVABLES

Writ of Replevin: Rule 60 of the Rules of Court provides

that writs of replevin are issued for the recovery of
personal property only.

US V. TAMBUNTING

Article 415 (5) of the Civil Code provides that

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

The Manila Gas Company installed equipment for the

FACTS:

transmission of gas in a house at Evangelista. After the

original subscriber left, the apparatus was sealed and
the services discontinued.

Later Mr Tambunting moved in. He was a cheapskate

and spliced the tubing to leech free gas for household
use. Alas, the crime was discovered by the gas
company. The prosecutor filed charges and hailed Mr.

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.

Tambunting to court
ISSUE: Whether or not gas can be the subject of
larceny.
HELD:
Yes. Gas is a substance which lends itself to felonious
appropriation. It is a valuable merchandise that can be
bought and sold like other personal property,
susceptible of being siphoned from a larger mass and
transported from place to place. Articles 517 and 518
sets parameters for the theft of gas and it is a valid
ordinance.

G.R. No. L-16513

January 18, 1921

THE UNITED STATES, plaintiff-appellee, vs.

MANUEL TAMBUNTING, defendant-appellant.
STREET, J.:
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.
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.
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

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

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."
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.
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.)
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.