Pierson persons, by title of occupancy, to the same animals; and he is far
v from averring that pursuit alone is sufficient for that purpose. To a
Post
Supreme Court of Judicature
August Term, 1805
3 Caines 175
CITE TITLE AS: Pierson v Post
[*177] TOMPKINS, J. delivered the opinion of the court.
This cause comes before us on a return to a certiorari directed
to one of the justices of Queens county.
The question submitted by the counsel in this cause for our
determination is, whether Lodowick Post, by the pursuit with his
hounds in the manner alleged in his declaration, acquired such a right
to, or property in, the fox, as will sustain an action against Pierson for
killing and taking him away?
The cause was argued with much ability by the counsel on
both sides, and presents for our decision a novel and nice question. It
is admitted that a fox is an animal fer natur, and that property in
such animals is acquired by occupancy only. These admissions
narrow the discussion to the simple question of what acts amount to
occupancy, applied to acquiring right to wild animals?
If we have recourse to the ancient writers upon general
principles of law, the judgment below is obviously
erroneous. Justinian's Institutes, lib. 2. tit. 1. s. 13. and Fleta,lib. 3. c.
2. p. 175. adopt the principle, that pursuit alone vests no property or
right in the huntsman; and that even pursuit, accompanied with
wounding, is equally ineffectual for that purpose, unless the animal
be actually taken. The same principle is recognised by Bracton, lib. 2.
c. 1. p. 8.
Puffendorf, lib. 4. c. 6. s. 2. and 10. defines occupancy of
beasts fer natur, to be the actual corporal possession of them,
and Bynkershoek is cited as coinciding in this definition. It is indeed
with hesitation that Puffendorf affirms that a wild beast mortally
wounded, or greatly maimed, cannot be fairly intercepted by another,
whilst the pursuit [*178] of the person inflicting the wound
continues. The foregoing authorities are decisive to show that mere
pursuit gave Post no legal right to the fox, but that he became the
property of Pierson, who intercepted and killed him.
It therefore only remains to inquire whether there are any
contrary principles, or authorities, to be found in other books, which
ought to induce a different decision. Most of the cases which have
occurred in England, relating to property in wild animals, have either
been discussed and decided upon the principles of their positive
statute regulations, or have arisen between the huntsman and the
owner of the land upon which beasts fer natur have been
apprehended; the former claiming them by title of occupancy, and the
latter ratione soli. Little satisfactory aid can, therefore, be derived
from the English reporters.
Barbeyrac, in his notes on Puffendorf, does not accede to the
definition of occupancy by the latter, but, on the contrary, affirms,
that actual bodily seizure is not, in all cases, necessary to constitute
possession of wild animals. He does not, however, describe the acts
which, according to his ideas, will amount to an appropriation of such
animals to private use, so as to exclude the claims of all other
certain extent, and as far as Barbeyrac appears to me to go, his
objections to Puffendorf's definition of occupancy are reasonable and
correct. That is to say, that actual bodily seizure is not indispensable
to acquire right to, or possession of, wild beasts; but that, on the
contrary, the mortal wounding of such beasts, by one not abandoning
his pursuit, may, with the utmost propriety, be deemed possession of
him; since, thereby, the pursuer manifests an unequivocal intention of
appropriating the animal to his individual use, has deprived him of
his natural liberty, and brought him within his certain control. So
also, encompassing and securing such animals with nets and toils, or
otherwise intercepting them in such a manner as to deprive them of
their natural liberty, and render escape impossible, may justly be
deemed to give possession of them to those persons who, by their
industry and labour, have used such means of apprehending
them. Barbeyrac seems to have adopted, and had in view in his
notes, [*179] the more accurate opinion of Grotius, with respect to
occupancy. That celebrated author, lib. 2. c. 8. s. 3. p. 309. speaking
of occupancy, proceeds thus: "Requiritur autem corporalis qudam
possessio ad dominium adipiscendum; atque ideo, vulnerasse non
sufficit." But in the following section he explains and qualifies this
definition of occupancy: "Sed possessio illa potest non solis manibus,
sed instrumentis, ut decipulis, retibus, laqueis dum duo adsint:
primum ut ipsa instrumenta sint in nostra potestate, deinde ut fera,
ita inclusa sit, ut exire inde nequeat." This qualification embraces the
full extent of Barbeyrac's objection to Puffendorf's definition, and
allows as great a latitude to acquiring property by occupancy, as can
reasonably be inferred from the words or ideas expressed
by Barbeyrac in his notes. The case now under consideration is one
of mere pursuit, and presents no circumstances or acts which can
bring it within the definition of occupancy
by Puffendorf, or Grotius, or the ideas of Barbeyrac upon that
subject.
The case cited from 11 Mod. 74130. I think clearly
distinguishable from the present; inasmuch as there the action was for
maliciously hindering and disturbing the plaintiff in the exercise and
enjoyment of a private franchise; and in the report of the same case,
3 Salk. 9. Holt, Ch. J. states, that the ducks were in the plaintiff's
decoy pond, and so in his possession, from which it is obvious the
court laid much stress in their opinion upon the plaintiff's possession
of the ducks, ratione soli.
We are the more readily inclined to confine possession or
occupancy of beasts fer natur, within the limits prescribed by the
learned authors above cited, for the sake of certainty, and preserving
peace and order in society. If the first seeing, starting, or pursuing
such animals, without having so wounded, circumvented or ensnared
them, so as to deprive them of their natural liberty, and subject them
to the control of their pursuer, should afford the basis of actions
against others for intercepting and killing them, it would prove a
fertile source of quarrels and litigation.
However uncourteous or unkind the conduct
of Pierson towards Post, in this instance, may have been, yet his act
was productive of no injury or damage for which a
legal [*180] remedy can be applied. We are of opinion the judgment
below was erroneous, and ought to be reversed.
LIVINGSTON, J. My opinion differs from that of the court.
Of six exceptions, taken to the proceedings below, all are
abandoned except the third, which reduces the controversy to a single
question.
 Whether a person who, with his own hounds, starts and hunts a after a fierce and angry contest) to whom the palm of victory
fox on waste and uninhabited ground, and is on the point of seizing belonged. He ordained, that if a beast be followed with large dogs
his prey, acquires such an interest in the animal, as to have a right of and hounds, he shall belong to the hunter, not to the chance occupant;
action against another, who in view of the huntsman and his dogs in and in like manner, if he be killed or wounded with a lance or sword;
full pursuit, and with knowledge of the chase, shall kill and carry him but if chased with beagles only, then he passed to the captor, not to
away? the first pursuer. If slain with a dart, a sling, or a bow, he fell to the
hunter, if still in chase, and not to him who might afterwards find and
This is a knotty point, and should have been submitted to the seize him.
arbitration of sportsmen, without poring over Justinian, Fleta,
Bracton, Puffendorf, Locke, Barbeyrac, or Blackstone, all of whom Now, as we are without any municipal regulations of our own,
have been cited; they would have had no difficulty in coming to a and the pursuit here, for aught that appears on the case, being with
prompt and correct conclusion. In a court thus constituted, the skin dogs and hounds of imperial stature,we are at liberty to adopt one of
and carcass of poor reynard would have been properly disposed of, the provisions just cited, which comports also with the learned
and a precedent set, interfering with no usage or custom which the conclusion of Barbeyrac, that property in animals fer natur may
experience of ages has sanctioned, and which must be so well known be acquired without bodily touch or manucaption, provided the
to every votary of Diana. But the parties have referred the question to pursuer be within reach, or have a reasonable prospect (which
our judgment, and we must dispose of it as well as we can, from the certainly existed here) of taking, what he has thusdiscovered an
partial lights we possess, leaving to a higher tribunal, the correction intention of converting to his own use.
of any mistake which we may be so unfortunate as to make. By the
pleadings it is admitted that a fox is a "wild and noxious beast." Both When we reflect also that the interest of our husbandmen, the
parties have regarded him, as the law of nations does a pirate, most useful of men in any community, will be advanced by the
"hostem humani generis," and although "de mortuis nil nisi bonum," destruction of a beast so pernicious and incorrigible, we cannot
be a maxim of our profession, the memory of the deceased has not greatly err, in saying, that a pursuit like the present, through waste
been spared. His depredations on farmers and on barn yards, have not and unoccupied lands, and which must inevitably and speedily have
been forgotten; and to put him to death wherever found, is allowed to terminated in corporal possession, or bodily seisin, confers such a
be meritorious, and of public benefit. Hence it follows, that our right to the object of it, as to make any one a wrongdoer, who shall
decision should have in view the greatest possible encouragement to interfere and shoulder the spoil. The justice'sjudgment ought,
the destruction of an animal, so cunning and ruthless in his career. therefore, in my opinion, to be affirmed.
But who would keep a pack of hounds; or what gentleman, at the
sound of the horn, and at peep of day, would mount his steed, and
for [*181] hours together, "sub jove frigido," or a vertical sun, pursue Judgment of reversal.
the windings of this wily quadruped, if, just as night came on, and his
stratagems and strength were nearly exhausted, a saucy intruder, who
had not shared in the honours or labours of the chase, were permitted
to come in at the death, and bear away in triumph the object of
pursuit? Whatever Justinian may have thought of the matter, it must
be recollected that his code was compiled many hundred years ago,
and it would be very hard indeed, at the distance of so many
centuries, not to have a right to establish a rule for ourselves. In his
day, we read of no order of men who made it a business, in the
language of the declaration in this cause, "with hounds and dogs to
find, start, pursue, hunt, and chase," these animals, and that, too,
without any other motive than the preservation of Roman poultry; if
this diversion had been then in fashion, the lawyers who composed
his institutes, would have taken care not to pass it by, without suitable
encouragement. If any thing, therefore, in the digests or pandects
shall appear to militate against the defendant in error, who, on this
occasion, was the foxhunter, we have only to say tempora
mutantur; and if men themselves change with the times, why should
not laws also undergo an alteration?

It may be expected, however, by the learned counsel, that more

particular notice be taken of their authorities. I have examined them
all, and feel great difficulty in determining, whether to acquire
dominion over a thing, before in common, it be sufficient that we
barely see it, or know where it is, or wish for it, or make a declaration
of our will respecting it; or whether, in the case of wild beasts, setting
a trap, or lying in wait, or starting, or pursuing, be enough; or if an
actual wounding, or killing, or bodily tact and occupation be
necessary. Writers on general law, who have favoured us with their
speculations on these points, differ on them all; but, great as is the
diversity of sentiment among them, some conclusion must be adopted
on the question immediately before us. After mature deliberation, I
embrace that of Barbeyrac, as the most rational, and least liable to
objection. If at liberty, we might imitate the courtesy of a certain
emperor, who, to avoid giving [*182] offence to the advocates of any
of these different doctrines, adopted a middle course, and by
ingenious distinctions, rendered it difficult to say (as often happens
Popov v. Hayashi
Full case name Alex Popov v. Patrick Hayashi
Decided December 18, 2002
Popov v. Hayashi (WL 31833731 Ca. Sup. Ct. 2002) was a California
Superior Court case involving scope of ownership between parties
and conversion regarding a baseball acquired at a Major League
Baseball game. The question present in this case is who has
ownership of an item when one acquired it legally, but lost it due to
the criminal act of another third party, allowing the other person to,
by all standard acquire the item legally.[1][2][3][4]
The court considered that legal possession in this instance requires
successfully attaining it and the intent to possess. Popov did both of
these and so upon his losing it, it was considered his property.
However, simultaneously, the court considered that his loss of it
cancelled his possession of it and thus Hayashi was in legal
possession. But simply giving Hayashi the rights to it would be unfair
as well, as Popov would likely have certainly been in possession of it
if not attacked by the wrongdoers.[3][1][4][2]
Decision Edit

The court eventually concluded that both parties had rights to the
Background Edit ball and neither could be deprived of it lawfully, and the best
solution was an equitable division. The two of them would sell the
ball and split the proceeds evenly.[3][1][4][2]

At a Major League baseball game, Barry Bonds was about to hit a

record-setting homerun and thus the baseball he hit was highly
sought after and very valuable. When he hit it, it flew into the stands
and plaintiff Alex Popov was there to catch it. The ball entered his
glove but he was immediately attacked by a large group of
individuals, causing him to drop the ball and fall to the ground
underneath a pile of persons.[3][1][4][2]
For this decision the court set a new precedent of qualified pre-
possessory interest allowing for both Popov to claim his property
had been converted and it was still his, while also allowing Hayashi
legal rights over the ball.[3][1][4][2]

At that same time, defendant Patrick Hayashi was also knocked over
by the same group of wrongdoers. While on the ground the ball
rolled towards him and he picked it up claiming it as his own. He did
not wrong Popov in any way and had acquired the ball legally. Popov
believed the ball was rightfully his and, when Hayashi refused, took
the case to court. The whole event was videotaped allowing all
parties to view it.[3][1][4][2]
Case Edit
Significance Edit
This was such an unusual case in property law since if any of the
facts were slightly different it would have completely changed the
decision of the case and given complete ownership to one party
over the other. If Popov had not been attacked and dropped the ball
on his own accord, Hayashi would have been the legal owner.
Conversely, if Hayashi had been one of the wrongdoers he would
have committed wrongful conversion and the ball would legally be
Popovs property.[3][1][4][2]

Popov sued Hayashi for conversion, believing that once it had

This case sets a precedent for similar scenarios where simple
touched his glove the baseball became his and although Hayashi
conversion of rightful property is not easy to determine. In cases
came about it legally, he still had the duty to return it to its rightful
where rightful ownership cannot be distinguished between parties,
owner.[3][1][4][2]
it is acceptable and reasonable to split the ownership
evenly.[3][1][4][2]

Before the baseball was hit, it was considered property of MLB and
after it was hit was considered intentionally abandoned property.
Under this theory, whoever comes into possession of it first is the
rightful owner.[3][1][4][2]

However, in all legal sense, Hayashi had come by the ball lawfully as
well. In fact, if Popov had dropped the ball without having been
attacked by the group of wrongdoers, it would have still been
considered abandoned property that would be acquired by
whomever successfully grasped it first.[3][1][4][2]
Harvey F. JACQUE and Lois C. Jacque, Plaintiffs-Appellants-
Petitioners, v. STEENBERG HOMES, INC., Defendant-Respondent.
95-1028. No.
Decided: May 16, 1997
For the plaintiffs-appellants there were briefs by Patrick A. Dewane,
Jr. and Dewane, Dewane, Kummer, Lambert & Fox, Manitowoc, and
oral argument by Patrick A. Dewane, Jr. For the defendant-
respondent there were briefs by Mark J. Mingo, Daniel L. Zitzer and
Mingo & Yankala, S.C., Milwaukee, and oral argument by Mark
Mingo.
Accordingly, we reverse and remand for reinstatement of the
punitive damage award. We further conclude that the $100,000
awarded by the jury is not excessive. We conclude that when
nominal damages are awarded for an intentional trespass to land,
punitive damages may, in the discretion of the jury, be awarded.
The court of appeals affirmed, reluctantly concluding that it could
not reinstate the punitive damages because it was bound by
precedent establishing that an award of nominal damages will not
sustain a punitive damage award. Although the jury awarded the
Jacques $1 in nominal damages and $100,000 in punitive damages,
the circuit court set aside the jury's award of $100,000. At trial,
Steenberg Homes conceded the intentional trespass, but argued
that no compensatory damages had been proved, and that punitive
damages could not be awarded without compensatory damages.
Consequently, the Jacques sued Steenberg Homes for intentional
trespass. Despite adamant protests by the Jacques, Steenberg
plowed a path through the Jacques' snow-covered field and via that
path, delivered the mobile home. Unfortunately for Harvey and
Lois Jacque (the Jacques), the easiest route of delivery was across
their land. Steenberg Homes had a mobile home to deliver.
I.
Delivery of the mobile home was included in the sales price. In the
fall of 1993, a neighbor of the Jacques purchased a mobile home
from Steenberg. The defendant, Steenberg Homes, Inc.
(Steenberg), is in the business of selling mobile homes. Plaintiffs,
Lois and Harvey Jacques, are an elderly couple, now retired from
farming, who own roughly 170 acres near Wilke's Lake in the town
of Schleswig. 2 The relevant facts follow.
Despite repeated refusals from the Jacques, Steenberg decided to
sell the mobile home, which was to be used as a summer cottage,
and delivered it on February 15, 1994. The Jacques were sensitive
about allowing others on their land because they had lost property
valued at over $10,000 to other neighbors in an adverse possession
action in the mid-1980's. The Jacques refused. Steenberg asked
the Jacques on several separate occasions whether it could move
the home across the Jacques' farm field. Steenberg preferred
transporting the home across the Jacques' land because the only
alternative was a private road which was covered in up to seven feet
of snow and contained a sharp curve which would require sets of
rollers to be used when maneuvering the home around the curve.
3 Steenberg determined that the easiest route to deliver the
mobile home was across the Jacques' land.
Mr. Jacque informed the movers that it was the Jacques' land they
were planning to c The path cut across the Jacques' land. The
movers, who were Steenberg employees, showed Mr. Jacque the
path they planned to take with the mobile home to reach the
neighbor's lot. He decided to find out where the movers planned
to take the home. 4 On the morning of delivery, Mr. Jacque
observed the mobile home parked on the corner of the town road
adjacent to his property. He told them that Steenberg had been
refused permission to cross the Jacques' land. ross and that
Steenberg did not have permission to cross their land.
Once everyone was present, the Jacques showed the assistant
manager an aerial map and plat book of the township to prove their
ownership of the land, and reiterated their demand that the home
not be moved across their land. In the meantime, the Jacques
called and asked some of their neighbors and the town chairman to
come over immediately. 5 One of Steenberg's employees called
the assistant manager, who then came out to the Jacques' home.
Steenberg employees left the meeting without permission to cross
the land. Mr. Jacque testified that he told Steenberg to [F]ollow
the road, that is what the road is for. Mr. Jacque responded that
it was not a question of money; the Jacques just did not want
Steenberg to cross their land. 6 At that point, the assistant
manager asked Mr. Jacque how much money it would take to get
permission.
The assistant manager denied giving these instructions, and
Steenberg argued that the road was blocked for safety reasons.
The other Steenberg employee confirmed this testimony and further
testified that the assistant manager told him to park the company
truck in such a way that no one could get down the town road to see
the route the employees were taking with the home. 7 At trial,
one of Steenberg's employees testified that, upon coming out of the
Jacques' home, the assistant manager stated: I don't give a ----
what [Mr. Jacque] said, just get the home in there any way you can.
The assistant manager disputed this testimony. The other
employee confirmed this testimony. One employee testified that
upon returning to the office and informing the assistant manager
that they had gone across the field, the assistant manager reacted
by giggling and laughing. 8 The employees, after beginning down
the private road, ultimately used a bobcat to cut a path through
the Jacques' snow-covered field and hauled the home across the
Jacques' land to the neighbor's lot.
After interviewing the parties and observing the scene, an officer
from the sheriff's department issued a $30 citation to Steenberg's
assistant manager. 9 When a neighbor informed the Jacques that
Steenberg had, in fact, moved the mobile home across the Jacques'
land, Mr. Jacque called the Manitowoc County Sheriff's Department.
805.14(3)(1993-94). At the completion of the Jacques' case,
Steenberg moved for a directed verdict under Wis. Stat. The case
was tried before a jury on December 1, 1994. 10 The Jacques
commenced an intentional tort action in Manitowoc County Circuit
Court, Judge Allan J. Deehr presiding, seeking compensatory and
punitive damages from Steenberg. 1 Consequently, it did not reach
Steenberg's motion for remittitur. The circuit court granted
Steenberg's motion to set aside the award. Alternatively,
Steenberg asked the circuit court to remit the punitive damage
award. Steenberg filed post-verdict motions claiming that the
punitive damage award must be set aside because Wisconsin law did
not allow a punitive damage award unless the jury also awarded
compensatory damages. The jury awarded the Jacques $1 nominal
damages and $100,000 punitive damages. The circuit court denied
Steenberg's motion and the questions of punitive and compensatory
damages were submitted to the jury. For purposes of the motion,
Steenberg admitted to an intentional trespass to land, but asked the
circuit court to find that the Jacques were not entitled to
compensatory damages or punitive damages based on insufficiency
of the evidence.
11 This case presents three issues: (1) whether an award of
nominal damages for intentional trespass to land may support a
punitive damage award and, if so; (2) whether the law should apply
to Steenberg or should only be applied prospectively and, if we
apply the law to Steenberg; (3) whether the $100,000 in punitive
damages awarded by the jury is excessive.
Fahrenberg v. Tengel, 96 Wis.2d 211, 230, 291 N.W.2d 516 (1980).
Finally, where, as here, the circuit court did not provide a reasoned
analysis supporting or rejecting remittitur, in order to determine
whether to remit the punitive damages awarded, a reviewing court
must review the entire record as a matter of first impression and
determine whether, in its judgment, the damage award is excessive.
Colby v. Columbia County, 202 Wis.2d 342, 364, 550 N.W.2d 124
(1996). The court allows prospective application for the purpose of
mitigating hardships that may occur with the retroactive application
of new rules. Harmann v. Hadley, 128 Wis.2d 371, 378, 382
N.W.2d 673 (1986). The second issue involves the prospective
application of a judicial holding which is a question of policy to be
determined by this court. 12 The first issue is a question of law
which we review de novo.
II.
Bank of Sun Prairie v. Esser, 155 Wis.2d 724, 736, 456 N.W.2d 585
(1990); Lievrouw, 157 Wis.2d at 344, 459 N.W.2d 850. To
determine whether, as a matter of law, the question of punitive
damages should have been submitted to the jury, this court reviews
the record de novo. Lievrouw v. Roth, 157 Wis.2d 332, 344, 459
N.W.2d 850 (Ct.App.1990). 13 Before the question of punitive
damages in a tort action can properly be submitted to the jury, the
circuit court must determine, as a matter of law, that the evidence
will support an award of punitive damages.
We agree with the Jacques. The Jacques contend that the rationale
supporting the compensatory damage award requirement is
inapposite when the wrongful act is an intentional trespass to land.
14 Steenberg argues that, as a matter of law, punitive damages
could not be awarded by the jury because punitive damages must be
supported by an award of compensatory damages and here the jury
awarded only nominal and punitive damages.
Then, we analyze the rationale supporting the rule in light of these
interests. First, we consider the individual and societal interests
implicated when an intentional trespass to land occurs. 15 Our
analysis begins with a statement of the rule and the rationale
supporting the rule.
Jacque v. Steenberg Homes, Inc., 201 Wis.2d 22, 548 N.W.2d 80
(Ct.App.1996); Maxwell v. Kennedy, 50 Wis. 645, 649, 7 N.W. 657
(1880). The rationale for the compensatory damage requirement is
that if the individual cannot show actual harm, he or she has but a
nominal interest, hence, society has little interest in having the
unlawful, but otherwise harmless, conduct deterred, therefore,
punitive damages are inappropriate. See Tucker v. Marcus, 142
Wis.2d 425, 438-40, 418 N.W.2d 818 (1988). Barnard continues to
state the general rule of punitive damages in Wisconsin. Id. at. 418.
With the bare assertion that authority and better reason supported
its conclusion, the Barnard court said no. 16 The general rule was
stated in Barnard v. Cohen, 165 Wis. 417, 162 N.W. 480 (1917),
where the question presented was: In an action for libel, can there
be a recovery of punitory damages if only nominal compensatory
damages are found?
17 However, whether nominal damages can support a punitive
damage award in the case of an intentional trespass to land has
never been squarely addressed by this court. 2 McWilliams v.
Bragg, 3 Wis. 424, 425 (1854). In 1854 the court established
punitive damages, allowing the assessment of damages as a
punishment to the defendant for the purpose of making an
example. Nonetheless, Wisconsin law is not without reference to
this situation. 3 The McWilliams court related the facts and an
illustrative tale from the English case of Merest v. Harvey, 128
Eng.Rep. 761 (C.P.1814), to explain the rationale underlying punitive
damages.
McWilliams, 3 Wis. 424 at 428. Although little actual harm had
been caused, the English court upheld damages of 500 pounds,
explaining in a case where a man disregards every principle which
actuates the conduct of gentlemen, what is to restrain him except
large damages? When the landowner continued to object, the
magistrate threatened to have him jailed and dared him to file suit.
Although the landowner refused, the magistrate proceeded to hunt.
18 In Merest, a landowner was shooting birds in his field when he
was approached by the local magistrate who wanted to hunt with
him.
19 To explain the need for punitive damages, even where actual
harm is slight, McWilliams related the hypothetical tale from Merest
of an intentional trespasser:
I cannot say that it would be Would that be a compensation?
Suppose a gentleman has a paved walk in his paddock, before his
window, and that a man intrudes and walks up and down before the
window of his house, and looks in while the owner is at dinner, is the
trespasser permitted to say here is a halfpenny for you which is the
full extent of the mischief I have done.
Thus, in the case establishing punitive damages in this state, this
court recognized that in certain situations of trespass, the actual
harm is not in the damage done to the land, which may be minimal,
but in the loss of the individual's right to exclude others from his or
her property and, the court implied that this right may be punished
by a large damage award despite the lack of measurable harm.
McWilliams, 3 Wis. at 428.
An examination of the individual interests invaded by an intentional
trespass to land, and society's interests in preventing intentional
trespass to land, leads us to the conclusion that the Barnard rule
should not apply when the tort supporting the award is intentional
trespass to land. We agree with the Jacques. The Jacques argue
that both the individual and society have significant interests in
deterring intentional trespass to land, regardless of the lack of
measurable harm that results. The Jacques argue that the
rationale for not allowing nominal damages to support a punitive
damage award is inapposite when the wrongful act involved is an
intentional trespass to land. Because the Jacques did not receive a
compensatory damage award, Steenberg contends that the punitive
damage award must be set aside. 20 Steenberg contends that the
rule established in Barnard prohibits a punitive damage award, as a
matter of law, unless the plaintiff also receives compensatory
damages.
Accord Nollan v. California Coastal Comm'n, 483 U.S. 825, 831, 107
S.Ct. 3141, 3145, 97 L.Ed.2d 677 (1987) (quoting Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 433, 102 S.Ct.
3164, 3175, 73 L.Ed.2d 868 (1982)). Dolan v. City of Tigard, 512 U.S.
374, 384, 114 S.Ct. 2309, 2316, 129 L.Ed.2d 304 (1994); (quoting
Kaiser Aetna v. United States, 444 U.S. 164, 176, 100 S.Ct. 383, 391,
62 L.Ed.2d 332 (1979)). The United States Supreme Court has
recognized that the private landowner's right to exclude others from
his or her land is one of the most essential sticks in the bundle of
rights that are commonly characterized as property. 21 We turn
first to the individual landowner's interest in protecting his or her
land from trespass. 4 Thus, both this court and the Supreme Court
recognize the individual's legal right to exclude others from private
property. Diana Shooting Club v. Lamoreux, 114 Wis. 44, 59, 89
N.W. 880 (1902) (holding that the victim of an intentional trespass
should have been allowed to take judgment for nominal damages
and costs). This court has long recognized [e]very person ['s]
constitutional right to the exclusive enjoyment of his own property
for any purpose which does not invade the rights of another
person.
Felix Cohen offers the following analysis summarizing the
relationship between the individual and the state regarding property
rights: 22 Yet a right is hollow if the legal system provides
insufficient means to protect it.
[T]hat is property to which the following label can be attached:
To the world:
Keep off X unless you have my permission, which I may grant or
withhold.
Signed: Private Citizen
Endorsed: The state
And, as this court recognized as early as 1854, a halfpenny award
does not constitute state protection. But that right has no practical
meaning unless protected by the State. Harvey and Lois Jacque
have the right to tell Steenberg Homes and any other trespasser,
No, you cannot cross our land. Felix S. Cohen, Dialogue on Private
Property, IX Rutgers Law Review 357, 374 (1954).
Thus, in the case of intentional trespass to land, the nominal damage
award represents the recognition that, although immeasurable in
mere dollars, actual harm has occurred. Id. The law recognizes
actual harm in every trespass to land whether or not compensatory
damages are awarded. Id. The law infers some damage from
every direct entry upon the land of another. 13 (5th ed.1984). W.
Page Keeton, Prosser and Keeton on Torts, The action for
intentional trespass to land is directed at vindication of the legal
right. Because a legal right is involved, the law recognizes that
actual harm occurs in every trespass. 23 The nature of the
nominal damage award in an intentional trespass to land case
further supports an exception to Barnard.
893.28. See Wis. Stat. The conduct of an intentional trespasser,
if repeated, might ripen into prescription or adverse possession and,
as a consequence, the individual landowner can lose his or her
property rights to the trespasser. A series of intentional trespasses,
as the Jacques had the misfortune to discover in an unrelated action,
can threaten the individual's very ownership of the land. 24 The
potential for harm resulting from intentional trespass also supports
an exception to Barnard.
We turn next to society's interest in protecting private property
from the intentional trespasser. Although only nominal damages
were awarded to the Jacques, Steenberg's intentional trespass
caused actual harm. 25 In sum, the individual has a strong
interest in excluding trespassers from his or her land.
Although dueling is rarely a modern form of self-help, one can easily
imagine a frustrated landowner taking the law into his or her own
hands when faced with a brazen trespasser, like Steenberg, who
refuses to heed no trespass warnings. McWilliams, 3 Wis. at 428.
In McWilliams, the court recognized the importance of prevent
[ing] the practice of dueling, [by permitting] juries [] to punish insult
by exemplary damages. When landowners have confidence in
the legal system, they are less likely to resort to self-help
remedies. Private landowners should feel confident that
wrongdoers who trespass upon their land will be appropriately
punished. Society has an interest in preserving the integrity of the
legal system. Society has an interest in punishing and deterring
intentional trespassers beyond that of protecting the interests of the
individual landowner.
An appropriate punitive damage award probably will. A $30
forfeiture and a $1 nominal damage award are unlikely to restrain
Steenberg Homes from similar conduct in the future. Steenberg
Homes plowed a path across the Jacques' land and dragged the
mobile home across that path, in the face of the Jacques' adamant
refusal. Moreover, what is to stop Steenberg Homes from
concluding, in the future, that delivering its mobile homes via an
intentional trespass and paying the resulting Class B forfeiture, is not
more profitable than obeying the law? If punitive damages are not
allowed in a situation like this, what punishment will prohibit the
intentional trespass to land? It was more akin to Merest's
halfpenny. The $30 forfeiture was certainly not an appropriate
punishment for Steenberg's egregious trespass in the eyes of the
Jacques. Kink v. Combs, 28 Wis.2d 65, 135 N.W.2d 789 (1965).
Punitive damages have the effect of bringing to punishment types of
conduct that, though oppressive and hurtful to the individual,
almost invariably go unpunished by the public prosecutor. 27
People expect wrongdoers to be appropriately punished.
Accordingly, assuming that the other requirements for punitive
damages have been met, we hold that nominal damages may
support a punitive damage award in an action for intentional
trespass to land. Consequently, the Barnard rationale will not
support a refusal to allow punitive damages when the tort involved
is an intentional trespass to land. Intentional trespass to land
causes actual harm to the individual, regardless of whether that
harm can be measured in mere dollars. We conclude that both the
private landowner and society have much more than a nominal
interest in excluding others from private land. 943.13. As long as
they cause no compensable harm, the only deterrent intentional
trespassers face is the nominal damage award of $1, the modern
equivalent of Merest's halfpenny, and the possibility of a Class B
forfeiture under Wis. Stat. It implicitly tells them that they are
free to go where they please, regardless of the landowner's wishes.
28 In sum, as the court of appeals noted, the Barnard rule sends
the wrong message to Steenberg Homes and any others who
contemplate trespassing on the land of another.
The Restatement (Second) of Torts supports the proposition that an
award of nominal damages will support an award of punitive
damages in a trespass to land action: 29 Our holding is supported
by respected legal commentary.
The fact that the actor knows that his entry is without the consent of
the possessor and without any other privilege to do so, while not
necessary to make him liable, may affect the amount of damages
recoverable against him, by showing such a complete disregard of
the possessor's legally protected interest in the exclusive possession
of his land as to justify the imposition of punitive in addition to
nominal damages for even a harmless trespass, or in addition to
compensatory damages for one which is harmful.
908 cmt. c (1979). Restatement (Second) of Torts The
Restatement reiterates this position under the punitive damages
section: nominal damages support an award of punitive damages
when a tort, such as trespass to land, is committed for an
outrageous purpose, but no significant harm has resulted. 163
cmt. e (1979). Restatement (Second) of Torts
30 Prosser also finds the compensatory damages prerequisite
unsupportable:
Since it is precisely in the cases of nominal damages that the policy
of providing an incentive for plaintiffs to bring petty outrages into
court comes into play, the view very much to be preferred appears
to be that of the minority which have held that there is sufficient
support for punitive damages.
See, Annotation, Sufficiency of Showing of Actual Damages to
Support Award of Punitive Damages-Modern Cases, 40 A.L.R.4th 11,
36 (1985). A minority of other jurisdictions follow this approach.
2, at 14 (5th ed.1984) (citations omitted). Page Keeton, et. al.,
Prosser and Keeton on the Law of Torts
III.
Steenberg argues that its reliance at trial on the well-established
Barnard rule compels this court to either apply our holding
prospectively, or grant a new trial. 31 Next we consider the effect
of our holding on the parties before us.
Steenberg misunderstands Colby and the doctrine of sunbursting.
Steenberg argues that because it relied on the well-established
Barnard rule at trial, and our holding today recognizes an exception
to the Barnard rule, today's holding should not apply to this case.
Steenberg cites Colby, 202 Wis.2d 342, 550 N.W.2d 124, for the
proposition that a holding that departs from past precedent should
only be applied prospectively. 32 Steenberg argues if we should
hold, as we do, that punitive damages can be awarded with only a
nominal damage award, our holding should not apply to them.
33 Sunbursting 5 Fitzgerald v. Meissner is an exception to the
general rule referred to as the Blackstonian Doctrine. & Thomas
E. Fairchild, Limitation of New Judge-Made Law to Prospective Effect
Only: Prospective Overruling or Sunbursting, 51 Marq.L.Rev.
254 (1967-68). This classic doctrine provides that a decision which
overrules precedent is accorded retroactive effect. Hicks, Inc., 38
Wis.2d 571, 575, 157 N.W.2d 595 (1968).
In an effort to avoid inequity on these rare occasions, the court has
recognized exceptions to the Blackstonian Doctrine and used the
device of prospective overruling, known as sunbursting, to limit
the effect of a newly announced rule when retroactive application
would be inequitable. At times, inequities will occur when a court
departs from precedent and announces a new rule of law.
Instead, the equities peculiar to a given rule or case determine the
rule adopted by the court in each case. Id. No simple rule helps us
determine the existence of a judicial reason for sunbursting.
Harmann, 128 Wis.2d at 379, 382 N.W.2d 673 (citation omitted).
This court will not sunburst absent a compelling judicial reason for
doing so. Colby, 202 Wis.2d at 364, 550 N.W.2d 124. The court
allows sunbursting for the purpose of mitigating hardships that may
occur with the retroactive application of a new rule. Harmann, 128
Wis.2d at 378, 382 N.W.2d 673. 35 Prospective application of a
judicial holding is a question of policy to be determined by this
court.
This type of reliance does not give rise to the inequity that
sunbursting is designed to prevent. At this point, when
overwhelming evidence clearly established Steenberg's intentional
trespass on the Jacques' land, then and only then, did Steenberg rely
on Barnard and concede intentional trespass. Steenberg did not
concede the intentional trespass until after the Jacques rested at
trial. We find Steenberg's contention that it relied on the Barnard
rule misleading. We disagree. Therefore, it contends that a
holding in this case, recognizing an exception to the Barnard rule
should only apply prospectively, i.e., not to Steenberg Homes.
Steenberg explains that its trial strategy was dependent on the
Barnard rule. 36 Steenberg contends that its reliance on Barnard
at trial creates a compelling judicial reason to sunburst.
See also Kojis v. Doctors Hospital, 12 Wis.2d 367, 107 N.W.2d 131,
107 N.W. 292 (1961) (abrogating charitable immunity); Holytz v.
Milwaukee, 17 Wis.2d 26, 115 N.W.2d 618 (1962) (abrogating
governmental immunity); Widell v. Holy Trinity Catholic Church, 19
Wis.2d 648, 121 N.W.2d 249 (1963) (abrogating immunity of religi
Id. Prospective application of a holding based on reliance on an old
rule has occurred when there has been reliance on an overruled
decision by a substantial number of persons and considerable harm
or detriment could result to them. Rolo v. Goers, 174 Wis.2d 709,
723, 497 N.W.2d 724 (1993). The court does not prospectively
apply a holding merely because of reliance on an old rule. 37
Steenberg's reliance on the Barnard rule is not the type of reliance
that normally forms the basis for sunbursting. Steenberg only refers
to its own reliance, and to its own punishment. Steenberg does not
claim that others will be adversely affected by our recognition of an
exception to the Barnard rule. Harmann, 128 Wis.2d at 381, 382
N.W.2d 673. When tort law is changed, the court is concerned
about exposing many individuals and institutions to liability who
would have obtained liability insurance had they known they would
no longer enjoy immunity. ous entity).
Accordingly, we hold that the exception to Barnard that we
recognize today shall be applied to Steenberg. That, we conclude,
would be the greater injustice. To refuse to apply the new rule
here would deprive the Jacques of any benefit from their effort and
expense in challenging the old rule which we now declare
erroneous. Retroactivity is usually justified as a reward for the
litigant who has persevered in attacking an unsound rule. In
determining whether hardship or injustice will occur, the court must
also consider the effect of prospective application on the party who
sought to change the law. 38 The Jacques' interests also prevent
us from sunbursting in this case.
IV.
Accordingly, we do not order remittitur. We conclude that it is not.
Therefore, we review the $100,000 award to determine whether it is
clearly excessive. Because we conclude that the nominal damages
awarded to the Jacques support the jury's punitive damage award,
and because we conclude that our holding today applies to
Steenberg, the issue is not moot. In this case, the circuit court,
finding that the issue was moot, rejected Steenberg's motion for
remittitur without review. 39 Finally, we consider whether the
jury's $100,000 punitive damage award to the Jacques is excessive.
Management Computer Serv., Inc. v. Hawkins, Ash, Baptie
Nonetheless, the Due Process Clause of the Fourteenth Amendment
imposes substantive limits on the size of punitive damage awards.
TXO, 509 U.S. at 457, 113 S.Ct. at 2720. A punitive damage award
that is the product of a fair process is entitled to a strong
presumption of validity. Fahrenberg, 96 Wis.2d at 231, 291 N.W.2d
516. When we review the record to determine whether a punitive
damage award is excessive, the evidence must be viewed in the light
most favorable to the plaintiff. Fuchs v. Kupper, 22 Wis.2d 107, 125
N.W.2d 360 (1963). A jury's punitive damage award will not be
disturbed unless the verdict is so clearly excessive as to indicate
passion and prejudice. Fahrenberg v. Tengel, 96 Wis.2d 211, 236,
291 N.W.2d 516 (1980). We are reluctant to set aside an award
merely because it is large or we would have awarded less. Malco v.
Midwest Aluminum Sales, 14 Wis.2d 57, 65, 109 N.W.2d 516 (1961).
Notwithstanding the jury's broad discretion, the circuit court has the
power to reduce the amount of punitive damages to an amount that
it determines is fair and reasonable. 40 The award of punitive
damages in a particular case is entirely within the discretion of the
jury. & Co., 206 Wis.2d 157, 557 N.W.2d 67 (1996).
Id. at ----, 116 S.Ct. at 1595. Only when a punitive damage award
can be fairly categorized as grossly excessive in relation to the
State's legitimate interests in punishment and deterrence does it
enter the zone of arbitrariness that violates the Due Process Clause.
Gore, 517 U.S. at ----, 116 S.Ct. at 1598. The Due Process Clause
dictates that an individual receive fair notice not only of the conduct
that will subject him or her to punishment, but also of the severity of
the penalty that a state may impose. BMW of North America, Inc.
v. Gore, 517 U.S. 559, ----, 116 S.Ct. 1589, 1592, 134 L.Ed.2d 809
(1996) (quoting TXO Production Corp. v. Alliance Resources Corp.,
509 U.S. 443, 454, 113 S.Ct. 2711, 2718, 125 L.Ed.2d 366 (1993)).
41 The Due Process Clause prohibits the court from imposing a
grossly excessive punishment on a tortfeasor.
Gore, 517 U.S. at ---------, ----, 116 S.Ct. at 1598-99, 1603. 42 The
Supreme Court has recently clarified the three factors a court must
consider when determining whether a punitive damage award
violates the Due Process Clause: (1) the degree of reprehensibility of
the conduct; (2) the disparity between the harm or potential harm
suffered by the plaintiff and the punitive damage award; and (3) the
difference between this remedy and the civil or criminal penalties
authorized or imposed in comparable cases.
43 We turn f In this case, the crime was Steenberg's brazen,
intentional trespass on the Jacques' land. In other words, some
wrongs are more blameworthy than others and the punishment
should fit the crime. Id. at ----, 116 S.Ct. at 1599. Punitive
damages should reflect the egregiousness of the offense. The most
important indicium of the reasonableness of a punitive damage
award is the degree of reprehensibility of the defendant's conduct.
irst to the reprehensibility factor.
Despite numerous unambiguous refusals by the Jacques to allow
Steenberg access to their land, Steenberg delivered the mobile
home across the Jacques' land. We are further troubled by
Steenberg's utter disregard for the rights of the Jacques. We reject
that position. At trial, Steenberg took an arrogant stance, arguing
essentially that yes, we intentionally trespassed on the Jacques'
land, but we cannot be punished for that trespass because the law
protects us. 44 Steenberg's intentional trespass reveals an
indifference and a reckless disregard for the law, and for the rights
of others.
We conclude that the degree of reprehensibility of Steenberg's
conduct supports the imposition of a substantial punitive award.
This conduct is reprehensible. Nevertheless, the Steenberg
employees testified that as they walked out of the Jacques' home,
the assistant manager told them to use any means to deliver the
mobile home. After the conversation in the Jacques' kitchen, the
Jacques, their neighbors, and the town chairman were satisfied that
the matter was resolved, and Steenberg would not trespass on the
Jacques' land. 45 Furthermore, these deceitful acts were
egregious; Steenberg Homes acted deviously.
Gore, 517 U.S. at ----, 116 S.Ct. at 1601. 46 We now turn to the
next factor in the Gore analysis: the disparity between the harm or
potential harm suffered by the Jacques and the punitive damage
award.
We address them separately. This requirement combines the
second and third Gore factors. Management Computer Serv., 206
Wis.2d at 193, 557 N.W.2d 67. 47 In Management Computer
Services, this court concluded that a reasonable relationship
between the amount of compensatory damages, the potential
criminal penalties, and the punitive damage award is required.
See James D. Ghiardi, Punitive Damages in Wisconsin, 1977
Wis.L.Rev. 753, 771. Id. While a constitutional line ought not be
marked by a simple mathematical formula, the proportionate rule
for punitive damages is one factor in determining the
reasonableness of the punitive damage award. However, in the
appropriate case, a comparison of the compensatory damages and
the punitive award is important. Id. 48 We have expressly
rejected the use of a fixed multiplier, either a fixed ratio of
compensatory to punitive damages or of criminal fine to punitive
damages, to calculate the amount of reasonable punitive damages.
In these instances, as in the case before us, a mathematical bright
line between the constitutional and the unconstitutional would turn
the concept of punitive damages on its head. This could include
situations where egregious acts result in injuries that are hard to
detect or noneconomic harm that is difficult to measure. However,
in the proper case, a $1 nominal damage award may properly
support a $100,000 punitive damage award where a much larger
compensatory award might not. If it did, the breathtaking 100,000
to 1 ratio of this case could not be upheld. However, when
nominal damages support a punitive damage award, use of a
multiplier is of dubious assistance because the nominal damage
award may not reflect the actual harm caused. This is so because
compensatory damages represent the actual harm inflicted on the
plaintiff. 49 When compensatory damages are awarded, we
consider the ratio of compensatory to punitive damages.
A reviewing court engaged in determining whether a punitive
damages award is excessive should accord Meke v. Nicol, 56
Wis.2d 654, 664, 203 N.W.2d 129 (1973). Since punitive damages
are assessed for punishment, it is relevant to compare the punitive
damage award to the maximum fine in the section of the Wisconsin
Criminal Code that contains a similar offense. Gore, 517 U.S. at ----,
116 S.Ct. at 1603. 50 Finally, we turn to the third factor in the
Gore analysis: we compare the punitive damage award and the civil
or criminal penalties that could be imposed for comparable
misconduct. Gore, 517 U.S. at ----, 116 S.Ct. at 1603 (citation
omitted). substantial deference to legislative judgments concerning
appropriate sanctions for the conduct at issue.
Without punitive damages, Steenberg has a financial incentive to
trespass again. And we see no reason why the legislative penalty
for simple trespass will deter future conduct by Steenberg.
Furthermore, the statute failed to deter Steenberg's egregious
misconduct. Here, not only did Steenberg Homes illegally enter
and remain on the Jacques' land, first they plowed a path across the
Jacques' field, then they transported a mobile home over the path.
Steenberg's egregious conduct could scarcely have been
contemplated by the legislature when it enacted this statute which
provides a penalty for simply entering or remaining on the land of
another. 939.52(3)(b). The maximum penalty for a Class B
forfeiture is $1000. Section 943.13(1)(b) provides that [w]hoever
[e]nters or remains on any land of another after having been
notified by the owner or occupant not to enter or remain on the
premises is subject to a Class B forfeiture. 939.52(3)(b). Wis. Stat.
943.13, a Class B forfeiture. Steenberg received a citation for
trespass to land under Wis. Stat. 51 We consider this factor
largely irrelevant in the present case because the conduct at issue
here was scarcely that contemplated by the legislative action.

We feel certain that the $100,000 will serve to encourage the latter
course by removing the profit from the intentional trespass. Today
we alleviate the uncertainty for Steenberg Homes. Or, should they
take the more costly course and obey the law? Should they
trespass and pay the forfeiture, which in this case was $30? It is,
therefore, likely that they will again be faced with what was,
apparently for them, a dilemma. Steenberg sells and delivers
mobile homes. 52 Our concern for deterrence is guided by our
recognition of the nature of Steenberg's business.

One hundred thousand dollars will. It can hardly be said that the
$30 forfeiture paid by Steenberg significantly affected its profit for
delivery of the mobile home. In order to effectively do this,
punitive damages must be in excess of the profit created by the
misconduct so that the defendant recognizes a loss. 53 Punitive
damages, by removing the profit from illegal activity, can help to
deter such conduct.

A $100,000 punitive damage award will not only give potential

trespassers reason to pause before trespassing, it will also give
aggrieved landowners reason to pursue a trespass action. By
allowing punitive damages, the self interest of the plaintiff might
lead to prosecution of a claim that might not otherwise be pursued.
54 Finally, a substantial punitive damage award serves to assure
that tort claims involving egregious conduct will be prosecuted.

On the contrary, it is the brazen conduct of Steenberg Homes that

we find shocking, not the $100,000 punitive damages award. The
punitive award neither shocks our conscience, nor takes our breath
away. Our consideration of the Gore factors leads us to the
conclusion that the $100,000 punitive damages award does not
excessively punish Steenberg Homes for its egregious conduct, to
deter it from trespassing again, and to deter others who might be
similarly tempted. Fahrenberg, 96 Wis.2d at 235-36, 291 N.W.2d
516. 55 In sum, although actual harm and criminal penalties have
some relevance to the amount of punitive damages and may be
factors in determining the reasonableness of the punitive damage
award, we have not been willing in the past, and are not willing in
this case, to adopt a mathematical formula for awarding such
damages.

Accordingly, we reverse and remand to the circuit court for

reinstatement of the punitive damage award. Finally, we hold that
the $100,000 punitive damages awarded by the jury is not excessive.
Our decision today shall apply to Steenberg Homes. 56 In
conclusion, we hold that when nominal damages are awarded for an
intentional trespass to land, punitive damages may, in the discretion
of the jury, be awarded.
U.S. Supreme Court

Lloyd Corp., Ltd. v. Tanner, 407 U.S. 551 (1972)

Lloyd Corp., Ltd. v. Tanner

No. 71-492

Argued April 18, 1972

Decided June 22, 1972

407 U.S. 551

Syllabus

Respondents sought to distribute handbills in the interior mall area

of petitioner's large privately owned shopping center. Petitioner had
a strict no-handbilling rule. Petitioner's security guards requested
respondents under threat of arrest to stop the handbilling,
suggesting that they could resume their activities on the public
streets and sidewalks adjacent to but outside the center, which
respondents did. Respondents, claiming that petitioner's action
violated their First Amendment rights, thereafter brought this action
for injunctive and declaratory relief. The District Court, stressing that
the center is "open to the general public" and "the functional
equivalent of a public business district," and relying on Marsh v.
Alabama,326 U. S. 501, and Amalgamated Food Employees Union v.
Logan Valley Plaza, 391 U. S. 308, held that petitioner's policy of
prohibiting handbilling within the mall violated respondents' First
Amendment rights. The Court of Appeals affirmed.

Held: There has been no dedication of petitioner's privately owned

and operated shopping center to public use so as to entitle
respondents to exercise First Amendment rights therein that are
unrelated to the center's operations, and petitioner's property did
not lose its private character and its right to protection under the
Fourteenth Amendment merely because the public is generally
invited to use it for the purpose of doing business with petitioner's
tenants. The facts in this case are significantly different from those
in Marsh, supra, which involved a company town with "all the
attributes" of a municipality, and Logan Valley, supra, which
involved labor picketing designed to convey a message to patrons of
a particular store, so located in the center of a large private enclave
as to preclude other reasonable access to store patrons. Under the
circumstances present in this case, where the handbilling was
unrelated to any activity within the center and where respondents
had adequate alternative means of communication, the courts
below erred in holding those decisions controlling. Pp. 407 U. S. 556-
570.

446 F.2d 545, reversed and remanded.

Page 407 U. S. 552

POWELL, J., delivered the opinion of the Court, in which BURGER,

C.J., and WHITE, BLACKMUN, and REHNQUIST, JJ., joined.
MARSHALL, J., filed a dissenting opinion, in which DOUGLAS,
BRENNAN, and STEWART, JJ., joined, post, p. 407 U. S. 570.
Uston v. Resorts International Hotel, Inc.
Annotate this Case
89 N.J. 163 (1982)
445 A.2d 370
KENNETH S. USTON, RESPONDENT, v. RESORTS INTERNATIONAL
HOTEL, INC., APPELLANT, AND NEW JERSEY CASINO CONTROL
COMMISSION, INTERVENOR-APPELLANT, AND ATLANTIC CITY
CASINO HOTEL ASSOCIATION, INTERVENOR-APPELLANT.
The Supreme Court of New Jersey.
Argued February 9, 1982.
Decided May 5, 1982.
*165 Joel H. Sterns argued the cause for appellant Resorts
International Hotel, Inc. (Sterns, Herbert & Weinroth, attorneys;
John M. Donnelly, on the briefs).
Matthew P. Boylan argued the cause for appellant Atlantic City
Casino Hotel Association (Lowenstein, Sandler, Brochin, Kohl, Fisher
& Boylan, attorneys; Clive S. Cummis, Morris Brown, Nicholas L.
Rubis, Alfred J. Luciani, John Walker Daniels, David M. Satz, Jr.,
Martin L. Blatt and Charles C. Carella, of counsel).
Michael A. Santaniello, Senior Assistant Counsel, argued the cause
for appellant New Jersey Casino Control Commission (Robert J.
Genatt, General Counsel, attorney; Robert J. Genatt, R. Benjamin
Cohen and Michael A. Santaniello, of counsel; R. Benjamin Cohen,
Anthony J. Sposaro and Michael A. Santaniello, on the briefs).
Morris M. Goldings, a member of the Massachusetts bar, and
Kenneth F. Hense argued the cause for respondent (Reed & Hense,
attorneys; Morris M. Goldings and H. Glenn Alberich, members of
the Massachusetts bar, of counsel; Kenneth F. Hense, on the brief).
Irwin I. Kimmelman, Attorney General of New Jersey, argued the
cause for amicus curiae Department of Law and Public Safety,
Division of Gaming Enforcement (Irwin I. Kimmelman, attorney;
Anthony J. Parrillo, Deputy Attorney General, of counsel; Stephen C.
Becker and Mary L. Cupo, Deputy Attorneys General, on the brief).
John Walker Daniels submitted a letter in lieu of a brief on behalf of
amicus curiae Harrah's Marina Hotel Casino (Horn, Kaplan, Goldberg
& Gorny, attorneys; Philip G. Satre, a member of the Nevada bar, of
counsel).
The opinion of the Court was delivered by PASHMAN, J.
Since January 30, 1979, appellant Resorts International Hotel, Inc.
(Resorts) has excluded respondent, Kenneth Uston, from the *166
blackjack tables in its casino because Uston's strategy increases his
chances of winning money. Uston concedes that his strategy of card
counting can tilt the odds in his favor under the current blackjack
rules promulgated by the Casino Control Commission (Commission).
However, Uston contends that Resorts has no common law or
statutory right to exclude him because of his strategy for playing
blackjack.
We hold that the Casino Control Act, N.J.S.A. 5:12-1 to -152 gives the
Commission exclusive authority to set the rules of licensed casino
games, which includes the methods for playing those games. The
Casino Control Act therefore precludes Resorts from excluding Uston
for card counting. Because the Commission has not exercised its
exclusive authority to determine whether card counters should be
excluded, we do not decide whether such an exclusion would be
lawful.
I
Kenneth Uston is a renowned teacher and practitioner of a complex
strategy for playing blackjack known as card counting.[1] Card
counters keep track of the playing cards as they are dealt and adjust
their betting patterns when the odds are in their favor. When used
over a period of time, this method allegedly ensures a profitable
encounter with the casino.
Uston first played blackjack at Resorts' casino in November 1978.
Resorts took no steps to bar Uston at that time, apparently because
the Commission's blackjack rules then in operation minimized the
advantages of card counting.
On January 5, 1979, however, a new Commission rule took effect
that dramatically improved the card counter's odds. N.J.A.C. 19:47-
2.5. The new rule, which remains in effect, restricted *167 the
reshuffling of the deck in ways that benefitted card counters.
Resorts concedes that the Commission could promulgate blackjack
rules that virtually eliminate the advantage of card counting.
However, such rules would slow the game, diminishing the casino's
"take" and consequently its profits from blackjack gaming.
By letter dated January 30, 1979, attorneys for Resorts wrote to
Commission Chairman Lordi, asking the Commission's position on
the legality of summarily removing card counters from its blackjack
tables. That same day, Commissioner Lordi responded in writing that
no statute or regulation barred Resorts from excluding professional
card counters from its casino. Before the day had ended, Resorts
terminated Uston's career at its blackjack tables, on the basis that in
its opinion he was a professional card counter. Resorts subsequently
formulated standards for identification of card counters and
adopted a general policy to exclude such players.[2]
The Commission upheld Resorts' decision to exclude Uston. Relying
on Garifine v. Monmouth Park Jockey Club, 29 N.J. 47 (1959), the
Commission held that Resorts enjoys a common law right to exclude
anyone it chooses, as long as the exclusion does not violate state
and federal civil rights laws. The Appellate Division reversed, 179
N.J. Super. 223 (1981). Although we interpret the Casino Control Act,
N.J.S.A. 5:12-1 to -152 somewhat differently than did the Appellate
Division, we affirm that court's holding that the Casino Control Act
precludes Resorts from excluding Uston. The Commission alone has
the authority to exclude patrons based upon their strategies for
playing licensed casino games. Any common law right Resorts may
have had to exclude Uston for these reasons is abrogated by the act.
We therefore need not decide the precise extent of Resorts' *168
common law right to exclude patrons for reasons not covered by the
act. Nonetheless, we feel constrained to refute any implication
arising from the Commission's opinion that absent supervening
statutes, the owners of places open to the public enjoy an absolute
right to exclude patrons without good cause. We hold that the
common law right to exclude is substantially limited by a competing
common law right of reasonable access to public places.
II
This Court has recognized that "[t]he statutory and administrative
controls over casino operations established by the [Casino Control]
Act are extraordinarily pervasive and intensive." Knight v. Margate,
86 N.J. 374, 380-81 (1981). The almost 200 separate statutory
provisions "cover virtually every facet of casino gambling and its
potential impact upon the public." Id. at 381. See Bally Mfg. Corp. v.
N.J. Casino Control Comm'n, 85 N.J. 325 (1981) (upholding
Commission regulation barring a licensed casino from acquiring
more than 50% of its slot machines from any one manufacturer).
These provisions include a preemption clause, stating that the act
prevails over "any other provision of law" in conflict or inconsistent
with its provisions. N.J.S.A. 5:12-133(b). Moreover, the act declares
as public policy of this State "that the institution of licensed casino
establishments in New Jersey be strictly regulated and controlled."
N.J.S.A. 5:12-1(13).
At the heart of the Casino Control Act are its provisions for the
regulation of licensed casino games. N.J.S.A. 5:12-100 provides:
... e. All gaming shall be conducted according to rules promulgated
by the commission. All wagers and pay-offs of winning wagers at
table games shall be made according to rules promulgated by the
commission, which shall establish such minimum wagers and other
limitations as may be necessary to assure the vitality of casino
operations and fair odds to and maximum participation by casino
patrons; ....
*169 This provision on games and gaming equipment reinforces the
general statutory provisions codified at N.J.S.A. 5:12-70. Those
provisions provide in part:
The Commission shall, without limitation on the powers conferred in
the preceding section, include within its regulations the following
specific provisions in accordance with the provisions of the act; * * *
* * * * * f. Defining and limiting the areas of operation, the rules of
authorized games, odds, and devices permitted, and the method of
operation of such games and devices; ....
Pursuant to these statutes, the Commission has promulgated
exhaustive rules on the playing of blackjack. N.J.A.C. 19:47-2.1 to -
2.13. These rules cover every conceivable aspect of the game, from
determining how the cards are to be shuffled and cut, N.J.A.C.
19:47-2.5, to providing that certain cards shall not be dealt "until the
dealer has first announced `Dealer's Card' which shall be stated by
the dealer in a tone of voice calculated to be heard by each person
at the table." N.J.A.C. 19:47-2.6(g). It is no exaggeration to state that
the Commission's regulation of blackjack is more extensive than the
entire administrative regulation of many industries.
These exhaustive statutes and regulations make clear that the
Commission's control over the rules and conduct of licensed casino
games is intended to be comprehensive. The ability of casino
operators to determine how the games will be played would
undermine this control and subvert the important policy of ensuring
the "credibility and integrity of the regulatory process and of casino
operations." N.J.S.A. 5:12-1(b). The Commission has promulgated
the blackjack rules that give Uston a comparative advantage, and it
has sole authority to change those rules. There is no indication that
Uston has violated any Commission rule on the playing of blackjack.
N.J.A.C. 19:47-2.1 to -2.13. Put simply, Uston's gaming is "conducted
according to rules promulgated by the Commission." N.J.S.A. 5:12-
100(e). Resorts has no right to exclude Uston on *170 grounds that
he successfully plays the game under existing rules.[3]
III
Resorts claimed that it could exclude Uston because it had a
common law right to exclude anyone at all for any reason. While we
hold that the Casino Control Act precludes Resorts from excluding
Uston for the reasons stated, it is important for us to address the
asserted common law right for two reasons. First, Resorts'
contentions and the Commission's position concerning the common
law right are incorrect. Second, the act has not completely divested
Resorts of its common law right to exclude.
The right of an amusement place owner to exclude unwanted
patrons and the patron's competing right of reasonable access both
have deep roots in the common law. See Arterburn, "The Origin and
First Test of Public Callings," 75 U.Pa.L.Rev. 411 (1927); Wyman,
"The Law of Public Callings as a Solution of the Trust Problem," 17
Harv.L.Rev. 156 (1904). In this century, however, courts have
disregarded the right of reasonable access in the common law of
some jurisdictions at the time the Civil War Amendments and Civil
Rights Act of 1866 were passed.
*171 As Justice Goldberg noted in his concurrence in Bell v.
Maryland, 378 U.S. 226, 84 S. Ct. 1814, 12 L. Ed. 2d 822 (1964):
Underlying the congressional discussions and at the heart of the
Fourteenth Amendment's guarantee of equal protection, was the
assumption that the State by statute or by "the good old common
law" was obligated to guarantee all citizens access to places of
public accommodation. [378 U.S. at 296, 84 S. Ct. at 1852, 12 L. Ed.
2d at 839, Goldberg, J., joined by Warren, C.J. and Douglas, J.,
concurring]
See, e.g., Ferguson v. Gies, 82 Mich. 358, 46 N.W. 718 (1890) (after
passage of the Fourteenth Amendment, both the civil rights statutes
and the common law provided grounds for a non-white plaintiff to
recover damages from a restaurant owner's refusal to serve him,
because the common law as it existed before passage of the civil
rights laws "gave to the white man a remedy against any unjust
discrimination to the citizen in all public places"); Donnell v. State,
48 Miss. 661 (1873) (state's common law includes a right of
reasonable access to all public places).
The current majority American rule has for many years disregarded
the right of reasonable access,[4] granting to proprietors of
amusement places an absolute right arbitrarily to eject or exclude
any person consistent with state and federal civil rights laws. See
Annot., "Propriety of exclusion of persons from horseracing tracks
for reasons other than color or race," 90 A.L.R.3d 1361 (1979);
Turner & Kennedy, "Exclusion, Ejection and Segregation of Theater
Patrons," 32 Iowa L.Rev. 625 (1947). See also Garifine v. Monmouth
Park Jockey Club, 29 N.J. at 50.
At one time, an absolute right of exclusion prevailed in this state,
though more for reasons of deference to the noted English
precedent of Wood v. Leadbitter, 13 M&W 838, 153 Eng.Rep. 351,
(Ex. 1845), than for reasons of policy. In Shubert v. Nixon *172
Amusement Co., 83 N.J.L. 101 (Sup.Ct. 1912), the former Supreme
Court dismissed a suit for damages resulting from plaintiff's ejection
from defendants' theater. Noting that plaintiff made no allegation of
exclusion on the basis of race, color or previous condition of
servitude, the Court concluded:
In view of the substantially uniform approval of, and reliance on, the
decision in Wood v. Leadbitter in our state adjudications, it must
fairly be considered to be adopted as part of our jurisprudence, and
whatever views may be entertained as to the natural justice or
injustice of ejecting a theater patron without reason after he has
paid for his ticket and taken his seat, we feel constrained to follow
that decision as the settled law. [83 N.J.L. at 106]
It hardly bears mention that our common law has evolved in the
intervening 70 years. In fact, Leadbitter itself was disapproved three
years after the Shubert decision by Hurst v. Picture Theatres Limited,
(1915) 1 K.B. 1 (1914). Of far greater importance, the decisions of
this Court have recognized that "the more private property is
devoted to public use, the more it must accommodate the rights
which inhere in individual members of the general public who use
that property." State v. Schmid, 84 N.J. 535, 562 (1980).
State v. Schmid involved the constitutional right to distribute
literature on a private university campus. The Court's approach in
that case balanced individual rights against property rights. It is
therefore analogous to a description of the common law right of
exclusion. Balancing the university's interest in controlling its
property against plaintiff's interest in access to that property to
express his views, the Court clearly refused to protect unreasonable
exclusions. Justice Handler noted that
Regulations ... devoid of reasonable standards designed to protect
both the legitimate interests of the University as an institution of
higher education and the individual exercise of expressional
freedom cannot constitutionally be invoked to prohibit the
otherwise noninjurious and reasonable exercise of [First
Amendment] freedoms." [Id. at 567]
In State v. Shack, 58 N.J. 297 (1971), the Court held that although an
employer of migrant farm workers "may reasonably require" those
visiting his employees to identify themselves, "the employer may
not deny the worker his privacy or interfere *173 with his
opportunity to live with dignity and to enjoy associations customary
among our citizens." Id. at 308. The Court reversed the trespass
convictions of an attorney and a social services worker who had
entered the property to assist farm-workers there.
Schmid recognizes implicitly that when property owners open their
premises to the general public in the pursuit of their own property
interests, they have no right to exclude people unreasonably. On the
contrary, they have a duty not to act in an arbitrary or discriminatory
manner toward persons who come on their premises. That duty
applies not only to common carriers, Messenger v. Pennsylvania
Railroad Co., 37 N.J.L. 531 (E. & A. 1874), innkeepers, see Garifine,
supra, owners of gasoline service stations, Streeter v. Brogan, 113
N.J. Super. 486 (Ch.Div. 1971), or to private hospitals, Doe v.
Bridgeton Hospital Ass'n, Inc., 71 N.J. 478 (1976), cert. den., 433 U.S.
914, 97 S. Ct. 2987, 53 L. Ed. 2d 1100 (1977), but to all property
owners who open their premises to the public. Property owners
have no legitimate interest in unreasonably excluding particular
members of the public when they open their premises for public
use.
No party in this appeal questions the right of property owners to
exclude from their premises those whose actions "disrupt the
regular and essential operations of the [premises]," State v. Schmid,
84 N.J. at 566 (quoting Princeton University Regulations on
solicitation), or threaten the security of the premises and its
occupants, see State v. Shack, 58 N.J. at 308. In some circumstances,
proprietors have a duty to remove disorderly or otherwise
dangerous persons from the premises. See Holly v. Meyers Hotel
and Tavern, Inc., 9 N.J. 493, 495 (1952). These common law
principles enable the casino to bar from its entire facility, for
instance, the disorderly, the intoxicated, and the repetitive petty
offender.
*174 Whether a decision to exclude is reasonable must be
determined from the facts of each case.[5] Respondent Uston does
not threaten the security of any casino occupant. Nor has he
disrupted the functioning of any casino operations. Absent a valid
contrary rule by the Commission, Uston possesses the usual right of
reasonable access to Resorts International's blackjack tables.
IV
Although the Commission alone has authority to exclude persons
based upon their methods of playing licensed casino games, that
authority has constitutional and statutory limits. We expressly
decline to decide whether the Casino Control Act empowers the
Commission to exclude card counters.
If the Commission decides to consider promulgating a rule banning
card counters, it should review the statutory mandates regarding
both the public policy of this State and the rules of licensed games.
The Casino Control Act commands the Commission to regulate
gambling with such "limitations as may be necessary to assure the
vitality of casino operations and fair odds to and maximum
participation by casino patrons," N.J.S.A. 5:12-100(e) (emphasis
added). The Court recognizes that the goals of casino vitality, fair
odds to all players and maximum player participation may be in
conflict. It is the Commission which must strike the appropriate
balance.
The Commission should also consider that the Legislature has
declared as public policy of this state that "[c]onfidence in casino
gaming operations is eroded to the extent the State of New Jersey
does not provide a regulatory framework for casino gaming that
permits and promotes stability and continuity in *175 casino gaming
operations." N.J.S.A. 5:12-1(14). Moreover, "[a]n integral and
essential element of the regulation and control of such casino
facilities by the State rests in the public confidence and trust in the
credibility and integrity of the regulatory process and of casino
operations." N.J.S.A. 5:12-1(6). The exclusion of persons who can
play the licensed games to their advantage may diminish public
confidence in the fairness of casino gaming. To the extent persons
not counting cards would be mistakenly excluded, public confidence
might be further diminished. However, the right of the casinos to
have the rules drawn so as to allow some reasonable profit must
also be recognized in any realistic assessment. The Commission
should consider the potentially broad ramifications of excluding card
counters before it seeks to promulgate such a rule. Fairness and the
integrity of casino gaming are the touchstones.
V
In sum, absent a valid Commission regulation excluding card
counters, respondent Uston will be free to employ his card-counting
strategy at Resorts' blackjack tables. There is currently no
Commission rule banning Uston, and Resorts has no authority to
exclude him for card counting. However, it is not clear whether the
Commission would have adopted regulations involving card counters
had it known that Resorts could not exclude Uston. The Court
therefore continues the temporary order banning Uston from
Resorts' blackjack tables for 90 days from the date of this opinion.
After that time, respondent is free to play blackjack at Resorts'
casino absent a valid Commission rule excluding him.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J.
G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of
strong materials in which the machinery was installed,
without any reference to the land on which it stood. The
indebtedness secured by this instrument not having
been paid when it fell due, the mortgaged property was
sold by the sheriff, in pursuance of the terms of the
mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in
the chattel mortgage registry, and the sale of the
property to the machinery company in satisfaction of the
mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th of January,
1914, the "Compaia Agricola Filipina" executed a deed
of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although
executed in a public document, was not registered. This
deed makes no reference to the building erected on the
land and would appear to have been executed for the
purpose of curing any defects which might be found to
exist in the machinery company's title to the building
under the sheriff's certificate of sale. The machinery
company went into possession of the building at or about
the time when this sale took place, that is to say, the
month of December, 1913, and it has continued in
possession ever since.
At or about the time when the chattel mortgage was
executed in favor of the machinery company, the
mortgagor, the "Compaia Agricola Filipina" executed
another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the
plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage,
the plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the
land registry of the Province of Cavite.
At the time when the execution was levied upon the
building, the defendant machinery company, which was
in possession, filed with the sheriff a sworn statement
setting up its claim of title and demanding the release of
the property from the levy. Thereafter, upon demand of
the sheriff, the plaintiff executed an indemnity bond in
favor of the sheriff in the sum of P12,000, in reliance
upon which the sheriff sold the property at public auction
to the plaintiff, who was the highest bidder at the sheriff's
sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of
the Civil Code, gave judgment in favor of the machinery
company, on the ground that the company had its title to
the building registered prior to the date of registry of the
plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to
different vendees, the ownership shall be
transfer to the person who may have the first
taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the
person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall
belong to the person who first took possession
of it in good faith, and, in the absence thereof, to
the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of
real property, and it must be apparent that the
annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given
the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage
Law contemplates and makes provision for mortgages of
personal property; and the sole purpose and object of
the chattel mortgage registry is to provide for the registry
of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form
prescribed in the statute. The building of strong materials
in which the rice-cleaning machinery was installed by the
"Compaia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it
separate and apart from the land on which it stood in no
wise changed its character as real property. It follows
that neither the original registry in the chattel mortgage
of the building and the machinery installed therein, not
the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as
the building was concerned.
We conclude that the ruling in favor of the machinery
company cannot be sustained on the ground assigned
by the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses
that neither the purchase of the building by the plaintiff
nor his inscription of the sheriff's certificate of sale in his
favor was made in good faith, and that the machinery
company must be held to be the owner of the property
under the third paragraph of the above cited article of the
code, it appearing that the company first took
possession of the property; and further, that the building
and the land were sold to the machinery company long
prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article
1473 of the Civil Code require "good faith," in express
terms, in relation to "possession" and "title," but contain
no express requirement as to "good faith" in relation to
the "inscription" of the property on the registry, it must be
presumed that good faith is not an essential requisite of
registration in order that it may have the effect
contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the
legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad
faith. Such an interpretation placed upon the language of
this section would open wide the door to fraud and
collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures
an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record
presupposes the good faith of him who enters such
inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not
and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the
code, the supreme court of Spain held in its sentencia of
the 13th of May, 1908, that:
This rule is always to be understood on the
basis of the good faith mentioned in the first
paragraph; therefore, it having been found that
the second purchasers who record their
purchase had knowledge of the previous sale,
the question is to be decided in accordance with
the following paragraph. (Note 2, art. 1473, Civ.
Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph,
provides that the title of conveyance of
ownership of the real property that is first
recorded in the registry shall have preference,
this provision must always be understood on the
basis of the good faith mentioned in the first
paragraph; the legislator could not have wished
to strike it out and to sanction bad faith, just to
comply with a mere formality which, in given
cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ.
Code, issued by the publishers of theLa Revista
de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale
and inscribed his title in the land registry, was duly
notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone
into possession long prior to the sheriff's sale; and that it
was in possession at the time when the sheriff executed
his levy. The execution of an indemnity bond by the
plaintiff in favor of the sheriff, after the machinery
company had filed its sworn claim of ownership, leaves
no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at
the time of the levy and sale the building had already
been sold to the machinery company by the judgment
debtor, the plaintiff cannot be said to have been a
purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held
to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the plaintiff
was not made in good faith, we should not be
understood as questioning, in any way, the good faith
and genuineness of the plaintiff's claim against the
"Compaia Agricola Filipina." The truth is that both the
plaintiff and the defendant company appear to have had
just and righteous claims against their common debtor.
No criticism can properly be made of the exercise of the
utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim
from the estate of the common debtor. We are strongly
inclined to believe that in procuring the levy of execution
upon the factory building and in buying it at the sheriff's
sale, he considered that he was doing no more than he
had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that
time that he would be able to maintain his position in a
contest with the machinery company. There was no
collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an
action in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question
the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the
machinery company's claim of ownership when he
executed the indemnity bond and bought in the property
at the sheriff's sale, and it appearing further that the
machinery company's claim of ownership was well
founded, he cannot be said to have been an innocent
purchaser for value. He took the risk and must stand by
the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a

defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true
owner of the land or of an interest therein; and the same
rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with
the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in
the title of the vendor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's
title, will not make him an innocent purchaser for value, if
afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defects as
would have led to its discovery had he acted with that
measure of precaution which may reasonably be
acquired of a prudent man in a like situation.

Good faith, or lack of it, is in its analysis a question of

intention; but in ascertaining the intention by which one
is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with
safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes
good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry,"
and so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good
faith, or the want of it, is not a visible, tangible fact that
can be seen or touched, but rather a state or condition of
mind which can only be judged of by actual or fancied
tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505;
Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10,
17.)

We conclude that upon the grounds herein set forth the

disposing part of the decision and judgment entered in
the court below should be affirmed with costs of this
instance against the appellant. So ordered.
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW
YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the
City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for
respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the
respondent, Joaquin Jaramillo, register of deeds of the
City of Manila, to an original petition of the Standard Oil
Company of New York, seeking a
peremptory mandamusto compel the respondent to
record in the proper register a document purporting to be
a chattel mortgage executed in the City of Manila by
Gervasia de la Rosa, Vda. de Vera, in favor of the
Standard Oil Company of New York.
It appears from the petition that on November 27, 1922,
Gervasia de la Rosa, Vda. de Vera, was the lessee of a
parcel of land situated in the City of Manila and owner of
the house of strong materials built thereon, upon which
date she executed a document in the form of a chattel
mortgage, purporting to convey to the petitioner by way
of mortgage both the leasehold interest in said lot and
the building which stands thereon.
The clauses in said document describing the property
intended to be thus mortgage are expressed in the
following words:
Now, therefore, the mortgagor hereby conveys and
transfer to the mortgage, by way of mortgage, the
following described personal property, situated in the
City of Manila, and now in possession of the mortgagor,
to wit:
(1) All of the right, title, and interest of the mortgagor in
and to the contract of lease hereinabove referred to, and
in and to the premises the subject of the said lease;
(2) The building, property of the mortgagor, situated on
the aforesaid leased premises.
After said document had been duly acknowledge and
delivered, the petitioner caused the same to be
presented to the respondent, Joaquin Jaramillo, as
register of deeds of the City of Manila, for the purpose of
having the same recorded in the book of record of
chattel mortgages. Upon examination of the instrument,
the respondent was of the opinion that it was not a
chattel mortgage, for the reason that the interest therein
mortgaged did not appear to be personal property, within
the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.
We are of the opinion that the position taken by the
respondent is untenable; and it is his duty to accept the
proper fee and place the instrument on record. The
duties of a register of deeds in respect to the registration
of chattel mortgage are of a purely ministerial character;
and no provision of law can be cited which confers upon
him any judicial or quasi-judicial power to determine the
nature of any document of which registration is sought
as a chattel mortgage.
The original provisions touching this matter are
contained in section 15 of the Chattel Mortgage Law (Act
No. 1508), as amended by Act No. 2496; but these have
been transferred to section 198 of the Administrative
Code, where they are now found. There is nothing in any
of these provisions conferring upon the register of deeds
any authority whatever in respect to the "qualification,"
as the term is used in Spanish law, of chattel mortgage.
His duties in respect to such instruments are ministerial
only. The efficacy of the act of recording a chattel
mortgage consists in the fact that it operates as
constructive notice of the existence of the contract, and
the legal effects of the contract must be discovered in
the instrument itself in relation with the fact of notice.
Registration adds nothing to the instrument, considered
as a source of title, and affects nobody's rights except as
a specifies of notice.
Articles 334 and 335 of the Civil Code supply no
absolute criterion for discriminating between real
property and personal property for purpose of the
application of the Chattel Mortgage Law. Those articles
state rules which, considered as a general doctrine, are
law in this jurisdiction; but it must not be forgotten that
under given conditions property may have character
different from that imputed to it in said articles. It is
undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property; and it is a familiar
phenomenon to see things classed as real property for
purposes of taxation which on general principle might be
considered personal property. Other situations are
constantly arising, and from time to time are presented
to this court, in which the proper classification of one
thing or another as real or personal property may be said
to be doubtful.
The point submitted to us in this case was determined
on September 8, 1914, in an administrative ruling
promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the
capacity of Judge of the fourth branch of the Court of
First Instance of the Ninth Judicial District, in the City of
Manila; and little of value can be here added to the
observations contained in said ruling. We accordingly
quote therefrom as follows:
It is unnecessary here to determine whether or not the
property described in the document in question is real or
personal; the discussion may be confined to the point as
to whether a register of deeds has authority to deny the
registration of a document purporting to be a chattel
mortgage and executed in the manner and form
prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage
Law (Act No. 1508), his Honor continued:

Based principally upon the provisions of section quoted

the Attorney-General of the Philippine Islands, in an
opinion dated August 11, 1909, held that a register of
deeds has no authority to pass upon the capacity of the
parties to a chattel mortgage which is presented to him
for record. A fortiori a register of deeds can have no
authority to pass upon the character of the property
sought to be encumbered by a chattel mortgage. Of
course, if the mortgaged property is real instead of
personal the chattel mortgage would no doubt be held
ineffective as against third parties, but this is a question
to be determined by the courts of justice and not by the
register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and

Williamson (37 Phil., 644), this court held that where the
interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel
mortgage register is a futile act; but that decision is not
decisive of the question now before us, which has
reference to the function of the register of deeds in
placing the document on record.

In the light of what has been said it becomes

unnecessary for us to pass upon the point whether the
interests conveyed in the instrument now in question are
real or personal; and we declare it to be the duty of the
register of deeds to accept the estimate placed upon the
document by the petitioner and to register it, upon
payment of the proper fee.

The demurrer is overruled; and unless within the period

of five days from the date of the notification hereof, the
respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed,
but without costs. So ordered.

G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER
CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and
Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence
of the decision in the trial court and as set forth by counsel for
the parties on appeal, involves the determination of the nature
of the properties described in the complaint. The trial judge
found that those properties were personal in nature, and as a
consequence absolved the defendants from the complaint, with
costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber
concession from the Government of the Philippine Islands. It
has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land
upon which the business was conducted belonged to another
person. On the land the sawmill company erected a building
which housed the machinery used by it. Some of the
implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted
on foundations of cement. In the contract of lease between the
sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all
the improvements and buildings introduced and
erected by the party of the second part shall pass to
the exclusive ownership of the party of the first part
without any obligation on its part to pay any amount
for said improvements and buildings; also, in the
event the party of the second part should leave or
abandon the land leased before the time herein
stipulated, the improvements and buildings shall
likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired:
Provided, however, That the machineries and
accessories are not included in the improvements
which will pass to the party of the first part on the
expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc.,
was the plaintiff and the Davao, Saw, Mill Co., Inc., was the
defendant, a judgment was rendered in favor of the plaintiff in
that action against the defendant in that action; a writ of
execution issued thereon, and the properties now in question
were levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the sales
thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action,
and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale
executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained
that the Davao Saw Mill Co., Inc., has on a number of
occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of
such persons is the appellee by assignment from the original
mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point.
According to the Code, real property consists of
1. Land, buildings, roads and constructions of all
kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or
implements intended by the owner of any building or
land for use in connection with any industry or trade
being carried on therein and which are expressly
adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and appellees the
last mentioned paragraph. We entertain no doubt that the trial
judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant
should have registered its protest before or at the time of the
sale of this property. It must further be pointed out that while
not conclusive, the characterization of the property as chattels
by the appellant is indicative of intention and impresses upon
the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil
Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a
situation.
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 Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
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.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND
MARINE INSURANCE COMPANY, MABALACAT
SUGAR COMPANY and THE PROVINCE SHERIFF OF
PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu
Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H.
Berkenkotter, from the judgment of the Court of First
Instance of Manila, dismissing said plaintiff's complaint
against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six
alleged errors as committed by the trial court in its
decision in question which will be discussed in the
course of this decision.
The first question to be decided in this appeal, which is
raised in the first assignment of alleged error, is whether
or not the lower court erred in declaring that the
additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage
deed executed in favor of the defendants Cu Unjieng e
Hijos.
It is admitted by the parties that on April 26, 1926, the
Mabalacat Sugar Co., Inc., owner of the sugar central
situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a first
mortgage constituted on two parcels and land "with all its
buildings, improvements, sugar-cane mill, steel railway,
telephone line, apparatus, utensils and whatever forms
part or is necessary complement of said sugar-cane mill,
steel railway, telephone line, now existing or that may in
the future exist is said lots."
On October 5, 1926, shortly after said mortgage had
been constituted, the Mabalacat Sugar Co., Inc., decided
to increase the capacity of its sugar central by buying
additional machinery and equipment, so that instead of
milling 150 tons daily, it could produce 250. The
estimated cost of said additional machinery and
equipment was approximately P100,000. In order to
carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter,
to advance the necessary amount for the purchase of
said machinery and equipment, promising to reimburse
him as soon as he could obtain an additional loan from
the mortgagees, the herein defendants Cu Unjieng e
Hijos. Having agreed to said proposition made in a letter
dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on
October 9th of the same year, delivered the sum of
P1,710 to B.A. Green, president of the Mabalacat Sugar
Co., Inc., the total amount supplied by him to said B.A.
Green having been P25,750. Furthermore, B.H.
Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750
and said credit of P22,000, the Mabalacat Sugar Co.,
Inc., purchased the additional machinery and equipment
now in litigation.
On June 10, 1927, B.A. Green, president of the
Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos
for an additional loan of P75,000 offering as security the
additional machinery and equipment acquired by said
B.A. Green and installed in the sugar central after the
execution of the original mortgage deed, on April 27,
1927, together with whatever additional equipment
acquired with said loan. B.A. Green failed to obtain said
loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural
accessions, improvements, growing fruits, and
rents not collected when the obligation falls due,
and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged
property or by virtue of the exercise of the power
of eminent domain, with the declarations,
amplifications, and limitations established by
law, whether the estate continues in the
possession of the person who mortgaged it or
whether it passes into the hands of a third
person.
In the case of Bischoff vs. Pomar and Compaia
General de Tabacos (12 Phil., 690), cited with approval
in the case of Cea vs. Villanueva (18 Phil., 538), this
court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE
INCLUDES IMPROVEMENTS AND FIXTURES.
It is a rule, established by the Civil Code and
also by the Mortgage Law, with which the
decisions of the courts of the United States are
in accord, that in a mortgage of real estate, the
improvements on the same are included;
therefore, all objects permanently attached to a
mortgaged building or land, although they may
have been placed there after the mortgage was
constituted, are also included. (Arts. 110 and
111 of the Mortgage Law, and 1877 of the Civil
Code; decision of U.S. Supreme Court in the
matter of Royal Insurance Co. vs. R. Miller,
 liquidator, and Amadeo [26 Sup. Ct. Rep., 46;
199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF
MACHINERY, ETC. In order that it may be
understood that the machinery and other objects
placed upon and used in connection with a
mortgaged estate are excluded from the
mortgage, when it was stated in the mortgage
that the improvements, buildings, and machinery
that existed thereon were also comprehended, it
is indispensable that the exclusion thereof be
stipulated between the contracting parties.
The appellant contends that the installation of the
machinery and equipment claimed by him in the sugar
central of the Mabalacat Sugar Company, Inc., was not
permanent in character inasmuch as B.A. Green, in
proposing to him to advance the money for the purchase
thereof, made it appear in the letter, Exhibit E, that in
case B.A. Green should fail to obtain an additional loan
from the defendants Cu Unjieng e Hijos, said machinery
and equipment would become security therefor, said
B.A. Green binding himself not to mortgage nor
encumber them to anybody until said plaintiff be fully
reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in
question with money obtained as loan from the plaintiff-
appellant by B.A. Green, as president of the Mabalacat
Sugar Co., Inc., the latter became owner of said
machinery and equipment, otherwise B.A. Green, as
such president, could not have offered them to the
plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the
character of real property to "machinery, liquid
containers, instruments or implements intended by the
owner of any building or land for use in connection with
any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such
trade or industry.
If the installation of the machinery and equipment in
question in the central of the Mabalacat Sugar Co., Inc.,
in lieu of the other of less capacity existing therein, for its
sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character
because, as essential and principal elements of a sugar
central, without them the sugar central would be unable
to function or carry on the industrial purpose for which it
was established. Inasmuch as the central is permanent
in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it
has been established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to
the plaintiff B.H. Berkenkotter to hold said machinery
and equipment as security for the payment of the latter's
credit and to refrain from mortgaging or otherwise
encumbering them until Berkenkotter has been fully
reimbursed therefor, is not incompatible with the
permanent character of the incorporation of said
machinery and equipment with the sugar central of the
Mabalacat Sugar Co., Inc., as nothing could prevent B.A.
Green from giving them as security at least under a
second mortgage.
As to the alleged sale of said machinery and equipment
to the plaintiff and appellant after they had been
permanently incorporated with sugar central of the
Mabalacat Sugar Co., Inc., and while the mortgage
constituted on said sugar central to Cu Unjieng e Hijos
remained in force, only the right of redemption of the
vendor Mabalacat Sugar Co., Inc., in the sugar central
with which said machinery and equipment had been
incorporated, was transferred thereby, subject to the
right of the defendants Cu Unjieng e Hijos under the first
mortgage.
For the foregoing considerations, we are of the opinion
and so hold: (1) That the installation of a machinery and
equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing
production, constitutes a permanent improvement on
said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article
1877, Civil Code); (2) that the fact that the purchaser of
the new machinery and equipment has bound himself to
the person supplying him the purchase money to hold
them as security for the payment of the latter's credit,
and to refrain from mortgaging or otherwise
encumbering them does not alter the permanent
character of the incorporation of said machinery and
equipment with the central; and (3) that the sale of the
machinery and equipment in question by the purchaser
who was supplied the purchase money, as a loan, to the
person who supplied the money, after the incorporation
thereof with the mortgaged sugar central, does not vest
the creditor with ownership of said machinery and
equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it
is affirmed in all its parts, with costs to the appellant. So
ordered.
EN BANC
[G.R. No. L-8133. May 18, 1956.]
MANUEL C. MANARANG and LUCIA D.
MANARANG, Petitioners-Appellants, vs. MACARIO
M. OFILADA, Sheriff of the City of Manila and
ERNESTO ESTEBAN, Respondents-Appellees.
 DECISION
LABRADOR, J.:
On September 8, 1951, Petitioner Lucia D. Manarang
obtained a loan of P200 from Ernesto Esteban, and to
secure its payment she executed a chattel mortgage
over a house of mixed materials erected on a lot on
Alvarado Street, Manila. As Manarang did not pay the
loan as agreed upon, Esteban brought an action against
her in the municipal court of Manila for its recovery,
alleging that the loan was secured by a chattel mortgage
on her property. Judgment having been entered
in Plaintiffs favor, execution was issued against the
same property mortgaged.
Before the property could be sold Manarang offered to
pay the sum of P277, which represented the amount of
the judgment of P250, the interest thereon, the costs,
and the sheriffs fees, but the sheriff refused the tender
unless the additional amount of P260 representing the
publication of the notice of sale in two newspapers be
paid also. So Defendants therein brought this suit to
compel the sheriff to accept the amount of P277 as full
payment of the judgment and to annul the published
notice of sale.
It is to be noted that in the complaint filed in the
municipal court, a copy of the chattel mortgage is
attached and mention made of its registration, and in the
prayer request is made that the house mortgaged be
sold at public auction to satisfy the debt. It is also
important to note that the house mortgaged was levied
upon at Plaintiffs request (Exhibit E).
On the basis of the above facts counsel for Manarang
contended in the court below that the house in question
should be considered as personal property and the
publication of the notice of its sale at public auction in
execution considered unnecessary. The Court of First
Instance held that although real property may sometimes
be considered as personal property, the sheriff was in
duty bound to cause the publication of the notice of its
sale in order to make the sale valid or to prevent its
being declared void or voidable, and he did not,
therefore, err in causing such publication of the notice.
So it denied the petition.
There cannot be any question that a building of mixed
materials may be the subject of a chattel mortgage, in
which case it is considered as between the parties as
personal property. We held so expressly in the cases of
Luna vs. Encarnacion, et al., * 48 Off. Gaz., No. 7, p.
2664; Standard Oil Co. of New York vs. Jaranillo, 44
Phil., 630; and De Jesus vs. Guan Dee Co., Inc., 72
Phil., 464. The matter depends on the circumstances
and the intention of the parties.
The general principle of law is that a building
permanently fixed to the freehold becomes a part of it,
that prima facie a house is real estate, belonging to the
owner of the land on which it stands, even though it was
erected against the will of the landowner, or without his
consent . The general rule is otherwise, however, where
the improvement is made with the consent of the
landowner, and pursuant to an understanding either
expressed or implied that it shall remain personal
property. Nor does the general rule apply to a building
which is wrongfully removed from the land and placed on
the land of the person removing it. (42 Am. Jur. 199-
200.)
Among the principal criteria for determining whether
property remains personally or becomes realty are
annexation to the soil, either actual or construction, and
the intention of the parties
Personal property may retain its character as such
where it is so agreed by the parties interested even
though annexed to the realty, or where it is affixed in the
soil to be used for a particular purpose for a short period
and then removed as soon as it has served its purpose.
(Ibid., 209-210.)
The question now before us, however, is: Does the fact
that the parties entering into a contract regarding a
house gave said property the consideration of personal
property in their contract, bind the sheriff in advertising
the propertys sale at public auction as personal
property? It is to be remembered that in the case at bar
the action was to collect a loan secured by a chattel
mortgage on the house. It is also to be remembered that
in practice it is the judgment creditor who points out to
the sheriff the properties that the sheriff is to levy upon in
execution, and the judgment creditor in the case at bar is
the party in whose favor the owner of the house and
conveyed it by way of chattel mortgage and, therefore,
knew its consideration as personal property.
These considerations notwithstanding, we hold that the
rules on execution do not allow, and we should not
interpret them in such a way as to allow, the special
consideration that parties to a contract may have desired
to impart to real estate, for example, as personal
property, when they are not ordinarily so. Sales on
execution affect the public and third persons. The
regulation governing sales on execution are for public
officials to follow. The form of proceedings prescribed for
each kind of property is suited to its character, not to the
character which the parties have given to it or desire to
give it. When the rules speak of personal property,
property which is ordinarily so considered is meant; and
when real property is spoken of, it means property which
is generally known as real property. The regulations
were never intended to suit the consideration that
parties, may have privately given to the property levied
upon. Enforcement of regulations would be difficult were
the convenience or agreement of private parties to
determine or govern the nature of the proceedings. We,
therefore, hold that the mere fact that a house was the
subject of a chattel mortgage and was considered as
personal property by the parties does not make said
house personal property for purposes of the notice to be
given for its sale at public auction. This ruling is
demanded by the need for a definite, orderly and well-
defined regulation for official and public guidance and
which would prevent confusion and misunderstanding.
We, therefore, declare that the house of mixed materials
levied upon on execution, although subject of a contract
of chattel mortgage between the owner and a third
person, is real property within the purview of Rule 39,
section 16, of the Rules of Court as it has become a
permanent fixture on the land, which is real property. (42
Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co.,
37 Phil., 644;yRepublic vs. Ceniza, et al., 90 Phil., 544;
Ladera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz.,
5374.).
The judgment appealed from is hereby affirmed, with
costs. SO ORDERED.
G.R. No. L-19867 May 29, 1968
GOVERNMENT SERVICE INSURANCE
SYSTEM, plaintiff-appellee,
vs.
CALSONS, INC., CESARIO P. CALANOC, and
NENITA GODINEZ, defendants-appellants.
The Government Corporate Counsel for plaintiff-
appellee.
Juan T. David and Clemente M. Soriano for defendants-
appellants.
MAKALINTAL., J.:
Appeal from the decision of the Court of First Instance of
Manila..
On April 11, 1957 appellant CALSONS, INC. applied for
a loan of P2,000,000.00 to appellee to pay the balance
of the purchase price of certain parcels of land situated
at the corner of Globo de Oro and Elizondo Streets,
Quiapo, Manila, and to finance the construction of a two-
storey textile market building on said land. The
application was approved by appellee's Board of
Trustees on August 26, 1957. In connection with said
loan appellants executed on October 31, 1957 a
promissory note binding themselves jointly and severally
to pay appellee the sum of P2,000,000.00, with interest
at the rate of 7% per annum compounded monthly, in
120 equal monthly installments of P23,221.69 each.
Under said note "the first installment shall be due and
payable beginning the month following the last release
and/or the month following the expiration of the period
for the construction of the textile market building,
whichever is earlier, and the rest on the 7th day of every
month thereafter until the principal of TWO MILLION
PESOS (P2,000,000.00) and the interest shall have
been fully paid." To secure payment of the note "and/or
the interest thereon and/or other obligations arising
thereunder", appellants executed on the same date a
first mortgage in favor of appellee on five (5) parcels of
land particularly described in the mortgage contract,
"together with all the buildings and improvements now
existing thereon or which may hereafter be constructed
on the mortgaged property (ies) of which MORTGAGOR
is the absolute owner, free from all liens and
encumbrances." The aforementioned five (5) parcels of
land were among the properties acquired by appellant
CALSONS, INC., from Tuason & Sampedro, Inc., for and
in consideration of the sum of ONE MILLION ONE
HUNDRED THOUSAND PESOS (P1,100,000.00) under
a Deed of Assignment dated October 29,
1957.1vvphi1.nt
The conditions of the mortgage contract which are
relevant to this case are the following:
2. The MORTGAGOR shall not sell, dispose of,
mortgage, nor in any manner encumber the
mortgaged property (ies) without the prior written
consent of the MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or
refuse to pay any of the amortizations on the
indebtedness, or the interest when due, or
whatever other obligation herein agreed, then all
the amortizations and other obligations of the
MORTGAGOR of any nature, shall become due,
payable and defaulted and the MORTGAGEE
may immediately foreclose this mortgage
judicially or extrajudicially under Act 3135, as
amended and/or under C.A. 186, as amended,
and/or Act No. 1508, as amended....
14. This mortgage shall furthermore be subject
to the following ADDITIONAL CONDITIONS:
1) That the applicant shall pay to the
system P23,221.70 monthly, including
principal and interest.
2) That the first release of P819,000.00
on this loan shall be made only after:
xxx xxx xxx
b. The submission of evidence
showing payment on realty
taxes up to and including that of
the current year; .
c. The submission of evidence
showing the reduction of
applicant's account on the lot to
at least P819,000.00; .
d. The submission of the
certificates of title in the name of
the applicant to the property
offered as collateral for this
loan; provided, that if the said
certificates of title could not be
secured without paying the
balance of the purchase price,
said balance shall be paid first
from the first release of this
loan;
3) That the check covering the
obligation of applicant on the lots offered
as collateral shall be drawn in favor of
the vendor of said lots;
4) That subsequent releases on this
loan shall be controlled in such manner
that the amount to be released shall
depend on the progress of the work
done on the proposed building but in no
case shall the amount to be released
 and the amounts already released
exceed 60% of the appraised value of
the lots and the existing improvements
thereon as of every release;
xxx xxx xxx
6) That the proposed building shall be
completed within twelve (12) months
from the date the first release of this
loan is made;
The first release in the amount of P819,000.00 was
made on November 7, 1957, while the second (and last)
release in the amount of P30,000.00 was made on May
15, 1958. The checks covering both releases were
drawn in favor of the vendor of the mortgaged
properties.
In accordance with the agreement between the parties,
the old building standing on the mortgaged properties
was insured for P300,000.00 on December 1, 1959.
Appellee advanced the sum of P5,628.00 for the annual
premium, but appellants failed to reimburse the same.
Appellee filed a complaint for the foreclosure of the
mortgage with the Court of First Instance of Manila on
August 11, 1958, alleging a number of violations of the
mortgage contract, to wit: (1) that the mortgaged
properties had not been freed by the mortgagor from
certain liens and encumbrances other than the mortgage
itself; (2) that without the prior written consent of plaintiff
defendants removed and disposed of the complete band
sawmill and filing machine which formed part of the
properties mortgaged; (3) that defendant Calsons, Inc.,
failed to submit to appellee evidence showing the
reduction of defendant's account on the lot to at least
P819,000.00; (4) and that Calsons, Inc., failed to begin,
much less complete, the construction of the supermarket
building on the mortgaged properties. On August 11,
1959, plaintiff filed supplemental complaint, which was
admitted without opposition. Two additional grounds for
the foreclosure of the mortgage were alleged, namely:
(1) that defendants failed, despite demands therefor, to
pay the amortizations due and payable, including
accrued interest and surcharges, on the portion of the
loan released to them; and (2) that defendants failed to
complete the construction of the textile market building
on the mortgaged properties within 12 months from
November 7, 1957, the date of the first release of
P819,000.00.
Judgment was rendered on March 3, 1962 in favor of
plaintiff, and defendants brought this appeal directly to
this Court in view of the amount involved.
In their brief, appellants make the following assignment
of errors:
1. The Trial Court erred in holding that it is not
true that defendants have not defaulted in any of
their obligations under the mortgage contract.
2. The Trial Court erred in ruling that with
respect to the liens and encumbrances, the
defendants' failure to pay the balance of the
purchase price of the mortgaged properties from
their original owners subjected the said
properties to a vendor's lien.
3. The Trial Court erred in holding that the
machineries on the mortgaged properties are
part of the mortgage and that the removal and
subsequent disposal of the same therefrom by
the defendants violated the said mortgage
contract.
4. The Trial Court erred in holding that
defendant Calsons, Inc., has failed to reduce its
account on the loan to at least P819,000.00 and
that such failure is a clear violation of a contract
of mortgage.
5. The Trial Court erred in holding that the
defendants failed despite demand therefor, to
pay the amortization due and payable, including
interests and surcharges on the portion of the
loan released to them.
6. The Trial Court erred in rendering judgment
for plaintiff and against the defendants ordering
the latter to pay jointly and severally the plaintiff
of the sum of (1) P819,000.00 with interests at
the rate of 7% per annum compounded monthly
from November 8, 1957 until the same is fully
paid; (2) P30,000.00 with interests at the rate of
7% per annum compounded monthly, from May
16, 1958 until the same is fully paid; (3)
P5,628.00 yearly insurance premium with
interests of 7% per annum compounded
monthly, from December, 1959 until the same is
fully paid; (4) the sum equivalent to 10% of the
foregoing sums as expenses of collection and
attorney's fees, plus the costs of this action.
7. The Trial Court erred in failing and/or
neglecting to act and pass upon the
counterclaim of the defendants-appellants
notwithstanding the fact that said counterclaim is
fully established by the evidence on records.
The second and fourth errors assigned are interrelated
and will first be taken up. The two certificates of title
covering the mortgaged properties do not show any lien
or encumbrance thereon other than the mortgage itself.
This is admitted by both parties. Appellee refers,
however, to the vendor's lien in favor of the former
owners, representing the unpaid balance of P280,000.00
on the purchase price of the lots mortgaged. The lien,
appellee point out, is a legal encumbrance and therefore
effective, although not recorded. On the other hand,
appellants contend that appellee is estopped from
invoking its right to have the mortgaged properties free
from the vendor's lien on two grounds, namely: (1) that
appellant had previous knowledge of said lien as
evidenced by the two releases of P819,000 and P30,000
directly to the vendor of the mortgaged properties, and
(2) that appellant committed itself to pay to the said
vendor the amount of P280,000.00, balance on the
purchase price, within a period of six (6) months from
October 28, 1957.
The contention cannot be sustained on the first ground.
One of the reasons why appellant Calsons, Inc., applied
for the P2,000,000.00 loan was precisely to use part
thereof to pay the balance of the purchase price of five
(5) parcels of land it mortgaged to appellee. And to
assure itself that no vendor's lien attached to the said
properties appellee caused the following conditions to be
added to the original terms of the mortgage contract:
2) That the first release of P819,000.00 on this
loan shall be made only after:
e. The submission of evidence showing
the reduction of applicant's account on
the lot to at least P819,000.00;
d. The submission of the certificates of
title in the name of the applicant to the
property offered as collateral for this
loan; provided, that if the said
certificates of title could not be secured
without paying the balance of the
purchase price, said balance shall be
paid first from the first release of this
loan;
3) That the check covering the obligation of
applicant on the lots offered as collateral shall
be drawn in favor of the vendor of said lots;
Pursuant to the foregoing conditions the check covering
the first release of P819,000.00 was drawn in favor of
the vendor of the properties, and the release was made
upon submission of the two transfer certificates of title
already in the name of appellant Calsons, Inc., as
vendee, without any annotation thereon of any lien or
encumbrance except the mortgage itself in favor of
appellee. It turned out, however, that appellants had
failed to reduce their account on the lot to P819,000.00,
as stipulated in the mortgage contract, since there was
still a balance of P280,000 on the purchase price. With
respect to the second release of P30,000.00, the check
was also drawn in favor of the vendor with the
understanding that it would be used to pay the real
estate taxes due on said properties and thus remove the
corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it
agreed to waive its right to have the properties "free from
all liens and encumbrances," as provided in the
mortgage contract.
Estoppel is invoked by appellants on the basis of a letter
dated October 28, 1957, sent by the Manager of
appellee's Real Estate Department to the vendor of the
properties, to the effect that the balance of the purchase
price in the amount of P280,000.00 would be released
within six (6) months from the date of the said letter. The
commitment of said Manager was not recognized by the
Board of Trustees of the appellee as shown by the fact
that it was not incorporated in the mortgage contract,
which was executed on a later date October 31, 1957.
While the schedule of subsequent releases was clearly
defined in the mortgage contract, no mention was made
about the said commitment. Thus, Paragraph 14 (4) of
the mortgage contract states:
(4) .That subsequent releases on this loan shall
be controlled in such manner that the amount to
be released shall depend in the progress of the
work done on the proposed building but in no
case shall the amount to be released and the
amounts already released exceed 60% of the
appraised value of the lots and the existing
improvements thereon as of every release;
Regarding the third error assigned, appellants do not
deny the fact that they removed and disposed of the
machineries installed in the building which were standing
on the mortgaged properties. However, they contend
that the said machineries were not included in the
mortgage. The contention is groundless.
The mortgage was on the lands "together with all the
buildings and improvements now existing or which may
hereafter be constructed" thereon. And the machineries,
as found by the trial court, were permanently attached to
the property, and installed there by the former owner to
meet the needs of certain works or industry therein.
They were therefore part of the immovable pursuant to
Article 415 of the Civil Code, and need not be the
subject of a separate chattel mortgage in order to be
deemed duly encumbered in favor of appellee.
Under the fifth assignment of error, appellants point out
that there is no time specified in the mortgage contract
within which the amortizations on the loan should begin
to be paid, and conclude that they should begin only
from the time the proposed building started earning
rentals. The provision of Paragraph 14 (13) of the
mortgage contract is invoked, to wit:
That rentals from the proposed building
equivalent to the monthly amortization on this
loan shall be assigned in favor of and made
payable to the System.
As a corollary argument, appellants add that since the
present action was instituted three (3) months before the
expiration of the twelve-month period (from November 7,
1957) within which the construction of the supermarket
building should be completed the premature institution of
the suit rendered the construction of said building
impossible, and hence no default in payment was
incurred.

Again this contention of appellants is without merit. The

promissory note executed by them clearly provides when
the first installment, as well as subsequent ones, would
become due, thus:

The first installment shall be due and payable

beginning the month following the last release
and/or the month following the expiration of the
period for the construction of the textile market
building, whichever is earlier, and the rest on the
7th day of every month thereafter until the
principal of TWO MILLION PESOS
(P2,000,000.00) and the interest shall have
been fully paid.

As previously mentioned, the mortgage contract

provides that the proposed building should be completed
within twelve (12) months from the date of the first
release. Said release having been made on November
7, 1957, the construction period of 12 months expired on
November 7, 1958; hence, the first installment became
due one month thereafter or on December 7, 1958, and
the rest on the 7th day of every month thereafter.
Appellants' failure to pay the amortizations, interest and
surcharges demanded of them by appellee, therefore,
constitutes a violation of the mortgage contract and is
sufficient ground for the foreclosure of the mortgage.

IN VIEW OF THE FOREGOING, the sixth and seventh

assignments of error are without merit.

The judgment appealed from is hereby affirmed, with

costs against appellants
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF
TAX APPEALS of Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of
Tax Appeals in C.T.A. Case No. 710 holding that the petitioner
Mindanao Bus Company is liable to the payment of the realty
tax on its maintenance and repair equipment hereunder
referred to.
Respondent City Assessor of Cagayan de Oro City assessed
at P4,400 petitioner's above-mentioned equipment. Petitioner
appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board
of Tax Appeals of the City sustained the city assessor, so
petitioner herein filed with the Court of Tax Appeals a petition
for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following
stipulation of facts:
Petitioner and respondents, thru their respective
counsels agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in
transporting passengers and cargoes by motor trucks,
over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at
Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the
respondent as real properties are the following:
(a) Hobart Electric Welder Machine,
appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in
the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in
the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in
the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing
in the attached photograph, marked Annex
"G".
4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed stipulation
of facts;
5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein,
its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the
TPU land transportation business it operates;
6. That these machineries have never been or were
never used as industrial equipments to produce
finished products for sale, nor to repair machineries,
parts and the like offered to the general public
indiscriminately for business or commercial purposes
for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for
reconsideration, petitioner brought the case to this Court
assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the questioned
assessments are valid; and that said tools,
equipments or machineries are immovable taxable
real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil Code, and
holding that pursuant thereto the movable equipments
are taxable realties, by reason of their being intended
or destined for use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion
for reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of
Article 415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
xxx xxx xxx
 (5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for
an industry or works which may be carried on in a
building or on a piece of land, and which tend directly
to meet the needs of the said industry or works.
(Emphasis ours.)
Note that the stipulation expressly states that the equipment
are placed on wooden or cement platforms. They can be
moved around and about in petitioner's repair shop. In the case
of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the
Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil
Code, gives the character of real property to
"machinery, liquid containers, instruments or
implements intended by the owner of any building or
land for use in connection with any industry or trade
being carried on therein and which are expressly
adapted to meet the requirements of such trade or
industry."
If the installation of the machinery and equipment in
question in the central of the Mabalacat Sugar Co.,
Inc., in lieu of the other of less capacity existing
therein, for its sugar and industry, converted them into
real property by reason of their purpose, it cannot be
said that their incorporation therewith was not
permanent in character because, as essential and
principle elements of a sugar central, without them the
sugar central would be unable to function or carry on
the industrial purpose for which it was established.
Inasmuch as the central is permanent in character,
the necessary machinery and equipment installed for
carrying on the sugar industry for which it has been
established must necessarily be permanent.
(Emphasis ours.)
So that movable equipments to be immobilized in
contemplation of the law must first be "essential and principal
elements" of an industry or works without which such industry
or works would be "unable to function or carry on the industrial
purpose for which it was established." We may here
distinguish, therefore, those movable which become
immobilized by destination because they are essential and
principal elements in the industry for those which may not be
so considered immobilized because they are merely incidental,
not essential and principal. Thus, cash registers, typewriters,
etc., usually found and used in hotels, restaurants, theaters,
etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses
can continue or carry on their functions without these equity
comments. Airline companies use forklifts, jeep-wagons,
pressure pumps, IBM machines, etc. which are incidentals, not
essentials, and thus retain their movable nature. On the other
hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but
the delivery trucks and adding machines which they usually
own and use and are found within their industrial compounds
are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant
case are, by their nature, not essential and principle municipal
elements of petitioner's business of transporting passengers
and cargoes by motor trucks. They are merely incidentals
acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools
and equipments, its business may be carried on, as petitioner
has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair
or service shop if its rolling equipment is repaired or serviced in
another shop belonging to another.
The law that governs the determination of the question at issue
is as follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for
an industry or works which may be carried on in a
building or on a piece of land, and which tend directly
to meet the needs of the said industry or works; (Civil
Code of the Phil.)
Aside from the element of essentiality the above-quoted
provision also requires that the industry or works be carried
on in a building or on a piece of land. Thus in the case
of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid
containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and
the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined
only to repair or service the transportation business, which is
not carried on in a building or permanently on a piece of land,
as demanded by the law. Said equipments may not, therefore,
be deemed real property.
Resuming what we have set forth above, we hold that the
equipments in question are not absolutely essential to the
petitioner's transportation business, and petitioner's business is
not carried on in a building, tenement or on a specified land, so
said equipment may not be considered real estate within the
meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is
hereby set aside and the equipment in question declared not
subject to assessment as real estate for the purposes of the
real estate tax. Without costs.
PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A.
ORTIZ, Judge of the Court of First Instance of Agusan,
THE PROVINCIAL SHERIFF OF SURIGAO and GRACE
PARK ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park
Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of
Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court
of Appeals in CA-G.R. No. 26723-R entitled "Pastor D. Ago vs.
The Provincial Sheriff of Surigao, et al." which in part reads:
In this case for certiorari and prohibition with
preliminary injunction, it appears from the records that
the respondent Judge of the Court of First Instance of
Agusan rendered judgment (Annex "A") in open court
on January 28, 1959, basing said judgment on a
compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First
Instance issued a writ of execution.
Petitioner's motion for reconsideration dated October
12, 1959 alleges that he, or his counsel, did not
receive a formal and valid notice of said decision,
which motion for reconsideration was denied by the
court below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge
exceeded in his jurisdiction in rendering the execution
without valid and formal notice of the decision.
A compromise agreement is binding between the
parties and becomes the law between them.
(Gonzales vs. Gonzales G.R. No. L-1254, May 21,
1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-
12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment
based on a compromise agreement is not appealable
and is immediately executory, unless a motion is filed
on the ground fraud, mistake or duress. (De los
Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe,
G.R. No. L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served
notice of the decision is untenable. The judgment on
the compromise agreement rendered by the court
below dated January 28, 1959, was given in open
court. This alone is a substantial compliance as to
notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court
did not exceed nor abuse its jurisdiction in ordering
the execution of the judgment. The petition
for certiorari is hereby dismissed and the writ of
preliminary injunction heretofore dissolved, with costs
against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957,
petitioner Pastor D. Ago bought sawmill machineries and
equipments from respondent Grace Park Engineer
domineering, Inc., executing a chattel mortgage over said
machineries and equipments to secure the payment of balance
of the price remaining unpaid of P32,000.00, which petitioner
agreed to pay on installment basis.
Petitioner Ago defaulted in his payment and so, in 1958
respondent Grace Park Engineering, Inc. instituted extra-
judicial foreclosure proceedings of the mortgage. To enjoin
said foreclosure, petitioner herein instituted Special Civil Case
No. 53 in the Court of First Instance of Agusan. The parties to
the case arrived at a compromise agreement and submitted
the same in court in writing, signed by Pastor D. Ago and the
Grace Park Engineering, Inc. The Hon. Montano A. Ortiz,
Judge of the Court of First Instance of Agusan, then presiding,
dictated a decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in
the judgment by compromise, so Grace Park Engineering, Inc.
filed with the lower court a motion for execution, which was
granted by the court on August 15, 1959. A writ of execution,
dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting
upon the writ of execution issued by the lower court, levied
upon and ordered the sale of the sawmill machineries and
equipments in question. These machineries and equipments
had been taken to and installed in a sawmill building located in
Lianga, Surigao del Sur, and owned by the Golden Pacific
Sawmill, Inc., to whom, petitioner alleges, he had sold them on
February 16, 1959 (a date after the decision of the lower court
but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale
was set for December 4, 1959, petitioner, on December 1,
1959, filed the petition for certiorari and prohibition with
preliminary injunction with respondent Court of Appeals,
alleging that a copy of the aforementioned judgment given in
open court on January 28, 1959 was served upon counsel for
petitioner only on September 25, 1959 (writ of execution is
dated September 23, 1959); that the order and writ of
execution having been issued by the lower court before
counsel for petitioner received a copy of the judgment, its
resultant last order that the "sheriff may now proceed with the
sale of the properties levied constituted a grave abuse of
discretion and was in excess of its jurisdiction; and that the
respondent Provincial Sheriff of Surigao was acting illegally
upon the allegedly void writ of execution by levying the same
upon the sawmill machineries and equipments which have
become real properties of the Golden Pacific sawmill, Inc., and
is about to proceed in selling the same without prior publication
of the notice of sale thereof in some newspaper of general
circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of
preliminary injunction against the sheriff but it turned out that
the latter had already sold at public auction the machineries in
question, on December 4, 1959, as scheduled. The respondent
Grace Park Engineering, Inc. was the only bidder for
P15,000.00, although the certificate sale was not yet executed.
The Court of Appeals constructed the sheriff to suspend the
issuance of a certificate of sale of the said sawmill machineries
and equipment sold by him on December 4, 1959 until the final
decision of the case. On November 9, 1960 the Court of
Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals
erred (1) in holding that the rendition of judgment on
compromise in open court on January 1959 was a sufficient
notice; and (2) in not resolving the other issues raised before it,
namely, (a) the legality of the public auction sale made by the
sheriff, and (b) the nature of the machineries in question,
whether they are movables or immovables.
The Court of Appeals held that as a judgment was entered by
the court below in open court upon the submission of the
compromise agreement, the parties may be considered as
having been notified of said judgment and this fact constitutes
due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of
the court, and is the fact the petitioner herein was present in
open court was the judgment was dictated, sufficient notice
thereof? The provisions of the Rules of Court decree
otherwise. Section 1 of Rule 35 describes the manner in which
judgment shall be rendered, thus:
SECTION 1. How judgment rendered. All
judgments determining the merits of cases shall be in
writing personally and directly prepared by the judge,
and signed by him, stating clearly and distinctly the
facts and the law on which it is based, filed with the
clerk of the court.
The court of first instance being a court of record, in order that
a judgment may be considered as rendered, must not only be
in writing, signed by the judge, but it must also be filed with the
clerk of court. The mere pronouncement of the judgment in
open court with the stenographer taking note thereof does not,
therefore, constitute a rendition of the judgment. It is the filing
of the signed decision with the clerk of court that constitutes
rendition. While it is to be presumed that the judgment that was
dictated in open court will be the judgment of the court, the
court may still modify said order as the same is being put into
writing. And even if the order or judgment has already been put
into writing and signed, while it has not yet been delivered to
the clerk for filing it is still subject to amendment or change by
the judge. It is only when the judgment signed by the judge is
actually filed with the clerk of court that it becomes a valid and
binding judgment. Prior thereto, it could still be subject to
amendment and change and may not, therefore, constitute the
real judgment of the court.
Regarding the notice of judgment, the mere fact that a party
heard the judge dictating the judgment in open court, is not a
valid notice of said judgment. If rendition thereof is constituted
by the filing with the clerk of court of a signed copy (of the
judgment), it is evident that the fact that a party or an attorney
heard the order or judgment being dictated in court cannot be
considered as notice of the real judgment. No judgment can be
notified to the parties unless it has previously been rendered.
The notice, therefore, that a party has of a judgment that was
being dictated is of no effect because at the time no judgment
has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or
judgments be served personally or by registered mail. Section
7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. Final
orders or judgments shall be served either personally
or by registered mail.
In accordance with this provision, a party is not considered as
having been served with the judgment merely because he
heard the judgment dictating the said judgment in open court; it
is necessary that he be served with a copy of the signed
judgment that has been filed with the clerk in order that he may
legally be considered as having been served with the
judgment.
For all the foregoing, the fact that the petitioner herein heard
the trial judge dictating the judgment in open court, is not
sufficient to constitute the service of judgement as required by
the above-quoted section 7 of Rule 2 the signed judgment not
having been served upon the petitioner, said judgment could
not be effective upon him (petitioner) who had not received it. It
follows as a consequence that the issuance of the writ of
execution null and void, having been issued before petitioner
her was served, personally or by registered mail, a copy of the
decision.
The second question raised in this appeal, which has been
passed upon by the Court of Appeals, concerns the validity of
the proceedings of the sheriff in selling the sawmill machineries
and equipments at public auction with a notice of the sale
having been previously published.
The record shows that after petitioner herein Pastor D. Ago
had purchased the sawmill machineries and equipments he
assigned the same to the Golden Pacific Sawmill, Inc. in
payment of his subscription to the shares of stock of said
corporation. Thereafter the sawmill machinery and equipments
were installed in a building and permanently attached to the
ground. By reason of such installment in a building, the said
sawmill machineries and equipment became real estate
properties in accordance with the provision of Art. 415 (5) of
the Civil Code, thus:
ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements tended by the owner of the tenement for
an industry or works which may be carried on in a
building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;
This Court in interpreting a similar question raised before it in
the case of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683,
held that the installation of the machine and equipment in the
central of the Mabalacat Sugar Co., Inc. for use in connection
with the industry carried by the company, converted the said
machinery and equipment into real estate by reason of their
purpose. Paraphrasing language of said decision we hold that
by the installment of the sawmill machineries in the building of
the Gold Pacific Sawmill, Inc., for use in the sawing of logs
carried on in said building, the same became a necessary and
permanent part of the building or real estate on which the
same was constructed, converting the said machineries and
equipments into real estate within the meaning of Article 415(5)
above-quoted of the Civil Code of the Philippines.
Considering that the machineries and equipments in question
valued at more than P15,000.00 appear to have been sold
without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of
Court, which is as follows:

SEC. 16. Notice of sale of property on execution.

Before the sale of property on execution, notice
thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice

particularly describing the property for twenty days in
three public places in the municipality or city where
the property is situated, and also where the property
is to be sold, and, if the assessed value of the
property exceeds four hundred pesos, by publishing a
copy of the notice once a week, for the same period,
in some newspaper published or having general
circulation in the province, if there be one. If there are
newspapers published in the province in both the
English and Spanish languages, then a like
publication for a like period shall be made in one
newspaper published in the English language, and in
one published in the Spanish language.

the sale made by the sheriff must be declared null and void. G.R. No. 137705 August 22, 2000

WHEREFORE, the decision of the Court of Appeals sought to SERG'S PRODUCTS, INC., and SERGIO T.
be reviewed is hereby set aside and We declare that the GOQUIOLAY, petitioners,
issuance of the writ of execution in this case against the vs.
sawmill machineries and equipments purchased by petitioner PCI LEASING AND FINANCE, INC., respondent.
Pastor D. Ago from the Grace Park Engineering, Inc., as well
as the sale of the same by the Sheriff of Surigao, are null and
void. Costs shall be against the respondent Grace Park DECISION
Engineering, Inc.
PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable

property be considered as personal or movable, a party is
estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the
other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the

January 6, 1999 Decision1 of the Court of Appeals (CA)2 in CA-
GR SP No. 47332 and its February 26, 1999
Resolution3 denying reconsideration. The decretal portion of
the CA Decision reads as follows:

"WHEREFORE, premises considered, the assailed Order

dated February 18, 1998 and Resolution dated March 31, 1998
in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ
of preliminary injunction issued on June 15, 1998 is
hereby LIFTED."4

In its February 18, 1998 Order,5 the Regional Trial Court (RTC)
of Quezon City (Branch 218)6 issued a Writ of Seizure.7 The
March 18, 1998 Resolution8 denied petitioners Motion for
Special Protective Order, praying that the deputy sheriff be
enjoined "from seizing immobilized or other real properties in
(petitioners) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or
equipments he may have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals
as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance,
Inc. ("PCI Leasing" for short) filed with the RTC-QC a
complaint for [a] sum of money (Annex E), with an application
for a writ of replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI
Leasing, respondent judge issued a writ of replevin (Annex B)
directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment
of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioners factory, seized one machinery with
[the] word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special
protective order (Annex C), invoking the power of the court to
control the conduct of its officers and amend and control its
processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex F), on the
ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought
to be seized [were] immovable as defined in Article 415 of the
Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the
agreement would be prejudicial to innocent third parties. They
further stated that PCI Leasing [was] estopped from treating
these machineries as personal because the contracts in which
the alleged agreement [were] embodied [were] totally sham
and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of
seizure and take possession of the remaining properties. He
was able to take two more, but was prevented by the workers
from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action
for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held
that the subject machines were personal property, and that
they had only been leased, not owned, by petitioners. It also
ruled that the "words of the contract are clear and leave no
doubt upon the true intention of the contracting parties."
Observing that Petitioner Goquiolay was an experienced
businessman who was "not unfamiliar with the ways of the
trade," it ruled that he "should have realized the import of the
document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to
preempt the trial court in ruling upon the case below, since the
merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of
a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein
are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a
matter x x x which respondent court is in the best position to
determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues
for our consideration:
"A. Whether or not the machineries purchased and imported by
SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or
a lease."12
In the main, the Court will resolve whether the said machines
are personal, not immovable, property which may be a proper
subject of a writ of replevin. As a preliminary matter, the Court
will also address briefly the procedural points raised by
respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate
expressly whether it was being filed under Rule 45 or Rule 65
of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule
45. This conclusion finds support in the very title of the Petition,
which is "Petition for Review on Certiorari."13
While Judge Laqui should not have been impleaded as a
respondent,14 substantial justice requires that such lapse by
itself should not warrant the dismissal of the present Petition.
In this light, the Court deems it proper to remove,motu proprio,
the name of Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their
factory were not proper subjects of the Writ issued by the RTC,
because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are
issued for the recovery of personal property only.15 Section 3
thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval
of the bond, the court shall issue an order and the
corresponding writ of replevin describing the personal property
alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:
"ART. 415. The following are immovable property:
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;
xxx xxx x x x"
In the present case, the machines that were the subjects of the
Writ of Seizure were placed by petitioners in the factory built on
their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although
each of them was movable or personal property on its own, all
of them have become "immobilized by destination because
they are essential and principal elements in the industry." 16 In
that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article
415 (5) of the Civil Code.17
Be that as it may, we disagree with the submission of the
petitioners that the said machines are not proper subjects of
the Writ of Seizure.
The Court has held that contracting parties may validly
stipulate that a real property be considered as personal. 18After
agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the
truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention
of the parties to treat a house as a personal property because
it had been made the subject of a chattel mortgage. The Court
ruled:
"x x x. Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand
by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance
Corp. v. Wearever Textile Mills20 also held that the machinery
used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin
because it was treated as personal property in a contract.
Pertinent portions of the Courts ruling are reproduced
hereunder:
"x x x. If a house of strong materials, like what was involved in
the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage thereon
as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not
be likewise treated as such. This is really because one who
has so agreed is estopped from denying the existence of the
chattel mortgage."
In the present case, the Lease Agreement clearly provides that
the machines in question are to be considered as personal
property. Specifically, Section 12.1 of the Agreement reads as
follows:21
"12.1 The PROPERTY is, and shall at all times be and remain,
personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any
manner to what is permanent."
Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal property.
Under the circumstances, they are proper subjects of the Writ
of Seizure.
It should be stressed, however, that our holding -- that the
machines should be deemed personal property pursuant to the
Lease Agreement is good only insofar as the contracting
parties are concerned.22 Hence, while the parties are bound by
the Agreement, third persons acting in good faith are not
affected by its stipulation characterizing the subject machinery
as personal.23 In any event, there is no showing that any
specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement
is a loan and not a lease.24 Submitting documents supposedly
showing that they own the subject machines, petitioners also
argue in their Petition that the Agreement suffers from "intrinsic
ambiguity which places in serious doubt the intention of the
parties and the validity of the lease agreement itself." 25 In their
Reply to respondents Comment, they further allege that the
Agreement is invalid.26
These arguments are unconvincing. The validity and the nature
of the contract are the lis mota of the civil action pending
before the RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the case. Hence, they
should be threshed out in the trial, not in the proceedings
involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,27 the Court explained
that the policy under Rule 60 was that questions involving title
to the subject property questions which petitioners are now
raising -- should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was
either to post a counter-bond or to question the sufficiency of
the plaintiffs bond. They were not allowed, however, to invoke
the title to the subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a
motion to dissolve or discharge the writ of seizure (or delivery)
on ground of insufficiency of the complaint or of the grounds WHEREFORE, the Petition is DENIED and the assailed
relied upon therefor, as in proceedings on preliminary Decision of the Court of Appeals AFFIRMED. Costs against
attachment or injunction, and thereby put at issue the matter of petitioners.
the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should
be ventilated and determined only at the trial on the merits." 28

Besides, these questions require a determination of facts and a

presentation of evidence, both of which have no place in a
petition for certiorari in the CA under Rule 65 or in a petition for
review in this Court under Rule 45.29

Reliance on the Lease Agreement

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

Makati Leasing and Finance Corporation30 is also instructive on

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

"x x x. Moreover, even granting that the charge is true, such

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

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that "if the Court allows these machineries

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

Petitioners arguments do not preclude the implementation of

the Writ. As earlier discussed, law and jurisprudence support
1wphi1

its propriety. Verily, the above-mentioned consequences, if

they come true, should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the remedy under
Section 5 of Rule 60, which allows the filing of a counter-bond.
The provision states:

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

the sufficiency of the applicants bond, or of the surety or
sureties thereon, he cannot immediately require the return of
the property, but if he does not so object, he may, at any time
before the delivery of the property to the applicant, require the
return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value
of the property as stated in the applicants affidavit for the
delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the
applicant."

G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-
appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R.
No. 27824-R) for the reason that only questions of law are
involved.
This case was originally commenced by defendants-appellants
in the municipal court of Manila in Civil Case No. 43073, for
ejectment. Having lost therein, defendants-appellants appealed
to the court a quo (Civil Case No. 30993) which also rendered
a decision against them, the dispositive portion of which
follows:
WHEREFORE, the court hereby renders
judgment in favor of the plaintiffs and against
the defendants, ordering the latter to pay
jointly and severally the former a monthly
rent of P200.00 on the house, subject-matter
of this action, from March 27, 1956, to
January 14, 1967, with interest at the legal
rate from April 18, 1956, the filing of the
complaint, until fully paid, plus attorney's
fees in the sum of P300.00 and to pay the
costs.
It appears on the records that on 1 September 1955
defendants-appellants executed a chattel mortgage in favor of
plaintiffs-appellees over their house of strong materials located
at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot
Nos. 6-B and 7-B, Block No. 2554, which were being rented
from Madrigal & Company, Inc. The mortgage was registered
in the Registry of Deeds of Manila on 2 September 1955. The
herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable within
one year at 12% per annum. The mode of payment was
P150.00 monthly, starting September, 1955, up to July 1956,
and the lump sum of P3,150 was payable on or before August,
1956. It was also agreed that default in the payment of any of
the amortizations, would cause the remaining unpaid balance
to becomeimmediately due and Payable and
the Chattel Mortgage will be enforceable in
accordance with the provisions of Special
Act No. 3135, and for this purpose, the
Sheriff of the City of Manila or any of his
deputies is hereby empowered and
authorized to sell all the Mortgagor's property
after the necessary publication in order to
settle the financial debts of P4,800.00, plus
12% yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage
was extrajudicially foreclosed, and on 27 March 1956, the
house was sold at public auction pursuant to the said contract.
As highest bidder, plaintiffs-appellees were issued the
corresponding certificate of sale. 3 Thereafter, on 18 April
1956, plaintiffs-appellant commenced Civil Case No.
43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its
possession surrendered to them, and for defendants-
appellants to pay rent of P200.00 monthly from 27 March
1956 up to the time the possession is surrendered. 4 On
21 September 1956, the municipal court rendered its
decision
... ordering the defendants to vacate the
premises described in the complaint;
ordering further to pay monthly the amount
of P200.00 from March 27, 1956, until such
(time that) the premises is (sic) completely
vacated; plus attorney's fees of P100.00 and
the costs of the suit. 5
Defendants-appellants, in their answers in both the municipal
court and court a quo impugned the legality of the chattel
mortgage, claiming that they are still the owners of the house;
but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the
grounds that: (a) the municipal court did not have jurisdiction to
try and decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior possession;
and (b) failure to prove prior demand pursuant to Section 2,
Rule 72, of the Rules of Court. 6
During the pendency of the appeal to the Court of First
Instance, defendants-appellants failed to deposit the rent for
November, 1956 within the first 10 days of December, 1956 as
ordered in the decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for execution, and it
was actually issued on 24 January 1957. However, the
judgment regarding the surrender of possession to plaintiffs-
appellees could not be executed because the subject house
had been already demolished on 14 January 1957 pursuant to
the order of the court in a separate civil case (No. 25816) for
ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of
the supersedeas bond and withdrawal of deposited rentals was
denied for the reason that the liability therefor was disclaimed
and was still being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final disposition of the
appeal. 7
On 7 October 1957, the appellate court of First Instance
rendered its decision, the dispositive portion of which is quoted
earlier. The said decision was appealed by defendants to the
Court of Appeals which, in turn, certified the appeal to this
Court. Plaintiffs-appellees failed to file a brief and this appeal
was submitted for decision without it.
Defendants-appellants submitted numerous assignments of
error which can be condensed into two questions, namely: .
(a) Whether the municipal court from which
the case originated had jurisdiction to
adjudicate the same;
(b) Whether the defendants are, under the
law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year
provided by law for the redemption of the
extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction
of the municipal court from which the case originated, and
consequently, the appellate jurisdiction of the Court of First
Instance a quo, on the theory that the chattel mortgage is
void ab initio; whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent auction sale, are
also void. Thus, the ownership of the house still remained with
defendants-appellants who are entitled to possession and not
plaintiffs-appellees. Therefore, it is argued by defendants-
appellants, the issue of ownership will have to be adjudicated
first in order to determine possession. lt is contended further
that ownership being in issue, it is the Court of First Instance
which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the
chattel mortgage on two grounds, which are: (a) that, their
signatures on the chattel mortgage were obtained through
fraud, deceit, or trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being an
immovable, it can only be the subject of a real estate mortgage
and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First
Instance found defendants-appellants' contentions as not
supported by evidence and accordingly dismissed the
charge, 8 confirming the earlier finding of the municipal
court that "the defense of ownership as well as the
allegations of fraud and deceit ... are mere allegations." 9
It has been held in Supia and Batiaco vs. Quintero and
Ayala 10 that "the answer is a mere statement of the facts
which the party filing it expects to prove, but it is not
evidence; 11 and further, that when the question to be
determined is one of title, the Court is given the authority
to proceed with the hearing of the cause until this fact is
clearly established. In the case of Sy vs.
Dalman, 12 wherein the defendant was also a successful
bidder in an auction sale, it was likewise held by this
Court that in detainer cases the aim of ownership "is a
matter of defense and raises an issue of fact which
should be determined from the evidence at the trial."
What determines jurisdiction are the allegations or
averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit
does not render a contract void ab initio, and can only be a
ground for rendering the contract voidable or annullable
pursuant to Article 1390 of the New Civil Code, by a proper
action in court. 14 There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis
of a voidable contract which has not been voided fails.
It is claimed in the alternative by defendants-appellants that
even if there was no fraud, deceit or trickery, the chattel
mortgage was still null and void ab initio because only personal
properties can be subject of a chattel mortgage. The rule about
the status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre Inc., 15 cited
in Associated Insurance Surety Co., Inc. vs. Iya, et
al. 16 to the effect that
... it is obvious that the inclusion of the
building, separate and distinct from the land,
in the enumeration of what may constitute
real properties (art. 415, New Civil Code)
could only mean one thing that a building
is by itself an immovable
property irrespective of whether or not said
structure and the land on which it is adhered
to belong to the same owner.
Certain deviations, however, have been allowed for various
reasons. In the case of Manarang and Manarang vs.
Ofilada, 17 this Court stated that "it is undeniable that the
parties to a contract may by agreement treat as personal
property that which by nature would be real property",
citing Standard Oil Company of New York vs.
Jaramillo. 18 In the latter case, the mortgagor conveyed
and transferred to the mortgagee by way of mortgage
"the following describedpersonal property." 19 The
"personal property" consisted of leasehold rights and a
building. Again, in the case of Luna vs.
Encarnacion, 20 the subject of the contract designated as
Chattel Mortgage was a house of mixed materials, and
this Court hold therein that it was a valid Chattel
mortgage because it was so expressly designated and
specifically that the property given as security "is a
house of mixed materials, which by its very nature is
considered personal property." In the later case
of Navarro vs. Pineda, 21 this Court stated that
The view that parties to a deed of chattel
mortgage may agree to consider a house as
personal property for the purposes of said
contract, "is good only insofar as the
contracting parties are concerned. It is
based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23
April 1958). In a case, a mortgaged house
built on a rented land was held to be a
personal property, not only because the
deed of mortgage considered it as such, but
also because it did not form part of the land
(Evangelists vs. Abad, [CA]; 36 O.G. 2913),
for it is now settled that an object placed on
land by one who had only a temporary right
to the same, such as the lessee or
usufructuary, does not become immobilized
by attachment (Valdez vs. Central
Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. vs. Castillo, et al., 61 Phil.
709). Hence, if a house belonging to a
person stands on a rented land belonging to
another person, it may be mortgaged as a
personal property as so stipulated in the
document of mortgage. (Evangelista vs.
Abad, Supra.) It should be noted, however
that the principle is predicated on statements
by the owner declaring his house to be a
chattel, a conduct that may conceivably
estop him from subsequently claiming
otherwise. (Ladera vs. C.N. Hodges, [CA] 48
O.G. 5374): 22
In the contract now before Us, the house on rented land is not
only expressly designated as Chattel Mortgage; it specifically
provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage 23 the property
together with its leasehold rights over the lot on which it
is constructed and participation ..." 24Although there is no
specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-
appellants could only have meant to convey the house
as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendats-
appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status
of the property, it does so when combined with other
factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house
as personalty. Finally unlike in the Iya cases, Lopez vs.
Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs.
F. L. Strong Machinery and Williamson, 26 wherein third
persons assailed the validity of the chattel mortgage, 27it
is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having
treated the subject house as personalty.
(b) Turning to the question of possession and rentals of the
premises in question. The Court of First Instance noted in its
decision that nearly a year after the foreclosure sale the
mortgaged house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor of the land
on which the house stood. For this reason, the said court
limited itself to sentencing the erstwhile mortgagors to pay
plaintiffs a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold) until
14 January 1957 (when it was torn down by the Sheriff), plus
P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they
were entitled to remain in possession without any obligation to
pay rent during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this issue, We
must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel
Mortgage Law, Act No. 1508. 28 Section 14 of this Act allows
the mortgagee to have the property mortgaged sold at
public auction through a public officer in almost the same
manner as that allowed by Act No. 3135, as amended by
Act No. 4118, provided that the requirements of the law
relative to notice and registration are complied with. 29 In
the instant case, the parties specifically stipulated that
"the chattel mortgage will be enforceable in accordance
with the provisions of Special Act No. 3135 ...
." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-
mortgagor (defendants-appellants herein) may, at any
time within one year from and after the date of the
auction sale, redeem the property sold at the extra
judicial foreclosure sale. Section 7 of the same
Act 32 allows the purchaser of the property to obtain from
the court the possession during the period of
redemption: but the same provision expressly requires
the filing of a petition with the proper Court of First
Instance and the furnishing of a bond. It is only upon
filing of the proper motion and the approval of the
corresponding bond that the order for a writ of
possession issues as a matter of course. No discretion is
left to the court. 33 In the absence of such a compliance,
as in the instant case, the purchaser can not claim
possession during the period of redemption as a matter
of right. In such a case, the governing provision is
Section 34, Rule 39, of the Revised Rules of
Court 34 which also applies to properties purchased in
extrajudicial foreclosure proceedings. 35 Construing the
said section, this Court stated in the aforestated case
of Reyes vs. Hamada.
In other words, before the expiration of the 1-
year period within which the judgment-debtor
or mortgagor may redeem the property, the
purchaser thereof is not entitled, as a matter
of right, to possession of the same. Thus,
while it is true that the Rules of Court allow
the purchaser to receive the rentals if the
purchased property is occupied by tenants,
 he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case
may be, for the amount so received and the
same will be duly credited against the
redemption price when the said debtor or
mortgagor effects the redemption.Differently
stated, the rentals receivable from tenants,
although they may be collected by the
purchaser during the redemption period, do
not belong to the latter but still pertain to the
debtor of mortgagor. The rationale for the
Rule, it seems, is to secure for the benefit of
the debtor or mortgagor, the payment of the
redemption amount and the consequent
return to him of his properties sold at public
auction. (Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs.

Espe. 36

Since the defendants-appellants were occupying the house at

the time of the auction sale, they are entitled to remain in
possession during the period of redemption or within one year
from and after 27 March 1956, the date of the auction sale, and
to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of

redemption had not yet expired when action was instituted in
the court of origin, and that plaintiffs-appellees did not choose
to take possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties to govern
the extrajudicial foreclosure of the chattel mortgage. Neither
was there an allegation to that effect. Since plaintiffs-appellees'
right to possess was not yet born at the filing of the complaint,
there could be no violation or breach thereof. Wherefore, the
original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that
effect. The Supreme Court is clothed with ample authority to
review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision of the
cases. 37

It follows that the court below erred in requiring the mortgagors

to pay rents for the year following the foreclosure sale, as well
as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed

from is reversed and another one entered, dismissing the
complaint. With costs against plaintiffs-appellees.
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother
Juana Gonzales (married to Gregorio Pineda), borrowed from
plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the
indebtedness, Rufino executed a document captioned "DEED OF
REAL ESTATE and CHATTEL MORTGAGES", whereby Juana Gonzales,
by way of Real Estate Mortgage hypothecated a parcel of land,
belonging to her, registered with the Register of Deeds of Tarlac,
under Transfer Certificate of Title No. 25776, and Rufino G.
Pineda, by way of Chattel Mortgage, mortgaged his two-story
residential house, having a floor area of 912 square meters, erected
on a lot belonging to Atty. Vicente Castro, located at Bo. San Roque,
Tarlac, Tarlac; and one motor truck, registered in his name, under
Motor Vehicle Registration Certificate No. A-171806. Both
mortgages were contained in one instrument, which was registered
in both the Office of the Register of Deeds and the Motor Vehicles
Office of Tarlac.
When the mortgage debt became due and payable, the defendants,
after demands made on them, failed to pay. They, however, asked
and were granted extension up to June 30, 1960, within which to
pay. Came June 30, defendants again failed to pay and, for the
second time, asked for another extension, which was given, up to
July 30, 1960. In the second extension, defendant Pineda in a
document entitled "Promise", categorically stated that in the remote
event he should fail to make good the obligation on such date (July
30, 1960), the defendant would no longer ask for further extension
and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce
his rights, under the said mortgage contract. In spite of said promise,
defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the
mortgage and for damages, which consisted of liquidated damages
in the sum of P500.00 and 12% per annum interest on the principal,
effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation to
the plaintiff the truth being the defendants are hard up these days
and pleaded to the plaintiff to grant them more time within which to
pay their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed
that this Honorable Court render judgment granting the defendants
until January 31, 1961, within which to pay their obligation to the
plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary
Judgment, claiming that the Answer failed to tender any genuine
and material issue. The motion was set for hearing, but the record is
not clear what ruling the lower court made on the said motion. On
November 11, 1960, however, the parties submitted a Stipulation of
Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel
Mortgages; that the indebtedness has been due and unpaid since
June 14, 1960; that a liability of 12% per annum as interest was
agreed, upon failure to pay the principal when due and P500.00 as
liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province
of Tarlac; that the only issue in the case is whether or not the
residential house, subject of the mortgage therein, can be
considered a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio
Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino
Pineda and Ramon Reyes, to pay jointly and severally and within
ninety (90) days from the receipt of the copy of this decision to the
plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated
damages and the costs of this suit, with the warning that in default
of said payment of the properties mentioned in the deed of real
estate mortgage and chattel mortgage (Annex "A" to the complaint)
be sold to realize said mortgage debt, interests, liquidated damages
and costs, in accordance with the pertinent provisions of Act 3135,
as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law,
Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to
deliver immediately to the Provincial Sheriff of Tarlac the personal
properties mentioned in said Annex "A", immediately after the lapse
of the ninety (90) days above-mentioned, in default of such
payment.
The above judgment was directly appealed to this Court, the
defendants therein assigning only a single error, allegedly
committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages
appended to the complaint is valid, notwithstanding the fact that
the house of the defendant Rufino G. Pineda was made the subject
of the chattel mortgage, for the reason that it is erected on a land
that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in
classifying a house as immovable property, makes no distinction
whether the owner of the land is or not the owner of the building;
the fact that the land belongs to another is immaterial, it is enough
that the house adheres to the land; that in case of immovables by
incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner
of the land, the only criterion being the union or incorporation with
the soil. In other words, it is claimed that "a building is an
immovable property, irrespective of whether or not said structure
and the land on which it is adhered to, belong to the same owner"
(Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants
argue that since only movables can be the subject of a chattel
mortgage (sec. 1, Act No. 3952) then the mortgage in question
which is the basis of the present action, cannot give rise to an action
for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. owner of the house himself. In the case of Lopez v. Orosa, (L-10817-
v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.) 18), the subject building was a theatre, built of materials worth
more than P62,000, attached permanently to the soil. In these cases
The trial court did not predicate its decision declaring the deed of and in the Leung Yee case, supra, third persons assailed the validity
chattel mortgage valid solely on the ground that the house of the deed of chattel mortgages; in the present case, it was one of
mortgaged was erected on the land which belonged to a third the parties to the contract of mortgages who assailed its validity.
person, but also and principally on the doctrine of estoppel, in that
"the parties have so expressly agreed" in the mortgage to consider CONFORMABLY WITH ALL THE FOREGOING, the decision appealed
the house as chattel "for its smallness and mixed materials from, should be, as it is hereby affirmed, with costs against
of sawali and wood". In construing arts. 334 and 335 of the Spanish appellants.
Civil Code (corresponding to arts. 415 and 416, N.C.C.), for purposes
of the application of the Chattel Mortgage Law, it was held that
under certain conditions, "a property may have a character different
from that imputed to it in said articles. It is undeniable that the
parties to a contract may by agreement, treat as personal property
that which by nature would be real property" (Standard Oil Co. of
N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question
that a building of mixed materials may be the subject of a chattel
mortgage, in which case, it is considered as between the parties as
personal property. ... The matter depends on the circumstances and
the intention of the parties". "Personal property may retain its
character as such where it is so agreed by the parties interested
even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in
Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52
O.G. No. 8, p. 3954.) The view that parties to a deed of chattel
mortgagee may agree to consider a house as personal property for
the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the
principles of estoppel ..." (Evangelista v. Alto Surety, No. L-11139,
Apr. 23, 1958). In a case, a mortgage house built on a rented land,
was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part
of the land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well
settled that an object placed on land by one who has only a
temporary right to the same, such as a lessee or usufructuary, does
not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et
al., 61 Phil. 709). Hence, if a house belonging to a person stands on a
rented land belonging to another person, it may be mortgaged as a
personal property is so stipulated in the document of mortgage.
(Evangelista v. Abad, supra.) It should be noted, however, that the
principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him
from subsequently claiming otherwise (Ladera, et al.. v. C. N.
Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered
from these cases is that although in some instances, a house of
mixed materials has been considered as a chattel between them,
has been recognized, it has been a constant criterion nevertheless
that, with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is
considered as an immovable property (Art. 1431, New Civil Code).

In the case at bar, the house in question was treated as personal or

movable property, by the parties to the contract themselves. In the
deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential
house and a truck. The mortgagor himself grouped the house with
the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden
walls and wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case.
The Iya cases (L-10837-38, supra), refer to a building or a house of
strong materials, permanently adhered to the land, belonging to the
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE
CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE
COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for
petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of
Appeals (now Intermediate Appellate Court) promulgated on
August 27, 1981 in CA-G.R. No. SP-12731, setting aside
certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations
from herein petitioner Makati Leasing and Finance
Corporation, the private respondent Wearever Textile Mills,
Inc., discounted and assigned several receivables with the
former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent
executed a Chattel Mortgage over certain raw materials
inventory as well as a machinery described as an Artos Aero
Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it.
However, the Deputy Sheriff assigned to implement the
foreclosure failed to gain entry into private respondent's
premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First
Instance of Rizal, Branch VI, docketed as Civil Case No.
36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court
issued a writ of seizure, the enforcement of which was
however subsequently restrained upon private respondent's
filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order
lifting the restraining order for the enforcement of the writ of
seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for
reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order,
repaired to the premises of private respondent and removed
the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the
Orders of the lower court and ordered the return of the drive
motor seized by the sheriff pursuant to said Orders, after ruling
that the machinery in suit cannot be the subject of replevin,
much less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same being
attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or
destroy the concrete floor, the reason why all that the sheriff
could do to enfore the writ was to take the main drive motor of
said machinery. The appellate court rejected petitioner's
argument that private respondent is estopped from claiming
that the machine is real property by constituting a chattel
mortgage thereon.
A motion for reconsideration of this decision of the Court of
Appeals having been denied, petitioner has brought the case
to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was
rendered moot and academic by petitioner's act of returning
the subject motor drive of respondent's machinery after the
Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When
petitioner returned the subject motor drive, it made itself
unequivocably clear that said action was without prejudice to a
motion for reconsideration of the Court of Appeals decision, as
shown by the receipt duly signed by respondent's
representative. 1 Considering that petitioner has reserved its
right to question the propriety of the Court of Appeals' decision,
the contention of private respondent that this petition has been
mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this
Petition is whether the machinery in suit is real or personal
property from the point of view of the parties, with petitioner
arguing that it is a personality, while the respondent claiming
the contrary, and was sustained by the appellate court, which
accordingly held that the chattel mortgage constituted thereon
is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v.
Vicencio, 41 SCRA 143 where this Court, speaking through
Justice J.B.L. Reyes, ruled:
Although there is no specific statement
referring to the subject house as personal
property, yet by ceding, selling or
transferring a property by way of chattel
mortgage defendants-appellants could only
have meant to convey the house as chattel,
or at least, intended to treat the same as
such, so that they should not now be allowed
to make an inconsistent stand by claiming
otherwise. Moreover, the subject house
stood on a rented lot to which defendants-
appellants merely had a temporary right as
lessee, and although this can not in itself
alone determine the status of the property, it
does so when combined with other factors to
sustain the interpretation that the parties,
particularly the mortgagors, intended to treat
the house as personality. Finally, unlike in
the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third
persons assailed the validity of the chattel
mortgage, it is the defendants-appellants
themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage
 in this case. The doctrine of estoppel
therefore applies to the herein defendants-
appellants, having treated the subject house
as personality.
Examining the records of the instant case, We find no logical
justification to exclude the rule out, as the appellate court did,
the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was
involved in the above Tumalad case, may be considered as
personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
therein as real properties never having been disputed nor in
issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect
parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the
Court of Appeals are hereby reversed and set aside, and the
Orders of the lower court are hereby reinstated, with costs
against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and
Escolin JJ., concur.
Abad Santos, J., concurs in the result.

In rejecting petitioner's assertion on the applicability of the

Tumalad doctrine, the Court of Appeals lays stress on the fact
that the house involved therein was built on a land that did not
belong to the owner of such house. But the law makes no
distinction with respect to the ownership of the land on which
the house is built and We should not lay down distinctions not
contemplated by law.

It must be pointed out that the characterization of the subject

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

Private respondent contends that estoppel cannot apply

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

From what has been said above, the error of the appellate
court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover, the case
of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to the case
at bar, the nature of the machinery and equipment involved
BENGUET CORPORATION, petitioner, We find the appraisal on the land
vs. submerged as a result of the
CENTRAL BOARD OF ASSESSMENT APPEALS, construction of the tailings dam, covered
BOARD OF ASSESSMENT APPEALS OF by Tax Declaration Nos.
ZAMBALES, PROVINCIAL ASSESSOR OF 002-0260 and 002-0266, to be in
ZAMBALES, PROVINCE OF ZAMBALES, and accordance with the Schedule of Market
MUNICIPALITY OF SAN MARCELINO, respondents. Values for Zambales which was
reviewed and allowed for use by the
Romulo, Mabanta, Buenaventura, Sayoc & De los Ministry (Department) of Finance in the
Angeles for petitioner. 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
CRUZ, J.: Respondent-Appellee Provincial
Assessor is indeed excessive and
The realty tax assessment involved in this case amounts unconscionable. Hence, we find no
to P11,319,304.00. It has been imposed on the cause to disturb the market value
petitioner's tailings dam and the land thereunder over its applied by Respondent Appellee
protest. Provincial Assessor of Zambales on the
properties of Petitioner-Appellant
The controversy arose in 1985 when the Provincial Benguet Corporation covered by Tax
Assessor of Zambales assessed the said properties as Declaration Nos. 002-0260 and 002-
taxable improvements. The assessment was appealed 0266.
to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was This petition for certiorari now seeks to reverse the
dismissed mainly on the ground of the petitioner's above ruling.
"failure to pay the realty taxes that fell due during the
pendency of the appeal." The principal contention of the petitioner is that the
tailings dam is not subject to realty tax because it is not
The petitioner seasonably elevated the matter to the an "improvement" upon the land within the meaning of
Central Board of Assessment Appeals, 1 one of the the Real Property Tax Code. More particularly, it is
herein respondents. In its decision dated March 22, claimed
1990, the Board reversed the dismissal of the appeal
but, on the merits, agreed that "the tailings dam and the (1) as regards the tailings dam as an
lands submerged thereunder (were) subject to realty "improvement":
tax."
(a) that the tailings dam
For purposes of taxation the dam is has no value separate
considered as real property as it comes from and independent
within the object mentioned in of the mine; hence, by
paragraphs (a) and (b) of Article 415 of itself it cannot be
the New Civil Code. It is a construction considered an
adhered to the soil which cannot be improvement separately
separated or detached without breaking assessable;
the material or causing destruction on
the land upon which it is attached. The
(b) that it is an integral
immovable nature of the dam as an
part of the mine;
improvement determines its character
as real property, hence taxable under
Section 38 of the Real Property Tax (c) that at the end of the
Code. (P.D. 464). mining operation of the
petitioner corporation in
the area, the tailings
Although the dam is partly used as an
anti-pollution device, this Board cannot dam will benefit the
accede to the request for tax exemption local community by
serving as an irrigation
in the absence of a law authorizing the
facility;
same.

xxx xxx xxx (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
arereasonably permanent in character." 2
The Court notes that in the Ontario case the plaintiff
admitted that the mine involved therein could not be
operated without the aid of the drain tunnels, which were
indispensable to the successful development and
extraction of the minerals therein. This is not true in the
present case.
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.
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD
OF ASSESSMENT APPEALS OF BATANGAS and
PROVINCIAL ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil
storage tanks installed in 1969 by Manila Electric Company on
a lot in San Pascual, Batangas which it leased in 1968 from
Caltex (Phil.), Inc. The tanks are within the Caltex refinery
compound. They have a total capacity of 566,000 barrels. They
are used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel
plates welded and assembled on the spot. Their bottoms rest
on a foundation consisting of compacted earth as the
outermost layer, a sand pad as the intermediate layer and a
two-inch thick bituminous asphalt stratum as the top layer. The
bottom of each tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported underneath
by a circular wall made of concrete, eighteen inches thick, to
prevent the tank from sliding. Hence, according to Meralco, the
tank is not attached to its foundation. It is not anchored or
welded to the concrete circular wall. Its bottom plate is not
attached to any part of the foundation by bolts, screws or
similar devices. The tank merely sits on its foundation. Each
empty tank can be floated by flooding its dike-inclosed location
with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of
the Central Board of Assessment Appeals, the area where the
two tanks are located is enclosed with earthen dikes with
electric steel poles on top thereof and is divided into two parts
as the site of each tank. The foundation of the tanks is
elevated from the remaining area. On both sides of the earthen
dikes are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an
asphalt lining about an inch thick. Pipelines were installed on
the sides of each tank and are connected to the pipelines of
the Manila Enterprises Industrial Corporation whose buildings
and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their
foundation, the foundation itself and the walls, dikes and steps,
which are integral parts of the tanks, are affixed to the land
while the pipelines are attached to the tanks. (pp. 60-61,
Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on
the basis of an assessment made by the provincial assessor,
required Meralco to pay realty taxes on the two tanks. For the
five-year period from 1970 to 1974, the tax and penalties
amounted to P431,703.96 (p. 27, Rollo). The Board required
Meralco to pay the tax and penalties as a condition for
entertaining its appeal from the adverse decision of the
Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of
Acting Secretary of Finance Pedro M. Almanzor as chairman
and Secretary of Justice Vicente Abad Santos and Secretary of
Local Government and Community Development Jose Roo
as members) in its decision dated November 5, 1976 ruled that
the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable
improvements.
Meralco received a copy of that decision on February 28, 1977.
On the fifteenth day, it filed a motion for reconsideration which
the Board denied in its resolution of November 25, 1977, a
copy of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of
certiorari to annul the Board's decision and resolution. It
contends that the Board acted without jurisdiction and
committed a grave error of law in holding that its storage tanks
are taxable real property.
Meralco contends that the said oil storage tanks do not fall
within any of the kinds of real property enumerated in article
415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that the
tanks are not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or
penumbral cases on the classification of property where strong
divergent opinions are inevitable. The issue raised by Meralco
has to be resolved in the light of the provisions of the
Assessment Law, Commonwealth Act No. 470, and the Real
Property Tax Code, Presidential Decree No. 464 which took
effect on June 1, 1974.
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.
They 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 definition 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.
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.
Oil storage tanks were held to be taxable realty in Standard Oil
Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include

things which should generally be regarded as personal
property(84 C.J.S. 171, Note 8). 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).

The case of Board of Assessment Appeals vs. Manila Electric

Company, 119 Phil. 328, wherein Meralco's steel towers were
held not to be subject to realty tax, is not in point because in
that case the steel towers were regarded as poles and under
its franchise Meralco's poles are exempt from taxation.
Moreover, the steel towers were not attached to any land or
building. They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao

Bus Co. vs. City Assessor, 116 Phil. 501, where the tools and
equipment in the repair, carpentry and blacksmith shops of a
transportation company were held not subject to realty tax
because they were personal property.

WHEREFORE, the petition is dismissed. The Board's

questioned decision and resolution are affirmed. No costs.

SO ORDERED.