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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 "Compañia 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 "Compañia 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 "Compañia 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
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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 "Compañia Agricola Filipina" was real property, and the mere fact that the parties seem to have
dealt with it separate and apart from the land on which it stood in no wise changed its character as real property. It
follows that neither the original registry in the chattel mortgage of the building and the machinery installed therein,
not the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as the
building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the ground assigned by the
trial judge. We are of opinion, however, that the judgment must be sustained on the ground that the agreed
statement of facts in the court below discloses that neither the purchase of the building by the plaintiff nor his
inscription of the sheriff's certificate of sale in his favor was made in good faith, and that the machinery company
must be held to be the owner of the property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express
terms, in relation to "possession" and "title," but contain no express requirement as to "good faith" in relation to the
"inscription" of the property on the registry, it must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription
in a public record presupposes the good faith of him who enters such inscription; and rights created by statute,
which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad
faith," to the benefit of the person who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the
13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first paragraph;
therefore, it having been found that the second purchasers who record their purchase had knowledge of the
previous sale, the question is to be decided in accordance with the following paragraph. (Note 2, art. 1473,
Civ. Code, Medina and Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of the real
property that is first recorded in the registry shall have preference, this provision must always be understood
on the basis of the good faith mentioned in the first paragraph; the legislator could not have wished to strike
it out and to sanction bad faith, just to comply with a mere formality which, in given cases, does not obtain
even in real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of
the La Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale
and inscribed his title in the land registry, was duly notified that the machinery company had bought the building
from plaintiff's judgment debtor; that it had gone into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in
favor of the sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for doubt in
this regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the levy and sale
the building had already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate of title must
be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the plaintiff
was not made in good faith, we should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compañia 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.
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But it appearing that he had full knowledge of the machinery company's claim of ownership when he executed the
indemnity bond and bought in the property at the sheriff's sale, and it appearing further that the machinery
company's claim of ownership was well founded, he cannot be said to have been an innocent purchaser for value.
He took the risk and must stand by the consequences; and it is in this sense that we find that he was not a
purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has
acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule
must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes
to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted with that measure of precaution which
may reasonably be acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety,
be determined. So it is that "the honesty of intention," "the honest lawful intent," which constitutes good faith implies
a "freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is that proof of
such knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of proof
to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a
state or condition of mind which can only be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55
Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119
Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and judgment entered in the
court below should be affirmed with costs of this instance against the appellant. So ordered.

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.


Torres, Avanceña and Fisher, JJ., took no part.
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Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,


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

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.


Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for respondent Plaza
Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo Sawmill.
Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province, dropped at Lopez' house and
invited him to make an investment in the theatre business. It was intimated that Orosa, his family and close friends
were organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although
Lopez expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for the
construction of the proposed theatre, and at Orosa's behest and assurance that the latter would be personally liable
for any account that the said construction might incur, Lopez further agreed that payment therefor would be on
demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was
used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total
cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of 679.17 square
meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on September 25, 1946, for
P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid obligation, the latter and Belarmino
Rustia, the president of the corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza
Theatre., out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to accede.
Unknown to him, however, as early as November, 1946, the corporation already got a loan for P30,000 from the
Philippine National Bank with the Luzon Surety Company as surety, and the corporation in turn executed a
mortgage on the land and building in favor of said company as counter-security. As the land at that time was not yet
brought under the operation of the Torrens System, the mortgage on the same was registered on November 16,
1946, under Act No. 3344. Subsequently, when the corporation applied for the registration of the land under Act
496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was correspondingly issued on
October 25, 1947, without any encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to execute on
March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100 per
share or with a total value of P42,000 in favor of the creditor, and as the obligation still remained unsettled, Lopez
filed on November 12, 1947, a complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which
later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced to pay
him jointly and severally the sum of P41,771.35, with legal interest from the firing of the action; that in case
defendants fail to pay the same, that the building and the land covered by OCT No. O-391 owned by the corporation
be sold at public auction and the proceeds thereof be applied to said indebtedness; or that the 420 shares of the
capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for
the same purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff also caused the
annotation of a notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the materials
were delivered to him as a promoter and later treasurer of the corporation, because he had purchased and received
the same on his personal account; that the land on which the movie house was constructed was not charged with a
lien to secure the payment of the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza
Theatre, Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his indebtedness.
As special defense, this defendant contended that as the 420 shares of stock assigned and conveyed by the
assignor and accepted by Lopez as direct security for the payment of the amount of P41,771.35 were personal
properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale thereof at public auction
would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted from the
payment of any deficiency in case the proceeds from the sale of said personal properties would not be enough to
cover the amount sought to be collected.
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Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by alleging that the
building materials delivered to Orosa were on the latter's personal account; and that there was no understanding
that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on the
properties of the latter to secure payment of the same obligation. As special defense, defendant corporation averred
that while it was true that the materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said materials within
30 days from the time of removal thereof from Orosa, lumber became a different and distinct specie and plaintiff lost
whatever rights he might have in the same and consequently had no recourse against the Plaza Theatre, Inc., that
the claim could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred in
the repair or reconstruction of something already existing and this concept did not include an entirely new work; and
that the Plaza Theatre, Inc., having been incorporated on October 14, 1946, it could not have contracted any
obligation prior to said date. It was, therefore, prayed that the complaint be dismissed; that said defendant be
awarded the sum P 5,000 for damages, and such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered under the Torrens
System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or within the 1-year period
after the issuance of the certificate of title, a petition for review of the decree of the land registration court dated
October 18, 1947, which was made the basis of OCT No. O-319, in order to annotate the rights and interests of the
surety company over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto was
offered by Enrique Lopez, asserting that the amount demanded by him constituted a preferred lien over the
properties of the obligors; that the surety company was guilty of negligence when it failed to present an opposition to
the application for registration of the property; and that if any violation of the rights and interest of said surety would
ever be made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after making an
exhaustive and detailed analysis of the respective stands of the parties and the evidence adduced at the trial, held
that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid balance of the cost
of lumber used in the construction of the building and the plaintiff thus acquired the materialman's lien over the
same. In making the pronouncement that the lien was merely confined to the building and did not extend to the land
on which the construction was made, the trial judge took into consideration the fact that when plaintiff started the
delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor of Luzon
Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the old
Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which are also
classified as real properties, upon which said refection was made. It was, however, declared that plaintiff's lien on
the building was superior to the right of the surety company. And finding that the Plaza Theatre, Inc., had no
objection to the review of the decree issued in its favor by the land registration court and the inclusion in the title of
the encumbrance in favor of the surety company, the court a quo granted the petition filed by the latter company.
Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the amount of P41,771.35 with legal
interest and costs within 90 days from notice of said decision; that in case of default, the 420 shares of stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to the payment of the
amount due the plaintiff, plus interest and costs; and that the encumbrance in favor of the surety company be
endorsed at the back of OCT No. O-391, with notation I that with respect to the building, said mortgage was subject
to the materialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of therein defendants
was joint instead of solidary, and that the lien did not extend to the land, but same was denied by order the court of
December 23, 1952. The matter was thus appealed to the Court of appeals, which affirmed the lower court's ruling,
and then to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the
value of the materials used in the construction of a building attaches to said structure alone and does not extend to
the land on which the building is adhered to; and (2) whether the lower court and the Court of Appeals erred in not
providing that the material mans liens is superior to the mortgage executed in favor surety company not only on the
building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the decision
sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will not take up
or consider anything on that point. Appellant, however, contends that the lien created in favor of the furnisher of the
materials used for the construction, repair or refection of a building, is also extended to the land which the
construction was made, and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on
the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the following are
preferred:

xxx xxx xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which the refection was
made, and only with respect to other credits different from those mentioned in four preceding paragraphs.
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It is argued that in view of the employment of the phrase real estate, or immovable property, and inasmuch as said
provision does not contain any specification delimiting the lien to the building, said article must be construed as to
embrace both the land and the building or structure adhering thereto. We cannot subscribe to this view, for while it is
true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion
of the building, separate and distinct from the land, in the enumeration of what may constitute real properties1 could
mean only one thing — that a building is by itself an immovable property, a doctrine already pronounced by this
Court in the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of
any specific provision of law to the contrary, a building is an immovable property, irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives preference to
unregistered refectionary credits only with respect to the real estate upon which the refection or work was made.
This being so, the inevitable conclusion must be that the lien so created attaches merely to the immovable property
for the construction or repair of which the obligation was incurred. Evidently, therefore, the lien in favor of appellant
for the unpaid value of the lumber used in the construction of the building attaches only to said structure and to no
other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to the building for
which the credit was made or which received the benefit of refection, the lower court was right in, holding at the
interest of the mortgagee over the land is superior and cannot be made subject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is hereby affirmed, with
costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.
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Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16218 November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA, LINDA BICERRA,
PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.

Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.


Ernesto Parol for defendants-appellees.

MAKALINTAL, J.:

This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the complaint filed
by appellants, upon motion of defendants-appellate on the ground that the action was within the exclude (original)
jurisdiction of the Justice of the Peace Court of Lagangilang, of the same province.

The complaint alleges in substance that appellants were the owners of the house, worth P200.00, built on and
owned by them and situated in the said municipality Lagangilang; that sometime in January 1957 appealed forcibly
demolished the house, claiming to be the owners thereof; that the materials of the house, after it was dismantled,
were placed in the custody of the barrio lieutenant of the place; and that as a result of appellate's refusal to restore
the house or to deliver the material appellants the latter have suffered actual damages the amount of P200.00, plus
moral and consequential damages in the amount of P600.00. The relief prayed for is that "the plaintiffs be declared
the owners of the house in question and/or the materials that resulted in (sic) its dismantling; (and) that the
defendants be orders pay the sum of P200.00, plus P600.00 as damages, the costs."

The issue posed by the parties in this appeal is whether the action involves title to real property, as appellants
contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A. 296, as amended),
whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated in the order appealed from, since
there is no real property litigated, the house having ceased to exist, and the amount of the demand does exceed
P2,000.00 (Sec. 88, id.)1

The dismissal of the complaint was proper. A house is classified as immovable property by reason of its adherence
to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true regardless of the fact that the
house may be situated on land belonging to a different owner. But once the house is demolished, as in this case, it
ceases to exist as such and hence its character as an immovable likewise ceases. It should be noted that the
complaint here is for recovery of damages. This is the only positive relief prayed for by appellants. To be sure, they
also asked that they be declared owners of the dismantled house and/or of the materials. However, such declaration
in no wise constitutes the relief itself which if granted by final judgment could be enforceable by execution, but is
only incidental to the real cause of action to recover damages.

The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs are adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ., concur.
8
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

PRUDENTIAL BANK, petitioner,


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

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First Instance of
Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula
Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage
executed by respondent spouses in favor of petitioner bank are null and void.

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

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale
secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of
this loan, plaintiffs executed in favor of defendant on the aforesaid date a deed of Real Estate
Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total


floor area of 263 sq. meters, more or less, generally constructed of mixed hard wood and concrete
materials, under a roofing of cor. g. i. sheets; declared and assessed in the name of FERNANDO
MAGCALE under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with an
assessed value of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the
lot where the above property is erected, and more particularly described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite
Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of
465 sq. m. more or less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Duration No. 19595 issued by the Assessor of Olongapo City
with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical monuments of the


Bureau of Lands as visible limits. ( Exhibit "A, " also Exhibit "1" for
defendant).

Apart from the stipulations in the printed portion of the aforestated deed of mortgage,
there appears a rider typed at the bottom of the reverse side of the document under
the lists of the properties mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event the Sales Patent on


the lot applied for by the Mortgagors as herein stated is released or
issued by the Bureau of Lands, the Mortgagors hereby authorize the
Register of Deeds to hold the Registration of same until this Mortgage
is cancelled, or to annotate this encumbrance on the Title upon
authority from the Secretary of Agriculture and Natural Resources,
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which title with annotation, shall be released in favor of the herein
Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee (defendant


Prudential Bank) was at the outset aware of the fact that the mortgagors (plaintiffs)
have already filed a Miscellaneous Sales Application over the lot, possessory rights
over which, were mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344
with the Registry of Deeds of Zambales on November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank
in the sum of P20,000.00. To secure payment of this additional loan, plaintiffs
executed in favor of the said defendant another deed of Real Estate Mortgage over
the same properties previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2"
for defendant). This second deed of Real Estate Mortgage was likewise registered
with the Registry of Deeds, this time in Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the
parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank, in favor
of plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in the Registration Book
of the Province of Zambales, Original Certificate of Title No. P-2554 was issued in the name of
Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein
mortgaged to defendant as the highest bidder in a public auction sale conducted by the defendant
City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to desist
from going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0,
Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage as null and
void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by private
respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid., p. 63), the Motion
for Reconsideration was denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents to
comment (Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p. 100), petitioner
filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were required
to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed their
Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF


MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING
ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the building
erected on the land belonging to another.

The answer is in the affirmative.


10
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is
obvious that the inclusion of "building" separate and distinct from the land, in said provision of law can only mean
that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such a
mortgage would be still a real estate mortgage for the building would still be considered immovable property even if
dealt with separately and apart from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same
manner, this Court has also established that possessory rights over said properties before title is vested on the
grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA
438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey
semi-concrete residential building with warehouse and on the right of occupancy on the lot where the building was
erected, was executed on November 19, 1971 and registered under the provisions of Act 3344 with the Register of
Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April
24, 1972, on the basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on
May 15, 1972. It is therefore without question that the original mortgage was executed before the issuance of the
final patent and before the government was divested of its title to the land, an event which takes effect only on the
issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds (Visayan Realty
Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May
23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the
mortgage executed by private respondent on his own building which was erected on the land belonging to the
government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that Sections
121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land Act, or any
improvement thereon and therefore have no application to the assailed mortgage in the case at bar which was
executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the
face of private respondent's title has likewise no application in the instant case, despite its reference to
encumbrance or alienation before the patent is issued because it refers specifically to encumbrance or alienation on
the land itself and does not mention anything regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on May 2, 1973 for
an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same
date. Relative thereto, it is evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public
Land Act and Section 2 of Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years, voluntarily
surrendered the same to the bank in 1977 in order that the mortgaged may be annotated, without requiring the bank
to get the prior approval of the Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential
Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122 and 123 of
Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be
invoked to defeat the policy of the State neither may the doctrine of estoppel give a validating effect
to a void contract. Indeed, it is generally considered that as between parties to a contract, validity
cannot be given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802).
It is not within the competence of any citizen to barter away what public policy by law was to
preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143
SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon any new
contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts that may be entered
into between petitioner bank and private respondents that are in accordance with the requirements of the law. After
all, private respondents themselves declare that they are not denying the legitimacy of their debts and appear to be
open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be
subject to whatever steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is hereby
MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real
Estate Mortgage for an additional loan of P20,000.00 is null and void, without prejudice to any appropriate action the
Government may take against private respondents.
11
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 Plaintiff’s 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 sheriff’s 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 Plaintiff’s
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; chan roblesvirtualawlibraryStandard Oil Co. of New York vs.
Jaranillo, 44 Phil., 630; chan roblesvirtualawlibraryand De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter
depends on the circumstances and the intention of the parties.
“ cralaw 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 cralaw . 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.)
“ cralaw 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 cralaw
“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 cralaw .” (Ibid., 209-210.)
The question now before us, however, is:chanroblesvirtuallawlibrary Does the fact that the parties entering into a
contract regarding a house gave said property the consideration of personal property in their contract, bind the
sheriff in advertising the property’s sale at public auction as personal property? It is to be remembered that in the
case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered
that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy upon in
execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house 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; chan roblesvirtualawlibraryand 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
12
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; chan roblesvirtualawlibraryLeung Yee vs. Strong Machinery Co., 37 Phil., 644; chan
roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90 Phil., 544; chan roblesvirtualawlibraryLadera, et al. vs. Hodges,
et al., [C. A], 48 Off. Gaz., 5374.).
The judgment appealed from is hereby affirmed, with costs. SO ORDERED.
Paras, C.J., Bengzon, Padilla., Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.
13
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4637 June 30, 1952

JOSE A. LUNA, petitioner,


vs.
DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and THE PROVINCIAL
SHERIFF OF RIZAL, respondents.

Jose S. Fineza for petitioner.

BAUTISTA ANGELO, J.:

On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna in favor of Trinidad
Reyes whereby the former conveyed by way of first mortgage to the latter a certain house of mixed materials stated
in barrio San Nicolas, municipality of Pasig, Province of Rizal, to secure the payment of a promissory note in the
amount of P1,500, with interest at 12 per cent per annum. The document was registered in the office of the register
of deeds for the Province of Rizal. The mortgagor having filed to pay the promissory note when it fell due, the
mortgage requested the sheriff of said province to sell the house at public auction so that with its proceeds the
amount indebted may be paid notifying the mortgagor in writing of the time and place of the sale as required by law.
The sheriff acceded to the request and sold the property to the mortgagee for the amount covering the whole
indebtedness with interest and costs. The certificate of sale was issued by the sheriff on May 28, 1949. After the
period for the redemption of the property had expired without the mortgagor having exercised his right to
repurchase, the mortgagee demanded from the mortgagor the surrender of the possession of the property, but the
later refused and so on October 13, 1950, she filed a petition in the Court of First Instance of Rizal praying that the
provincial sheriff be authorized to place her in possession of the property invoking in her favor the provisions of Act
No. 3135, as amended by Act No. 4118.

When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, the mortgagor, opposed
the petition on the following grounds: (1) that Act No. 3135 as amended by Act No. 4118 is applicable only to a real
estate mortgage; (2) that the mortgage involved herein is a chattel mortgage; and (3) that even if the mortgage
executed by the parties herein be considered as real estate mortgage, the extra-judicial sale made by the sheriff of
the property in question was valid because the mortgage does not contain an express stipulation authorizing the
extra-judicial sale of the property. After hearing, at which both parties have expressed their views in support of their
respective contentions, respondent judge, then presiding the court, overruled the opposition and granted the petition
ordering the provincial sheriff of Rizal, or any of this disputives, to immediately place petitioner in possession of the
property in question while at the same time directing the mortgagor Jose A. Luna to vacate it and relinquish it in
favor of petitioner. It is from this order that Jose A. Luna desires now to obtain relief by filing this petition
for certioraricontending that the respondent judge has acted in excess of his jurisdiction.

The first question which petitioner poses in his petition for certiorari is that which relates to the validity of the extra-
judicial sale made by the provincial sheriff of Rizal of the property in question in line with the request of the
mortgagee Trinidad Reyes. It is contended that said extra-judicial sale having been conducted under the provisions
of Act No. 3135, as amended by Act No. 4118, is invalid because the mortgage in question is not a real estate
mortgage and, besides, it does not contain an express stipulation authorizing the mortgagee to foreclose the
mortgage extra-judicially.

There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties (Annex "C"), the
understanding executed by them is a chattel mortgage, as the parties have so expressly designated, and not a real
estate mortgage, specially when it is considered that the property given as security is a house of mixed materials
which by its very nature is considered as personal property. Such being the case, it is indeed a mistake for the
mortgagee to consider this transaction in the light of Act No. 3135, as amended by Act No. 4118, as was so
considered by her when she requested to provincial sheriff to sell it extra-judicially in order to secure full satisfaction
of the indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended, only covers real
estate mortgages and is intended merely to regulate the extra-judicial sale of the property mortgaged if and when
the mortgagee is given a special power or express authority to do so in the deed itself, or in a document annexed
thereto. These conditions do not here obtain. The mortgage before us is not a real estate mortgage nor does it
contain an express authority or power to sell the property extra-judicially.

But regardless of what we have heretofore stated, we find that the validity of the sale in question may be
maintained, it appearing that the mortgage in question is a chattel mortgage and as such it is covered and regulated
by the Chattel Mortgage Law, Act No. 1508. Section 14 of this Act allows the mortgagee 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. We are not prepared to state if these
14
requirements of the law had been complied with in the case for the record before us is not complete and there is
no showing to that effect. At any rate, this issue is not how important because the same can be treshed out when
the opportunity comes for its determination, nor is it necessary for us to consider it in reaching a decision in the
present case. Suffice it to state that for the present we are not expressing any opinion on this matter which concerns
the validity of the sale in question for the reason that this opinion will only be limited to a matter of procedure relative
to the step taken by the mortgagee in securing the possession of the property involved.

In the supposition that the sale of the property made by the sheriff has been made in accordance with law, and the
question he is confronted is how to deliver the possession of the property to the purchaser in case of refusal to
surrender its possession on the part of the debtor or mortgagor, the remedy of the purchaser according to the
authorities, is to bring an ordinary action for recovery of possession (Continental Gin Co. vs. Pannell, 160 P., 598;
61 Okl., 102; 14 C.J.S., pp. 1027, 1028). The purchaser cannot take possession of the property by force either
directly or through the sheriff. And the reason for this is "that the creditor's right of possession is conditioned upon
the fact of default, and the existence of this fact may naturally be the subject of controversy" (Bachrah Motor Co. vs.
Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a writ of possession as was done by Trinidad
Reyes in this case. Her remedy is to file an ordinary action for recovery of possession in ordered that the debtor may
be given an opportunity to be heard not only in regarding possession but also regarding the obligation covered by
the mortgage. The petition she has filed in the lower court, which was not even docketed, is therefore improper and
should be regarded.

Wherefore, the order subject of the present petition for certiorari is hereby set aside, with costs against respondent
Trinidad Reyes.

Bengzon, Tuason, Padilla and Pablo, JJ., concur in the result.


15
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-26278 August 4, 1927

LEON SIBAL , plaintiff-appellant,


vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.

J. E. Blanco for appellant.


Felix B. Bautista and Santos and Benitez for appellee.

JOHNSON, J.:

The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day of December
1924. The facts are about as conflicting as it is possible for facts to be, in the trial causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the Province of
Tarlac, by virtue of a writ of execution issued by the Court of First Instance of Pampanga, attached and sold to the
defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land
described in the complaint in the third paragraph of the first cause of action; that within one year from the date of the
attachment and sale the plaintiff offered to redeem said sugar cane and tendered to the defendant Valdez the
amount sufficient to cover the price paid by the latter, the interest thereon and any assessments or taxes which he
may have paid thereon after the purchase, and the interest corresponding thereto and that Valdez refused to accept
the money and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was attempting to harvest
the palay planted in four of the seven parcels mentioned in the first cause of action; that he had harvested and taken
possession of the palay in one of said seven parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J. Valdez his attorneys
and agents, restraining them (1) from distributing him in the possession of the parcels of land described in the
complaint; (2) from taking possession of, or harvesting the sugar cane in question; and (3) from taking possession,
or harvesting the palay in said parcels of land. Plaintiff also prayed that a judgment be rendered in his favor and
against the defendants ordering them to consent to the redemption of the sugar cane in question, and that the
defendant Valdez be condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the
two parcels above-mentioned ,with interest and costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the bond for P6,000 filed by the
plaintiff, issued the writ of preliminary injunction prayed for in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each and every
allegation of the complaint and step up the following defenses:

(a) That the sugar cane in question had the nature of personal property and was not, therefore, subject to
redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminary injunction he
was unable to gather the sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said parcels of land,
representing a loss to him of P8,375.20 and that, in addition thereto, he suffered damages amounting to P3,458.56.
He prayed, for a judgment (1) absolving him from all liability under the complaint; (2) declaring him to be the
absolute owner of the sugar cane in question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to
pay to him the sum of P11,833.76, representing the value of the sugar cane and palay in question, including
damages.
16
Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing the evidence,
and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgment against the plaintiff and in favor
of the defendants —

(1) Holding that the sugar cane in question was personal property and, as such, was not subject to
redemption;

(2) Absolving the defendants from all liability under the complaint; and

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal to jointly
and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08 as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

(c) 646.00, the value of palay harvested by plaintiff;

(d) 600.00, the value of 150 cavans of palay which the defendant was not able to raise by reason of
the injunction, at P4 cavan. 9,439.08 From that judgment the plaintiff appealed and in his
assignments of error contends that the lower court erred: (1) In holding that the sugar cane in
question was personal property and, therefore, not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7 and 8, and that
the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40 from the sugar
cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was unable to raise
palay on the land, which would have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of execution in civil
case No. 20203 of the Court of First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied an
attachment on eight parcels of land belonging to said Leon Sibal, situated in the Province of Tarlac,
designated in the second of attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the auction held by
the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid for the said parcels separately as
follows (Exhibit C, and 2-A):

Parcel

1 ..................................................................... P1.00

2 ..................................................................... 2,000.00

3 ..................................................................... 120.93

4 ..................................................................... 1,000.00

5 ..................................................................... 1.00

6 ..................................................................... 1.00

7 with the house thereon .......................... 150.00

8 ..................................................................... 1,000.00
==========

4,273.93
17
(3) That within one year from the sale of said parcel of land, and on the 24th day of September, 1923, the
judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc., for the account of the redemption price
of said parcels of land, without specifying the particular parcels to which said amount was to applied. The
redemption price said eight parcels was reduced, by virtue of said transaction, to P2,579.97 including
interest (Exhibit C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by
virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon
Sibal 1.º — the same parties in the present case), attached the personal property of said Leon Sibal located
in Tarlac, among which was included the sugar cane now in question in the seven parcels of land described
in the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal properties of Leon
Sibal, including the sugar cane in question to Emilio J. Valdez, who paid therefor the sum of P1,550, of
which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also attached the real
property of said Leon Sibal in Tarlac, including all of his rights, interest and participation therein, which real
property consisted of eleven parcels of land and a house and camarin situated in one of said parcels (Exhibit
A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin, were bought
by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200. Said eight parcels were
designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11. The house and camarin were
situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12, and 13, were
released from the attachment by virtue of claims presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J. Valdez for
P2,579.97 all of its rights and interest in the eight parcels of land acquired by it at public auction held by the
deputy sheriff of Tarlac in connection with civil case No. 20203 of the Court of First Instance of Manila, as
stated above. Said amount represented the unpaid balance of the redemption price of said eight parcels,
after payment by Leon Sibal of P2,000 on September 24, 1923, fro the account of the redemption price, as
stated above. (Exhibit C and 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of land described in
the first cause of action of the complaint at public auction on May 9 and 10, 1924, for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land situated in the
Province of Tarlac belonging to Leon Sibal and that on September 24, 1923, Leon Sibal paid to Macondray
& Co. P2,000 for the account of the redemption price of said parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights and interest in
the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which Leon Sibal had
or might have had on said eight parcels by virtue of the P2,000 paid by the latter to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is personal or real property. It is
contended that sugar cane comes under the classification of real property as "ungathered products" in paragraph 2
of article 334 of the Civil Code. Said paragraph 2 of article 334 enumerates as real property the following: Trees,
plants, and ungathered products, while they are annexed to the land or form an integral part of any immovable
property." That article, however, has received in recent years an interpretation by the Tribunal Supremo de España,
which holds that, under certain conditions, growing crops may be considered as personal property. (Decision of
March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil Code, in view of
the recent decisions of the supreme Court of Spain, admits that growing crops are sometimes considered and
treated as personal property. He says:
18
No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante a la venta
de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y a
la de lenas, considerando ambas como muebles. El Tribunal Supremo, en sentencia de 18 de marzo de
1904, al entender sobre un contrato de arrendamiento de un predio rustico, resuelve que su terminacion por
desahucio no extingue los derechos del arrendario, para recolectar o percibir los frutos correspondientes al
año agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su vez el
importe de la renta integra correspondiente, aun cuando lo haya sido por precepto legal durante el curso del
juicio, fundandose para ello, no solo en que de otra suerte se daria al desahucio un alcance que no tiene,
sino en que, y esto es lo interesante a nuestro proposito, la consideracion de inmuebles que el articulo 334
del Codigo Civil atribuge a los frutos pendientes, no les priva del caracter de productos pertenecientes,
como tales, a quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.

xxx xxx xxx

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de diciembre de
1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto expreso que
disponga lo contrario, y cualquiera que sea la naturaleza y forma de la obligacion que garantice, no
comprende los frutos cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5. edicion, pags. 22,
23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered products may be
sold and transferred as personal property; (2) that the Supreme Court of Spain, in a case of ejectment of a lessee of
an agricultural land, held that the lessee was entitled to gather the products corresponding to the agricultural year,
because said fruits did not go with the land but belonged separately to the lessee; and (3) that under the Spanish
Mortgage Law of 1909, as amended, the mortgage of a piece of land does not include the fruits and products
existing thereon, unless the contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some light on the question which
we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to paragraph 2 of article 334 of our
Civil Code, provides: "Standing crops and the fruits of trees not gathered, and trees before they are cut down, are
likewise immovable, and are considered as part of the land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases "standing
crops" may be considered and dealt with as personal property. In the case of Lumber Co. vs. Sheriff and Tax
Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the Civil Code it is provided that 'standing
crops and the fruits of trees not gathered and trees before they are cut down . . . are considered as part of the land
to which they are attached, but the immovability provided for is only one in abstracto and without reference to rights
on or to the crop acquired by others than the owners of the property to which the crop is attached. . . . The existence
of a right on the growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired therein. Our jurisprudence recognizes the possible mobilization of the growing
crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27 La.
Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761) that "article 465
of the Revised Code says that standing crops are considered as immovable and as part of the land to which they
are attached, and article 466 declares that the fruits of an immovable gathered or produced while it is under seizure
are considered as making part thereof, and incurred to the benefit of the person making the seizure. But the evident
meaning of these articles, is where the crops belong to the owner of the plantation they form part of the immovable,
and where it is seized, the fruits gathered or produced inure to the benefit of the seizing creditor.

A crop raised on leased premises in no sense forms part of the immovable. It belongs to the lessee, and
may be sold by him, whether it be gathered or not, and it may be sold by his judgment creditors. If it
necessarily forms part of the leased premises the result would be that it could not be sold under execution
separate and apart from the land. If a lessee obtain supplies to make his crop, the factor's lien would not
attach to the crop as a separate thing belonging to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be construed so as to result in such absurd
consequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be destructive of the
very objects of the act, it would render the pledge of the crop objects of the act, it would render the pledge of
the crop impossible, for if the crop was an inseparable part of the realty possession of the latter would be
necessary to that of the former; but such is not the case. True, by article 465 C. C. it is provided that
"standing crops and the fruits of trees not gathered and trees before they are cut down are likewise
immovable and are considered as part of the land to which they are attached;" but the immovability provided
for is only one in abstracto and without reference to rights on or to the crop acquired by other than the
owners of the property to which the crop was attached. The immovability of a growing crop is in the order of
things temporary, for the crop passes from the state of a growing to that of a gathered one, from an
19
immovable to a movable. The existence of a right on the growing crop is a mobilization by anticipation, a
gathering as it were in advance, rendering the crop movable quoad the right acquired thereon. The provision
of our Code is identical with the Napoleon Code 520, and we may therefore obtain light by an examination of
the jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de España but by the Supreme Court of Louisiana, is
followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states we find that the settle
doctrine followed in said states in connection with the attachment of property and execution of judgment is, that
growing crops raised by yearly labor and cultivation are considered personal property. (6 Corpuz Juris, p. 197; 17
Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec.,
161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526;
Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably
certain to come into existence as the natural increment or usual incident of something already in existence, and then
belonging to the vendor, and then title will vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of
this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually
possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may
grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon
sheep; or what may be taken at the next cast of a fisherman's net; or fruits to grow; or young animals not yet in
existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They
must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been modified by
section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel Mortgage Law. Said section 450
enumerates the property of a judgment debtor which may be subjected to execution. The pertinent portion of said
section reads as follows: "All goods, chattels, moneys, and other property, both real and personal, * * * shall be
liable to execution. Said section 450 and most of the other sections of the Code of Civil Procedure relating to the
execution of judgment were taken from the Code of Civil Procedure of California. The Supreme Court of California,
under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held, without variation, that
growing crops were personal property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property. Section 2 of
said Act provides: "All personal property shall be subject to mortgage, agreeably to the provisions of this Act, and a
mortgage executed in pursuance thereof shall be termed a chattel mortgage." Section 7 in part provides: "If growing
crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor binds himself properly
to tend, care for and protect the crop while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that "growing crops" are
personal property. This consideration tends to support the conclusion hereinbefore stated, that paragraph 2 of article
334 of the Civil Code has been modified by section 450 of Act No. 190 and by Act No. 1508 in the sense that
"ungathered products" as mentioned in said article of the Civil Code have the nature of personal property. In other
words, the phrase "personal property" should be understood to include "ungathered products."

At common law, and generally in the United States, all annual crops which are raised by yearly manurance
and labor, and essentially owe their annual existence to cultivation by man, . may be levied on as personal
property." (23 C. J., p. 329.) On this question Freeman, in his treatise on the Law of Executions, says:
"Crops, whether growing or standing in the field ready to be harvested, are, when produced by annual
cultivation, no part of the realty. They are, therefore, liable to voluntary transfer as chattels. It is equally well
settled that they may be seized and sold under execution. (Freeman on Executions, vol. p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of
the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose of attachment and execution,
and for the purposes of the Chattel Mortgage Law, "ungathered products" have the nature of personal property. The
lower court, therefore, committed no error in holding that the sugar cane in question was personal property and, as
such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated, relate to questions of fact only. Before
entering upon a discussion of said assignments of error, we deem it opportune to take special notice of the failure of
the plaintiff to appear at the trial during the presentation of evidence by the defendant. His absence from the trial
and his failure to cross-examine the defendant have lent considerable weight to the evidence then presented for the
defense.
20
Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the complaint, the plaintiff
made a futile attempt to show that said two parcels belonged to Agustin Cuyugan and were the identical parcel 2
which was excluded from the attachment and sale of real property of Sibal to Valdez on June 25, 1924, as stated
above. A comparison of the description of parcel 2 in the certificate of sale by the sheriff (Exhibit A) and the
description of parcels 1 and 2 of the complaint will readily show that they are not the same.

The description of the parcels in the complaint is as follows:

1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela de terreno de la
pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas
poco mas o menos de superficie.

2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado Alejandro Policarpio, en
una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban, Tarlac de
unas dos hectareas de superficie poco mas o menos." The description of parcel 2 given in the certificate of
sale (Exhibit A) is as follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados de superficie,
linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mañu
and others; al S. con Alejandro Dayrit, Isidro Santos and Melecio Mañu; y al O. con Alejandro Dayrit and
Paulino Vergara. Tax No. 2854, vador amillarado P4,200 pesos.

On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the complaint were
included among the parcels bought by Valdez from Macondray on June 25, 1924, and corresponded to parcel 4 in
the deed of sale (Exhibit B and 2), and were also included among the parcels bought by Valdez at the auction of the
real property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in the certificate of sale made by the
sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:

Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F. de 145,000


metros cuadrados de superficie, lindante al Norte con Road of the barrio of Culubasa that goes to
Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto Sibal y al Oeste con Esteban Lazatin,
su valor amillarado asciende a la suma de P2,990. Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4 (Exhibit 2 and
B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the trial when the defendant
offered his evidence, we are inclined to give more weight to the evidence adduced by him that to the evidence
adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the compliant. We, therefore, conclude
that parcels 1 and 2 of the complaint belong to the defendant, having acquired the same from Macondray & Co. on
June 25, 1924, and from the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190 cavans. There
being no evidence of bad faith on his part, he is therefore entitled to one-half of the crop, or 95 cavans. He should
therefore be condemned to pay to the defendant for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not
for the total of 190 cavans as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to parcel 1 of the
deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the certificate of sale to Valdez of
real property belonging to Sibal, executed by the sheriff as above stated (Exhibit A). Valdez is therefore the absolute
owner of said parcel, having acquired the interest of both Macondray and Sibal in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second cause of action, it
appears from the testimony of the plaintiff himself that said parcel corresponds to parcel 8 of the deed of sale of
Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed of sale executed by the sheriff in favor of Valdez
(Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest of both Macondray
and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under said execution.
Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923. Rice paid P4,273.93. On
September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the redemption of said parcels of land. (See
Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the sugar cane in
question. (Exhibit A) The said personal property so attached, sold at public auction May 9 and 10, 1924. April 29,
1924, the real property was attached under the execution in favor of Valdez (Exhibit A). June 25, 1924, said real
property was sold and purchased by Valdez (Exhibit A).
21
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on the 30th day
of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that the sugar cane in
question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have yielded an
average crop of 1039 picos and 60 cates; that one-half of the quantity, or 519 picos and 80 cates would have
corresponded to the defendant, as owner; that during the season the sugar was selling at P13 a pico (Exhibit 5 and
5-A). Therefore, the defendant, as owner, would have netted P 6,757.40 from the sugar cane in question. The
evidence also shows that the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas
de cana) and not 1,170,000 as computed by the lower court. During the season the shoots were selling at P1.20 a
thousand (Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 from sugar-cane shoots and not
P1,435.68 as allowed by the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190 cavans, one-half of
said quantity should belong to the plaintiff, as stated above, and the other half to the defendant. The court erred in
awarding the whole crop to the defendant. The plaintiff should therefore pay the defendant for 95 cavans only, at
P3.40 a cavan, or P323 instead of P646 as allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of the plaintiff from cultivating about 10
hectares of the land involved in the litigation. He expected to have raised about 600 cavans of palay, 300 cavans of
which would have corresponded to him as owner. The lower court has wisely reduced his share to 150 cavans only.
At P4 a cavan, the palay would have netted him P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his sureties Cenon de la
Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the defendant jointly and severally the sum of
P8,900.80, instead of P9,439.08 allowed by the lower court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;

323.00 for the palay harvested by plaintiff in parcels 1 and 2;

600.00 for the palay which defendant could have raised.

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

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.

Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.


22
United States Supreme Court
VALDES v. CENTRAL ALTAGRACIA, (1912)
No. 193
Argued: Decided: May 27, 1912
[225 U.S. 58, 59] Messrs. F. Kingsbury Curtis, Hugo Kohlmann, and Martin Travieso, Jr., for Valdes.

Messrs. N. B. K. Pettingill and Frederick L. Cornwell for Central Altagracia.

Mr. Francis H. Dexter for Nevers & Callaghan.

Mr. Chief Justice White delivered the opinion of the court:

These cases were consolidated below, tried together, a like statement of facts was made applicable to both, and the
court disposed of them in one opinion. We shall do likewise. Stating only things deemed to be essential as shown by
the pleadings and documents annexed to them and the finding of facts made below, the case is this: Joaquin
Sanchez owned in Porto Rico a tract of land of about 22 acres (cuerdas) on which was a sugar house containing a
mill for crushing cane and an evaporating apparatus for manufacturing the juice of the cane into sugar. All of the
machinery was antiquated and of a limited capacity. The establishment was known as the Central Altagracia, and
Sanchez, while not a cane grower, carried on the business of a central,-that is, of acquiring cane grown by others
and manufacturing it into sugar at his factory. On the 18th day of January, 1905, Sanchez leased his land and plant
to Salvador Castello for a period of ten years. The lease gave to the tenant (Castello), the right to install in the plant
'such machinery as he may deem convenient, which said machinery, at the end [225 U.S. 58, 60] of the years
mentioned (the term of the lease) shall become the exclusive property' of the lessor, Sanchez. The tenant was given
one year in which to begin the work of repairing and improving the plant, and it was provided that 'upon the
expiration of this term, if the necessary improvements shall not have been begun by him (Castello), then this
contract shall be null and void, and no cause of action shall accrue to any of the contracting parties by reason
thereof.' Further agreeing on the subject of the improved machinery which was to be placed in the plant, the contract
provided: 'Upon the expiration of the term agreed on under this contract, any improvement or machinery installed in
the said central shall remain for the benefit of Don Joaquin Sanchez, and Don Salvador Castello shall have no right
to claim anything for the improvements made.' The rental was thus provided for: 'After each crop such profits as may
be produced by the Central Altagracia shall be distributed and twenty-five per cent (25%) thereof shall be
immediately paid to Don Joaquin Sanchez as equivalent for the rental of said central and of the twenty-two (22)
cuerdas of land surrounding the same. The remaining seventy-five per cent ( 75%) shall belong to Don Salvador
Castello, who may interest therein whomsoever he may wish, either for the whole or part thereof.' It was stipulated,
however, that in fixing the profits no charge should be made for repairs of the existing machinery or for new
machinery put in, as the entire cost of these matters was to be borne by the lessee, Castello. The lease provided,
moreover, that in case of the death of Sanchez the obligations of the contract should be binding on his heirs, and in
the case of the death of Castello, his brother, Gerardo Castello, should take his place 'and be a contracting party if
he so desired. Otherwise the plantation, in such a condition at it may be at his death, shall immediately pass into the
possession of its owner, Don Joaquin Sanchez.' In June,[225 U.S. 58, 61] 1905, by a supplementary contract, the
lease was extended without change of its terms and conditions for an additional period of ten years, making the total
term twenty years. Although executed under private signature, this lease, conformably to the laws of Porto Rico,
was produced before, a notary and made authentic, and in such form was duly registered on the public records, as
required by the Porte Rican laws.

On the 1st day of July, 1905, Salvador and Gerardo Castello transferred all their rights acquired under the lease, as
above stated, to Frederick L. Cornwell for 'the corporation to be organized under the name of Central Altagracia, of
which he is the trustee.' This transfer bound the corporation to all the obligations in favor of the original lessor,
Sanchez, provided that the corporation should issue to Castello a certain number of paid-up shares of its capital
stock and a further number of shares as the output of sugar from the plant increased as the result of its enlarged
capacity consequent upon the improvement of the machinery by the corporation. The lease further provided for the
employment of Castello as superintendent at a salary, for a substitution of Gerardo Castello, in the event of the
absence or death of his brother Salvador, and, for this reason, it is to be assumed Gerardo made himself a party to
the transfer of the lease. This transfer of the lease to the corporation was never put upon the public records. The
corporation was organized under the laws of the state of Maine, and under the transfer took charge of the plant. The
season for grinding cane and the manufacture of sugar in Porto Rico usually commences 'about the month of
December of each year, and terminates in the months of May, June, or July of the year following, according to the
amount of cane to be ground.' Central factories in Porto Rico usually 'make contracts with the people (colonos)
growing cane, so that growers of cane will deliver the same to be ground, and such contracts [225 U.S. 58, 62] are
usually made and entered into in the months of June, July, and August.' In other words, on the termination of one
grinding season, in the months of June or July, it is usual in the ensuing August to make new contracts for the cane
to be delivered in the following grinding season, which, as we have said, commences in December. The contract
transferring the lease to the Central Altagracia, Incorporated, was made in July, 1905, at the end, therefore, of the
grinding season of that year. To what extent the corporation contracted for cane to be delivered to it for grinding
during the season of 1905-06, which began in December, 1905, does not appear. It is inferable, however, that the
corporation began the work of installing new machinery to give the plant a larger capacity within the year stipulated
in the lease from Sanchez to Castello. We say this because it is certain that in the fall of 1906 (October) the
corporation borrowed from the commercial firm of Nevers & Callaghan in New York city, the sum of twenty-five
thousand dollars ($25,000) to enable the corporation to pay for new and enlarged machinery which it had ordered,
23
and which was placed in the factory in time to be used in the grinding season of 1906-07, which began in
December, 1906. While such grinding season was progressing, on April 11, 1907, the corporation, through its
president, under the authority of its board of directors, sold to one Ramon Valdes all its rights acquired under the
lease transferred by Castello. This transfer expressly included all the machinery previously placed by the
corporation in the sugar house, as well as machinery which might be thereafter installed during the term of
redemption hereafter to be referred to, and which, it was declared, conformably to the original lease, 'shall be a part
of said factory for the manufacture of sugar.' The consideration for the sale was stated in the contract to be 'thirty-
five thousand dollars ($ 35,000) received by the corporation, twenty-five thousand four hundred dol-[225 U.S. 58,
63] lars ($25,400) whereof had been paid prior to this act (of sale), and to its entire satisfaction, and the balance of
nine thousand six hundred dollars ($9,600) shall be turned over to the vendor corporation by Senor Valdes
immediately upon being required to do so by the former.' This sale was made subject to a right to redeem the
property within a year on paying Valdes the entire amount of his debt. There was a stipulation that Valdes assumed
all the obligations of the lease transferred by Castello to the company.

The undoubted purpose was not to interfere with the operation of the plant by the corporation, since there was a
provision in the contract binding Valdes to lease the property to the corporation pending the period of redemption.
This sale was passed in Porto Rico before a notary public, but was never put upon the public records. At the time it
was made there was a very considerable sum unpaid on the debt of Nevers & Callaghan. This fact, joined with the
period when the sale with the right to redeem was made, that is, the approaching end of the sugar-making season of
1906 and 1907, coupled with other facts to which we shall hereafter make reference, all tend to establish that at that
time, either because insufficient capital had been put into the venture, or because the business had been carried on
at a loss, the affairs of the corporation were embarrassed, if it was not insolvent. A short while before the
commencement of the grinding season of 1907-1908, in October, 1907, in the city of New York, the corporation,
through its president, declaring himself to be authorized by the board of directors, sanctioned by a vote of the
stockholders, apparently made an absolute sale of all the rights of the corporation under the lease, and all its title to
the machinery which the corporation had put into the plant. This sale was declared to be for a consideration of sixty-
five thousand ($65,000) dollars which the company acknowledged to have received from Valdes, first, by the
payment of the thirty- [225 U.S. 58, 64] five ($35,000) dollars cash, as stated in the previous sale made subject to
the equity of redemption, and thirty thousand ($30,000) dollars which 'the company has received afterwards in cash
from Valdes.' There was a provision in the contract to the effect that as the purpose of the previous contract of sale,
which had been made subject to the equity of redemption, was accomplished by the new sale, the previous sale
was declared to be no longer operative.

A few days afterwards, likewise in the city of New York (on November 2, 1907), Valdes sold to the company all the
rights which he had acquired from it by the previous sale, the price being sixty-five thousand ($65,000) dollars,
payable in instalments falling due in the years 1908, 1909, 1910, and 1911, respectively. This transfer was put in the
form of a conditional sale which reserved the title in Valdes until the payment of the deferred price, and upon the
stipulation that any default by the corporation entitled Valdes ipso facto to take possession of the property. Neither
this act of sale from Valdes to the corporation nor the one made by the corporation to Valdes were ever put upon the
public records.

Prior to the making of the sales just stated, or about that time, the corporation defaulted in the payment of a note
held by Nevers & Callaghan for a portion of the money which they had loaned the corporation under the
circumstances which we have previously stated, and that firm sued in the court below the corporation to recover the
debt.

The grinding season of 1907-1908 commenced in December, 1907, and was obviously not a successful one, for the
debt of Nevers & Callaghan was not paid, and in May, 1908, a judgment was recovered by them against the
corporation for about $17,000, with interest, and in the same month execution was issued and levied upon the
machinery in the sugar house. Previous to, or not long subsequent to, the time Nevers & Cal- [225 U.S. 58,
65] laghan commenced their suit, the precise date not being stated in the record, the heirs of Sanchez, the original
lessor, brought a suit in the court below against the corporation. The nature of the suit and the relief sought is not
disclosed, but it is inferable from the facts stated that the suit either sought to recover the property on the ground
that there was no power in Castello to transfer the lease, or upon the ground of default in the conditions as to
payment of profits as rental which the lease stipulated. It would seem also at about the same time either one or both
of the Castellos brought a suit against the company, presumably upon the theory that there had been a default in
the obligations assumed in their favor by the corporation at the time it took the transfer of the lease. In the
meanwhile also, probably as the result of the want of success of the corporation, discord arose between its
stockholders, and a suit growing out of that state of things was brought in the lower court.

This litigation was commenced in June, 1908, by the bringing by Valdes of an action at law in the court below to
recover the plant on the ground that, by the default in paying one of the instalments of the price stated in the
conditional sale, the right to the relief prayed had arisen. On the same day Valdes commenced a suit in equity
against the corporation in aid of the suit at law. The bill alleged the default of the corporation, the bringing of the suit
at law, the confusion in the affairs of the corporation, the judgment and levy of the execution by Nevers and
Callaghan, and the threat to sell the machinery under such execution; the refusal of the corporation to deliver
possession of the property, the waste and destruction of the value of the property which would result if there was no
one representing the corporation having power to contract for cane to be delivered during the next grinding season,
etc., etc. The prayer was for the appointment of a receiver to take charge of the property, with au- [225 U.S. 58,
66] thority to carry on the same, make the necessary contracts for cane for the future, it being prayed that the
24
receiver should be empowered to issue receiver's certificates to the extent necessary to the accomplishment of
the purposes which the bill had in view.

On the same day a bill was filed on behalf of the corporation against Valdes. This bill atacked the sale made to
Valdes and by him to the corporation. It was charged that the price stated to have been paid by Valdes as a
consideration of the conditional sale was fictitious, and that the only sum he had advanced at that time was the
$35,000 which it was the purpose to secure by means of the sale with the equity of redemption. That at that time
Valdes exacted as a consideration for his loan that he be made a director and vice president of the company. The
bill then stated that, it having become evident in the following autumn that the corporation would require more
money to increase its plant, to pay off the sum due Nevers & Callaghan, and for the operation of the plant, Valdes
agreed to advance the money if he were made president of the company at a stipulated salary, given a bonus in the
stock of the company, and upon the condition that the papers be executed embodying the socalled sale of the
company to Valdes and the practically simultaneous conditional sale by Valdes to the company. The bill then
alleged that Valdes, having thus become the president of the company, failed to carry out his agreement to advance
the money, failed to provide for the debt of Nevers & Callaghan, mismanaged the affairs of the property in many
alleged particulars, and did various acts to the prejudice of the company and to his own wrongful enrichment, which
it is unnecessary to recapitulate. The necessity of contracting for cane during the contract season, in order that the
plant might continue during the next operating season to be a going concern, and the waste and loss which would
otherwise [225 U.S. 58, 67] be occasioned, were fully alleged. Valdes and the firm of Nevers & Callaghan and the
individual members of that firm were made defendants. The prayer was for the appointment of a receiver and with
power to carry on the business of the central, with power, for that purpose, to contract for cane for the coming
season, with authority to issue receiver's certificates for the purpose of borrowing the money which might be
required.

The judge, being about to leave Porto Rico for a brief period, declined to appoint a permanent receiver, but named a
temporary one to keep the property together until a further hearing could be had, interference in the meanwhile with
the custodian being enjoined. Shortly thereafter creditors of the corporation intervened and joined in the prayer
made by both of the complainants for the appointment of a receiver. In July the two suits were by order
consolidated, and after a hearing a receiver was appointed and authority given him to continue the property as a
going concern and to borrow a limited amount of money on receiver's certificates, if necessary, to secure contracts
for cane for the coming crop season. The execution of the Nevers & Callaghan judgment was stayed pending an
appeal which had been taken to this court. The only difference which seems to have arisen concerning the
appointment of the receiver grew out of the fact that a prayer of the Central Altagracia, asking the court to appoint as
receiver Mr. Pettingill, a member of the bar and one of the counsel of the corporation, and who was also its
treasurer, was denied. Despite this, the fair inference is that the ultimate action of the court was not objected to by
anyone, because of the hope that the result of a successful operation of the plant during the coming crop season
might ameliorate the affairs of the corporation, and thus prevent further controversies. We say this, not only because
of the conduct of the parties prior to the order appointing the receiver, but because, [225 U.S. 58, 68] after that
order, the solicitors of the Altagracia Company and Valdes put a stipulation of record that until the following October
no steps whatever should be taken in the proceedings, and not even then unless the attorneys for both parties
should be in Porto Rico.

The hope of a beneficial result from the operation of the plant by the receiver proved delusive. As a result of such
operation there was a considerable loss represented by outstanding receiver's certificates, with no means of paying
except out of the property. Obviously, for this reason, the record contains a statement that on July 12, 1909, a
conference was had between the court and all parties concerned, to determine what steps should be taken to meet
the situation. It appears that at that conference the counsel representing the heirs of Sanchez and of Nevers &
Callaghan stated their opposition to a continuance of the receivership.

On July 17, 1909, the court placed a memorandum on the files, indicating its purpose to bring the litigation,
receivership, etc., to an end, and to cause 'immediate issue to be raised on the pleadings for that purpose.' This
memorandum was entitled in all the pending causes concerning the property. It directed that demurrers which had
been filed in the consolidated cause of Valdes against the corporation and of the corporation against Valdes be
overruled, and the defendants were required to answer on or before Monday, July 26, in order that upon the
following day, the 27th of July, the issues raised might be tried before the court without the intervention of a master.
It was provided in the order, however, that nothing in this direction should prevent the parties from filing such
additional pleadings as it is deemed necessary for the protection of their rights by way of cross bill or amendment,
etc. To make the order efficacious it was declared that nothing would be done in the suit of the heirs of Sanchez
against Castello and the Altagracia, [225 U.S. 58, 69] which was pending on appeal, and that a demurrer filed to
the suit of Castello against the central would be overruled; that the demurrer in the suit at law of Valdes would
remain in abeyance to await the final action of the court on the trial of all the issues in the equity causes, and that a
stay of the Nevers & Callaghan execution would be also disposed of when the equity cases came to be decided.
This order was followed by a memorandum opinion filed on July the 21st, stating very fully the position of the
respective suits, the necessity for action in order to preserve the property from waste, and reiterating the view that
whatever might be the rights of the Central Altagracia or of Valdes under the lease, those rights would be
subordinate to the ultimate determination of the suit brought by the heirs of Sanchez. To the action of the court, as
above stated, no objection appears to have been made. On the contrary, between the time of that order and the
perior fixed for the commencement of a hearing, the Central Altagracia, Valdes, and Nevers & Callaghan modified
their pleadings to the extent deemed by them necessary to present for trial the issues upon which they relied. In the
case of the Central Altagracia this was done by filing, on July 22, an amended bill of complaint in its suit against
25
Valdes, and on July 26 its answer in the suit of Valdes. The acceptance by Valdes of the terms of the order was
shown by an answer filed to the bill in the suit of the company and the cross bill in the same cause; and Nevers &
Callaghan manifested their acquiescence by obtaining leave to make themselves parties, and asserting their rights
by cross bill and answers, which it is unnecessary to detail.

When the consolidated cause was called for trial on the morning of July 27, the counsel for the Central Altagracia
moved a continuance in order to take the testimony of certain witnesses in Philadelphia and New York for the
purpose of proving some of the allegations of the complaint [225 U.S. 58, 70] as to the wrongdoing of Valdes in
administering the affairs of the corporation. This application was supported by the affidavit of Mr. Pettingill, the
counsel of the corporation. The record states that the request for continuance was opposed by all the other counsel,
and the application was denied. In doing so the court stated: 'That the matter has been pending for more than a
year, and that counsel had full notice of the court's intention to press the matters to issue and trial, and that it is not
disposed to delay matters at this time, when the admissions of the pleadings are so broad that the proofs available
here in Porto Rico are probably sufficient, and the amended complaint already on file in suit No. 565,-Valdes v.
Central Altagracia,-and the answer thereto and the answer recently filed in suit No. 564,-Central Altagracia v. Valdes
[5 Porto Rico Fed. Rep. 155],-as well as the cross bill also recently filed in suit No. 465, make so many allegations
and admissions as that the real issue between the parties can be plainly seen, and that, in the opinion of the court,
enough proof is available here in Porto Rico.' The court thereupon declared that the Altagracia Company might by
the next day, if it so desired, file exceptions to the answer in suit 565 and an answer to the cross complaint; indeed,
that the corporation might, if it wished, treat them as filed, and proceed with the cause and file them at any
convenient time thereafter. Thereupon the record states: 'Said counsel for the Central Altagracia stated that he
desired time to file exceptions to the answer and an answer to the cross bill in suit No. 565; and the court granted
until the morning of July 28 for such purpose. Later in the day of July 27, one of the counsel for Valdes having
requested the court to postpone the hearing of the cause until the morning of the 29th, because of an unexpected
professional engagement elsewhere, the request was communicated by the court to the other counsel in the cause.'
Thereupon the record again recites: 'Messrs. Pettingill & [225 U.S. 58, 71] Cornwell, attorneys for the Central
Altagracia, stated that they withdrew any statement they have hitherto made in the cause in that regard, and desired
to be understood that they would not except to the answer in suit No. 565, or plead or answer to the cross bill
therein, save and except within the time which they contended the rules governing this court of equity gave them,
and would stand upon what they considered their rights in that regard.' When the court assembled the next day, on
the morning of the 28th, a statement concerning the occurrence of the previous day as to the continuance, etc., just
reviewed, was read by the court in the presence of all the counsel, whereupon the record recites: 'N. B. Pettingill,
counsel for the Central Altagracia, in response to the same, stated that he objected to proceeding to take any
evidence in any of the causes at that time, or the testimony of any witnesses, because the same was not at issue or
in condition for the taking of evidence, and objected to the taking of such evidence until the issues of said causes
are made up in accordance with the rules of practice applicable to equity causes.' The record further recites: 'Which
objection was overruled by the court on the ground that the action called for thereby is not necessary. That the bill
was amended within three days; an answer was immediately filed to it and a cross bill also filed, the said cross bill
making only the same claims as were made in suit No. 563 at law, and that any way the issue could be tried on the
bill and answer in both suits.' . . . This ruling of the court having been excepted to, the trial proceeded from day to
day, the counsel for the Central Altagracia taking no part in the same, and virtually treating the proceedings as
though they did not concern that corporation.

In substance, the court decided: First, that as the result of the contracts between Valdes and the Central Altagracia,
he was not the owner of the rights of that corporation under the lease, or of the machinery which[225 U.S. 58,
72] had been placed in the sugar house by the Altagracia Company, or of the other assets of the corporation, but
that he was merely a secured creditor. The sum of the secured debt was fixed after making allowances for some not
very material credits which the corporation was held to be entitled to. Second, that the judgment in favor of Nevers &
Callaghan was valid, and that that firm, by virtue of its execution and levy upon the machinery, had a prior right to
Valdes. Third, the sums due to various creditors of the corporation were fixed and the equities or priorities were
classified as follows: (a) Taxes due by the corporation and the sum of the receiver's certificates and certain costs;
(b) the judgment of Nevers & Callaghan; and (c) the debt of Valdes; (d) debts due the other creditors. Without going
into details it suffices to say that for the purpose of enforcing these conclusions the decree directed a sale of all the
rights of the Central Altagracia in and to the lease, machinery, contract, etc., and imposed the duty upon Valdes, if
he became the purchaser, to pay enough cash to discharge the costs, taxes, receiver's certificates, and the claim of
Nevers & Callaghan.

These appeals were then prosecuted, the one by the Central Altagracia and the other by Valdes. We shall endeavor
as briefly as may be to dispose of the contentions relied upon to secure a reversal.

1. The Central Altagracia appeal.-The alleged errors insisted on in behalf of that company relate to the asserted
arbitrary action of the court in forcing the cause to trial without affording the time which it is insisted the corporation
was entitled to under the equity rules applicable to the subject; and, second, the refusal of the court to grant a
continuance upon the affidavit as to the absence of material witnesses.

We think all the contentions on this subject are demonstrated to be devoid of merit by the statement of the case
which we have made. In the first place, it is mani- [225 U.S. 58, 73] fest from that statement that the proceeding
leading up to the appointment of a receiver and the power given to administer the property was largely the result of
the assent of the corporation. In the second place, when the unsuccessful financial issue of the receivership had
become manifest, we think the statement makes it perfectly clear that the steps taken by the court for the purpose of
26
bringing the case to a speedy conclusion, and thus avoiding the further loss which would result to all interests
concerned, were also acquiesced in by all the parties in interest who complied with the terms of that order and took
advantage of the rights which it conferred. We think also the statement makes it apparent that the refusal on the part
of the corporation to proceed with the trial, upon the theory that the time to plead allowed by the equity rules had not
elapsed, was the result of a change of view because of the action of the court in refusing the continuance on
account of the absent witnesses,-a change of front which was inconsistent with the rights which the corporation had
exercised in accord with the order setting the cause for trial, and with the rights of all the other parties to the cause
which had arisen from that order and from the virtual approval of it, or at least acquiescence in it, by all concerned.

Considering the assignments of error in so far as they relate alone to overruling of the application for continuance,
based upon the absence of witnesses, it suffices to say that the elementary rule is that the granting of a continuance
of the cause was peculiarly within the sound discretion of the court below,-a discretion not subject to be reviewed on
appeal except in case of such clear error as to amount to a plain abuse springing from an arbitrary exercise of
power. Instead of coming within this latter category, we think the facts as to the refusal to continue and the conduct
of the parties make it clear that there was not only no abuse but a just exercise of discretion. [225 U.S. 58, 74] 2.
As to the Appeal of Valdes.-Two propositions are relied upon: First, that error was committed in treating Valdes
merely as a secured creditor, and in not holding him to be the absolute owner of the rights and property alleged to
have been transferred by the so-called conditional sale. Second, that in any event error was committed in awarding
to Nevers & Callaghan priority over Valdes.

The first proposition is supported by a reference to the Porto Rican Code and decisions of the Supreme Court of
Spain and the opinions of Spanish law writers. But the contention is not relevant, and the authorities cited to sustain
it are inapposite to the case to be here decided, because the argument rests upon an imaginary premise; that is,
that the ruling of the court below denied that right under the Spanish law to make a conditional sale, or held that
such a sale if made would not have the effect which the argument insists it was entitled to. This is true because the
action of the court was solely based upon a premise of fact; viz., that under the circumstances of the case, and in
view of the prior sale with the equity of redemption, the cancelation of that sale, and the transfer made by the
corporation to Valdes, and the immediate transfer of the same rights by him to the corporation in the form of a
conditional sale, the failure to register any of the contracts, and the relation of Valdes to the corporation at the time
the contracts were made, it resulted that whatever might be the mere form, in substance and effect no conditional
sale was made, but a mere contract was entered into which the parties intended to be a mere security to Valdes for
money advanced and to be advanced by him. This being the case, it is manifest that it is wholly irrelevant to argue
that error was committed in not applying the assumed principles of the Porto Rican and Spanish law governing in
the case of a conditional sale, when the ruling which the court made proceeded upon the conclusion that there was
no conditional sale. [225 U.S. 58, 75] The contention that, under the Porto Rican law, the form was controlling
because proof of the substance was not admissible, seems not to have been raised below, but, if it had been, is
obviously without merit, as the case as presented involved not a controversy alone between the parties to the
contract, but the effect and operation of the contract upon third parties, the creditors of the corporation. The
contention is additionally without merit, since it assumes that the mere form of the contract excluded the power of
creditors to inquire into its reality and substance, even although the contract was never inscribed upon the public
records so as to bind third parties. That its character was such as to require inscription we shall in a few moments
demonstrate in coming to consider the second proposition; that is, upon the hypothesis that Valdes was but a
secured creditor, was error committed in subordinating his claim to the prior claim of Nevers & Callaghan under their
judgment and execution?

To determine this question involves fixing the nature and character of the property from the point of view of the
rights of Valdes, and its nature and character from the point of view of Nevers & Callaghan as a judgment creditor of
the Altagracia Company, and the rights derived by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property,
not only land and buildings, but also attributes immovability in some cases to property of a movable nature; that is,
personal property, because of the destination to which it is applied. 'Things,' says 334 of the Porto Rican Code, 'may
be immovable either by their own nature or by their destination, or the object to which they are applicable.'
Numerous illustrations are given in the 5th subdivision of article 335, which is as follows: 'Machinery, vessels,
instruments, or [225 U.S. 58, 76] implements intended by the owner of the tenements for the industry or works that
they may carry on in any building or upon any land, and which tend directly to meet the needs of the said industry or
works.' See also Code Napoleon, articles 516, 518, et seq., to and inclusive of article 534, recapitulating the things
which, though in themselves movable, may be immobilized. So far as the subject-matter with which we are dealing,-
machinery placed in the plant,-it is plain, both under the provisions of the Porto Rican law and of the Code
Napoleon, that machinery which is movable in its nature only becomes immobilized when placed in a plant by the
owner of the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a
plant by a tenant or a usufructuary or any person having only a temporary right. Demolombe, Tit. 9, No. 203; Aubry
et Rau, Tit. 2, p. 12, 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code Napoleon,
under article 522 et seq. The distinction rests, as pointed out by Demolombe, upon the fact that one only having a
temporary right to the possession or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it, by an act of immobilization, to become the property
of another. It follows that, abstractly speaking, the machinery put by the Altagracia Company in the plant belonging
to Sanchez did not lose its character of movable property and become immovable by destination. But, in the
concrete, immobilization took place because of the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved machinery, deprived the tenant of any right to
charge against the lessor the cost of such machinery, and it was expressly stipulated that the machinery so put in
27
should become a part of the plant belonging to the owner without compensation to the lessee. [225 U.S. 58,
77] Under such conditions the tenant, in putting in the machinery, was acting but as the agent of the owner, in
compliance with the obligations resting upon him, and the immobilization of the machinery which resulted arose in
legal effect from the act of the owner in giving by contract a permanent destination to the machinery. It is true, says
Aubry and Rau, vol. 2, 164, 2, p. 12, that 'the immobilization with which the article is concerned can only arise from
an act of the owner himself or his representative. Hence the objects which are dedicated to the use of a piece of
land or a building by a lessee cannot be considered as having become immovable by destination except in the case
where they have been applied for account of the proprietor, or in execution of an obligation imposed by the lease.' It
follows that the machinery placed by the corporation in the plant, by the fact of its being so placed, lost its character
as a movable, and became united with and a part of the plant as an immovable by destination. It also follows that as
to Valdes, who claimed under the lease, and who had expressly assumed the obligations of the lease, the
machinery, for all the purposes of the exercise of his rights, was but a part of the real estate,-a conclusion which
cannot be avoided without saying that Valdes could at one and the same time assert the existence in himself of
rights, and yet repudiate the obligations resulting from the rights thus asserted.

Nevers & Callaghan were creditors of the corporation. They were not parties to nor had they legal notice of the lease
and its conditions from which alone it arose that machinery put in the premises by the Altagracia became immovable
property. The want of notice arose from the failure to record the transfer from Castello to the Altagracia, or from the
Altagracia to Valdes, and from Valdes apparently conditionally back to the corporation,-a clear result of 613 of the
Civil Code of Porto Rico, providing, 'The titles of ownership or of other real rights relating [225 U.S. 58, 78] to
immovables which are not properly inscribed or annotated in the registry of property shall not be prejudicial to third
parties.' It is not disputable that the duty to inscribe the lease by necessary implication resulted from the general
provisions of article 2 of the mortgage law of Porto Rico, as stated in paragraphs 1, 2, and 3 thereof, and explicitly
also arose from the express requirement of paragraph 6, relating to the registry of 'contracts for the lease of real
property for a period exceeding six years. . . .' It is true that, in a strict sense, the contracts between Castello and the
Altagracia Company and with Valdes were not contracts of lease, but for the transfer of a contract of that character.
But such a transfer was clearly a contract concerning real rights to immovable property within the purview of article
613 of the Civil Code, just previously quoted. Especially is this the case in view of the stipulations of the lease as to
the immobilization of movable property placed in the plant, and the other obligations imposed upon the lessee. 'The
sale which a lessee makes to a third person to whom he transfers his right of lease is the sale of an immovable
right, and not simply a sale of a movable one.' See numerous decisions of the courts of France, beginning with the
decision on February 2, 1842, of the court of cassation (Journal du Palais [225 U.S. 58, 1842] vol. 1, 171). See
also numerous authorities collected under the heading above stated in paragraph 21, under articles 516, 517, and
518 of the Code Napoleon. Fuzier-Herman ed. of that Code, p. 643.

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

As a matter of precaution we say that nothing we have said affects the rights, whatever they may be, of the heirs of
Sanchez, the original lessor.

Affirmed.
28
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

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


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

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

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

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

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

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc.,
was the defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant in that
action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty by the
sheriff. No third party claim was filed for such properties at the time of the sales thereof as is borne out by the record
made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein
having consummated the sale, proceeded to take possession of the machinery and other properties described in the
corresponding certificates of sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of
occasions treated the machinery as personal property by executing chattel mortgages in favor of third persons. One
of such persons is the appellee by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

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
29
determined by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New
York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is machinery
which is involved; moreover, machinery not intended by the owner of any building or land for use in connection
therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee
on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was held
that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the
property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the opinion written by Chief Justice White, whose knowledge
of the Civil Law is well known, it was in part said:

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

xxx xxx xxx

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

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

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


30
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 Compañia 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
31
placed there after the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage
Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R.
Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)

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

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

Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiff-appellant by
B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became owner of said machinery and
equipment, otherwise B.A. Green, as such president, could not have offered them to the plaintiff as security for the
payment of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.

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

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

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been
permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the mortgage constituted
on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor Mabalacat
Sugar Co., Inc., in the sugar central with which said machinery and equipment had been incorporated, was
transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and
equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the
industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar
central and subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code);
(2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from
mortgaging or otherwise encumbering them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the machinery and equipment in question by the
purchaser who was supplied the purchase money, as a loan, to the person who supplied the money, after the
incorporation thereof with the mortgaged sugar central, does not vest the creditor with ownership of said machinery
and equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So
ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.


32
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7057 October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,


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

Vicente J. Francisco for petitioner.


Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from a decision of the
Court of Appeals denying an original petition for certiorari filed by said petitioner against Hon. Potenciano Pecson,
Ipo Limestone Co., Inc., and Antonio Villarama, the respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First Instance of
Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo Limestone
Co., Inc., and Dr. Antonio Villarama, defendants", for the recovery of the machinery and equipment sold and
delivered to said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte
of the petitioner company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to seize and take
immediate possession of the properties specified in the order (Appendix I, Answer). On March 19, 1953, two
deputy sheriffs of Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers proceeded to
Bigti, for the purpose of carrying the court's order into effect. Leonardo Contreras, Manager of the
respondent Company, and Pedro Torres, in charge thereof, met the deputy sheriffs, and Contreras handed
to them a letter addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty.
Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in question, on the
ground that they are not personal properties. Contending that the Sheriff's duty is merely ministerial, the
deputy sheriffs, Roco, the latter's crew of technicians and laborers, Contreras and Torres, went to the
factory. Roco's attention was called to the fact that the equipment could not possibly be dismantled without
causing damages or injuries to the wooden frames attached to them. As Roco insisted in dismantling the
equipment on his own responsibility, alleging that the bond was posted for such eventuality, the deputy
sheriffs directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the defendant
Company filed an urgent motion, with a counter-bond in the amount of P15,769, for the return of the
properties seized by the deputy sheriffs. On the same day, the trial court issued an order, directing the
Provincial Sheriff of Bulacan to return the machinery and equipment to the place where they were installed
at the time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs returned the properties
seized, by depositing them along the road, near the quarry, of the defendant Company, at Bigti, without the
benefit of inventory and without re-installing hem in their former position and replacing the destroyed posts,
which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked the provincial
Sheriff if the machinery and equipment, dumped on the road would be re-installed tom their former position
and condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an urgent motion in court,
manifesting that Roco had been asked to furnish the Sheriff's office with the expenses, laborers, technical
men and equipment, to carry into effect the court's order, to return the seized properties in the same way
said Roco found them on the day of seizure, but said Roco absolutely refused to do so, and asking the court
that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff of the duty of
complying with the said order dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court
ordered the Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment removed by them in
their original condition in which they were found before their removal at the expense of the Plaintiff
(Appendix 7). An urgent motion of the Provincial Sheriff dated April 15, 1953, praying for an extension of 20
days within which to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the
trial court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the necessary funds,
technical men, laborers, equipment and materials to effect the repeatedly mentioned re-installation
(Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled "Machinery and
Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc.,
and Antonio Villarama." In the petition therein filed, it was alleged that, in ordering the petitioner to furnish the
provincial sheriff of Bulacan "with necessary funds, technical men, laborers, equipment and materials, to effect the
installation of the machinery and equipment" in question, the Court of Firs Instance of Bulacan had committed a
33
grave abuse if discretion and acted in excess of its jurisdiction, for which reason it was prayed that its order to
this effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the enforcement o
said order of may 4, 1953. Although the aforementioned writ was issued by the Court of Appeals, the same
subsequently dismissed by the case for lack of merit, with costs against the petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered by the respondent Court, it is,
however, logical to presume that said court did not authorize the petitioner or its agents to destroy, as they
did, said machinery and equipment, by dismantling and unbolting the same from their concrete basements,
and cutting and sawing their wooden supports, thereby rendering them unserviceable and beyond repair,
unless those parts removed, cut and sawed be replaced, which the petitioner, not withstanding the
respondent Court's order, adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the
insistent proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of the respondent
Judge to give redress to the respondent Company, for the unlawful and wrongful acts committed by the
petitioner and its agents. And as this was the true object of the order of March 30, 1953, we cannot hold that
same was within its jurisdiction to issue. The ministerial duty of the Sheriff should have its limitations. The
Sheriff knew or must have known what is inherently right and inherently wrong, more so when, as in this
particular case, the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms of the order.
While it may be conceded that this was a question of law too technical to decide on the spot, it would not
have costs the Sheriff much time and difficulty to bring the letter to the court's attention and have the
equipment and machinery guarded, so as not to frustrate the order of seizure issued by the trial court. But
acting upon the directives of the president of the Petitioner, to seize the properties at any costs, in issuing
the order sought to be annulled, had not committed abuse of discretion at all or acted in an arbitrary or
despotic manner, by reason of passion or personal hostility; on the contrary, it issued said order, guided by
the well known principle that of the property has to be returned, it should be returned in as good a condition
as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had gone beyond the scope of
his authority, it is the respondent Provincial Sheriff. But considering that fact that he acted under the
pressure of Ramon S. Roco, and that the order impugned was issued not by him, but by the respondent
Judge, We simply declare that said Sheriff' act was most unusual and the result of a poor judgment.
Moreover, the Sheriff not being an officer exercising judicial functions, the writ may not reach him,
for certiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded his manifestation that the
machinery and equipment seized were and still are the Petitioner's property until fully paid for and such
never became immovable. The question of ownership and the applicability of Art. 415 of the new Civil Code
are immaterial in the determination of the only issue involved in this case. It is a matter of evidence which
should be decided in the hearing of the case on the merits. The question as to whether the machinery or
equipment in litigation are immovable or not is likewise immaterial, because the only issue raised before the
trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was justified in
destroying the machinery and in refusing to restore them to their original form , at the expense of the
Petitioner. Whatever might be the legal character of the machinery and equipment, would not be in any way
justify their justify their destruction by the Sheriff's and the said Petitioner's. (Petitioner's brief, Appendix A,
pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied , petitioner has brought the
case to Us for review by writ of certiorari. Upon examination of the record, We are satisfied, however that the Court
of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to "personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully taken or detained
from the owner thereof, provided such property is capable of identification and delivery; but replevin will not
lie for the recovery of real property or incorporeal personal property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and equipment in
question appeared to be attached to the land, particularly to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be separated from the latter "without breaking the material or
deterioration of the object." Hence, in order to remove said outfit, it became necessary, not only to unbolt the same,
but , also, to cut some of its wooden supports. Moreover, said machinery and equipment were "intended by the
owner of the tenement for an industry" carried on said immovable and tended." For these reasons, they were
already immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which are
substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such immovable property,
they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the realty, it is not the
subject for personality; . . . .
34
. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to be part
thereof, as, for example, a house or a turbine pump constituting part of a building's cooling system; . . . (36
C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent and president, Mr.
Ramon Roco, insisted "on the dismantling at his own responsibility," stating that., precisely, "that is the reason why
plaintiff posted a bond ." In this manner, petitioner clearly assumed the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of Rule 62 of the
Rules of Court, the defendant in an action for replevin is entitled to the return of the property in dispute upon the
filing of a counterbond, as provided therein. In other words, petitioner knew that the restitution of said property to
respondent company might be ordered under said provision of the Rules of Court, and that, consequently, it may
become necessary for petitioner to meet the liabilities incident to such return.

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

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the petitioner. So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Reyes, J.B.L., JJ., concur.
Paras, C.J., concurs in the result.
35
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20329 March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,


vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.

Ross, Lawrence and Selph for petitioner.


City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of deeds of the
City of Manila, to an original petition of the Standard Oil Company of New York, seeking a peremptory mandamus to
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
36
to this court, in which the proper classification of one thing or another as real or personal property may be said to
be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative ruling
promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at that time in the capacity
of Judge of the fourth branch of the Court of First Instance of the Ninth Judicial District, in the City of Manila; and
little of value can be here added to the observations contained in said ruling. We accordingly quote therefrom as
follows:

It is unnecessary here to determine whether or not the property described in the document in question is real
or personal; the discussion may be confined to the point as to whether a register of deeds has authority to
deny the registration of a document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:

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

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

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

The demurrer is overruled; and unless within the period of five days from the date of the notification hereof, the
respondent shall interpose a sufficient answer to the petition, the writ of mandamus will be issued, as prayed, but
without costs. So ordered.

Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur.
37
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17898 October 31, 1962

PASTOR D. AGO, petitioner,


vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First Instance of Agusan,
THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.


Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R entitled "Pastor
D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the records that the
respondent Judge of the Court of First Instance of Agusan rendered judgment (Annex "A") in open court on
January 28, 1959, basing said judgment on a compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his counsel, did not
receive a formal and valid notice of said decision, which motion for reconsideration was denied by the court
below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering the execution
without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between them. (Gonzales vs.
Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is not appealable
and is immediately executory, unless a motion is filed on the ground fraud, mistake or duress. (De los Reyes
vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. 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.
38
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
39
copy of the signed judgment that has been filed with the clerk in order that he may legally be considered as
having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in open court, is
not sufficient to constitute the service of judgement as required by the above-quoted section 7 of Rule 2 the signed
judgment not having been served upon the petitioner, said judgment could not be effective upon him (petitioner) who
had not received it. It follows as a consequence that the issuance of the writ of execution null and void, having been
issued before petitioner her was served, personally or by registered mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals, concerns the
validity of the proceedings of the sheriff in selling the sawmill machineries and equipments at public auction with a
notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries and equipments
he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his subscription to the shares of stock of
said corporation. Thereafter the sawmill machinery and equipments were installed in a building and permanently
attached to the ground. By reason of such installment in a building, the said sawmill machineries and equipment
became real estate properties in accordance with the provision of Art. 415 (5) of the Civil Code, thus:

ART. 415. The following are immovable property:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements tended by the owner of the tenement for an industry
or works which may be carried on in a building or on a piece of land, and which tend directly to meet the
needs of the said industry or works;

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

Considering that the machineries and equipments in question valued at more than P15,000.00 appear to have been
sold without the necessary advertisement of sale by publication in a newspaper, as required in Sec. 16 of Rule 39 of
the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on execution, notice thereof
must be given as follows:

xxx xxx xxx

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

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and We declare that
the issuance of the writ of execution in this case against the sawmill machineries and equipments purchased by
petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as well as the sale of the same by the Sheriff of
Surigao, are null and void. Costs shall be against the respondent Grace Park Engineering, Inc.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal,
JJ., concur.
Padilla, J., took no part.
40
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17500 May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and CONNELL BROS. CO.
(PHIL.), defendants-appellants.

Angel S. Gamboa for defendants-appellants.


Laurel Law Offices for plaintiffs-appellants.

DIZON, J.:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do
business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the Dahican
Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO — for the total sum of
$500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to develop the concession, DALCO
obtained various loans from the People's Bank & Trust Company — hereinafter referred to as the BANK —
amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan of
$250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a
foreign corporation and a stockholder of DALCO, — hereinafter referred to as DAMCO, all payable to the BANK or
its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK
— the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed of mortgage
covering five parcels of land situated in the province of Camarines Norte together with all the buildings and other
improvements existing thereon and all the personal properties of the mortgagor located in its place of business in
the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date, DALCO executed
a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the
sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both deeds contained the
following provision extending the mortgage lien to properties to be subsequently acquired — referred to hereafter as
"after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all buildings, machinery,
fixtures, tools equipment and other property which the Mortgagor may hereafter acquire, construct, install,
attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to
the lien of this mortgage in the same manner and to the same extent as if now included therein, and the
Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an
accurate inventory of such substituted and subsequently acquired property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto
DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure
the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to
the Export-Import Bank of Washington D.C., and the latter assigned to the former its credit and the first mortgage
securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory
note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various
machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned
and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore regarding
"after acquired properties," the BANK requested DALCO to submit complete lists of said properties but the latter
failed to do so. In connection with these purchases, there appeared in the books of DALCO as due to Connell Bros.
Company (Philippines) — a domestic corporation who was acting as the general purchasing agent of DALCO —
thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, passed a
resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO
to it. Thereafter, the corresponding agreements of rescission of sale were executed between DALCO and DAMCO,
on the one hand and between DALCO and CONNELL, on the other.
41
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953; ATLANTIC and the
BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and
DAMCO. On the same date they filed an ex-parte application for the appointment of a Receiver and/or for the
issuance of a writ of preliminary injunction to restrain DALCO from removing its properties. The court granted both
remedies and appointed George H. Evans as Receiver. Upon defendants' motion, however, the court, in its order of
February 21, 1953, discharged the Receiver.

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging
several affirmative defenses and a counterclaim.

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and
possessor of some of the equipments, spare parts and supplies which DALCO had acquired subsequent to the
execution of the mortgages sought to be foreclosed and which plaintiffs claimed were covered by the lien. In its
order of March 18,1953 the Court granted the motion, as well as plaintiffs' motion to set aside the order discharging
the Receiver. Consequently, Evans was reinstated.

On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting
affirmative defenses and a counterclaim.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the action to
the Court of First Instance of Manila where it was docketed as Civil Case No. 20987.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and
supplies of DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was
deposited in court pending final determination of the action. By a similar agreement one-half (P87,500.00) of this
amount was considered as representing the proceeds obtained from the sale of the "undebated properties" (those
not claimed by DAMCO and CONNELL), and the other half as representing those obtained from the sale of the
"after acquired properties".

After due trial, the Court, on July 15, 1960, rendered judgment as follows:

IN VIEW WHEREFORE, the Court:

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per
annum from July 13, 1950, Plus another sum of P100,000.00 with 5% interest per annum from July 13,
1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest per
annum from July 3, 1950, plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto
Dahican American Lumber Co. the sum of P2,151,678.24 both with legal interest from the date of the filing
of the respective answers of those parties, 10% of the principals as attorney's fees;

4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the
recognized expenses, one-half thereof be adjudicated unto plaintiffs, the court no longer specifying the
share of each because of that announced intention under the stipulation of facts to "pool their resources"; as
to the other one-half, the same should be adjudicated unto both plaintiffs, and defendant Dahican American
and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23 of the body of this
decision; but with the understanding that whatever plaintiffs and Dahican American and Connell Bros.
should receive from the P175,000.00 deposited in the Court shall be applied to the judgments particularly
rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties shall
be borne by People's Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following
paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the
sale at public auction of the lands object of the mortgages to satisfy the said mortgages and costs of
foreclosure.

From the above-quoted decision, all the parties appealed.


42
Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to
the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO
and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales
to DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering the foregoing, the proceeds
obtained from the sale of the "after acquired properties" as well as those obtained from the sale of the "undebated
properties" in the total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the
mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of
them being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for
the purpose of defeating their mortgage lien, and finally, that defendants should have been made to bear all the
expenses of the receivership, costs and attorney's fees.

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had
no cause of action against them because the promissory note sued upon was not yet due when the action to
foreclose the mortgages was commenced; secondly, in not holding that the mortgages aforesaid were null and void
as regards the "after acquired properties" of DALCO because they were not registered in accordance with the
Chattel Mortgage Law, the court erring, as a consequence, in holding that said properties were subject to the
mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each of said
mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning
thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said
stipulation was void as against DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of
the "after acquired properties" to the latter exclusively; fifthly, in appointing a Receiver and in holding that the
damages suffered by DAMCO and CONNELL by reason of the depreciation or loss in value of the "after acquired
properties" placed under receivership was damnum absque injuria and, consequently, in not awarding, to said
parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO and DAMCO to pay
attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership, instead of sentencing
plaintiffs to pay attorney's fees.

Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a
total of seventeen. However, the multifarious issues thus before Us may be resolved, directly or indirectly, by
deciding the following issues:

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of
foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid and binding on the
properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the Chattel
Mortgage Law?; thirdly, assuming again that the mortgages are valid and binding upon the "after acquired
properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one hand, between
DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose
the mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and
description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and
other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the
premises — that is, its lumber concession — "shall immediately be and become subject to the lien" of both
mortgages in the same manner and to the same extent as if already included therein at the time of their execution.
As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in
discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say
logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or
were intended to be sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the
understanding — express or implied — that they shall be replaced with others to be thereafter acquired by the
mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by circumstances, the original value of the properties given as security. Indeed, if such properties were of
the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a
similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after
acquired properties" of DALCO, the same are void and ineffectual because they were not registered in accordance
with the Chattel Mortgage Law. In support of this and of the proposition that, even if said mortgages were valid, they
should not prejudice them, the defendants argue (1) that the deeds do not describe the mortgaged chattels
specifically, nor were they registered in accordance with the Chattel Mortgage Law; (2) that the stipulation contained
in the fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the "after acquired
properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties"
should not prejudice creditors and other third persons such as DAMCO and CONNELL.

The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states that
all property of every nature, building, machinery etc. taken in exchange or replacement by the mortgagor "shall
immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if
now included therein". No clearer language could have been chosen.
43
Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage
must be registered and must describe the mortgaged chattels or personal properties sufficiently to enable the
parties and any other person to identify them, We say that such law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no
doubt that the provisions of said code must govern their interpretation and the question of their validity. It happens
however, that Articles 334 and 1877 of the old Civil Code are substantially reproduced in Articles 415 and 2127,
respectively, of the new Civil Code. It is, therefore, immaterial in this case whether we take the former or the latter
as guide in deciding the point under consideration.

Article 415 does not define real property but enumerates what are considered as such, among them being
machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said
industry or works.

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were
placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art.
2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives
the character of real property to machinery, liquid containers, instruments or replacements 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.

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar
central includes not only the land on which it is built but also the buildings, machinery and accessories installed at
the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof .

It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection
with, and for use in the development of its lumber concession and that they were purchased in addition to, or in
replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be deemed to
have been immobilized, with the result that the real estate mortgages involved herein — which were registered as
such — did not have to be registered a second time as chattel mortgages in order to bind the "after acquired
properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after
acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber
concession all over which said properties were scattered.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the
former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery therein involved as personal
property by executing chattel mortgages thereon in favor of third parties, while in the present case the parties had
treated the "after acquired properties" as real properties by expressly and unequivocally agreeing that they shall
automatically become subject to the lien of the real estate mortgages executed by them. In the Davao Sawmill
decision it was, in fact, stated that "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" (61 Phil. 112, emphasis
supplied). In the present case, the characterization of the "after acquired properties" as real property was made not
only by one but by both interested parties. There is, therefore, more reason to hold that such consensus impresses
upon the properties the character determined by the parties who must now be held in estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58) where it
was held that while under the general law of Puerto Rico, machinery placed on property by a tenant does not
become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to the owner, it
then becomes immobilized as to that tenant and even as against his assignees and creditors who had sufficient
notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the "after acquired properties"
to be placed on, and be used in the development of its lumber concession, and agreed further that the same shall
become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence
in the record that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed
validity until the present case was filed. Consequently all of them must be deemed barred from denying that the
properties in question had become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their
contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO
and CONNELL.
44
Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties"
superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to
said properties they are "unpaid sellers"; that as such they had not only a superior lien on the "after acquired
properties" but also the right to rescind the sales thereof to DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL were the
suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did not know their exact
identity and description prior to the filing of the case bar because DALCO, in violation of its obligation under the
mortgages, had failed and refused theretofore to submit a complete list thereof. In the course of the proceedings,
however, when defendants moved to dissolve the order of receivership and the writ of preliminary injunction issued
by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the properties
aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire
properties," and engaged the services of auditors to examine the books of DALCO so as to bring out the details
thereof. The report of the auditors and its annexes (Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL
had supplied any of the goods of which they respective claimed to be the unpaid seller; that all items were supplied
by different parties, neither of whom appeared to be DAMCO or CONNELL that, in fact, CONNELL collected a 5%
service charge on the net value of all items it claims to have sold to DALCO and which, in truth, it had purchased for
DALCO as the latter's general agent; that CONNELL had to issue its own invoices in addition to those o f the real
suppliers in order to collect and justify such service charge.

Taking into account the above circumstances together with the fact that DAMCO was a stockholder and CONNELL
was not only a stockholder but the general agent of DALCO, their claim to be the suppliers of the "after acquired
required properties" would seem to be preposterous. The most that can be claimed on the basis of the evidence is
that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still owes them any amount in
this connection, it is clear that, as financiers, they can not claim any right over the "after acquired properties"
superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution
of the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or improve DAMCO
and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien
over the "after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the
"unpaid sellers" they claim to be but also because there is abundant evidence in the record showing that both
DAMCO and CONNELL had known and admitted from the beginning that the "after acquired properties" of DALCO
were meant to be included in the first and second mortgages under foreclosure.

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no
consequence and does not make the rescission valid and legally effective. It must be stated clearly, however, in
justice to Belden, that, as a member of the Board of Directors of DALCO, he opposed the resolution of December
15, 1952 passed by said Board and the subsequent rescission of the sales.

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature
because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this that,
when the action was commenced, the plaintiffs had no cause of action. Upon this question the lower court says the
following in the appealed judgment;

The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace,
conceded an extension of time to pay up to 1 April, 1953 while the action was filed on 12 February, 1953,
but, as to this, the Court taking it that there is absolutely no debate that Dahican Lumber Co., was insolvent
as of the date of the filing of the complaint, it should follow that the debtor thereby lost the benefit to the
period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate,
P1,200,000 excluding interest while the aggregate price of the "after-acquired" chattels claimed by Connell
under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V, report of auditors, and as a matter of fact,
almost all the properties were sold afterwards for only P175,000.00, page 47, Vol. IV, and the Court
understanding that when the law permits the debtor to enjoy the benefits of the period notwithstanding that
he is insolvent by his giving a guaranty for the debt, that must mean a new and efficient guaranty, must
concede that the causes of action for collection of the notes were not premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding
that, when the action was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of
the Civil Code. We find, however, that the finding of the trial court is sufficiently supported by the evidence
particularly the resolution marked as Exhibit K, which shows that on December 16, 1952 — in the words of the
Chairman of the Board — DALCO was "without funds, neither does it expect to have any funds in the foreseeable
future." (p. 64, record on appeal).

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired properties"
should have been awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they should be
distributed among said parties, whether or not the distribution should be pro-rata or otherwise; whether or not
45
plaintiffs are entitled to damages; and, lastly, whether or not the expenses incidental to the Receivership should
be borne by all the parties on a pro-rata basis or exclusively by one or some of them are of a secondary nature as
they are already impliedly resolved by what has been said heretofore.

As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it
is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should
be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under
foreclosure.

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the
New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them; and that any
third person who induces another to violate his contract shall be liable for damages to the other contracting party.
Similar liability is demandable under Arts. 20 and 21 — which may be given retroactive effect (Arts. 225253) — or
under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth
promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph
of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the "after acquired
properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized. Defendants' liability
for damages is therefore clear.

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference
between the alleged total obligation secured by the mortgages amounting to around P1,200,000.00, plus the
stipulated interest and attorney's fees, on the one hand, and the proceeds obtained from the sale of "after acquired
properties", and of those that were not claimed neither by DAMCO nor CONNELL, on the other. Considering that
the sale of the real properties subject to the mortgages under foreclosure has not been effected, and considering
further the lack of evidence showing that the true value of all the properties already sold was not realized because
their sale was under stress, We feel that We do not have before Us the true elements or factors that should
determine the amount of damages that plaintiffs are entitled recover from defendants. It is, however, our considered
opinion that, upon the facts established, all the expenses of the Receivership, which was deemed necessary to
safeguard the rights of the plaintiffs, should be borne by the defendants, jointly and severally, in the same manner
that all of them should pay to the plaintiffs, jointly a severally, attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover
from the defendants, the record of this case shall be remanded below for the corresponding proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
46
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.


Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the Municipal Board of
Manila to grant a franchise to construct, maintain and operate an electric street railway and electric light, heat and
power system in the City of Manila and its suburbs to the person or persons making the most favorable bid. Charles
M. Swift was awarded the said franchise on March 1903, the terms and conditions of which were embodied in
Ordinance No. 44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is transmitted
to the City of Manila by means of electric transmission wires, running from the province of Laguna to the said City.
These electric transmission wires which carry high voltage current, are fastened to insulators attached on steel
towers constructed by respondent at intervals, from its hydro-electric plant in the province of Laguna to the City of
Manila. The respondent Meralco has constructed 40 of these steel towers within Quezon City, on land belonging to
it. A photograph of one of these steel towers is attached to the petition for review, marked Annex A. Three steel
towers were inspected by the lower court and parties and the following were the descriptions given there of by said
court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The findings were as
follows: the ground around one of the four posts was excavated to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter, decreased to about a quarter of a meter as it we deeper until it
reached the bottom of the post; at the bottom of the post were two parallel steel bars attached to the leg
means of bolts; the tower proper was attached to the leg three bolts; with two cross metals to prevent
mobility; there was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with certainty to
whether said adobe stone was placed purposely or not, as the place abounds with this kind of stone; and the
tower carried five high voltage wires without cover or any insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by the
petitioner approximate more than one kilometer from the first tower. As in the first tower, the ground around
one of the four legs was excavate from seven to eight (8) feet deep and one and a half (1-½) meters wide.
There being very little water at the bottom, it was seen that there was no concrete foundation, but there soft
adobe beneath. The leg was likewise provided with two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the second tower is made up of metal rods joined together by
means of bolts, so that by unscrewing the bolts, the tower could be dismantled and reassembled.

The third tower examined is located along Kamias Road, Quezon City. As in the first two towers given
above, the ground around the two legs of the third tower was excavated to a depth about two or three inches
beyond the outside level of the steel bar foundation. It was found that there was no concrete foundation. Like
the two previous ones, the bottom arrangement of the legs thereof were found to be resting on soft adobe,
which, probably due to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers for real
property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's petition to cancel these
declarations, an appeal was taken by respondent to the Board of Assessment Appeals of Quezon City, which
required respondent to pay the amount of P11,651.86 as real property tax on the said steel towers for the years
1952 to 1956. Respondent paid the amount under protest, and filed a petition for review in the Court of Tax Appeals
(CTA for short) which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of P11,651.86.
The motion for reconsideration having been denied, on April 22, 1959, the instant petition for review was filed.
47
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term "poles" which
are declared exempt from taxes under part II paragraph 9 of respondent's franchise; (2) the steel towers are
personal properties and are not subject to real property tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are assigned as errors by the petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including
poles, wires, transformers, and insulators), machinery and personal property as other persons are or may be
hereafter required by law to pay ... Said percentage shall be due and payable at the time stated in paragraph
nineteen of Part One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature and
by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted.
(Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as typically the
stem of a small tree stripped of its branches; also by extension, a similar typically cylindrical piece or object of metal
or the like". The term also refers to "an upright standard to the top of which something is affixed or by which
something is supported; as a dovecote set on a pole; telegraph poles; a tent pole; sometimes, specifically a vessel's
master (Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be
seen cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars
joined together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no made of
wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the character of the electric current it carries, nor the
material or form of which it is made, but the use to which they are dedicated. In accordance with the definitions, pole
is not restricted to a long cylindrical piece of wood or metal, but includes "upright standards to the top of which
something is affixed or by which something is supported. As heretofore described, respondent's steel supports
consists of a framework of four steel bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and their sole function is to support or carry
such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a novelty.
Several courts of last resort in the United States have called these steel supports "steel towers", and they
denominated these supports or towers, as electric poles. In their decisions the words "towers" and "poles" were
used interchangeably, and it is well understood in that jurisdiction that a transmission tower or pole means the same
thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided that wires shall be
constructed upon suitable poles, this term was construed to mean either wood or metal poles and in view of the land
being subject to overflow, and the necessary carrying of numerous wires and the distance between poles, the
statute was interpreted to include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A
Words and Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an association used to convey
its electric power furnished to subscribers and members, constructed for the purpose of fastening high voltage and
dangerous electric wires alongside public highways. The steel supports or towers were made of iron or other metals
consisting of two pieces running from the ground up some thirty feet high, being wider at the bottom than at the top,
the said two metal pieces being connected with criss-cross iron running from the bottom to the top, constructed like
ladders and loaded with high voltage electricity. In form and structure, they are like the steel towers in question. (Salt
River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the generation of hydro-
electric power generated from its plant to the Tower of Oxford and City of Waterbury. These steel towers are about
15 feet square at the base and extended to a height of about 35 feet to a point, and are embedded in the cement
foundations sunk in the earth, the top of which extends above the surface of the soil in the tower of Oxford, and to
the towers are attached insulators, arms, and other equipment capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death was built for the
purpose of supporting a transmission wire used for carrying high-tension electric power, but claimed that the steel
towers on which it is carried were so large that their wire took their structure out of the definition of a pole line. It was
held that in defining the word pole, one should not be governed by the wire or material of the support used, but was
considering the danger from any elevated wire carrying electric current, and that regardless of the size or material
wire of its individual members, any continuous series of structures intended and used solely or primarily for the
purpose of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan
252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the petitioner's franchise,
should not be given a restrictive and narrow interpretation, as to defeat the very object for which the franchise was
48
granted. The poles as contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the source thereof to its consumers. If
the respondent would be required to employ "wooden poles", or "rounded poles" as it used to do fifty years back,
then one should admit that the Philippines is one century behind the age of space. It should also be conceded by
now that steel towers, like the ones in question, for obvious reasons, can better effectuate the purpose for which the
respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not embraced within the
termpoles, the logical question posited is whether they constitute real properties, so that they can be subject to a
real property tax. The tax law does not provide for a definition of real property; but Article 415 of the Civil Code does,
by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx xxx xxx

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

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried in a building or on a piece of land, and which tends directly to meet
the needs of the said industry or works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because they do
not constitute buildings or constructions adhered to the soil. They are not construction analogous to buildings nor
adhering to the soil. As per description, given by the lower court, they are removable and merely attached to a
square metal frame by means of bolts, which when unscrewed could easily be dismantled and moved from place to
place. They can not be included under paragraph 3, as they are not attached to an immovable in a fixed manner,
and they can be separated without breaking the material or causing deterioration upon the object to which they are
attached. Each of these steel towers or supports consists of steel bars or metal strips, joined together by means of
bolts, which can be disassembled by unscrewing the bolts and reassembled by screwing the same. These steel
towers or supports do not also fall under paragraph 5, for they are not machineries, receptacles, instruments or
implements, and even if they were, they are not intended for industry or works on the land. Petitioner is not engaged
in an industry or works in the land in which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the sum of
P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as the City Treasurer is not
the real party in interest, but Quezon City, which was not a party to the suit, notwithstanding its capacity to sue and
be sued, he should not be ordered to effect the refund. This question has not been raised in the court below, and,
therefore, it cannot be properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted that
respondent herein pay the real estate taxes, which respondent paid under protest. Having acted in his official
capacity as City Treasurer of Quezon City, he would surely know what to do, under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.
49
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-41506 March 25, 1935

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


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

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.

MALCOLM, J.:

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

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

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on the contrary
sustained the special defenses of fatal defectiveness of the mortgages. In so doing we believe that the trial judge
acted advisedly.

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

The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel
mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith.
The absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers. (Giberson vs.
A. N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of
Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the affidavit of
good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not constitute chattel mortgages or
at least to gloss over the failure to include the affidavit of good faith made a requisite for a good chattel mortgage by
the Chattel Mortgage Law. Counsel would further have us disregard article 585 of the Code of Commerce, but no
reason is shown for holding this article not in force. Counsel would further have us revise doctrines heretofore
announced in a series of cases, which it is not desirable to do since those principles were confirmed after due
50
liberation and constitute a part of the commercial law of the Philippines. And finally counsel would have us make
rulings on points entirely foreign to the issues of the case. As neither the facts nor the law remains in doubt, the
seven assigned errors will be overruled.

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

Avanceña, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ., concur.
51
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-5029 April 1, 1909

JOSE MCMICKING, sheriff of the city of Manila, plaintiff-appellee,


vs.
EL BANCO ESPAÑOL-FILIPINO, ET AL., defendants.
MANUEL AYALA, appellant.

Rosado, Sanz and Opisso for appellant.


Ortigas and Fisher for appellee.

JOHNSON, J.:

From the record the following facts appear.

First. That prior to the 21st day of February, 1907, one Sanchez and one Cue Suan as a sociedad en
comanditawere the owners of a certain steamship, known as the Hock-Tay.

Second. That on the 21st day of February, 1907, the said sociedad borrowed from El Banco Español-Filipino the
sum of P3,000 at 8 per cent per annum from the 21st day of September, 1907, until paid, and gave as security for
the payment of said sum a chattel mortgage executed and delivered in accordance with Act No. 1508 of the
Philippine Commission.

Third. That said mortgage was duly recorded in the office of the collector of customs of the port of Manila on the
27th day of February, 1907, in the record of conveyances of titles, mortgages and hypothecations of vessels
documented at said port.

Fourth. That said mortgage was duly recorded in the office of the register of property of the city of Manila on the
13th day of September, 1907, in accordance with the provisions of section 4 of said Act (No. 1508).

Fifth. That, upon the 10th day of October, 1907, El Banco Español-Filipino caused to be delivered to the sheriff of
the city of Manila the said chattel mortgage on the said steamer, Hock-Tay, together with notice that the terms of
said mortgage had been broken by the mortgagors, and requested that the sheriff sell said mortgaged property in
accordance with the provisions of section 14 of said Act (No. 1508).

Sixth. The sheriff gave notice to said mortgagors of said request on the part of said mortgagee (El Banco Español-
Filipino) and that said ship would be sold in accordance with the law.

Seventh. That due notice was given of the sale of said mortgaged property (the Hock-Tay) in accordance with the
provisions of said Act.

Eighth. That the date fixed for the sale of said property was the 27th day of October, 1907.

Ninth. That, upon the 27th day of October, 1907, Manuel Ayala served upon the said sheriff the following notice:

MANILA, October 26, 1907.

To the SHERIFF OF THE CITY OF MANILA.

SIR: As captain of the steamer Hock-Tay, the judicial sale of which has been advertised by you for the 28th
instant, at 9 o'clock, a. m., I make demand upon you not to deliver to the Banco Español-Filipino the sum of
P4,441.92, which is the amount of the wages of the crew and expenses of supplies now owing, and which,
in accordance with the Code of Commerce, constitute preferred claims; I make this claim in writing and
under oath, as shown by the attached affidavit.

Very respectfully,

(Signed) MANUEL AYALA.

The attached affidavit is as follows:


52
CITY OF MANILA, PHILIPPINE ISLANDS, ss.:

Manuel Ayala, being first duly sworn, says that he is the holder of a captain's license authorizing him to
command vessels of any tonnage in Philippine waters; that he is at the present time captain of the
steamer Hock-Tay, registered in the port of Manila, P. I. That the said steamer Hock-Tay has been attached
by the sheriff of Manila, who has announced the judicial sale thereof for the 28th instant to satisfy a credit in
favor of the Banco Español-Filipino; that in accordance with article 580 of the Code of Commerce, the
money due to the captain and other members of the crew for salaries is entitled to preference over the claim
of the bank; that the amounts owing by the ship for her equipment and provisions are also entitled to
preference; that the wages due the captain and crew as shown by the shipping articles and account books
of the vessel amount to the sum of P2,840.19; that the sum of P1,601.73 is now owing to the affiant for
provisions, equipment and supplies furnished the vessel and expended during her last voyage upon proper
authority.

(Signed) MANUEL AYALA.

Subscribed and sworn to before me, etc.

Tenth. On the 27th day of October, 1907, the steamer was sold to the highest bidder for cash for the sum of
P30,000.

On the 30th day of October, 1907, the sheriff of the city of Manila filed a complaint in the Court of First Instance of
the city of Manila in which the foregoing facts were, in substance, alleged, which complaint concluded with the
following prayer:

The plaintiff asks the court:

1. That the defendants be requested to interplead their respective rights to said funds.

2. That, upon the delivery of the said funds to such person or persons ordered by the court, the plaintiff be
relieved of any responsibility as to all the defendants in connection with said funds; and

3. That the plaintiff be granted any other remedy which the court may deem just and equitable.

To this complaint the defendant Manuel Ayala answered and alleged his claim or lien which he held against the said
ship Hock-Tay. On the 9th day of November, 1907, the defendant El Banco Español-Filipino presented its answer in
which it attempted to show that neither the said Sanchez et al., nor the said Manuel Ayala had any right whatever to
participate in the proceeds of the sale of said ship by said sheriff, and claimed that all of the money except the legal
expenses should be paid to said bank. The record does not disclose whether or not the said sociedad en
comanditafiled an answer in said cause.

Upon the 4th day of August, 1908, the attorneys for El Banco Español-Filipino and for the said Manuel Ayala
entered into an agreement in the words and figures following:

For the purposes of this suit it is hereby stipulated between the representative of the Banco Español-Filipino
and of Captain Don Manuel Ayala, as follows:

First. That the facts alleged in the paragraphs 1, 2, 4, 5, 6, 7, 8, and 9 of the complaint of interpleader filed in
these proceedings by J. McMicking, as sheriff of the city of Manila, are true.

Second. That it is true that the mortgage deed of the steamer Hock-Tay, which appears literally copied in
paragraph 5 of the said complaint, was duly recorded by the customs of Manila, on the 27th day of February,
1907, and in the registry of chattel mortgages of the city of Manila on the 13th day of September, 1907.

Third. That the limited partnership named "Sanchez y Cue Sang," sociedad en comandita, was the owner of
the aforesaid steamer Hock-Tay at the date on which the representative of that partnership executed the
mortgage deed of said steamer in favor of the Banco Español-Filipino.

Fourth. That there is no credit, arising from the maintenance of the steamer Hock-Tay, recorded in the
mercantile registry in favor of Captain Ayala.

Fifth. That the last voyage of the steamer Hock-Tay prior to her sale by virtue of the mortgage executed by
the partnership owner of the same in favor of the Banco Español-Filipino, began on the 12th of September,
1907, and ended on the 29th of September of the same year.

Sixth. That the allegations contained in paragraphs 1, 2, 5, 6, and 7 of the answer of Manuel Ayala are true.
53
Seventh. That Captain Manuel Ayala was the one who collected from the agents "Sanchez y Cue
Sang," sociedad en comandita, the wages of the crew having nothing to do with the ship's agents whom
they did not know and with whom they made no contract except through Captain Ayala.

Eighth. That the officers and crew of the steamer Hock-Tay, the same as all those belonging to the
coastwise trade of these Islands, were hired upon a monthly salary with food and drink.

Ninth. That Inchausti & Co., as charterers of the steamer Hock-Tay, paid to Manuel Ayala, during the month
of September, 1907, all expenses for subsistence, with the exception of those corresponding to the
maintenance of the officers and crew, and that the balances appearing in Exhibits C and D, attached to the
answer of Manuel Ayala, only refer to the food and drink of the officers and crew.

Tenth. That the firm of H. J. Andrew & Co. was the authorized agent of the partnership "Sanchez y Cue
Sang," sociedad en comandita, the owner of the steamer Hock-Tay, and that G. Andrews was authorized to
represent the firm of H. J. Andrews & Co.

Eleventh. That the days of service of the crew and officers referred to in the statement contained in Exhibit
B, attached to the answer to Captain Manuel Ayala, are intended to correspond to a number of successive
days from the 1st day of October, 1907.

Twelfth. That the port of Manila was, during all the dates referred to in this suit, the port of entry of the
steamer Hock-Tay.

Thirteenth. That on the date of the sale of the steamer Hock-Tay, under the mortgage executed by the
partnership owner of said vessel in favor of the Banco Español-Filipino, the amount of the lien created on
said vessel in favor of the mortgage creditor was the sum of thirty thousand (P30,000) pesos, Philippine
currency, with the interest thereon at the rate of 8 per cent per year, from the 21st of September, 1907, the
date of the last payment of interest.

The respective parties signing this stipulation pray the court to render a decision in the case in accordance
with the facts contained herein, respectively waiving the submission of other evidence.

Manila, August 4, 1908.

(Signed) ORTIGAS AND FISHER,


Attorneys for the Banco Español-Filipino.

(Signed) ROSANDO, SANZ AND OPISSO,


Attorneys for Don Manuel Ayala.

Upon this agreed statement of the facts the cause was submitted to the lower court and after due consideration of
the facts that court rendered a judgment upon the 29th day of September, 1908, the dispositive part of which was in
the words following:

The court therefore finds that there is due the defendant Ayala from the proceeds of the sale of the vessel
and in preference to the claim of the mortgagee the said sum of P756.66. It is therefore considered and
adjudged that the judgment herein of January 20, 1908, be and the same is hereby vacated and that the
sheriff of Manila, out of the proceeds of the sale of said vessel as reported by him, pay to the defendant
Manuel Ayala the said sum of P756.66, and that the balance of said proceeds less the costs of this
proceeding be paid to the mortgagee, the Banco Español-Filipino.

From this decision of the lower court the defendant Manuel Ayala duly appealed and made the following assignment
of error:

The Court of First Instance of Manila, in rendering judgment in the above entitled case, committed error:

I. In considering the credit of the Banco Español-Filipino as questionably a mortgage credit, in a suit in which
the adverse party in interest is not the debtor, but a third party.

II. In not acknowledging the lien existing in favor of all the credits claimed by the appellant.

III. In making, for the purposes of compliance with a mercantile contract, computations of time which violate
the provisions of articles 57 and 60 of the Code of Commerce, giving to article 646 of the same code a
restrictive construction which leads to an absurdity.

IV. In giving to the food and drink of the crew, who give their services for salary and maintenance, a distinct
character of salary or rent like an industrial contract of lease.
54
V. In not granting the appellant Ayala the wages corresponding to the subordinate crew employed by him
on the ship, and who are unable to claim, by themselves, their salaries, on account of the small amount of
the same and the wandering character of the life imposed upon them by their occupation.

VI. In granting the credit of the Banco Español-Filipino a preference over a great part of those claimed by the
appellant Ayala, which were expenses incurred for the maintenance and benefit of the vessel during the
existence of the mortgage in favor of the bank.

El Banco Español-Filipino did not appeal from the judgment of the lower court and therefore whatever error may
have been committed by the lower court to the prejudice of the said bank can not now be considered.

The claim of the defendant Manuel Ayala is based upon the theory that the wages of the crew and expenses
incurred for the ship and furnishing supplies for the same have a preference over the claim of the other defendant,
El Banco Español-Filipino. The defendant, the said Ayala, evidently bases his claim upon the provisions of articles
580 and 646 of the Code of Commerce. Article 580 is as follows:

In all judicial sales of vessels for the payment of creditors, the following shall have preference in the order
stated:

1. The credits in favor of the public treasury which are accounted for by means of a judicial certificate of the
competent authority.

2. The judicial costs of the proceedings, according to an appraisement approved by the judge or court.

3. The pilotage charges, tonnage dues, and the other sea or port charges, proven by means of proper
certificates of the officers intrusted with the collection.

4. The salaries of the caretakers and watchmen of the vessel and any other expense connected with the
preservation of said vessel, from the time of arrival until her sale, which appear to have been paid or are due
by virtue of a true account approved by the judge or court.

5. The rent of the warehouse where the rigging and stores of the vessel have been taken care of, according
to contract.

6. The salaries due the captain and crew during their last voyage, which shall be vouched for by virtue of the
liquidation made from the shipping articles and account books of the vessel, approved by the chief of the
bureau of merchant marine where there is one, and in his absence by the consul, or judge, or court.

7. The reimbursement for the goods of the freight the captain may have sold in order to repair the vessel,
provided the sale has been ordered by a judicial instrument executed with the formalities required in such
cases, and recorded in the certificate of the registry of the vessel.

8. The part of the price which has not been paid the last vendor, the credits pending for the payment of
material and work in the construction of the vessel, when it has not navigated, and those arising from the
repair and equipment of the vessel and its provisioning with victuals and fuel during its last voyage.

In order that said credits may enjoy the preference contained in this number, they must appear by contracts
recorded in the commercial registry, or if they were contracted for the vessel while on a voyage and said
vessel has not returned to the port where she is registered, they must be proven with the authority required
for such cases and entered in the certificate of the record of said vessel.

9. The amounts borrowed on bottomry bonds before the departure of the vessel, proven by means of the
contracts executed according to law and recorded in the commercial registry, the amounts borrowed during
the voyage with the authority mentioned in the foregoing number, filling the same requisites, and the
insurance premium, proven by the policy of the contract or certificate taken from the books of the broker.

10. The indemnity due the shippers for the value of the goods shipped, which were not delivered to the
consignees, or for averages suffered for which the vessel is liable, provided either appear in a judicial or
arbitration decision.

By reference to paragraph 6 of said article 580, as above quoted, it is seen that in all judicial sales of vessels the
salaries due the captain and the crew during the last voyage shall be paid in accordance with the preferences
mentioned in said article out of the proceeds of said ship. Article 646 of said Code of Commerce provides:

The vessel with her engines, rigging, equipment, and freights shall be liable for the pay earned by the crew
engaged per month or for the trip, the liquidation and payment to take place between one voyage and the
other.
55
After a new voyage has been undertaken, credits such as the former shall lose their right of preference.

This article creates a lien upon a ship in favor of the crew engage in the operation of the same and this lien in favor
of the crew takes certain preference in accordance with the provisions of said articles 580. The wages due the crew
and expenses incurred in maintaining the ship during the last voyage constitute a lien under the law and take the
preference over a lien created by giving the ship as security for money borrowed. The crew, therefore, under article
580 of the Commercial Code, for their wages, etc., for the last voyage, having a prior lien upon a ship, to the lien
created in the present case by the chattel mortgage. Liens in favor of the crew under these circumstances are
known as legal liens and whoever buys a ship or loans money and takes a chattel mortgage as security, takes the
ship subject to such prior liens. In the present case the said mortgage was executed and delivered in accordance
with the provisions of Act No. 1508 of the Philippine Commission. The ship was sold by the sheriff of the city of
Manila in accordance with the provisions of section 14 of that Act. Section 14 provides the method of disposing of
the funds received under such a sale. The method is as follows:

The proceeds of such sale shall be applied to the payment, (1) of the cost and expenses of keeping and
sale; (2) to the payment of the demand or obligation secured by such mortgage; (3) the residue shall be paid
to persons holding subsequent mortgages in their order; and (4) the balance shall be paid to the mortgagor
or person holding under him on demand.

It will be seen that there is no provision in the law for using the funds received in the sale of mortgaged property for
the payment of amounts due on prior liens. The reason is plain why no such provision was made. It is that in no
case can such a sale or a sale based upon the second mortgage or lien upon property affect in any way prior liens.
To illustrate: Suppose that "A" held a mortgage against the ship in question, executed, delivered, and recorded prior
to the date of the mortgage executed, delivered, and recorded to and by El Banco Español-Filipino. Certainly the
sale of the ship under the mortgage in favor of the second mortgagee could in no way affect the rights which "A"
held against the ship and the purchaser under the sale of the mortgage in favor of El Banco Español-Filipino would
take ship subject to the claim which "A" held against the same. The lien which Manuel Ayala and the other members
of his crew held against the said ship were exactly analogous to the claims of "A" in the above illustration. Therefore
the sale of the ship under the mortgage in question in no way divested the lien which the law created in favor of the
said Manuel Ayala and his crew against the ship in question. His remedy is, therefore, not against the money which
was received under said sale, but against the ship by foreclosing his lien against the same. It is true that under a
sale of personal property in accordance with section 14 of said Act, the sheriff has a right to pay the costs and
expenses of keeping and sale, but we are not of the opinion that this relates to the cost of keeping and maintaining
the ship prior to the time when the sheriff takes possession of it for the purpose of selling the same.

The Code of Commerce refers to two methods of sale: one a judicial and the other a voluntary sale. Article 580
provides how the funds received from a judicial sale shall be distributed and for the cancellation of liens held against
the ship. But it can not be contended, even under the provisions of article 582, that by the mere fact that a ship has
been sold under a judicial sale, the rights of prior lien holders, who were not parties to the procedure under which
such sale took place, were foreclosed. The rights of persons not parties to a proceeding can not be affected thereby.
Article 582 gives a certain time within which the creditors shall present and enforce their liens when the sale is a
voluntary one. Articles 579 and 584 provide a method of collecting or enforcing not only the liens created under
section 580 but also for the collection of any other kind of lien whatsoever.

The appellant alleges that the lower court committed an error in not allowing Manuel Ayala to collect the amount due
the other members of the crew. The lower court denied the right of Ayala to collect the amount due the other
members of the crew upon the theory that he was not the real person in interest and was not, therefore, permitted to
collect the amount under section 114 of the Code of Civil Procedure in Civil Actions. The lower court allowed Ayala
to collect the amount that was due him, as well as the amount which was due other members of the crew and which
had been assigned to him. With reference to the amounts which had been assigned to him he was the real party in
interest and, if he was entitled to recover at all he was entitled to recover not only what was due him but what had
been assigned to him. But under no theory could he recover the amount due to the other members of the crew
whose claims had not been assigned to him. Said section 114 of the Code of Civil Procedure in Civil Actions
expressly provides that every action must be prosecuted in the name of the real party in interest. This section of the
code recognizes the assignments of rights of action and also recognizes that when one has a right of action
assigned to him he is then the real party in interest and may maintain an action upon such claim or right. The
purpose of section 114 is to require the plaintiff to be the real party in interest, or, in other words, he must be the
person to whom the proceeds of the action shall belong, and to prevent actions by persons who have no interest in
the result of the same. Of course the said section can not be construed to prohibit the maintenance of an action by
one who is legally authorized to represent the real parties in interest.

In view of the fact that the defendant El Banco Español-Filipino did not appeal from the judgment of the lower court
in which the defendant Manuel Ayala was allowed the sum of P756.66 out of the proceeds of the sale, we make no
change in the result of the decision in the lower court.

For all the foregoing reasons, the judgment of the lower court is hereby affirmed, without any special finding as to
costs.

Arellano, C. J., Torres, Mapa, and Carson, JJ., concur.


56
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-31865 February 28, 1930

MARIANO B. ARROYO, provincial Sheriff of Iloilo, plaintiff-appellee,


vs.
MARIA CORAZON YU DE SANE, JOSE, M. PO PAUCO, and PO SUY LIONG, defendants-appellants.
PHILIPPINE NATIONAL BANK, defendant-appellee.

Luis G. Hofileña for appellant Corazon Yu de Sane.


Tomas Villa-Real, Teofilo del Rosario and Tiburcio Lutero for appellants Po Pauco and Po Suy Liong.
Plaintiff-appellee in his own behalf.
Roman J. Lacson for defendant-appellee National Bank.

MALCOLM, J.:

In the Court of First Instance of Iloilo, the sheriff of that province instituted an action to compel the various persons
and entities with claims to the lorchas China and Cuylim to interplead with one another to determine their conflicting
rights. As a result, Po Suy Liong, Ti, Liong & Co., J. M. Po Pauco, Maria Corazon Yu de Sane, and the Philippine
National Bank presented their respective answers and complaints. Thereafter, it is probable that a hearing was had
and evidence taken, although no such evidence has been transcribed and elevated to this court, which means that
we must perforce accept the findings of fact made by the trial judge. His decision conclude with the following
pronouncements:

In view of these proven facts, the court holds that the mortgage of the lorchas China and Cuylim executed in
favor of J. M. Po Pauco through notarial deed Exhibit 2, and the transfer of said mortgage by J. M. Po
Pouco, the mortgagee, to the Philippine National Bank through notarial deed Exhibit 1, duly recorded in the
registry of deeds of the Province of Iloilo on November 29, 1919, are valid and legal.

The fact that this mortgage was not registered in the Bureau of Customs of the port of Iloilo until March 5th
of this year does not invalidate it; since it was proved at the trial of this case that such deferred registration
was due to certain doubts entertained by the collector of customs of the port of Iloilo touching the
applicability of Act No. 3324, amending section 1176 of the Administrative Code; and that said collector only
decided to admit and register said mortgage upon lochas China and Cuylim in March of this year after
receipt of advice from Manila regarding the applicability of Act No. 3324, which was approved on December
4, 1926, to a mortgage executed on November 6, 1918, in favor of a Chinese subject — a prohibition not
found in the original section 1176 of the Administrative Code, but which went into effect when the
aforementioned Act No. 3324, approved on December 4, 1926, took effect.

But the lorchas China and Cuylim do not, by the mere fact of being mortgaged, cease to pertain to the Lim
Ponzo Navigation Co., as evidence by certificates of ownership Exhibits A and B; and being property
appertaining to the Lim Ponzo Navigation Co., they were validly attached, as shown by Exhibits E, F, G and
, levied upon by virtue of the writ of execution Exhibit I, issued December 6, 1928, upon petition of plaintiff
Maria Corazon Yu de Sane filed in Civil case No. 7688, Exhibit C. It was on December 6, 1928, that by
virtue of said writ of execution the sheriff levied upon the lochas China and Cuylim, which, according to
Exhibit F, had been attached on December 4, 1928; it being understood that both attachment and execution
were subject to all liens existing upon said lorchas on the date of the attachment, which liens were the
mortgages in favor of J. M. Po Pauco transferred by the same to the Philippine National Bank, according to
Exhibits 1 and 2.

The aforementioned writ of execution Exhibit I was not carried out by the sheriff because the Philippine
National Bank filed a third-party claim, Exhibit 12, and according to Exhibit 14, Maria Corazon Yu de Sane,
the judgment creditor, failed to give indemnity bond as required by the sheriff.

But the court also holds that the provincial sheriff of Iloilo did not act legally when, after giving notice, Exhibit
15, on December 28, or 29, 1928, he dissolved the attachment levied upon the lorchas China and Cuylim,
and delivered them to J. M. Po Pauco, as was proved at the trial of this case, for on December 28, 1928,
those lorchas were under the control of this court in the instant case, wherein, on December 17, 1928, the
complaint of interpleading filed by the sheriff was entered in the docket, and, without authority of the court in
the instant case, said sheriff should not have assumed to dispose of the lorchas China and Cuylim as he did.
The complaint of interpleading filed on December 17, 1928, was presented by the provincial sheriff of Iloilo,
according to paragraph 11 thereof, for the purpose of protecting himself from any claim that might arise from
the sale only the person of the sheriff, but also the lorchas in his possession which were the object of
contradictory claims filed by several persons. But the sheriff, by his own authority, and without the
57
knowledge and authority of this court, disposed of said lorchas, as stated in Exhibit 15, and in so acting
he assumed full responsibility for all his acts.

The court holds that the now defendants Maria Corazon Yy de Sane may, if she so desires, ask for another
order of execution in civil case No. 7688, and may by virtue thereof attached the lorchas China and Cuylim,
and order their sale by public auction subject to the mortgage executed thereon by the owner, the Lim
Ponzo Navigation Co., in favor of the Philippine National Bank, which is hereby declared valid.

The court holds that the damages at the rate of P100 a day claimed by defendants Po Suy Liong, Ti Liong &
Co., and J. M. Po Pauco through the counterclaim contained in their answer filed on December 18, 1928,
have not been proved.

As to the cross-complaint filed by the Philippine National Bank against J. M. Po Pauco, Maria Corazon Yu
de Sane, Po Suy Liong, and Ti Liong & Co., the court finds that the basic facts thereof have been
established, as heretofore stated in paragraphs numbered 2, 3, 4, 5, and 6, holding J. M. Po Pauco in debt
to the Philippine National Bank for the sum of P131,994.95, including interest up to March 31, 1928, and the
interest mentioned in Exhibit 10, from April 1, 1928, until payment, to which is added the stipulated 10 per
cent of the sum total by way of attorney's fees, which the court hereby reduced to 5 per cent of the whole.

This debt of J. M. Po Pauco is secured by a mortgage of the property described in Exhibits 1 and 3, already
due and demandable when the cross-complaint was filed by the Philippine National Bank.

Let judgment be entered for the Philippine National Bank, ordering J. M. Po Pauco to pay to it the sum of
P131,994.95, plus the interest mentioned in Exhibit 10, from April 1, 1928, until payment, plus 5 per cent of
the debt as attorney's fees and costs of collection.

If said J. M. Po Pauco fails to pay the amount of this judgment within three months from the date hereof, the
court will decree the sale of the mortgaged property, as prayed for by the Philippine National Bank in its
cross-complaint; and should be the proceeds of the sale thereof fall short of the amount of this judgment, a
writ of execution shall issue against whatsoever unexempted property said J. M. Po Pauco olds, until the
whole balance remaining is satisfied.

Maria Corazon de Sane, and Po Suy Liong & Co. are hereby absolved from the cross-complaint interposed
by the Philippine National Bank against them.

The Philippine National Bank, J. M. Po Pauco, Po Suy Liong, and Ti Liong & Co., are hereby absolved from
the cross-complaint interposed against them by Maria Corazon Yu de Sane.

From the aforementioned decision and judgment, two appeals have been taken, one by Maria Corazon Yu de Sane,
and the other by J. M. Po Pauco and Po Suy Liong. These appeals will be disposed of in order.

I. The appeal of Maria Corazon Yu de Sane related to the preference to the two lorchas as between herself and the
Philippine National Bank. Among the facts found by the trial judge, it is gleaned that the lorchas China and Cuylim
were owned by the Lim Ponzo Navigation Co. On November 6, 1918, the two lorchas were mortgaged to J. M. Po
Pauco to guarantee a loan of P20,000. Two days later, the mortgage was duly registered in the office of the register
of deeds of Iloilo. On November 28, 1919, J. M. Po Pauco executed a mortgage in favor of the Philippine National
Bank to protect a loan of P50,000, and covering, among other things, the titles, rights, and interests which Po Pauco
had the lorchas China and Cuylim. One day later, this mortgage was registered in the office of the register of deeds
of Iloilo. Subsequently, the credit of Po Pauco with the Philippine National Bank was increased to P90,000 which,
with accrued interest, is alleged to now reach the sum of P131,994.95. To return again to the chattel mortgage, it
was only recorded in the office of the collector of customs of Iloilo on March 5, 1929.

Maria Corazon Yu de Sane secured a judgment against the Lim Ponzo Navigation Co. for P7,179.65. In due course,
a writ of attachment and an execution were secured, the date of the latter being December 6, 1928. The notice of
seizure was recorded by the collector of customs of Iloilo on December 4, 1928, on which date the records of that
office disclosed the vessels as free from encumbrances.

The registration of vessels is now governed by the Administrative Code. Section 1171 thereof provides:

Record of documents affecting title. — In the record of transfers and incumbrances of vessels, to be kept at
each principal port of entry, shall be recorded at length all transfers, bills of sale, mortgages, liens, or other
document which evidence ownership or directly or indirectly affect the title of registered vessels, and therein
shall be recorded all receipts, certificates, or acknowledgments canceling or satisfying, whole or in part, any
such obligation. No other record of any such document or paper shall be required than such as is affected
hereunder.

It is clear that section 1171 of the Administrative Code has modified the provisions of the Chattel Mortgage Law, Act
No. 1508, particularly section 4 thereof. It is now not necessary for a chattel mortgage of a vessel to be noted in the
58
registry of the register of deeds. On the other hand, it is essential that a record of documents affecting the title of
a vessel be entered in the office of the collector of customs, at a port of entry (Rubiso and Gelito vs. Rivera [1917],
37 Phil., 72; 2 Araneta, Administrative Code, note to section 1171). The law as now existing is designed to protect
persons who deal with a vessel on the strength of the record title. Mortgages on vessels, although not recorded, are
good as between the parties. But as against creditors of the mortgagor, an unrecorded mortgage is invalid (37 Cyc.,
54).

Consolidating the facts, we find the mortgage of the Philippine National Bank dated November 28, 1919, but not
recorded in the office of the collector of customs until March 5, 1929. The execution sued out by Maria Corazon Yu
de Sane was dated December 6, 1928, and noted at the port of entry two days prior thereto. Under these facts, the
execution holder would have a prior right over the unrecorded mortgage. However, in the decision of the trial court
we find an explanation of the delay which appears to have been proved at the trial, and which we must accept since
there is nothing in the record to the contrary. His Honor states that the fact that the mortgage was not registered in
the office of the collector of customs of Iloilo until March 5, 1929, was because of the doubts entertained by the
collector relative to the applicability of Act No. 3324 to a mortgage executed in 1918 in favor of a Chinese subject.
This uncontradicted fact must be taken as curing the bank's defective title. That the collector of customs did not
perform his duty was no fault of the bank. Constructive registration of the mortgage must, therefore, be accepted.

We rule that as between the appellant, Maria Corazon Yu de Sane, and the appellee, the Philippine National Bank,
the latter has a superior claim in the amount of P20,000, the amount of the mortgage of Po Pauco which was
transferred to the Philippine National Bank.

II. The remaining appeal concerns the respective rights of Jose M. Po Pauco and Po Suy Liong on the one hand
and the Philippine National Bank on the other. There is no particular merit in the arguments offered on behalf of Po
Suy Liong, for his mortgage was not on the boats themselves, and moreover his mortgage, so far as the record
discloses, has never been recorded in the office of the collector of customs. But the appeal of Po Pauco does
present a rather anomalous condition of affairs.

It will be recalled that the action was begun by the several parties interpleading. On these pleadings, the trial judge
was led to order the foreclosure of the mortgage of the Philippine National Bank against Po Pauco. But the record
does not disclose that any one other than the attorney for Po Pauco was notified, that any summons was issued, or
that an opportunity was afforded Po Pauco to interpose his defense, if he had any. Obviously, the procedure
provided by law for the foreclosure of a mortgage must be substantially carried out. It is no answer for the appellee
to state that no objection was interposed in the lower court. The question is one which goes to the jurisdiction of the
court, and a question of this nature may be raised for the first time on appeal.

With the foregoing pronouncements which, except as they related to the judgment of the Philippine National Bank
against J. M. Po Pauco, in the main coincide with the pronouncements of the trial judge, the judgment appealed
from will in part be affirmed and in part set aside, and the record remanded to the court of origin for further
proceedings. It will be so ordered, without special pronouncement as to costs in this instance.

Johnson, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.


59
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-13693 March 25, 1961

FLORENTINA ALEMAN, ET AL., plaintiffs-appellees,


vs.
PRESENTACION DE CATERA, ET AL., defendants-appellants.

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

G.R. No. L-13694 March 25, 1961

CIRILA SAUL, ET AL., plaintiffs-appellees,


vs.
PRESENTACION DE CATERA, ET AL., defendants-appellants.
SOUTHERN MOTORS, INC., intervenor-appellant.

Estefanio Gaspe for plaintiffs-appellees.


Benjamin A. Defensor for defendants-appellants.
Miguel Gallar and Pedro Puga for intervenor-appellant.
Diosdado Garingalao for intervenor-defendant-appellant.

PADILLA, J.:

On motion dated 7 and filed on 10 December 1957 by the intervenor-appellant, objected to by the appellees, the
Court of Appeals forwarded to this Court the two cases by resolution adopted on 7 January 1958, for only a question
of law is raised.

The facts of the two cases heard jointly, as found by the Court of First Instance of Iloilo are, as follows:

Presentacion de Catera is and was the owner and operator of several passenger trucks in the province of
Iloilo. One of her trucks was the "Catera No. 5." In the morning of January 21, 1954, said passenger truck
was driven by Marianito Amborgo. While it was traveling on the highway at Tabucan, Cabatuan, Iloilo, it fell
into the ditch because it was over speeding the driver was trying to overtake another truck. Florentina
Aleman and her son Antonio Real who at that time were on the lawn in front of their house were hit by the
said truck thereby causing the instantaneous death of said Antonio Real and the injury of Florentina Aleman.
Civil case No. 2969 is for the recovery of damages instituted by Florentina Aleman and her husband
Federico Real for the death of their son and for the injury of Florentina Aleman.

One of the passengers of the aforesaid truck was Jose Ontanillas. This man was killed as a result of the
mishap. The plaintiffs in civil case No. 2970 are his widow and children.

Another passenger of the ill-fated truck was Zosimo Montefrio. He too was killed in the disaster. His widow
and children filed a complaint in intervention for the recovery of damages in civil case No. 2970.

The two separate complaints were filed on 27 January 1954. On 9 February 1954 the defendants filed separate
answers, later on amended, to each complaint. By a writ of attachment issued by the Court the provincial sheriff of
Iloilo attached one of the buses owned by the defendant Presentacion de Catera, a Chevrolet bearing motor No.
0223054T54J, serial No. CAP-MNL-41092, known as "Catera No. 4". On 13 May 1955 the Southern Motors, Inc.
filed with the provincial sheriff a third-party claim to the bus, On 16 May in both cases the plaintiffs filed with the
Court a motion to strike out the third-party claim filed by the motor company. On 17 May the motor company filed a
reply and objection to the motion to strike out and on 23 May a supplemental reply and objection. On 13 June it filed
a motion to intervene. On 14 June the Court entered an order quashing the third-party claim filed with the sheriff. On
16 June the plaintiffs objected and replied to the motion to intervene. On 18 June the motor company filed a reply to
the objection. On 20 June the Court granted the motion to intervene. On 22 June the intervenor motor company filed
an answer in intervention setting up a counter claim and praying that it be declared the owner of the bus attached by
the sheriff to answer for the damages awarded to the plaintiffs; that the writ of attachment be quashed; that the
attaching provincial sheriff be ordered to release and deliver to it the aforesaid bus; and that it be paid the sum of
P500 for attorney's fees and costs. On 24 June it moved to quash the attachment on the bus. On 1 July the plaintiffs
objected to the motion to quash. On 5 July the plaintiffs replied to the answer in intervention. On 11 July the plaintiffs
and the intervenor motor company filed a joint motion submitting the cases for judgment as far as the controversy
between them is concerned. On 3 October the Court rendered a judgment the dispositive part of which reads, as
follows:
60
WHEREFORE, judgment is hereby rendered as follows:

Civil Case No. 2969

Presentacion de Catera is hereby sentenced to pay, jointly and severally with Marianito Amborgo, the
plaintiffs in Civil Case No. 2969, for the death of Antonio Real who was a child of 5 years old, the sum of
P4,000.00 as compensatory damages, plus P2,000.00 as moral damages, plus P1,000.00 as attorney's
fees, plus the costs of the suit. For the injuries suffered by Florentina Aleman, the said Presentacion de
Catera is also sentenced, jointly and severally with Marianito Amborgo, to pay said Florentina Aleman
compensatory damages in the amount of P500.00.

Civil Case No. 2970

Presentacion de Catera is hereby sentenced to pay, jointly and severally with Marianito Amborgo, the
plaintiffs in Civil Case No. 2970, for the death of Jose Ontanillas the sum of P6,000.00 as compensatory
damages, plus P2,000.00 as moral damages, plus P1,000.00 as attorney's fees, plus costs of suit.

Presentacion de Catera, jointly and severally with Marianito Amborgo, is likewise sentenced to pay the
plaintiffs in the complaint in intervention, for the death of Zosimo Montefrio the sum of P6,000.00 as
compensatory damages, plus P2,000.00 as moral damages, plus P1,000.00 as attorney's fees.

xxx xxx xxx

The counter-claim of Southern Motors, Inc. is dismissed.

From the dismissal of the counterclaim the intervenor southern Motors, Inc. on 17 October 1955 filed in both cases a
notice of appeal, an appeal bond in the sum of P120 and record on appeal. On 25 October the defendant
Presentacion de Catera also filed a notice of appeal and on 11 November an appeal bond in the sum of P60 and a
record in appeal. On 29 November the trial court entered an order allowing the record on appeal filed by
Presentacion de Catera in civil case No. 2969 but disallowing that filed in civil case No. 2970, because only one
appeal bond in the sum of P60 had been filed.

In the Court of Appeals, on 5 January 1956 the appellees moved for the dismissal of the appeal (CA-G.R. No.
17516-R which is that in civil case No. 2969), for failure of the appellants to file and serve a brief within the time
provided for by the Rules, to which motion the latter filed an objection. By a resolution adopted on 4 February 1957
the Court of Appeals denied the motion to dismiss the same being premature. On 10 June the appellees filed anew
a motion to dismiss the appeal which on June 18 was objected by the appellants. On 20 June the appellees replied
to the objection. On 14 August 1957 the Court of Appeals resolved to declare the appeal taken by Presentacion de
Catera in CA-G.R. No. 17516-R abandoned and dismissed.

Hence, the appeal before the Court is that taken by the intervenor Southern Motors, Inc. in both cases from that part
of the judgment dismissing its counterclaim. The question for determination is: which has a preferred right to the bus
under attachment — the Southern Motors, Inc. in whose favor, as seller of the bus, a chattel mortgage thereon had
been executed and recorded in the corresponding registry of deeds, or the families of the vehicular accident victims
who, having been awarded damages for death and injuries, had caused an attachment on the said bus owned by
the operator whose purchase and ownership thereof had been recorded in the Motor Vehicles Office.

The intervenor-appellant contends that, being the one that sold by installment the bus to one Wenceslao Defensor
who, to secure the payment of the remaining unpaid installments mortgaged the same in its favor, a chattel
mortgage registered in the Registry of Deeds, it should be preferred to and over the claim of the appellees who are
just judgment creditors. On the other hand, the appellees argue that by allowing the vendee-mortgagor Wenceslao
Defensor to sell the bus to Presentacion de Catera and the latter to record in the Motor Vehicles Office the sale in
her favor, the intervenor-appellant had waived its mortgage lien on the bus, and for that reason the money judgment
rendered for the appellees is preferred.

In Olaf N. Borlough vs. Fortune Enterprise, Inc. et. at al., 53 Off. Gas 4070, this court held that "A Mortgage in order
to affect persons should not only be registered in the Chattel Mortgage Registry, but the same should also be
recorded in the Motor Vehicle Office as required by section 5(e) of the Revised Motor Vehicle Law." Here, the
Southern Motor, Inc. did not record in the Motor Vehicle Office the mortgage executed in it's favor. Such being the
case the mortgage is ineffective as far as the appellees are concerned. Its right or interest, therefore, in the truck,
because of the mortgage constituted in its favor, cannot prevail over of that appellees who thought mere judgement
creditors may be deemed innocent purchase of the bus owner-operator Precentacion de Catera, who had her
purchase of the bus from Wenceslao Defensor recorded in the Motor Vehicles Office.

The part of the judgment appealed from is affirmed, with cost against the intervenor-appellant Southern Motors, Inc.

Bengzon, Actg. C.J., Bautista Angelo, Labrador, Conception, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ.,concur.
61
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15260 August 18, 1920

FAUSTO RUBISO, plaintiff-appellant,


vs.
FLORENTINO RIVERA, ET AL., defendants-appellees.

Canillas and Cardenas for appellant.


M. P. Leuterio for appellees.

VILLAMOR, J.:

About April, 1915, Fausto Rubiso and Florentino Rivera had a litigation concerning the ownership of the pilot
boat Valentina. Rivera acquired it on January 4, 1915, from its original owner the Chinaman Sy Qui, but did not
inscribe his title in the mercantile registry according to article 573 of the Code of Commerce in relation to article 2 of
Act No. 1900. Subsequently Rubiso bought said pilot boat in a sale at public auction for the sum of P55.45 on
January 23, 1915, and inscribed his title in the mercantile registry on March 4th of the same year. The suit was
decided by the Court of First Instance of Manila in favor of the plaintiff Rubiso on September 6, 1915. On the 11th
day of said month the court issued a writ of execution, upon the petition of the plaintiff, in order to proceed, as said
plaintiff alleged, to the salvage of the pilot boat which at that time was stranded in the sitio of Tingloy, Batangas. The
order of execution was stayed upon the filing of a bond for P1,800 by the defendant Rivera who alleged in support of
his objection, that the pilot boat was already salvaged and had been taken to Maricaban, Batangas. The judgment
having been brought to this court by appeal it was affirmed in a judgment rendered on October 30, 1917 (R.G. N.
11407).1 The cause having been sent to the Court of First Instance for the execution of judgment the sheriff of
Batangas who undertook to enforce the writ of execution was able to deliver to the plaintiff Rubiso nothing but the
pilot boat itself in a seriously damaged condition and two useless sails.

Such are the facts which gave rise to the present action for the recovery of the damages in the sum of P1,200 which
the plaintiff and appellant Fausto Rubiso alleges he has suffered by the destruction and loss of the pilot
boat Valentina and its equipment which were caused, according to the complaint, by the fault and negligence of the
defendants Florentino Rivera and others.

The answer having been filed and the trial having taken place, the court rendered judgment in favor of the
defendants without any special pronouncement as to costs. From this judgment the plaintiff appealed. The motion
for new trial having been overruled, the appellant presented the corresponding bill of exceptions assigning in his
brief the following a errors: (a) The finding that there was not sufficient evidence to establish the amount of the
expenses sought to be recovered; (b) the finding that the pilot boat Valentina had no legal value in August, 1915; (c)
in rendering judgment absolving the defendants in this case; and (d) in overruling the motion for new trial presented
by the plaintiff on the ground that the judgment is against the weight of the evidence.

In a series of uninterrupted decision before and after the promulgation of the Civil Code, the doctrine has been
established that all judgment for damages whether arising from a breach of contract or resulting from some
provision of law, must be based upon satisfactory evidence of the real existence of the damages alleged to have
been suffered. (Sanz vs. Lavin and Bros., 6 Phil., 299.)

Has the existence of the damages sought to be recovered in this case been satisfactorily established? The court
below decided this question of fact adversely to the plaintiff and we are of the opinion that this findings is sustained
by the evidence. Plaintiff declares that in February, 1915, he visited and examined the pilot boat Valentina in the
barrio of Tingloy and that on said day he found it in good condition, and that he saw all of its tackle and rigging; but
on cross-examination by the attorney for the defendants he admitted that on said date he was unable to take
possession of the vessel because the person in charge of it would not permit him even to approach. Estanislao Jili
who accompanied Fausto Rubiso in order to see the pilot boat Valentina in February, 1915, affirms that they did not
go on board the vessel because the person in charge of it would not permit them to do so. This same witness and
Jose Soriano as a witness of the plaintiff state that at that time the boat was not in a seaworthy condition, because
its bottom was damaged and it had no equipments.

If what has been said is not yet sufficient to find that the pretense of the appellant as to his first assignment of error
is unsustainable, we still have the uncontradicted testimony of Juan Velino, Irineo Martinez and Mariano Villas,
witnesses for the defendants, who declared on the seriously damaged condition of the pilot boat long before its
acquisition by the appellant.

Juan Velino declared that in August, 1914, the boat was aground in Dayhagan, Mindoro; it was somewhat repaired
and about November of the same year it sailed from that place and suffered on the way such damages and troubles
62
that it had to be taken to Tingloy for new repair, some vessels' tools and equipments having been borrowed from
another boat because those of the Valentina had been destroyed; and the storm destroyed the vessel so much that
it could not be taken to the Island of Maricaban except by means of rafts. To the same effect is the testimony of
Irineo Martinez. Mariano Villas testified that in December, 1914, the Valentina anchored in Tingloy alongside his
vessel and as he was interested in the purchase of this pilot boat, the sale of which was advertised in Manila, he
examined it and then saw that he would not buy it even for P400, because it was completely destroyed. There can
be no doubt as to the competency of this witness to testify on the question of the price of the pilot boat Valentina
because according to him he had ordered the construction of boats of the same size and condition during that
period. The lower court declares in its judgment that this witness appears to it as sufficiently trustworthy, and we find
no basis whatever on the record to doubt the correctness of the finding of the trial judge who saw and observed him
while he was testifying.

We, therefore, are of the opinion that the finding of the court that there was not sufficient proof to establish the
amount of the defendants' claim is in accordance with the merits of the case.

As to the second error assigned by the appellant it should be noted that, as appears in the record the pilot
boat Valentina was stranded in Tingloy since the month of November, 1914, that is, two months before it had been
acquired by the plaintiff at public auction and ten months before the judgment declaring him to be the owner thereof,
was rendered. The appellant, in his first complaint of April 10, 1915, for the recovery of the pilot boat Valentina,
affirms that the boat was then in the same worthless condition in which it was in 1914, and the evidence we have
examined in this case show that in fact in August or September, 1915, it was in the worse of conditions and was
utterly worthless. Without attempting to determine the durability of a boat made of wood stranded for a period of ten
months, as is the case with the boat in question, we are of the opinion, and so declare, that according to the proofs
adduced in this case, the court did not err in declaring in its judgment that the pilot boat Valentina did not have any
legal value in August, 1915.

The defendant in his brief interposes the defense of res judicata based upon the judgment of this court in the action
between Fausto Rubiso et al. and Florentino Rivera who are the parties in the present case.

In that case it was held:

With respect to the indemnification for damages claimed by the plaintiff, besides the fact [that according to
the proceedings taken subsequently to the date on which the judgment appealed from was rendered, it
appears that the pilot boat has already left in good condition the place where it had been stranded and is at
present found anchored in the port of Maricaban,] the truth is that the record does not offer positive proof of
the amount of the damages caused, and on the other hand it cannot be declared that the defendant had
acted in bad faith for he acquired the vessel previous to its acquisition at public auction by the plaintiff
Rubiso who, for the reason already given, is the true and sole owner of said pilot boat. (Decision of October
30, 1917, R. G. No. 11407 [Rubiso and Gelito vs. Rivera, 37 Phil., 72].)

It having been declared in a previous action that the defendant Rivera did not act in bad faith and that therefore he
was not liable for damages, it would be necessary to show in the present case that the destruction of the boat and
the loss of its equipments took place after the final judgment was rendered in that case and by reason of the fault
and negligence of the defendants, which is not the case here. What appears from the evidence presented by the
defendant and uncontradicted by that presented by the adverse parties, is that from September, 1915, to March 7,
1918, which was the date of the execution of the judgment of this court affirming that of the lower court, the boat
continued aground in the Island of Maricaban awaiting the final judgment in the action with respect to ownership and
naturally exposed to the action of sea water and the inclemencies of the weather, things which were beyond the
control of the defendant Rivera.

It thus now appears that the damages claimed by the plaintiff are the same damages that he claimed in the first
action. To speak more accurately, the appellant first sued for the recovery of the vessel and damages in the sum of
P1,750. Judgment was rendered as to the first in his favor but against him as to the second. And now he comes
back again claiming damages.

The case now under consideration is analogous to that of Palanca Tanguinlay vs. Quiros (10 Phil., 360). In that case
the question was extensively discussed whether a previous judgment constitutes an adjudication of the subject-
matter of a new suit between the same parties to such extent that it can not again be tried anew. It was held that
according to articles 306 and 307 of the Code of Civil Procedure, a judgment rendered in an action for the recovery
damages for property lost is a bar to any other action between the same parties for the recovery of the same
property or its value. In the course of the decision the court held:

The American books are full of similar cases, an instance being Hatch vs. Coddington (32 Minn., 92), in
which it was held that a former action between the same parties to recover damages for a wrongful
conversion of personal property was a bar to a subsequent suit to recover possession of the specific
property itself, notwithstanding the difference of form and that the relief sought and the subject-matter of the
cause of action were regarded as the same. Nor is it altogether clear that the law of Spain was different.
Señor Manresa, in his commentary on article 1252 of the Civil Code, cites a decision of the supreme court of
63
25th of April, 1900 (vol. 8, p. 555), holding that in a real action a judgment in a former personal suit
between the same parties for indemnity for the use of the same property operated as cosa juzgada.

From what has been said the judgment appealed from should be, and is hereby, affirmed, with costs against the
appellant. So ordered.

Mapa, C.J., Johnson, Carson, Araullo, Malcolm, Avanceña and Moir, JJ., concur.
64
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8437 March 23, 1915

THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellee,


vs.
ALDECOA & CO., in liquidation, JOAQUIN IBAÑEZ DE ALDECOA Y PALET, ZOILO IBAÑEZ DE ALDECOA Y
PALET, CECILIA IBAÑEZ DE ALDECOA Y PALET, and ISABEL PALET DE GABARRO, defendants-appellants.
WILLIAM URQUHART, intervener-appellant.

Antonio Sanz and Chicote and Miranda for appellants.


Hausermann, Cohn and Fisher for appellee.

TRENT, J.:

This action was brought on January 31, 1911, by the plaintiff bank against the above-named defendants for the
purpose of recovering from the principal defendant, Aldecoa & Co., an amount due from the latter as the balance to
its debit in an account current with the plaintiff, and to enforce the subsidiary liability of the other defendants for the
payment of this indebtedness, as partners of Aldecoa & Co., and to foreclose certain mortgages executed by the
defendants to secure the indebtedness sued upon.

Judgment was entered on the 10th of August, 1912, in favor of the plaintiff and against the defendants for the sum
of P344,924.23, together with interest thereon at the rate of 7 per cent per annum from the date of the judgment until
paid, and for costs, and for the foreclosure of the mortgages. The court decreed that in the event of there being a
deficiency, after the foreclosure of the mortgages, the plaintiff must resort to and exhaust the property of the
principal defendant before taking out execution against the individual defendants held to be liable in solidum with the
principal defendant, but subsidiarily. Judgment was also entered denying the relief sought by the intervener. All of
the defendants and the intervener have appealed.

The defendants, Joaquin Ibañez de Alcoa, Zoilo Ibañez de Alcoa, and Cecilia Ibañez de Alcoa, were born in the
Philippine Islands on March 27, 1884, July 4, 1885, and . . . , 1887, respectively, the legitimate children of Zoilo
Ibañez de Alcoa and the defendant, Isabel Palet. Both parents were native of Spain. The father's domicile was in
Manila, and he died here on October 4, 1895. The widow, still retaining her Manila domicile, left the Philippine
Islands and went to Spain in 1897 because of her health, and did not return until the latter part of 1902. the firm of
Aldecoa & Co., of which Zoilo Ibañez de Aldecoa, deceased, had been a member and managing director, was
reorganized in December, 1896, and the widow became one of the general or "capitalistic" partners of the firm. The
three children, above mentioned, appear in the articles of agreement as industrial partners.

On July 31, 1903, Isabel Palet, the widowed mother of Joaquin Ibañez de Aldecoa and Zoilo Ibañez de Aldecoa,
who were then over the age of 18 years, went before a notary public and executed two instruments (Exhibits T and
U), wherein and whereby she emancipated her two sons, with their consent and acceptance. No guardian of the
person or property of these two sons had ever been applied for or appointed under or by virtue of the provisions of
the Code of Civil Procedure since the promulgation of the Code in 1901. After the execution of Exhibit T and U, both
Joaquin Ibañez de Aldecoa and Zoilo Ibañez de Aldecoa participated in the management of Aldecoa and Co, as
partners by being present and voting at meetings of the partners of the company upon matters connected with its
affairs.

On the 23rd of February, 1906, the defendant firm of Aldeco and Co. obtained from the bank a credit in account
current up to the sum of P450,000 upon the terms and conditions set forth in the instrument executed on that date
(Exhibit A). Later it was agreed that the defendants, Isabel Palet and her two sons, Joaquin and Zoilo, should
mortgage, in addition to certain securities of Aldecoa and Co., as set forth in Exhibit A, certain of their real properties
as additional security for the obligations of Aldecoa and Co. So, on March 23, 1906, the mortgage, Exhibit B, was
executed wherein certain corrections in the description of some of the real property mortgaged to the bank by
Exhibit A were made and the amount for which each of the mortgaged properties should be liable was set forth.
These two mortgages, Exhibits A and B, were duly recorded in the registry of property of the city of Manila on March
23, 1906.

On the 31st day of December, 1906, the firm of Aldecoa and Co. went into liquidation on account of the expiration of
the term for which it had been organized, and the intervener, Urquhart, was duly elected by the parties as liquidator,
and be resolution dated January 24, 1907, he was granted the authority expressed in that resolution (Exhibit G).

On June 30, 1907, Aldeco and Co. in liquidation, for the purposes of certain litigation about to be commenced in its
behalf, required an injunction bond in the sum of P50,000, which was furnished by the bank upon the condition that
any liability incurred on the part of the bank upon this injunction bond would be covered by the mortgage of February
65
23, 1906. An agreement to this effect was executed by Aldecoa and Co. in liquidation, by Isabel Palet, by Joaquin
Ibañez de Aldecoa, who had then attained his full majority, and by Zoilo Ibañez de Aldecoa, who was not yet twenty-
three years of age. In 1908, Joaquin Ibañez de Aldecoa, Zoilo Ibañez de Aldecoa, and Cecilia Ibañez de Aldecoa
commenced an action against their mother, Isabel Palet, and Aldecoa and Co., in which the bank was not a party,
and in September of that year procured a judgment of the Court of First Instance annulling the articles of
copartnership of Aldecoa and Co., in so far as they were concerned, and decreeing that they were creditors and not
partners of that firm.

The real property of the defendant Isabel Palet, mortgaged to the plaintiff, corporation by the instrument of March
23, 1906 (Exhibit B), was, at the instance of the defendant, registered under the provisions of the Land Registration
Act, subject to the mortgage thereon in favor of the plaintiff, by decree, of the land court dated March 8, 1907.

On the 6th of November, 1906, the defendants, Isabel Palet and her three children, Joaquin Ibañez de Aldecoa,
Zoilo Ibañez de Aldecoa, and Cecilia Ibañez de Aldecoa, applied to the land court for the registration of their title to
the real property described in paragraph 4 of the instrument of March 23, 1906 (Exhibit B), in which application they
stated that the undivided three-fourths of said properties belonging to the defendants, Isabel Palet, Joaquin Ibañez
de Aldecoa, and Zoilo Ibañez de Aldecoa, were subject to the mortgage in favor of the plaintiff to secure the sum of
P203,985.97 under the terms of the instrument dated March 22, 1906. Pursuant to this petition the Court of Land
Registration, by decree dated September 8, 1907, registered the title to the undivided three-fourths interest therein
pertaining to the defendants, Isabel Palet and her two sons, Joaquin and Zoilo, to the mortgage in favor of the
plaintiff to secure the sun of P203,985.97.

On December 22, 1906, Aldecoa and Co., by a public instrument executed before a notary public, as additional
security for the performance of the obligations in favor of the plaintiff under the terms of the contracts Exhibits A and
B, mortgaged to the bank the right of mortgage pertaining to Aldecoa and Co. upon certain real property in the
Province of Albay, mortgaged to said company by one Zubeldia to secure an indebtedness to that firm. Subsequent
to the execution of this instrument, Zubeldia caused his title to the mortgaged property to be registered under the
provisions of the Land Registration Act, subject to a mortgage of Aldecoa and Co. to secure the sum of P103,943.84
and to the mortgage of the mortgage right of Aldecoa and Co. to the plaintiff.

As the result of the litigation Aldecoa and Co. and A. S. Macleod, wherein the injunction bond for P50,000 was made
by the bank in the manner and for the purpose above set forth, Aldecoa and Co. became the owner, through a
compromise agreement executed in Manila on the 14th of August, 1907, of the shares of the Pasay Estate
Company Limited (referred to in the contract of March 13, 1907, Exhibit V), and on the 30th day of August of that
year Urquhart, as liquidator, under the authority vested in him as such, and in compliance with the terms of the
contract of June 13, 1907, mortgaged to the plaintiff, by way of additional security for the performance of the
obligations set forth in Exhibits A and B, the 312 shares of the Pasay Estate Company, Limited, acquired by Aldecoa
and Co.

On the 31st day of March, 1907, Aldecoa and Co. mortgaged, as additional security for the performance of those
obligations, to the plaintiff the right of mortgage, pertaining to the firm of Aldecoa and Co., upon certain real estate in
that Province of Ambos Camarines, mortgaged to Aldecoa and Co. by one Andres Garchitorena to secure a balance
of indebtedness to that firm of the sum of P20,280.19. The mortgage thus created in favor of the bank was duly
recorded in the registry of deeds f that province. On the 31st day of March, 1907, Aldecoa and Co. mortgaged as
further additional security for the performance of the obligations set forth in Exhibits A and B, the right of mortgage
pertaining to the firm of Aldecoa and Co. upon other real property in the same province, mortgaged by the firm of
Tremoya Hermanos and Liborio Tremoya, to secure the indebtedness of that firm to the firm of Aldecoa and Co. of
P43,117.40 and the personal debt of the latter of P75,463.54. the mortgage thus created in favor of the bank was
filed for record with the registrar of deeds of that province.

On the 30th day of January, 1907, Aldecoa and Co. duly authorized the bank to collect from certain persons and
firms, named in the instrument granting this authority, any and all debts owing by them to Aldecoa and Co. and to
apply all amounts so collected to the satisfaction, pro tanto, of any indebtedness of Aldecoa and Co. to the bank.

By a public instrument dated February 18, 1907, Aldecoa and Co. acknowledged as indebtedness to Joaquin Ibañez
de Aldecoa in the sum of P154,589.20, a like indebtedness to Zoilo Ibañez de Aldecoa in the sum of P89,177.07.
On September 30, 1908, Joaquin, Zoilo, and Cecilia recovered a judgment in the Court of First Instance of Manila
for the payment to them f the sum of P155,127.31, as the balance due them upon the indebtedness acknowledged
in the public instrument dated February 18, 1907.

On November 30, 1907, Joaquin, Zoilo, and Cecilia instituted an action in the Court of First Instance of the city of
the Manila against the plaintiff bank for the purpose of obtaining a judicial declaration to the effect that the contract
whereby Aldecoa and Co. mortgaged to the bank the shares of the Pasay Estate Company recovered from
Alejandro S. Macleod, was null and void, and for a judgment of that these shares be sold and applied to the
satisfaction of their judgment obtained on September 30, 1908. Judgment was rendered by the lower court in favor
of the plaintiffs in that action in accordance with their prayer, but upon appeal this court reversed that judgment and
declared that the mortgage of the shares of stock in the Pasay Estate Co. to the bank was valid.
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In October, 1908, Joaquin and Zoilo Ibañez de Aldecoa instituted an action against the plaintiff bank for the
purpose of obtaining a judgment annulling the mortgages created by them upon their interest in the properties
described in Exhibits A and B, upon the ground that the emancipation buy their mother was void and of no effect,
and that, therefore, they were minors incapable of creating a valid mortgage upon their real property. The Court of
First Instance dismissed the complaint as to Joaquin upon the ground that he had ratified those mortgages after
becoming of age, but entered a judgment annulling said mortgages with respect to Zoilo. Both parties appealed from
this decision and the case was given registry No. 6889 in the Supreme Court.1

On the 31st day of December, 1906, on which date the defendant Aldecoa and Co. went into liquidation, the amount
of indebtedness to the bank upon the overdraft created by the terms of the contract, Exhibit A, was P516,517.98.
Neither the defendant Aldecoa and Co., nor any of the defendants herein, have paid or caused to be paid to the
bank the yearly partial payments due under the terms of the contract, Exhibit A. But from time to time the bank has
collected and received from provincial debtors of Aldecoa and Co. the various sums shown in Exhibit Q, all of which
sums so received have been placed to the credit of Aldecoa and Co. and notice duty given. Also, the bank, from
time to time, since the date upon which Aldecoa and Co. went into liquidation, has received various other sums
from, or for the account of, Aldecoa and Co., all of which have been duly placed to the credit of that firm, including
the sum of P22,552.63, the amount of the credit against one Achaval, assigned to the bank by Aldecoa and Co. The
balance to the credit of the bank on the 31st day of December, 1911, as shown on the books of Aldecoa and Co.,
was for the sum of P416.853.46. It appeared that an error had been committed by the bank in liquidating the interest
charged to Aldecoa and Co., and this error was corrected so that the actual amount of the indebtedness of Aldecoa
and Co. to the plaintiff on the 15th of February, 1912, with interest to December 10, 1912, the date of the judgment,
the amount was P344,924.23.

The trial court found that there was no competent evidence that the bank induced, or attempted to induce, any
customer of Aldecoa and Co. to discontinue business relations with that company. The court further found that
Urquhart had failed to show that he had any legal interest in the matter in litigation between plaintiff and defendants,
or in the success of either of the parties, or an interest against both, as required by section 121 of the Code of Civil
Procedure. No further findings, with respect to the facts alleged in the complaint of the intervener, were made.

Aldecoa and Co. insist that the court erred:

1. In overruling the defendant's demurrer based upon the alleged ambiguity and vagueness of the complaint.

2. In ruling that there was no competent evidence that the plaintiff had induced Aldecoa and Co.'s provincial
debtors to cease making consignments to that firm.

3. In rendering a judgment in a special proceeding for the foreclosure of a mortgage, Aldecoa and Co. not
having mortgaged any real estate of any kind within the jurisdiction of the trial court, and the obligation of the
persons who had signed the contract of suretyship in favor of the bank having been extinguished by
operation of law.

The argument on behalf of the defendant in support of its first assignment of error from the complaint that Aldecoa
and Co. authorized the plaintiff bank, by the instrument Exhibit G, to make collections on behalf of this defendant,
and that the complaint failed to specify the amount obtained by the bank in the exercise of the authority conferred
upon it, the complaint was thereby rendered vague and indefinite. Upon this point it is sufficient to say that the
complaint alleges that a certain specific amount was due from the defendant firm as a balance of its indebtedness to
the plaintiff, and this necessarily implies that there were no credits in favor of the defendant firm of any kind
whatsoever which had not already been deducted from the original obligation.

With respect to the contention set forth in the second assignment of error to the effect that the bank has prejudiced
Aldecoa and Co. by having induced customers of the latter to cease their commercial relations with this defendant,
the ruling of the court that there is no evidence to show that there was any such inducement is fully supported by the
record. It may be possible that some of Aldecoa and Co.'s customers ceased doing business with that firm after it
went into liquidation. This is the ordinary effect of a commercial firm going consideration, for the reason that it was a
well known fact that Aldecoa and Co. was insolvent. It is hardly probable that the bank, with so large a claim against
Aldecoa and Co. and with unsatisfactory security for the payment of its claim, would have taken any action whatever
which might have had the effect of diminishing Aldecoa and Co.'s ability to discharge their claim. The contention that
the customers of Aldecoa and Co. included in the list of debtors ceased to make consignments to the firm because
they had been advised by the bank that Aldecoa and Co. had authorized the bank to collect these credits from the
defendant's provincial customers and apply the amounts so collected to the partial discharge of the indebtedness of
the defendant to the bank. Furthermore, the bank was expressly empowered to take any steps which might be
necessary, judicially or extrajudicially, for the collection of these credits. The real reason which caused the
defendant's provincial customers to cease making shipments was due to the fact that the defendant, being out of
funds, could not give its customers any further credit. It is therefore clear that the bank, having exercised the
authority conferred upon it by the company in a legal manner, is not responsible for any damages which might have
resulted from the failure of the defendant's provincial customers to continue doing business with that firm.

In the third assignments of errors two propositions are insisted upon: (1) that in these foreclosure proceedings the
court was without jurisdiction to render judgment against Aldecoa and Co. for the reason that firm had mortgaged no
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real property within the city of Manila to the plaintiff; and (2) that the mortgages given by this defendant have
been extinguished by reason of the fact that the bank extended the time within which the defendant's provincial
debtors might make their payments.

We understand that the bank is not seeking to exercise its mortgages rights upon the mortgages which the
defendant firm holds upon certain real properties in the Provinces of Albay and Ambros Camarines and to sell these
properties at public auction in these proceedings. Nor do we understand that the judgment of the trial courts directs
that this be done. Before that property can be sold the original mortgagors will have to be made parties. The banks
is not trying to foreclose, in this section, any mortgages on real property executed by Aldecoa and Co. It is true that
the bank sought and obtained a money judgment against that firm, and at the same time and in the same action
obtained a foreclosure judgment against the other defendants. If two or more persons are in solidum the debtors
mortgage any of their real property situate in the jurisdiction of the court, the creditor, in case of the solidary debtors
in the same suit and secure a joint and several judgment against them, as well as judgments of foreclosure upon the
respective mortgages.

The contention that the extensions granted to Aldecoa and Co.'s debtors, with the consent and authority of that firm
itself, has resulted in extinguishment of the mortgages created by Aldecoa and Co. or of the mortgages created by
partners of that company to secure its liabilities to the bank, is not tenable. The record shows that all the sureties
were represented by Urquhart, the person elected by them as liquidator of the firm, when he agreed with the bank
upon the extensions granted to those debtors. The authority to grant these extensions was conferred upon the bank
by the liquidator, and he was given authority by all the sureties to authorized the bank to proceed in this manner.

With respect to the contention that the bank should be required to render an account of collections made under
authority of Exhibit G, it is sufficient to say that the bank has properly accounted for all amounts collected from the
defendant's debtors, and has applied all such amounts to the partial liquidation of the defendant's debt die to the
bank. It is true that the sum for which judgment was rendered against Aldecoa and Co. is less than the amount
originally demanded in the complaint, but this difference is due to the fact that certain amounts which had been
collected from Aldecoa and Co.'s provincial debtors by the bank were credited to the latter between the date on
which the complaint was filed and the date when the case came on for trial, and the further fact that it was
necessary to correct an entry concerning one of the claims inasmuch as it appears that this claim had been
assigned to the bank absolutely, and not merely for the purposes of collection, as the bookkeeper of the bank
supposed, the result being that instead of crediting Aldecoa and Co. with the full face value of this claim, the
bookkeeper had merely credited from time to time the amounts collected from this debtor. We, therefore, find no
error prejudicial to the rights of this defendant.

Doña Isabel Palt makes the following assignment of errors:

1. That the court erred in failing to hold that her obligation as surety had been extinguished in accordance
with the provisions of article 1851 of the Civil Code.

2. That the court erred in refusing to order for the benefit of this appellant that the property of Aldecoa and
Co. should be exhausted before the plaintiff firm should be entitled to have recourse to the property of this
defendant and appellant for the satisfaction of its judgment.

This appellant does not contend that she is not personally liable in solidum with Aldecoa and Co. for the liability of
the latter firm to the plaintiff in the event that the appeal taken by Aldecoa and Co. should unsuccessful. We have
just held that the judgment appealed from by Aldecoa and Co. should be affirmed. But Doña Isabel Palet does not
contend that her liability as a partner for the obligations of Aldecoa and Co., although solidary, is subsidiary, and that
she is entitled to insist that the property of Aldecoa and Co. be first applied in its entirety to the satisfaction of the
firm's obligations before the bank shall proceed against her in the execution of its judgment.

The trial court directed that the mortgaged properties, including the properties mortgaged in the event that Aldecoa
and Co. should fail to pay into court the amount of the judgment within the time designated for that purpose. the
court recognized the subsidiary character of the personal liability of Doña Isabel Palet as a member of the firm of
Aldecoa and Co. and decreed that as to any deficiency which might result after the sale of the mortgaged properties,
execution should not issue against the properties of Doña Isabel Palet until all the property of Aldecoa and Co. shall
have been exhausted. The properties mortgaged by Doña Isabel Palet were so mortgaged not merely as security for
the performance of her own solidary subsidiary obligation as a partner bound for all the debts of Aldecoa and Co.,
but for the purpose of securing the direct obligation of the firm itself to the bank. We are, therefore, of the opinion
that the trial court committed no error upon this point.

It is urged on behalf of Doña Isabel Palet that the mortgages executed by her upon her individual property have
been canceled. The ground for this contention is that Aldecoa and Co. undertook by the contract of February 23,
1906, to discharge its liability to the plaintiff bank at the rate of not less than P50,000 per annum, and that therefore
it was the duty of the bank to sue Aldecoa and Co. as soon as that firm failed to pay at maturity any one of the
partial payments which it had promised to make, and to apply the proceeds, from the sale of the property of Aldecoa
and Co. to the satisfaction of this indebtedness, and that the fact that the bank failed to do so is equivalent to an
extension of the term of the principal debtor, and that the effect of this extension has been to extinguish the
obligation of this defendant as a surety of Aldecoa and Co. It is also contended that the bank expressly extended the
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term within which Aldecoa and Co. was to satisfy its obligation by allowing Aldecoa and Co. to furnish additional
security. Doña Isabel Palet alleges that all these acts were done without her knowledge or consent.

The extension of the term which, in accordance with the provisions of article 1851 of the Civil Code produces the
extinction of the liability of the surety must of necessity be based on some new agreement between the creditor and
principal debtor, by virtue of which the creditor deprives himself of his right to immediately bring an action for the
enforcement of his claim. The mere failure to bring an action upon a credit, as soon as the same or any part of its
matures, does not constitute an extension of the term of the obligation.

Doña Isabel Palet is a personal debtor jointly and severally with Aldecoa and Co. for the whole indebtedness of the
latter firm to the bank, and not a mere surety of the performance of the obligations of Aldecoa and Co. without any
solidary liability. It is true that certain additional deeds of mortgage and pledge were executed by Aldecoa and Co. in
favor of the bank as additional security after Aldecoa and Co. had failed to meet its obligation to pay the first
installment due under the agreement of February 23, 1906, but there is no stipulation whatever in any of these
documents or deeds which can in any way be interpreted in the sense of constituting an extension which would bind
the bank to waiter for the expiration of any new term before suing upon its claim against Aldecoa and Co. We find
nothing in the record showing either directly or indirectly that the bank at any time has granted any extension in
favor of Aldecoa and Co. for the performance of its obligations. The liquidator of Aldecoa and Co. authorized the
bank to grant certain extensions to some of the provincial debtors of Aldecoa and Co. whose debts were to be paid
to the bank under the authority conferred upon the bank by Aldecoa and Co. There is a marked difference between
the extension of time within which Aldecoa and Co.'s debtors might pay their respective debts, and the extension of
time for the payment of Aldecoa and Co.'s own obligations to the bank. If the bank was had brought suit on its credit
against Aldecoa and Co., for the amount then due, on the day following the extension of the time of Aldecoa and
Co.'s debtors for the payments of their debts, it is evident that the fact of such extension having been granted could
not served in any sense as a defense in favor of Aldecoa and Co. against the bank's action, although this extension
would have been available to Aldecoa and Co.'s debtors if suit had been brought to enforce their liabilities to
Aldecoa and Co. We must, therefore, conclude that the judgment appealed from, in so far as it relates to Doña
Isabel Palet, must likewise be affirmed.

The intervener, William Urquhart, assigns these errors:

1. The court erred in holding that the proof fails to show a case for intervention within the meaning of section
121 of the Code of Civil Procedure.

2. The court erred in failing to give preference to the credit of the liquidator Urquhart for his salary.

The trial court found, as we have said, that Urquhart had failed to show that he had any legal interest in the matter in
litigation between the plaintiffs and the defendants, or in the success of any of the parties, or any interest against
both. The proof upon this branch of the case consists of the following agreed statement of facts:

Mr. Urquhart is a creditor of Aldecoa and Co. in the sum of P21,000 due him for money loaned by him to
Aldecoa and Co. before they went into liquidation.

Aldecoa and Co., in liquidation, owe Mr. Urquhart the liquidator P14,000 as salary.

Section 121 of the Code of civil Procedure provides that:

A person may, at any period of a trial, upon motion, be permitted by the court to intervene in an action or
proceeding, if he has legal interest in the matter in litigation, or in the success of either of the parties, or an
interest against both.

The intervener is seeking to have himself declared a preferred creditor over the bank. According to the above-
quoted agreed statement of facts, he is a mere creditor of Aldecoa and Co. for the sum of P21,000, loaned that firm
before it went into liquidation. This amount is not evidenced by a public document, or any document for that matter,
nor secured by pledge or mortgage, while the amount due the bank appears in a public instrument and is also
secured by pledges and mortgages on the property of Aldecoa and Co., out of which the intervener seeks to have
his indebtedness satisfied. It is, therefore, clear that the intervener is not entitled to the relief sought, in so far as the
P21,000 is concerned.

The bank insists that, as the intervener had been in the employ of Aldecoa and Co. for several years prior to the
time that the latter went into liquidation, it cannot be determined what part of the P14,000 is for salary as such
employee and what part is for salary as liquidator. We find no trouble in reaching the conclusion that all of the
P14,000 represents Urquhart's salary as liquidator of the firm of Aldecoa and Co. The agreed statement of facts
clearly supports this view. It is there stated that Aldecoa and Co. in liquidation owed the liquidator P14,000 as
salary. The agreement does not say, nor can it be even inferred from the same, that Aldecoa and Co. owed
Urquhart P14,000, or any other sum for salary as an employee of that firm before it went into liquidation. Under
these facts, is the intervener a preferred creditor over the bank for this amount?
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In support of his contention that he should be declared a preferred creditor over the bank for the P14,000, the
appellant cites the decision of the supreme court of Spain of March 16, 1897, and quotes the following from the
syllabus of that case:

That the expense of maintenance of property is bound to affect such persons as have an interest therein,
whether they be the owners or creditors of the property; therefore payment for this object has preference
over any other debt, since such other debts are recoverable to the extent that the property is preserved and
maintained.

There can be no question about the correctness of this ruling of the supreme court of Spain to the effect that the
fees of a receiver, appointed by the court to preserve property in litigation, must be paid in preference to the claims
of creditors. But this is not at all the case under consideration, for the reason that Urquhart was elected liquidator by
the members of the firm of Aldecoa and Co. Neither do we believe that the contention of the appellant can be
sustained under article 1922 of the Civil Code, which provides that, with regard to specified personal property of the
debtor, the following are preferred:

1. Credits for the construction, repair, preservation, or for the amount of the sale of personal property which
may be in the possession of the debtor to the extent of the value of the same.

The only personal property of Aldecoa and Co. is 16 shares of the stock of the Banco-Español-Filipino; 450 shares
of the stock of the Compañia Maritima; 330 shares of the stock of the Pasay Estate Co., Ltd; and certain claims
against debtors of Aldecoa and Co., mentioned in Exhibit G.

The shares of stock in the Banco Español-Filipino and the Compañia Maritima were pledged to the bank before
Aldecoa and Co. went into liquidation, so Urquhart had nothing to do with the preservation of these. The stock of the
Pasay Estate co., Ltd., was pledged to the bank on August 30, 1907, on the same day that it came into the
possession of Aldecoa and Co. and by the terms of the pledge the bank was authorized to collect all dividends on
the stock and apply the proceeds to the satisfaction of its claim against Aldecoa and Co. The credits set forth in
Exhibit G were assigned to the bank on January 30, 1907, so, it will be seen, that the Pasay Estate shares were in
the possession of Aldecoa and Co., or its liquidator, only one day. Urquhart had been liquidator twenty-eight days
when the credits, mentioned in Exhibit G, were assigned to the bank. If it could be held that these two items bring
him within the above quoted provisions of article 1922, he could not be declared a preferred creditor over the bank
for the P14,000 salary for the reason that, according to his own showing, he had been paid for his services as
liquidator up to January, 1910. It is the salary since that date which is now in question. The only property of Aldecoa
and Co. which the liquidator had anything to do with after 1910 was the real estate mortgages on real property
cannot be regarded as personal property, and it is only of personal property that article 1922 speaks.

The judgment appealed from, in so far as it relates to Urquhart, being in accordance with the law and the merits of
the case, is hereby affirmed.

The appellants, Joaquin and Zoilo Ibañez de Aldecoa, make the following assignments of error:

1. The court erred in not sustaining the plea of lis pendens with respect to the validity of mortgages claimed
by the plaintiff, which plea was set up as a special defense by the defendants Joaquin and Zoilo Ibañez de
Aldecoa, and in taking jurisdiction of the case and in deciding therein a matter already submitted for
adjudication and not yet finally disposed of.

2. The court erred in hot sustaining the plea of res adjudicata set up as a special defense by these
defendants with respect to the contention of plaintiff that these defendants are industrial and general
partners of the firm of Aldecoa and Co.

3. The court erred in holding that the defendants Joaquin and Zoilo Ibañez de Aldecoa were general
partners (socios colectivos) of the firm of Aldecoa and Co., and is rendering judgment against them
subsidiarily for the payment of the amount claimed in the complaint.

The basis of the first alleged error is the pendency of an action instituted by the appellants, Joaquin and Zoilo, in
1908, to have the mortgages which the bank seeks to foreclose in the present action annulled in so far as their
liability thereon is concerned. That action was pending in this Supreme Court on appeal when the present action
was instituted (1911), tried, and decided in the court below.

The principle upon which plea of another action pending is sustained is that the latter action is deemed unnecessary
and vexatious. (Williams vs. Gaston, 148 Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1 R. C. L., sec. 1.) A statement of the
rule to which the litigant to its benefits, and which has often met with approval, is found in Watson vs. Jones (13
Wall., 679, 715; 20 L. ed., 666):

But when the pendency of such a suit is set up to defeat another, the case must be the same. There must
be the same parties, or at least such as represent the same interest, there must be the same rights
asserted, and the same relief prayed for. This relief must be founded on the same facts, and the title or
70
essential basis of the relief sought must be the same. The identity in these particulars should be such that
if the pending case has already been disposed of, it could be pleaded in bar as a former adjudication of the
same matter between the same parties.

It will be noted that the cases must be identical in a number of ways. It will be conceded that in so far as the plea is
concerned, the parties are the same in the case at bar as they were in the action to have the mortgages annulled.
Their position is simple reversed, the defendants there being the plaintiffs here, and vice versa. This fact does not
affect the application of the rule. The inquiry must therefore proceed to the other requisites demanded by the rule.
Are the same rights asserted? Is the same relief prayed for?

The test of identity in these respects is thus stated in 1 Cyc., 28:

A plea of the pendency of a prior action is not available unless the prior action is of such a character that,
had a judgment been rendered therein on the merits, such a judgment would be conclusive between the
parties and could be pleaded in bar of the second action.

This test has been approved, citing the quotation, in Williams vs. Gaston (148 Ala., 214; 42 Sou., 552); Van Vleck
vs. Anderson (136 Iowa, 366; 113 N. W., 853); Wetzstein vs. Mining Co. (28 Mont., 451; 72 P., 865). It seems to us
that unless the pending action, which the appellants refer to, can be shown to approach the action at bar to this
extent, the plea ought to fail.

The former suit is one to annul the mortgages. The present suit is one for the foreclosure of the mortgages. It may
be conceded that if the final judgment in the former action is that the mortgages be annulled, such an adjudication
will deny the right of the bank to foreclose the mortgages. But will a decree holding them valid prevent the bank from
foreclosing them. Most certainly not. In such an event, the judgment would not be a bar to the prosecution of the
present action. The rule is not predicated upon such a contingency. It is applicable, between the same parties, only
when the judgment to be rendered in the action first instituted will be such that, regardless of which party is
successful, it will amount to res adjudicata against the second action. It has often been held that a pending action
upon an insurance policy to recover its value is not a bar to the commencement of an action to have the policy
reformed. The effect is quite different after final judgment has been rendered in an action upon the policy. Such a
judgment may be pleaded in bar to an action seeking to reform the policy. The case are collected in the note
to National Fire Insurance Co. vs. Hughes (12 L. R. A., [N. S.], 907). So, it was held in the famous case of Sharon
vs. Hill (26 Fed., 337), that the action brought by Miss hill for the purpose of establishing the genuineness of a
writing purporting to be a declaration of marriage and thereby establishing the relation of husband and wife between
the parties could not be pleaded in abatement of Senator Sharon's action seeking to have the writing declared false
and forged. The court said:

This suit and the action of Sharon vs. Sharon are not brought on the same claim or demand. The subject
matter and the relief sought are not identical. This suit is brought to cancel and annul an alleged false and
forged writing, and enjoin the use of it by the defendant to the prejudice and injury of the plaintiff, while the
other is brought to establish the validity of said writing as a declaration of marriage, as well as the marriage
itself, and also to procure a dissolution thereof, and for a division of the common property, and for alimony.

Incidentally, it was held in this case that a judgment of the trial court declaring the writing genuine was not res
adjudicata after an appeal had been taken from the judgment of the Supreme Court. So, in the case ta bar, the fact
that the trial court in the former action holds the mortgages invalid as to one of the herein appellants is not final by
reason of the appeal entered by the bank from that judgment.

Cases are also numerous in which an action for separation has been held not to be a bar to an action for divorce or
vice versa. (Cook vs. Cook, [N. C.], 40 L. R. S., [N. S.], 83, and cases collected in the note.) In Cook vs. Cook it was
held that a pending action for absolute divorce was not a bar to the commencement of an action for separation. The
above authorities are so analogous in principle to the case at bar that we deem the conclusion irresistible, that the
pending action to annul the liability of the two appellant children on the mortgages cannot operates as a plea in
abatement in the case in hand which seeks to foreclose these mortgages. The subject matter and the relief asked
for are entirely different. The facts do not conform to the rule and it is therefore not applicable.

With reference to the second alleged error, it appears that a certified copy of the judgment entered in the former
case, wherein it was declared that these two appellants, together with their sister Cecilia, were creditors and
partners of Aldecoa and Co., was offered in evidence and marked Exhibit 5. This evidence was objected to by the
plaintiff on the ground that it was res inter alios acta and not competent evidence against the plaintiff or binding upon
it in any way because it was not a party to that action. This objection was sustained and the proffered evidence
excluded. If the evidence had been admitted, what would be its legal effect? That was an action in personam and
the bank was not a party. The judgment is, therefore, binding only upon the parties to the suit and their successors
in interest (sec. 306, Code of Civil Procedure, No. 2).

The question raised by the third assignment of errors will be dealt with in a separate opinion wherein the appeal of
Cecilia Ibañez de Aldecoa will be disposed of.
71
The appellants whose appeals are herein determined will pay their respective portions of the cost. So ordered.

Arellano, C. J., Torres and Araullo, JJ., concur.


Moreland, J.. concurs in the result.
Johnson, J., dissents.

TRENT, J.:

In Hongkong and Shanghai Banking Corporation vs. Aldecoa and Co. et al., R. G. No. 8437, just decided, we said
that the correctness of the judgment declaring that the defendants, Joaquin, Zoilo, and Cecilia Ibañez de Aldecoa,
are subsidiarily liable to the bank as industrial partners of Aldecoa and Co. for the debts of the latter, would be
determined in a separate opinion.

The facts are these: Joaquin, Zoilo, and Cecilia Ibañez de Aldecoa were born in the Philippine Islands, being the
legitimate children of Zoilo Ibañez de Aldecoa and Isabel Palet. Both parent were native of Spain, but domiciled in
Manila, where the father died in 1895. At the time of his death the father was a member and managing director of an
ordinary general mercantile partnership known as Adecoa and Co. In December, 1896, Isabel Palet, for herself and
as the parent of her above-named three children, exercising the patria potestad, entered into a new contract with
various persons whereby the property and good will, together with the liabilities of the firm of which her husband was
a partner, were taken over. The new firm was also an ordinary general mercantile partnership and likewise
denominated Aldecoa and Co. Although having the same name, the new firm was entirely distinct from the old one
and was, in fact, a new enterprise. The widow entered into the new partnership as a capitalistic partner and caused
her three children to appear in the articles of partnership as industrial partners. At the time of the execution of this
new contract Joaquin was twelve years of age, Zoilo eleven, and Cecilia nine.

Clauses 9 and 12 of the new contract of partnership read:

9. The industrial partners shall bear in proportion to the shares the losses which may result to the
partnership from bad business, but only from the reserve fund which shall be established, as set forth in the
12th clause, and if the loss suffered shall exhaust said fund the balance shall fall exclusively upon the
partners furnishing the capital.

12. The industrial partner shall likewise contribute 50 per cent of his net profits to the formation of said
reserve fund, but may freely dispose of the other 50 per cent.

The question is presented, Could the mother of the three children legally bind them as industrial partners of the firm
of Aldecoa and Co. under the above facts? If so, are they liable jointly and severally with all their property, both real
and personal, for the debts of the firm? That all industrial partners of an ordinary general mercantile partnership are
liable with all their property, both personal and real, for all the debts of the firm owing to third parties precisely as a
capitalistic partner has long since been definitely settled in this jurisdiction, notwithstanding provisions to the
contrary in the articles of agreement. (Compañia Maritima vs. Muñoz, 9 Phil. Re., 326.)

There are various provisions of law, in force in 1896, which must be considered in determining whether or not the
mother had the power to make her children industrial partners of the new firm Aldecoa and Co.

Article 5 of the Code of Commerce reads:

Persons under twenty-one years of age and incapacitated persons may continue, through their guardians,
the commerce which their parents or persons from whom the right is derived may have been engaged in. If
the guardians do not have legal capacity to trade, or have some incompatibility, they shall be under the
obligation to appoint one or more factors who possess the legal qualifications, and we shall take their places
in the trade.

As the firm of which it is claimed the children are industrial partners was not a continuation of the firm of which their
deceased father was a member, but was a new partnership operating under its own articles of agreement, it is clear
that article 5, supra, does not sustain the mother's power to bind her children as industrial partners of the new firm.

Article 4 of the Code of Commerce reads:

The persons having the following conditions shall have legal capacity to customarily engage in commerce:

1. Those who have reached the age of twenty-one years.

2. Those who are not subject to the authority of a father or mother or to a marital authority.
72
3. Those who have the free disposition of their property.

The appellant children had not a single one of these qualifications in 1896 when the mother attempted to enter them
as industrial partners of the firm of Aldecoa and Co.

It is claimed that the power of the mother to bind her children as industrial partners is within her parental authority as
defined by the Civil Code. Articles 159 to 166 which compose chapter 3 of the Civil Code, entitled "Effect of parental
authority with regard to the property of the children," defined the extent of the parental authority over the property of
minor children. Article 159 provides that the father, or, in his absence, the mother, is the legal administrator of the
property of this children who are under their authority. Article 160 gives to such parent the administration and
usufruct of property acquired by the child by its work or industry or for any good consideration. We take it that all the
property possessed by the children at the time the contract of partnership was entered into in 1896 had been
acquired by them either by their work or industry or for a good consideration. The children were at that time under
the authority of their mother.

Article 164 reads:

The father, or the mother in a proper case, cannot alienate the real property of the child, the usufruct or
administration of which belongs to them, nor encumber the same, except for sufficient reasons of utility or
necessity, and after authorization from the judge of the domicile, upon hearing by the department of public
prosecution, excepting the provisions which, with regard to the effects of transfers, the mortgage law
establishes.

The mother did not secure judicial approval to enter into the contract of partnership on behalf of her children. Does
member ship in an ordinary general mercantile partnership alienate or encumber the real property of an industrial
partner? Clearly a partner alienates what he contributes to the firm as capital by transferring its ownership to the
firm. But this, in the case of an industrial partner, is nothing. An industrial partner does not alienate any portion of his
property by becoming a member of such a firm. Therefore, the mother did not violate this prohibition of article 164 in
attempting to make her children industrial partners. But the article in question also prohibited her
from encumbering their real property. This undoubtedly prohibits formal encumbrances such as mortgages,
voluntary easements, usufructuary rights, and others which create specific liens upon specific real property. it has
been held to prohibit the creation of real rights, and especially registrable leases in favor of third persons. (Res.,
Aug. 30, 1893.) The same word is used in article 317 of the Civil Code in placing restrictions upon the capacity of a
child emancipated by the concession of the parent to deal with his own property. In commenting on this latter article,
Manresa asks the question, "To what encumbrances does the code in speaking of emancipated children?" and
answers it as follows:

The prohibition against encumbering real property is so explicit . . . that we consider it unnecessary to
enumerate what are the incumbrances to which the law refers. All that signifies a limitation upon property,
such as the creation, modification, or extinction of the right of usufruct, use, habituation, emphyteusis,
mortgages, annuities, easements, pensions affecting real property, bonds, etc., is, in an express consent of
the persons who are mentioned in the said article 317. (Vol. 2, p. 689.)

In commenting upon the same article, Sanchez Roan says practically the same thing. (Vol. 5, p. 1179.) Neither of
these commentators refers to the right of an emancipated child to enter into a contract of partnership without the
parent's consent. The question, in so far as we have been able to ascertain, does not appear to have ever been
discussed, either by the courts or the commentators. It is significant, however, that a contract of surety is placed by
both the above mentioned commentators among the prohibited contracts. The encumbrance placed upon the real
property of a surety is precisely the same as the encumbrance placed upon the real property of an industrial partner.
That is, prior to judgment on the principal obligation or judgment against the partnership, the property is not
specifically liable, and the creditor has n preferred lien thereon or right thereto by reason of the bond or partnership
contract, as the case may be. After judgment, the property of the surety or of the industrial partner, both real and
personal, is subsidiarily subject to execution. The evident purpose of both article 164, prohibiting the parent from
encumbering the real property of his child without judicial approval, and of article 317, placing the same prohibition
upon the emancipated child in the absence of the parent's approval, is the same. It is desired that the child's real
property shall be frittered away by hasty and ill-advised contracts entered into by the one having the administration
thereof. Both articles would fail of their purpose if the parent or the child, as the case might be, could do indirectly
what could not be done directly. In other words, there would be little purpose in prohibiting a formal encumbrance by
means of a mortgage, for instance, when a subsidiary liability by means of a bond or membership in a partnership
could as effectually deprive the child of its real property. This proposition rests upon the theory that the mother could
have freely disposed of the child's personal property in 1896 and that the only recourse open to them would have
been an action against their mother for the value of such property. If this theory be true, the result would not be
changed for the reason that children were either industrial partners or they were not. If they were, they are liable to
the extent of both their real and personal property for the debts of the firm. If they were not, they are in no way liable.
There can be only two kinds or classes of partners in a firm of this kind, capitalistic and industrial. Both are
personally liable to third persons for the debts of such a firm. To say that the children are industrial partners, but
liable only to the extent of their personal property, would be to place them in a different class of partners. As the
mother did not secure judicial approval, the contract wherein she attempted to make her children industrial partners,
73
with all the consequences flowing therefrom, was, therefore, defective and that act of itself in no way made the
children liable for the debts of the new firm.

The question remains, Did any of the children validly ratify the contract after acquiring capacity to do so? Cecilia was
never emancipated and there is no evidence indicating that she has ever ratified the contract by word or deed. She
is, therefore, completely exonerated from liability for the debts of Aldecoa and Co.

The other two children, Joaquin and Zoilo, were emancipated by their mother after they had reached the age of
eighteen and prior to seeking annullment of the contract of partnership had participated by vote and otherwise in the
management of the firm, as is evidenced by Exhibits W, Y, and Z. These various acts sufficiently show a ratification
of the partnership contract and would have the effect of making the two children industrial partners if they had been
of age at that time. Ratification is in the nature of the contract. It is the adoption of, and assent to be bound by, the
act of another. (Words and Phrases, vol. 7, p. 5930.) From the effect of emancipation it cannot be doubted that the
two children had capacity, with their mother's consent, to enter into a contract of partnership, and, by so doing,
make themselves industrial partners, thereby encumbering their property. Conceding that the children under these
circumstances could enter into such a contract with their mother, her express consent to the ratification of the
contract by the two children does not appear of record. The result flowing from the ratification being the
encumbrance of their property, their mother's express consent was necessary.

For the foregoing reasons the judgment appealed from, in so far as it holds the three children liable as industrial
partners, is reversed, without costs in so far as this branch of the case is concerned. So ordered.

Arellano, C. J., Torres and Araullo, JJ., concur.


Moreland, J., concurs in the result.
Johnson, J., dissents.
74
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-19527 March 30, 1963

RICARDO PRESBITERO, in his capacity as Executor of the Testate Estate of EPERIDION


PRESBITERO,petitioner,
vs.
THE HON. JOSE F. FERNANDEZ, HELEN CARAM NAVA, and the PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, respondents.

San Juan, Africa and Benedicto and Hilado and Hilado for petitioner.
Paredes, Poblador, Cruz and Nazareno and Manuel Soriano for respondents.

REYES, J.B.L., J.:

Petition for a writ of certiorari against the Court of First Instance of Negros Occidental.

It appears that during the lifetime of Esperidion Presbitero, judgment was rendered against him by the Court of
Appeals on October 14, 1959, in CA-G.R. No. 20879,

... to execute in favor of the plaintiff, within 30 days from the time this judgment becomes final, a deed of
reconveyance of Lot No. 788 of the cadastral survey of Valladolid, free from all liens and encumbrances,
and another deed of reconveyance of a 7-hectare portion of Lot No. 608 of the same cadastral survey, also
free from all liens and encumbrances, or, upon failure to do so, to pay to the plaintiff the value of each of the
said properties, as may be determined by the Court a quo upon evidence to be presented by the parties
before it. The defendant is further adjudged to pay to the plaintiff the value of the products received by him
from the 5-hectare portion equivalent to 20 cavans of palay per hectare every year, or 125 cavans yearly, at
the rate of P10.00 per cavan, from 1951 until possession of the said 5-hectare portion is finally delivered to
the plaintiff with legal interest thereon from the time the complaint was filed; and to pay to the plaintiff the
sum of P1,000.00 by way of attorney's fees, plus costs.

This judgment, which became final, was a modification of a decision of the Court of First Instance of Negros
Occidental, in its Civil Case No. 3492, entitled "Helen Caram Nava, plaintiff, versus Esperidion Presbitero,
defendant."

Thereafter, plaintiff's counsel, in a letter dated December 8, 1959, sought in vain to amicably settle the case through
petitioner's son, Ricardo Presbitero. When no response was forthcoming, said counsel asked for, and the court a
quo ordered on June 9, 1960, the issuance of a partial writ of execution for the sum of P12,250.00. On the following
day, June 10, 1960, said counsel, in another friendly letter, reiterated his previous suggestion for an amicable
settlement, but the same produced no fruitful result. Thereupon, on June 21, 1960, the sheriff levied upon and
garnished the sugar quotas allotted to plantation audit Nos. 26-237, 26-238, 26-239, 26-240 and 26-241 adhered to
the Ma-ao Mill District and "registered in the name of Esperidion Presbitero as the original plantation-owner",
furnishing copies of the writ of execution and the notice of garnishment to the manager of the Ma-ao Sugar Central
Company, Bago, Negros Occidental, and the Sugar Quota Administration at Bacolod City, but without presenting for
registration copies thereof to the Register of Deeds.

Plaintiff Helen Caram Nava (herein respondent) then moved the court, on June 22, 1960, to hear evidence on the
market value of the lots; and after some hearings, occasionally protracted by postponements, the trial court, on
manifestation of defendant's willingness to cede the properties in litigation, suspended the proceedings and ordered
him to segregate the portion of Lot 608 pertaining to the plaintiff from the mass of properties belonging to the
defendant within a period to expire on August 24, 1960, and to effect the final conveyance of the said portion of Lot
608 and the whole of Lot 788 free from any lien and encumbrance whatsoever. Because of Presbitero's failure to
comply with this order within the time set forth by the court, the plaintiff again moved on August 25, 1960 to declare
the market value of the lots in question to be P2,500.00 per hectare, based on uncontradicted evidence previously
adduced. But the court, acting on a prayer of defendant Presbitero, in an order dated August 27, 1960, granted him
twenty (20) days to finalize the survey of Lot 608, and ordered him to execute a reconveyance of Lot 788 not later
than August 31, 1960. Defendant again defaulted; and so plaintiff, on September 21, 1960, moved the court for
payment by the defendant of the sum of P35,000.00 for the 14 hectares of land at P2,500.00 to the hectare, and the
court, in its order dated September 24, 1960, gave the defendant until October 15, 1960 either to pay the value of
the 14 hectares at the rate given or to deliver the clean titles of the lots. On October 15, 1960, the defendant finally
delivered Certificate of Title No. T-28046 covering Lot 788, but not the title covering Lot 608 because of an existing
encumbrance in favor of the Philippine National Bank. In view thereof, Helen Caram Nava moved for, and secured
on October 19, 1960, a writ of execution for P17,500.00, and on the day following wrote the sheriff to proceed with
75
the auction sale of the sugar quotas previously scheduled for November 5, 1960. The sheriff issued the notice of
auction sale on October 20, 1960.

On October 22, 1960, death overtook the defendant Esperidion Presbitero.

Proceedings for the settlement of his estate were commenced in Special Proceedings No. 2936 of the Court of First
Instance of Negros Occidental; and on November 4, 1960, the special administrator, Ricardo Presbitero, filed an
urgent motion, in Case No. 3492, to set aside the writs of execution, and to order the sheriff to desist from holding
the auction sale on the grounds that the levy on the sugar quotas was invalid because the notice thereof was not
registered with the Register of Deeds, as for real property, and that the writs, being for sums of money, are
unenforceable since Esperidion Presbitero died on October 22, 1960, and, therefore, could only be enforced as a
money claim against his estate.

This urgent motion was heard on November 5, 1960, but the auction sale proceeded on the same date, ending in
the plaintiff's putting up the highest bid for P34,970.11; thus, the sheriff sold 21,640 piculs of sugar quota to her.

On November 10, 1960, plaintiff Nava filed her opposition to Presbitero's urgent motion of November 4, 1960; the
latter filed on May 4, 1961 a supplement to his urgent motion; and on May 8 and 23, 1961, the court continued
hearings on the motion, and ultimately denied it on November 18, 1961.

On January 11, 1962, plaintiff Nava also filed an urgent motion to order the Ma-ao Sugar Central to register the
sugar quotas in her name and to deliver the rentals of these quotas corresponding to the crop year 1960-61 and
succeeding years to her. The court granted this motion in its order dated February 3, 1962. A motion for
reconsideration by Presbitero was denied in a subsequent order under date of March 5, 1962. Wherefore,
Presbitero instituted the present proceedings for certiorari.

A preliminary restraining writ was thereafter issued by the court against the respondents from implementing the
aforesaid orders of the respondent Judge, dated February 3, 1960 and March 5, 1962, respectively. The petition
further seeks the setting aside of the sheriff's certificate of sale of the sugar quotas made out in favor of Helen
Caram Nava, and that she be directed to file the judgment credit in her favor in Civil Case No. 3492 as a money
claim in the proceedings to settle the Estate of Esperidion Presbitero.

The petitioner denies having been personally served with notice of the garnishment of the sugar quotas, but this
disclaimer cannot be seriously considered since it appears that he was sent a copy of the notice through the chief of
police of Valladolid on June 21, 1960, as certified to by the sheriff, and that he had actual knowledge of the
garnishment, as shown by his motion of November 4, 1960 to set aside the writs of execution and to order the
sheriff to desist from holding the auction sale.

Squarely at issue in this case is whether sugar quotas are real (immovable) or personal properties. If they be realty,
then the levy upon them by the sheriff is null and void for lack of compliance with the procedure prescribed in
Section 14, Rule 39, in relation with Section 7, Rule 59, of the Rules of Court requiring "the filing with the register of
deeds a copy of the orders together with a description of the property . . . ."

In contending that sugar quotas are personal property, the respondent, Helen Caram Nava, invoked the test
formulated by Manresa (3 Manresa, 6th Ed. 43), and opined that sugar quotas can be carried from place to place
without injury to the land to which they are attached, and are not one of those included in Article 415 of the Civil
Code; and not being thus included, they fall under the category of personal properties:

ART. 416. The following are deemed to be personal property:

xxx xxx xxx

4. In general, all things which can be transported from place to place without impairment of the real property
to which they are fixed.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by
this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët

Respondent likewise points to evidence she submitted that sugar quotas are, in fact, transferred apart from the
plantations to which they are attached, without impairing, destroying, or diminishing the potentiality of either quota or
plantation. She was sustained by the lower court when it stated that "it is a matter of public knowledge and it is
universal practice in this province, whose principal industry is sugar, to transfer by sale, lease, or otherwise, sugar
quota allocations from one plantation to any other" and that it is "specious to insist that quotas are improvements
attaching to one plantation when in truth and in fact they are no longer attached thereto for having been sold or
leased away to be used in another plantation". Respondent would add weight to her argument by invoking the role
that sugar quotas play in our modern social and economic life, and cites that the Sugar Office does not require any
registration with the Register of Deeds for the validity of the sale of these quotas; and, in fact, those here in question
76
were not noted down in the certificate of title of the land to which they pertain; and that Ricardo Presbitero had
leased sugar quotas independently of the land. The respondent cites further that the U.S.-Philippine Trade Relations
Act, approved by the United States Congress in 1946, limiting the production of unrefined sugar in the Philippines
did not allocate the quotas for said unrefined sugar among lands planted to sugarcane but among "the sugar
producing mills and plantation OWNERS", and for this reason Section 3 of Executive Order No. 873, issued by
Governor General Murphy, authorizes the lifting of sugar allotments from one land to another by means only of
notarized deeds.

While respondent's arguments are thought-provoking, they cannot stand against the positive mandate of the
pertinent statute. The Sugar Limitation Law (Act 4166, as amended) provides —

SEC. 9. The allotment corresponding to each piece of land under the provisions of this Act shall be deemed
to be an improvement attaching to the land entitled thereto ....

and Republic Act No. 1825 similarly provides —

SEC. 4. The production allowance or quotas corresponding to each piece of land under the provisions of this Act
shall be deemed to be an improvement attaching to the land entitled thereto ....

And Executive Order No. 873 defines "plantation" as follows:

(a) The term 'plantation' means any specific area of land under sole or undivided ownership to which is
attached an allotment of centrifugal sugar.

Thus, under express provisions of law, the sugar quota allocations are accessories to land, and can not have
independent existence away from a plantation, although the latter may vary. Indeed, this Court held in the case
of Abelarde vs. Lopez, 74 Phil. 344, that even if a contract of sale of haciendas omitted "the right, title, interest,
participation, action (and) rent" which the grantors had or might have in relation to the parcels of land sold, the sale
would include the quotas, it being provided in Section 9, Act 4166, that the allotment is deemed an improvement
attached to the land, and that at the time the contract of sale was signed the land devoted to sugar were practically
of no use without the sugar allotment.

As an improvement attached to land, by express provision of law, though not physically so united, the sugar quotas
are inseparable therefrom, just like servitudes and other real rights over an immovable. Article 415 of the Civil Code,
in enumerating what are immovable properties, names —

10. Contracts for public works, and servitudes and other real rights over immovable property. (Emphasis
supplied)

It is by law, therefore, that these properties are immovable or real, Article 416 of the Civil Code being made to apply
only when the thing (res) sought to be classified is not included in Article 415.

The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th Congress) allows transfers of sugar quotas
does not militate against their immovability. Neither does the fact that the Sugar Quota Office does not require
registration of sales of quotas with the Register of Deeds for their validity, nor the fact that allocation of unrefined
sugar quotas is not made among lands planted to sugarcane but among "the sugar producing mills and plantation
OWNERS", since the lease or sale of quotas are voluntary transactions, the regime of which, is not necessarily
identical to involuntary transfers or levies; and there cannot be a sugar plantation owner without land to which the
quota is attached; and there can exist no quota without there being first a corresponding plantation.

Since the levy is invalid for non-compliance with law, it is impertinent to discuss the survival or non-survival of claims
after the death of the judgment debtor, gauged from the moment of actual levy. Suffice it to state that, as the case
presently stands, the writs of execution are not in question, but the levy on the quotas, and, because of its invalidity,
the levy amount to no levy at all. Neither is it necessary, or desirable, to pass upon the conscionableness or
unconscionableness of the amount produced in the auction sale as compared with the actual value of the quotas
inasmuch as the sale must necessarily be also illegal.

As to the remedial issue that the respondents have presented: that certiorari does not lie in this case because the
petitioner had a remedy in the lower court to "suspend" the auction sale, but did not avail thereof, it may be stated
that the latter's urgent motion of November 4, 1960, a day before the scheduled sale (though unresolved by the
court on time), did ask for desistance from holding the sale.

WHEREFORE, the preliminary injunction heretofore granted is hereby made permanent, and the sheriff's certificate
of sale of the sugar quotas in question declared null and void. Costs against respondent Nava.

Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and Regala, JJ., concur.
Makalintal, J., took no part
77
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16513 January 18, 1921

THE UNITED STATES, plaintiff-appellee,


vs.
MANUEL TAMBUNTING, defendant-appellant.

Manuel Garcia Goyena for appellant.


Acting Attorney-General Feria for appellee.

STREET, J.:

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

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

Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and found that gas was
being used, without the knowledge and consent of the gas company, for cooking in the quarters occupied by the
defendant and his wife: to effect which a short piece of iron pipe had been inserted in the gap where the gas meter
had formerly been placed, and piece of rubber tubing had been used to connect the gas pipe of rubber tubing had
been used to connect the gas pipe in kitchen with the gas stove, or plate, used for cooking.

At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he presently arrived
and admitted to the agent to the gas company that he had made the connection with the rubber tubing between the
gas pipe and the stove, though he denied making the connection below. He also admitted that he knew he was
using gas without the knowledge of the company and that he had been so using it for probably two or three months.

The clandestine use of gas by the accused in the manner stated is thus established in our opinion beyond a doubt;
and inasmuch as the animo lucrandi is obvious, it only remains to consider, first, whether gas can be the subject to
larceny and, secondly, whether the quantity of gas appropriated in the two months, during which the accused
admitted having used the same, has been established with sufficient certainty to enable the court to fix an
appropriate penalty.

Some legal minds, perhaps more academic than practical, have entertained doubt upon the question whether gas
can be the subject of larceny; but no judicial decision has been called to our attention wherein any respectable court
has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175), this court, speaking through Mr. Justice
Torres, said ". . . the right of the ownership of electric current is secured by article 517 and 518 of the Penal Code;
the application of these articles in cases of subtraction of gas, a fluid used for lighting, and in some respects
resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of Spain of January
20, 1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of
that country, articles identical with articles 517 and 518 of the code in force in these Islands." These expressions
were used in a case which involved the subtraction and appropriation of electrical energy and the court held, in
accordance with the analogy of the case involving the theft of gas, that electrical energy could also be the subject of
theft. The same conclusion was reached in U.S. vs. Carlos (21 Phil., 553), which was also a case of prosecution for
stealing electricity.

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

In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol. 17, of Ruling Case
Law:
78
There is nothing in the nature of gas used for illuminating purposes which renders it incapable of being
feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like other personal
property, susceptible of being severed from a mass or larger quantity and of being transported from place to place.
Likewise water which is confined in pipes and electricity which is conveyed by wires are subjects of larceny."

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

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

The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518 of the Penal Code,
for the gas taken in the course of two months a the rate of P2 per month. There being no aggravating or attenuating
circumstance to be estimated, it results that the proper penalty is two months and one day of arresto mayor, as fixed
by the trial court. The judgment will therefore be affirmed, with costs against the appellant, it being understood that
the amount of the indemnity which the accused shall pay to the gas company is P4, instead of P2, with subsidiary
imprisonment for one day in case of insolvency. So ordered.

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


79
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8414 February 28, 1957

MANGHARAM B. HEMMANI, petitioner-appellant,


vs.
THE EXPORT CONTROL COMMITTEE, respondent-appellee.

De la Cruz, Fernandez & Mate for appellant.


Office of the Solicitor General Ambrosio Padilla and Assistant Solicitor General Jose G. Bautista for appellee.

The Solicitor General has made a accurate exposition of the facts of the case. They may be summarized as follows:
On August 28, 1952, petitioner requested permission from the Export Control Committee, created under section 2 of
Republic Act No. 613 and composed of the Secretary of Agriculture and Natural Resources as Chairman, the
Secretary of National Defense and the Administrator of the Economic Coordination, as Members, to ship to his
Hudson Sedan, Model 1949, Motor No. 48149039, valued at P4,500, to Osaka, Japan, on board the S. S. President
Wilson, "to be used in connection with his business thereat." The respondent Committee approved the request on
the same day, on condition that petitioner would file a bond equal to the value of the car, to guarantee the return of
the same in the Philippines within six months from the date of its shipment.

On August 29, 1952, petitioner posted with the Filipinas Compañia de Seguros a surety bond (Annex A) in the sum
of P4,500 in favor of the Republic of the Philippines (Bureau of Customs), guaranteeing that the Hudson Sedan car
would be re-exported back to the Philippines from Japan within six months from the execution of the bond.
Accordingly, petitioner took the car in question to Osaka, Japan, on August 29, 1952, but failed to bring it back to the
Philippines as promised. Instead petitioner filed two requests for extension of six months each to be followed to re-
export the car back to the Philippines until March 1, 1954, alleging that he was still on a business tour and it would
be impracticable to return the car on time. Notwithstanding the two extensions given him by the respondent the car
in question was not brought back in the Philippines.

On February 24, 1954, Atty. Teotimo A. Roja, in behalf of the petitioner, requested the respondent to order the
cancellation of the surety bond of P4,500 that he and the Filipinas Compañia de Seguros (Bond No. 27914) had
executed, alleging that it would be impracticable and expensive to return the car to Manila, considering its
dilapidated condition and utility in Japan, but the respondent denied said request, though at its meeting held on
February 24, 1954 it decided to reduce the liability under the bond to P2,250.00 for the reason that this was the
value that the car would have at the state it was then if it were brought back in the Philippines, thus allowing a
depreciation of 15 per cent each year.

On May 13, 1954, petitioner requested respondent for reconsideration of its resolution of February 24, 1954,
alleging that: (1) the Committee had no jurisdiction to imposed said penalty; and (2) granting, for the sake of
argument that the Committee had jurisdiction to impose said penalty, the penalty imposed was highly excessive and
violative of the Constitutional prohibition against excessive fines". Again this motion for reconsideration was denied
by the respondent under date of June 30, 1954; hence the institution of this petition in the Court of First Instance of
Manila on July 6, 1954, which was answered by the Solicitor General in due time. The case was then submitted on
the stipulation embodying the facts aforementioned, and the Court rendered decision on September 24, 1954.
dismissing the petition for lack of merit, with costs against the petitioner. From this decision the petitioner appealed
to Us and in the instance his counsel maintains that the lower court erred:

1. In not finding that appellant's car in question is personal effect and therefore not subject to statutory or
reglementary prohibition against exportation;

2. In not sustaining appellant's claim that the bringing out of his car in the instant case did not constitute
exportation;

3. In not finding that the respondent had acted without jurisdiction in requiring appellant to file a bond and
later ordering its forfeiture; and

4. In denying the petition for certiorari.

Section 3 of Republic Act No. 613, approved on May 11, 1951, authorizes the President "to control, curtail, regulate
and/or prohibit the exportation or re-exportation of materials, goods and things referred to in Section 2 of the Act and
to issue rules and regulations as would be necessary to carry out the provisions thereof". Section 2 of said Act
prescribes in turn "that all applicants for permit to export or re-export any of the articles mentioned in the preceeding
section 1, should be filed before a Committee to be composed of the Secretary of Agriculture and Natural
80
Resources as Chairman, the Secretary of National Defense and the Administrator of Economic Coordination as
Members". Republic Act No. 613 further provides the following:

SEC. 1. In order to promote economic rehabilitation and development and to safeguard national security, it
shall be unlawful to any person, association or corporation to export or re-export to any point outside
thePHILIPPINES MACHINERIES AND THEIR SPARE PARTS, scrap metals, medicines, foodstuffs, abaca
seedlings, gasoline, oil, lubricants and military equipment or supplies suitable for military use without a
permit from the President which may be issued in accordance with the provisions of the next succeeding
section.

In virtue of the power vested in him, the President issued on June 19, 1951, Executive Order No. 453, series of that
year (47 Off. Gaz. No. 6, p. 2793), section 2 whereof reads as follows:

SEC. 2. The exportation of all articles included in the list marked Annex A, hereto attached as an integral
part of this Order, is absolutely prohibited: Provided, however, That licenses issued or authority granted prior
to the effectivity of Republic Act No. 613, by the Interdepartmental Committee from February 28, 1951, by
the Civil Aeronautics Board or the Civil Aeronautics Administration and by the Sugar Quota Office on
nonferrous metals pursuant to the Cabinet Resolution of November 21, 1950, are valid and subsisting.

(The articles pertinent to this case that are included in the list marked Annex A referred to above as enumerated in
Paragraph IV of said annex which will be quoted hereafter).

The President, however, amended this Executive Order by another, No. 482, issued on October 31, 1951 (47 Off.
Gaz., No. 10, p. 5039), in the following manner:

SEC. 2. The exportation of all articles in the list marked Annex A, hereto attached as an integral part of this
Order, is absolutely prohibited; Provided, however, That in exceptionally meritorious cases and where the
Committee is fully satisfied that the overall economic and military requirements of the country are not
prejudiced, such exportation may be allowed subject to the provisions of Section 4 of this Order, (which
refers only to applications concerning articles included in the list marked Annex C and not in Annex A).

Because of the amendment made by Executive Order No. 482, the Hudson Sedan automobile herein involved was
allowed by the Committee to be exported to Osaka, Japan, with the obligation on the part of the plaintiff to report it
back to the Philippines from Japan within the period granted to him to do so, extensions included, which obligation
he failed to fulfill. Naturally, he is in duty bound to abide by the consequences of his failure and must pay the amount
of the bond he posted, as ultimately reduced, or P2,250. Plaintiff, however, contends that this car in question was
his personal effect and, therefore, not subject to statutory or reglementary prohibition against exportation. It seems,
however, that plaintiff confuses the term "personal effects" with "property of the person" or personal property". As
pointed out by the Solicitor General:

The word "personal" used with "effects" much restrict its meaning (Child vs. Orton, 183, A. 709, 710-119 N.
J. Eq. 438), and certainly (that meaning, cannot be understanding without any qualifying words includes only
such tangible property as attends the person.

Among the articles the exportation of which is prohibited according to said Executive Order are:

IV. Imported Machinery (light and heavy), mechanical, electrical, agricultural, construction, engineering,
andtransportation equipment of all types, including surplus equipment, spare parts, accessories, wires and
other allied articles, except those already approved by the Bureau of Customs or NICA or order Government
agencies as well as licenses covered in section 2 herein.

It is undisputed that petitioner's car is covered with the term "transportation equipment of all types" and not
as "personal effects", as counsel would want to classify it. Petitioner's car was admittedly brought by him to
Osaka, Japan, "to be used in connection with his business" (p. 16, Record on Appeal) , and that when he
asked for extension of time to re-export the motor vehicle back to the Philippines, his reason was that he
was still on a business tour, (p. 17, Record on Appeal).

If by personal effects of passengers in transit transportation equipment used in one's business were
included, then it would be a simple matter to defeat the intention of the law, that is, to promote the economic
and industrial development of the country. To seal any possible loophole, the Executive Order made it clear
that exportation of all articles included in the list is prohibited irrespective of the use for which they were
intended.

The cardinal rule in the interpretation of law is to ascertain and give effect to the legislative intent (Roldan and
Daza vs. Villaroman (1949), 69 Phil. 12), and the intention of the Legislature in enacting a law is part of the law
itself, and is to be followed and applied, where ascertainable, in construing apparently conflicting provisions
(Altaban vs.Masbate Consolidated Mining Co., et al. (1940) — 69 Phil. 696). These principles of statutory
construction are more true in the case at bar because the wording of the law is too plain and clear.
81
On the other hand, the Solicitor General further contends that contrary to the assertions of plaintiff's counsel, the
respondent is expressly authorized by the provisions of section 6 of said Executive Order No. 453 to require the
petitioner to file a bond in this case to insure either the reaching of goods to their intended destination or its return to
the Philippines, and section 4 of Republic Act No. 613 provides that in case of a violation of said Acts which
regulates, controls and/or prohibits certain exports from the Philippines, the materials intended for export in violation
of said Act and the rules and regulations thereunder, shall be confiscated by and forfeited to the Government.
Consequently, if the petitioner violated the provisions of said Executive Orders by not returning or re-exporting back
to the Philippines the automobile in question, and this property cannot be confiscated because it is beyond the
jurisdiction of this country, it would appeal to reason that plaintiff should pay the equivalent value of the automobile
which he placed beyond the reach of the Government to the Philippines, That is why he was required to give the
bond and should pay the Government for the automobile that it should not seized and forfeit.

But even assuming arguendo, that the respondent were not authorized to require the petitioner to file the bond in
question, nevertheless, the Republic of the Philippines being a political entity has an incident to its sovereignty the
capacity to enter into contracts and take bonds in cases appropriate to the just exercise of its power through its
instrumentalities or agencies whenever, as in the instant case, such contracts or bonds are not prohibited by law,
although the making of such contracts or the taking of such bonds may not have been specifically prescribed by any
pre-existing statute (Solicitor General's brief, p. 6-8).

Certainly petitioner could not have taken from the Philippines his automobile if he had not furnished the bond
required from him and which he voluntarily furnished. He had been enjoying the benefits which the bond intended to
secure and now he cannot come and allege that he is not bound by the terms of the bond. The present case has a
legal aspect similar to the one We solved in the case of Compañia General de Tabacos de Filipinas and S. S. Co. of
1912& S. S. Co. Svandoorg (A. P. Moller, Maersk Line), petitioner, vs. The Collector of Internal Revenue,
respondent, G.R. No. L-9071, promulgated January 31, 1957. It appeared in that case:

That while the M/V Hulda Maersk, represented locally by Tabacalera, was moored alongside Manila's Pier
no. 9, its chief steward, Henry Anderson, took from its stores 30 cases of cigarettes of foreign manufacture,
which he sold to two persons in uniform for two thousand dollars ($2,000.00). With this help the cargo was
surreptitiously unloaded and withdrawn from the pier, import taxes unpaid. The Customs authorities
somehow discovered the anomaly, and promptly investigated. Anderson admitted the sale; Captain Jansen,
the ship's master, swore that the cigarettes belonged to the ship's stores and declared their willingness to
pay the corresponding duties upon presentation of the bill to their local agents, the Tabacalera. The latter in
turn, thru its Acting Manager of the Shipping Department Edward N. Bosch, who was present during the
investigation, signed the following guaranty:

The Commission of Customs


Manila
DEAR SIR:

We hereby confirm our agreement to pay immediately upon presentation of the corresponding bills,
all taxes due on 30 (Thirty) Cases Chesterfield, Lucky Strike and Camel cigarettes, each case
containing fifty cartoons of two hundred cigarettes each, removed from the above vessel.

Accordingly, on March 5, 1952, upon receipt of the corresponding bill, Tabacalera paid the amount of
P6,613.05 representing specific taxes on the aforesaid cigarettes. Thereafter it submitted a request for
refund, which the Collector of Internal Revenue denied, and the Court of Tax Appeals likewise denied.

In the cited case Tabacalera's demand for returned was made after the ship Hulda Maersk and the persons involved
in the attempted smuggle had already left the Philippines, a fact that the Bureau of Customs would not have allowed
to happen if the Tabacalera had not agreed to pay the taxes due upon presentation of the bill, and We affirmed the
decision of the Board of Tax Appeals rendered in the case.

Wherefore, on the strength of the foregoing considerations and finding no error in the decision appealed from, We
hereby affirmed the same, with costs against plaintiff. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.
82
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-42091 November 2, 1935

GONZALO CHUA GUAN, plaintiff-appellant,


vs.
SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G. SOTTO, and EMILIO VERGARA, as
president, secretary and treasurer respectively of the same, defendants-appellees.

Buenaventura C. Lopez for appellant.


Domingo L. Vergara for appellees.

BUTTE, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action for a writ of mandamus.
The case is remarkable for the following reason: that the parties entered into a stipulation in which the defendants
admitted all of the allegations of the complaint and the plaintiff admitted all of the special defenses in the answer of
the defendants, and on this stipulation they submitted the case for decision.

The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly organized under the
laws of the Philippine Islands with principal office in Cabanatuan, Nueva Ecija, and that the individual defendants
are the president, secretary and treasurer respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was
the owner of 5,894 shares of the capital stock of the said corporation represented by nine certificates having a par
value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of Manila, mortgaged said 5,894 shares to
Chua Chiu to guarantee the payment of a debt of P20,000 due on or before June 19, 1932. The said certificates of
stock were delivered with the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the
office of the register of deeds of Manila on June 23, 1931, and in the office of the said corporation on September 30,
1931.

On November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage to the plaintiff and the
assignment was registered in the office of the register of deeds in the City of Manila on December 28, 1931, and in
the office of the said corporation on January 4, 1932.

The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity, the plaintiff foreclosed
said mortgage and delivered the certificates of stock and copies of the mortgage and assignment to the sheriff of the
City of Manila in order to sell the said shares at public auction. The sheriff auctioned said 5,894 shares of stock on
December 22, 1932, and the plaintiff having been the highest bidder for the sum of P14,390, the sheriff executed in
his favor a certificate of sale of said shares.

The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers of
the corporation for cancellation and demanded that they issue new certificates in the name of the plaintiff. The said
officers (the individual defendants) refused and still refuse to issue said new shares in the name of the plaintiff.

The prayer is that a writ of mandamus be issued requiring the defendants to transfer the said 5,894 shares of stock
to the plaintiff by cancelling the old certificates and issuing new ones in their stead.

The special defenses set up in the answer are as follows: that the defendants refuse to cancel the said certificates
standing in the name of Gonzalo H. Co Toco on the books of the corporation and to issue new ones in the name of
the plaintiff because prior to the date when the plaintiff made his demand, to wit, February 4, 1933, nine attachments
had been issued and served and noted on the books of the corporation against the shares of Gonzalo H. Co Toco
and the plaintiff objected to having these attachments noted on the new certificates which he demanded. These
attachments noted on the books of the corporation against the shares of Gonzalo H. Co Toco are as follows:

MISSING PAGES: 475-477.

It will be noted that the first eight of the said writs of attachment were served on the corporation and noted on its
records before the corporation received notice from the mortgagee Chua Chiu of the mortgage of said shares dated
June 18, 1931. No question is raised as to the validity of said mortgage or of said writs of attachment and the sole
question presented for decision is whether the said mortgage takes priority over the said writs of attachment.
83
It is not alleged that the said attaching creditors had actual notice of the said mortgage and the question therefore
narrows itself down to this: Did the registration of said chattel mortgage in the registry of chattel mortgages in the
office of the register of deeds of Manila, under date of July 23, 1931, give constructive notice to the said attaching
creditors?

In passing, let it be noted that the registration of the said chattel mortgage in the office of the corporation was not
necessary and had no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) The long mooted question as to whether or
not shares of a corporation could be hypothecated by placing a chattel mortgage on the certificate representing such
shares we now regard as settled by the case of Monserrat vs. Ceron, supra. But that case did not deal with any
question relating to the registration of such a mortgage or the effect of such registration. Nothing appears in the
record of that case even tending to show that the chattel mortgage there involved was ever registered anywhere
except in the office of the corporation, and there was no question involved there as to the right of priority among
conflicting claims of creditors of the owner of the shares.

The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496, contains the following provision:

SEC. 4. A chattel mortgage shall not be valid against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor
resides at the time of making the same, or, if he resides the Philippine Islands, in the province in which the
property is situated: Provided, however, That if the property is situated in a different province from that in
which the mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of both the
province in which the mortgagor resides and that in which the property is situated, and for the purposes of
this Act the City of Manila Shall be deemed to be a province.

The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents considerable
difficulty and we have obtained little aid from the decisions of other jurisdictions because that form of mortgage is ill
suited to the hypothecation of shares of stock and has been rarely used elsewhere. In fact, it has been doubted
whether shares of stock in a corporation are chattels in the sense in which that word is used chattel mortgage
statutes. This doubt is reflected in our own decision in the case of Fua Cun vs. Summers and China Banking
Corporation (44 Phil., 705), in which we said:

". . . an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be
treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive
notice to third parties. . . ."And we held that the chattel mortgage there involved: "at least operated as a conditional
equitable assignment." In that case we quoted the following from Spalding vs. Paine's Adm'r. (81 Ky., 416), with
regard to a chattel mortgage of shares of stock:

"These certificates of stock are in the pockets of the owner, and go with him where he may happen to locate,
as choses in action, or evidence of his right, without any means on the part of those with whom he proposes
to deal on the faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to
others. He finds the name of the owner on the books of the company as a subscriber of paid-up stock,
amounting to 180 shares, with the certificates in his possession, pays for these certificates their full value,
and has the transfer to him made on the books of the company, thereby obtaining a perfect title. What other
inquiry is he to make, so as to make his investment certain and secure? Where is he to look, in order to
ascertain whether or not this stock has been mortgaged? The chief office of the company may be at one
place today and at another tomorrow. The owner may have no fixed or permanent abode, and with his notes
in one pocket and his certificates of stock in the other — the one evidencing the extent of his interest in the
stock of the corporation, the other his right to money owing him by his debtor, we are asked to say that the
mortgage is effectual as to the one and inoperative as to the other."

But the case of Fua Cun vs. Summers and China Banking Corporation, supra, did not decide the question here
presented and gave no light as to the registration of a chattel mortgage of shares of stock of a corporation under the
provisions of section 4 of the Chattel Mortgage Law, supra.

Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage which shall be effective against
third persons. First, the possession of the property mortgage must be delivered to and retained by the mortgagee;
and, second, without such delivery the mortgage must be recorded in the proper office or offices of the register or
registers of deeds. If a chattel mortgage of shares of stock of a corporation may validly be made without the delivery
of possession of the property to the mortgagee and the mere registration of the mortgage is sufficient to constructive
notice to third parties, we are confronted with the question as to the proper place of registration of such a mortgage.
Section 4 provides that in such a case the mortgage resides at the time of making the same or, if he is a non-
resident, in the province in which the property is situated; and it also provides that if the property is situated in a
different province from that in which the mortgagor resides the mortgage shall be recorded both in the province of
the mortgagor's residence and in the province where the property is situated.

If with respect to a chattel mortgage of shares of stock of a corporation, registration in the province of the owner's
domicile should be sufficient, those who lend on such security would be confronted with the practical difficulty of
being compelled not only to search the records of every province in which the mortgagor might have been domiciled
84
but also every province in which a chattel mortgage by any former owner of such shares might be registered. We
cannot think that it was the intention of the legislature to put this almost prohibitive impediment upon the
hypothecation of shares of stock in view of the great volume of business that is done on the faith of the pledge of
shares of stock as collateral.

It is a common but not accurate generalization that the situs of shares of stock is at the domicile of the owner. The
term situs is not one of fixed of invariable meaning or usage. Nor should we lose sight of the difference between the
situs of the shares and the situs of the certificates of shares. The situs of shares of stock for some purposes may be
at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. (Cf.
Vidal vs.South American Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy, 94 Okla., 199; 221 Pac,,
425 Norrie vs. Kansas City Southern Ry. Co., 7 Fed. [2d]. 158.) It is a general rule that for purposes of execution,
attachment and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation
which is decisive. (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11, paragraph 5106. Cf. sections
430 and 450, Code of Civil Procedure.)

By analogy with the foregoing and considering the ownership of shares in a corporation as property distinct from the
certificates which are merely the evidence of such ownership, it seems to us a reasonable construction of section 4
of Act No. 1508 to hold that the property in the shares may be deemed to be situated in the province in which the
corporation has its principal office or place of business. If this province is also the province of the owner's domicile, a
single registration sufficient. If not, the chattel mortgage should be registered both at the owner's domicile and in the
province where the corporation has its principal office or place of business. In this sense the property mortgaged is
not the certificate but the participation and share of the owner in the assets of the corporation.

Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage, it appears
that in the present state of our law, the only safe way to accomplish the hypothecation of share of stock of a
Philippine corporation is for the creditor to insist on the assignment and delivery of the certificate and to obtain the
transfer of the legal title to him on the books of the corporation by the cancellation of the certificate and the issuance
of a new one to him. From the standpoint of the debtor this may be unsatisfactory because it leaves the creditor as
the ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency of the creditor. Of
course, the mere possession and retention of the debtor's certificate by the creditor gives some security to the
creditor against an attempted voluntary transfer by the debtor, provided the by-laws of the corporation expressly
enact that transfers may be made only upon the surrender of the certificate. It is to be noted, however, that section
35 of the Corporation Law (Act No. 1459) enacts that shares of stock "may be transferred by delivery of the
certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer." The
use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus
leaving the creditor in an insecure position even though he has the certificate in his possession. Moreover, the
shares still standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment
or levy on execution at the instance of other creditors. (Cf. Uy Piaoco vs. McMicking, 10 Phil., 286, and
Uson vs.Diosomito, 61 Phil., 535.) This unsatisfactory state of our law is well known to the bench and bar. (Cf.
Fisher, The Philippine Law of Stock Corporations, pages 163-168.) Loans upon stock securities should be facilitated
in order to foster economic development. The transfer by endorsement and delivery of a certificate with intention to
pledge the shares covered thereby should be sufficient to give legal effect to that intention and to consummate the
juristic act without necessity for registration.lawphil.net

We are fully conscious of the fact that our decisions in the case of Monserrat vs. Ceron, supra, and in the present
case have done little perhaps to ameliorate the present uncertain and unsatisfactory state of our law applicable to
pledges and chattel mortgages of shares of stock of Philippine corporations. The remedy lies with the legislature.

In view of the premises, the attaching creditors are entitled to priority over the defectively registered mortgage of the
appellant and the judgment appealed from must be affirmed without special pronouncement as to costs in this
instance. 1

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


85
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-42462 August 31, 1937

THE BACHRACH MOTOR CO., INC., plaintiff-appellant,


vs.
MARIANO LACSON LEDESMA, TALISAY-SILAY MILLING CO., INC., and THE PHILIPPINE NATIONAL
BANK,defendant-appellees.

William E. Greenbaum and Ohnick and Opisso for appellant.


Nolan and Hernaez for appellee Talisay-Silay Milling Co., Inc.
Roman J. Lacson and Francisco Fuentes for appellee Philippine National Bank.

IMPERIAL, J.:

This is an action brought by the plaintiff to recover the amount of the judgments obtained by it in civil cases Nos.
31597 and 31821 of the Court of First Instance of Manila, praying in its complaint: (a) That the transfer of certificate
of stock dividends No. 772 of the Talisay-Silay Milling of the Philippine National Bank, be declared null and void, as
against the plaintiff: (b) that the Talisay-Silay Milling Co., Inc., ordered to cancel the entry of the transfer of the 6,300
stock dividends covered by certificate No. 772, made by it on its books in favor of the Philippine National Bank; (c)
that said stock dividends be sold to satisfy the judgment obtained by it in civil cases Nos. 31597 of the Court of First
Instance of Manila; (d) that the Talisay-Silay Milling Co., Inc., be ordered to pay to it amount of P21,379.39, with
interest on the sums and from the dates set forth in paragraph XV of the complain, or any part thereof necessary to
complete payment of said sums and interest thereon , in case the 6,300 stock dividends can not be sold or the
proceeds of the sale thereof should be insufficient to cover the sums in question, and (e) that the defendants pay the
costs of the suit. The plaintiff appealed from the judgment declaring the right of the Philippine National Bank to the
6,300 stock dividends a preferred one, and absolving the defendants from the complaint, with costs.

The parties submitted the case upon the following stipulation of facts, to wit:

STIPULATION OF FACTS. — That the plaintiff, the Bachrach Motor Co., Inc., on June 30, 1927, obtained judgment
in civil case No. 31597 of the Court of First Instance of Manila against the defendant Mariano Lacson Ledesma, in
the sum of P3,442.75, with interest thereon from March 30, 1927, with costs. That a writ of execution of said
judgment was issued on August 20, 1927, and Jose Y. Orosa was appointed Special sheriff to execute it. That on
October 4, 1927, said Jose Y. Orosa, as special sheriff, in compliance with the writ of execution in question,
attached all right, title to and interest which the defendant Mariano Lacson Ledesma may have in "Any bonus,
dividend, share of stock, money, or other property which that defendant is entitle to receive from the Talisay-Silay
Milling Co., Inc., by virtue of the fact that such defendant has mortgage his land in favor of the Philippine National
Bank to guarantee the indebtedness of the Talisay-Silay Milling Co., Inc., or which such defendant is entitled to
receive from the Talisay-Silay Milling Co., Inc., on account of being a stockholder in the corporation or which he is
entitled to receive from that corporation for any other cause or pretext whatsoever." That notice of said attachment
was served not only upon the defendant Mariano Lacson Ledesma but also upon the herein defendant the Talisay-
Silay Milling Co., Inc., which received a copy of the notice of attachment, as evidenced by the Annex A attached to
this stipulation of facts. That on October 3, 1927, the herein plaintiff, the Bachrach Motor Co., Inc., obtained
judgment in case No. 31821 of the Court of First Instance of Manila against the defendant Mariano Lacson
Ledesma, in the sum of four thousand four hundred pesos and seventy-eight centavos with interest at 10 per cent
per annum on the sum of P3,523.82 from April 30, 1927; in the sum of P14,171, 52 with interest at 10 per cent per
annum on the sum of P13,290.89 from April 30, 1927; and in the sum of P1,150.72 with the legal interest of 6 per
cent per annum thereon from May 25, 1927, and the costs. A copy of said judgment is attached to this stipulation of
facts and marked Annex B. That a writ of execution of said judgment was issue, thereby causing the attachment,
sale and adjudication to the plaintiff the Bachrach Motor Co., Inc., for the sum of P100, Philippine currency, of the
defendant Mariano Lacson Ledesma's right of redemption over the following properties to wit: "Original certificate of
title No. 1929 (Lot No. 1473 of the Cadastral Survey of Bacolod) containing an area of 2,647 square meters, more or
less.

Original certificate of title No. 2978 (Lot No. 1475 of the Cadastral Survey of Bacolod) containing an area of 8.501
square meters, more or less.

Original certificate of title No. 2624 (Lot No. 1474 of the Cadastral Survey of Bacolod) containing an area of 8,714
square meter, more or less.

Original certificate of title No. 9443 (Lot No. 426 of the Cadastral Survey of Talisay) containing an area of
150,301 square meters more or less. Original certificate of title No. 1928 (Lot No. 1472 of the Cadastral
Survey of Bacolod) containing an area of 36,818 square meters, more or less. Original certificate of title No.
86
2923 (Lot No. 1489 of the Cadastral Survey of Bacolod) containing an area of 286,879 square meters,
more or less. Original certificate of title No. 356 (Lot No. 4-A of the Cadastral Survey of Bacolod) containing
an area of 641,448 square meters, more or less. Original certificate of title No. 356 (Lot No. 4-B of the
Cadastral Survey of Bacolod) containing an area of 280,556 square meters, more or less. Original certificate
of title No. 356 (Lot No. 4-C of the cadastral Survey of Bacolod) containing an area of 2,842,946 square
meters, more or less." The certificate of sale issued by the provincial sheriff of Occidental Negros in favor of
the Bachrach Motor Co., Inc., on March 29, 1928, is attached to this stipulation of facts, and marked Annex
C. That on the date of the issuance of the execution in case No. 31597 of the Court of First Instance of
Manila as well as on that of the issuance of the execution and sale of the properties described in Exhibit C,
in case No. 31821 of the same court, said real properties were mortgaged to the Philippine National Bank to
secure the payment to said bank by Mariano Lacson Ledesma of the sum of P624,000, Philippine currency,
by virtue of an instrument executed by the debtor Mariano Lacson Ledesma in favor of said bank on August
9, 1923. said instrument of mortgage is copied on pages 18 to 32, both inclusive, of the bill of exceptions in
case No. 8136 of the Court of First Instance of Iloilo (G. R. No. 35223), which is attached to this stipulation
of facts and marked Annex D. That in the same instrument of mortgage (pages 18 to 32 of Annex D) said
debtor Mariano Lacson Ledesma mortgaged in favor the bank, as part of the securities to ensure
compliance with his obligation, the following shares owned by him in the Talisay-Silay Milling Co., Inc., to
wit: 1,540 share covered by Certificate No. 147; 520 shares covered by Certificate No. 146; 40 share
covered by Certificate in the preceeding two paragraph, there was another mortgage constituted on the
above-described real properties in favor of the Philippine National Bank, to answer for the debts contracted
by the Central Talisay-Silay Milling Co., with said bank. That on December 22, 1923, the defendant, Central
Talisay-Silay Milling Co. resolved to grant a bonus or compensation to the owners of the real properties
mortgaged to answer for the debts contracted by said central with the Philippine National Bank, for the risk
incurred by said properties upon being subjected to said mortgage lien, and the resolution in question the
defendant Mariano Lacson Ledesma was allotted the sum of P19,911.11, Philippine currency, which sum,
however, would not be payable until the month of January, 1930. That on September 29, 1928, the
Philippine National Bank brought an action against the defendant Mariano Lacson Ledesma and his wife
Concepcion Diaz for the recovery of a mortgage credit which, together with interest thereon amounted to
P853,729.49 on said date. Sometime later that is, on January 2, 1929, the Philippine National Bank
amended its complaint by including the Bachrach Motor Co., Inc., as party defendant, among other, because
they claim to have some right to certain properties which are the subject matter of this complaint." Said case
bears No. 4706 of the Court of First Instance of Occidental Negros. That on January 30, 1929, the defendant
Bachrach Motor Co., Inc., file a general denial. That after due hearing the Court of First Instance of Bacolod
on September 3, 1930, rendered judgment in case No. 4706 of said court in favor of the Philippine National
Bank and against the defendant Mariano Lacson Ledesma, sentencing the latter to pay the amount claimed
by said bank and ordering, upon failure to satisfy said amount, the sale at public auction of the real
properties mortgaged under the instrument of mortgage appearing on pages 18 to 32 of Annex D. That the
real estate and chattel mortgage deed in question (pages 18 to 32 of Annex D), marked as Exhibit G, was
among the exhibits presented in said case No. 4706 of the Court of First Instance of Occidental Negros.
That likewise, among the exhibit presented in said case No. 4706 of the Court of First Instance of Occidental
Negros, was Exhibit H which was a deed of mortgage of certain carabaos belonging to the debtor Mariano
Lacson Ledesma, executed by the latter in favor of the Philippine National Bank on January 21, 1925. That
in the decision rendered by the Court of First Instance of Occidental Negros in case No. 4706 thereof, said
court, referring to stock certificates Nos. 145 and 147 of the Talisay-Silay Milling Co., Inc., which were
pledged or mortgaged by virtue of Exhibit G of said No. 4706, rendered the following ruling: "(e) With respect
to the chattel mortgaged bank, which are described in Exhibit G and H, the Philippine National Bank, as
soon as this judgment becomes final, shall have authority to sell them in accordance with the provisions of
section 23 of Act No. 2938, immediately informing this court of whatever action it may take in the premises."
That during the pendency of case No. 4706 of the Court of First Instance of Bacolod referred to in the
foregoing paragraphs, the plaintiff Bachrach Motor Co., Inc., on December 20, 1929, brought an action in the
Court of First Instance of Iloilo against the Talisay-Silay Milling Co., Inc., recover from it the sum of P13,850
against the bonus or dividend which, by virtue of the resolution of December 22, 1923, said Central Talisay-
Silay Milling Co., Inc., had declared in favor of the defendant Mariano Lacson Ledesma as one of the
owners of the hacienda which had been mortgaged to the Philippine National Bank to secure the obligation
of the Talisay-Silay Milling Co., Inc. in favor of said bank. Copy of said complaint appears on pages 2 to 5 of
the bill of exceptions in case No. 8136 of the Court of First Instance of Iloilo (G. R. No. 35223), Annex D of
this stipulation of facts. That on January 30, 1930, the Philippine National Bank sought permission to
intervene in said case No. 8136 of the Court of First Instance of Iloilo and after the permission had been
granted, said bank, on February 13, 1930, filed a complaint in intervention alleging that it had a preferred
right to said bonus granted by the central to the defendant Mariano Lacson Ledesma as one of the owners
of the haciendas which had been mortgaged to said bank to answer for the obligations of the Central
Talisay-Silay Milling Co., Inc., basing such allegation on the fact that, as said properties were mortgaged to it
by the debtor Mariano Lacson Ledesma, not Talisay Milling Co., Inc., but also by virtue of the deed of
August 9, 1923 (pages 18 to 32 of Annex D) and said bonus being a civil fruit of the mortgaged lands, said
bank was entitled to it on the ground that the mortgage of August 9, 1923, had become due. That after the
trial of civil case No. 8136 of the Court of First Instance of Iloilo, said court, on December 8, 1930, rendered
judgment in favor of the plaintiff Bachrach Motor Co., Inc., Upon appeal, the Supreme Court, on September
17, 1931, 1 affirmed the judgment of the lower court, holding that the bonus had no immediate relation to the
lands in question but merely a remote and accidental one and, therefore, it was not a civil fruit of the real
properties mortgaged to the Philippine National Bank to secure the obligation of the Talisay-Silay Milling Co.,
87
Inc., being a mere personal right of Mariano Lacson Ledesma. The decision of the Supreme Court
published in Volume 30, No. 104, of the Official Gazette, on August 29, 1932, is attached to this stipulation
of facts and marked Annex E. That on January 24, 1930, that Talisay-Silay Milling Co., Inc., issued stock
certificate No. 772 for 3,600 shares, as stock dividend to Mariano Lacson Ledesma, which certificate was
ordered by Mariano Lacson Ledesma to be delivered to Roman Lacson, attorney for the Philippine National
Bank, by virtue of the letter of February 27, 1930, Annex G of this stipulation of facts, and of the letter of the
Philippine National Bank dated January 18, 1930, Annex G-1. Said 6,300 shares constituted the stock
dividend allotted to Mariano Lacson Ledesma for his 2,100 original shares in the Talisay-Silay Milling Co.,
Inc., which were given as pledge to the Philippine National Bank under the deed of mortgage appearing on
pages 18 to 32 of Annex D prior to the issuance of stock certificate No. 772, an were covered by Stock
Certificates Nos. 145, 146 and 147 of the Talisay-Silay Milling Co., Inc. That stock certificate No. 772 was
issued by virtue of resolution No. 4 of the general meeting of stockholders of the Talisay-Silay Milling Co.,
Inc., which resolution is quote in paragraph 8 of the complaint in this case. That in a letter of March 25,
1930, addressed by the Philippine National Bank to the Talisay-Silay Milling Co., said bank informed the
letter that the 6,300 shares represented by stock certificate No. 772 had been given by Mariano Lacson
Ledesma as pledge to the Philippine National Bank. Said letter is attached to this stipulation of facts as
Annex H. That said stock certificate No. 772 has continuously been in the possession of the Philippine
National Bank from February 27, 1930, to February 25, 1931, but like stock certificates Nos. 145, 146 and
147, it was registered in the books of the Talisay-Silay Milling Co. in the name of Mariano Lacson Ledesma.
That on August 11, 1930, the plaintiff Bachrach Motor Co., by virtue of an alias execution issued in case No.
31821 of the Court of First Instance of Manila, attached all right, title to an interest which the defendant
Mariano Lacson Ledesma might have in Any bonus, dividend, shares of stock, money or other property
specially on the sum of P19,911.11 which the defendant is entitled to receive from the Talisay-Silay Milling
Co., Inc., by virtue of the fact that such defendant has mortgage his lands in favor of the Philippine National
Bank to guarantee the indebtedness of the Talisay-Silay Milling Co., Inc., or which such defendant is entitled
to receive from the Talisay-Silay Milling Co., Inc., on account of being stockholder in that corporation, or
which he is entitle to receive from that corporation for any other cause or pretext whatsoever." In connection
with the proceedings and attachment made notice of garnishment was served on the Talisay-Silay Milling
Co., Inc., as evidence by Annexes I and J of this stipulation of facts. That on February 5, 1931, the provincial
the is positive part of the decision rendered in civil case NO. 4706 of the Court of First Instance of
Occidental Negros, copy of which is attached to this stipulation of facts as Annex I, sold at public auction not
only the 2,100 share specified in the deed of August 9, 1923, but also the 6,300 shares covered by stock
certificate No. 772, the sale of said shares having been made by order and under the direction of the
attachment creditor Philippine National Bank. A copy of the certificate of sale marked Exhibit K is attached
hereto. That on February 25, 1931, the Talisay-Silay Milling Co., Inc., upon petition of the Philippine National
Bank, as shown by the letter dated February 19,1931, marked and attached to this stipulation as Annex L,
which letter was accompanied by the certificate of sale Exhibit K, issued stock certificate No. 1155
representing 8,968 shares, which include the 6,300 shares formerly represented by stock certificate No. 772
and the 2,100 shares formerly represented by stock certificates Nos. 145, 146 and 147, the bank having
acknowledged receipt of certificate No. 1155 in a letter of March 4, 1931, marked as Exhibit M. Attention is
invited to the fact that of the 8,969 shares represented by stock certificate No. 1155, 568 shares formerly
belonged to Concepcion Diaz e Lacson wife of the defendant Mariano Lacson Ledesma, and of the 568
shares, 142 were mortgaged under the deed of August 9, 1923, and 426 were the stock dividend that had
corresponded to said 142 shares. That on the same date, February 25,1931, Marino Lacson Ledesma
endorsed the back of stock certificate No. 772 in favor of the Philippine National Bank. Said stock certificate
with the endorsement in question is attached to this stipulation of facts and marked Annex N. That both on
the date on which the garnishment was carried out by the Bachrach Motor Co., that is, on August 11, 1930,
and on the date on which the 6,300 shares, covered by stock certificate No. 772, were sold, case No. 8136
of the Court of First Instance of Iloilo (G. R. No. 35223) was still pending. That the amount of the actual
indebtedness of the defendant Mariano Lacson Ledesma to the plaintiff the Bachrach Motor Co. is
P21,377.34 with the interest and other sums specified in paragraph XV of the complaint. That the real
properties mortgaged to the Philippine National Bank were sold for P300,000 Philippine currency; the
mortgaged carabaos for P2,000 Philippine currency, and all the shares, that is, the 8,968 share for the sum
of P90,000 Philippine currency, the bank having been the highest bidder herein all these sales, there still
remaining unpaid in civil case No. 4796 of the Court of First Instance of Occidental Negros the sum of
P695,421.74, as stated in Annex 9. That the notices of garnishment issue by virtue of the execution in cases
Nos. 31597 and 31821 of the Court of First Instance of Manila are the same notices of attachment and
garnishment mentioned in the complaint in the case No. 8136 of the Court of First Instance of Iloilo and
presented as evidence in said case, and are the same notices mentioned in this case now submitted to the
court for decision. That on March 20,1925, the Philippine National Bank served notice on the Talisay-Silay
Milling Co., Inc, of the pledge made by Mariano Lacson Ledesma to said bank of the shares represented by
stock certificates Nos. 145, 146 and 147, and on March 25th the Talisay-Silay Milling Co., Inc.,
acknowledged receipt thereof and considered itself notified of said pledge, as evidenced by Annexes P and
Q of this stipulation of facts, That prior to the declaration of stock divided by virtue of resolution No. 4 of the
regular meeting of stockholders of the Talisay-Silay Milling Co., Inc., the shares of this corporation were
quote in private sales at P32 a share; and immediately after the declaration of stock dividend, the quotation
of said shares dropped by P7 or P8 a share, the same having been P11.25 a share on the date of their sale
at public auction. Upon this stipulation of facts, the parties submit the case to the court for decision.
88
I. The plaintiff bases the preferred right invoked by it over the 6,300 stock dividends, certificate No. 772, on the
garnishment made thereon by reason of the issuance of the alias execution in civil case No. 31821 of the Court of
First Instance of Manila, which garnishment was carried out on August 11, 1930. The plaintiff contends in its first
assignment of error that these stock dividends were certificate No. 772 thereof was delivered to the Philippine
National Bank and when the Talisay-Silay Milling Co., Inc., entered them in its books in the name of said bank and
issued certificate No. 1166 in favor of the latter. The contention is unfounded because it appears that the stock
dividends in question were pledged to the bank prior to the garnishment and because certificate No. 772 was in the
possession of said bank from February 27, 1930. The reasons upon which this court base its opinion in declaring
that the stock dividends were pledge beforehand to the Philippine National Bank will be stated in the discussion of
the following assignment of error.

II. In the stipulation of facts, it appears stipulated by the parties that, by virtue of the letters of the Philippine National
Bank and having been so asked by Mariano Lacson Ledesma, certificate No. 772 covering the 6,300 stock
dividends was delivered as security to Attorney Roman Lacson as representative of the bank, on February 27, 1930,
in view of the fact that the original shares covered by certificate Nos. 145, 146 and 147 had been previously
mortgaged to the same bank. On February 25, 1931, the Talisay-Silay Milling Co., Inc., in conformity with the letter
of the Philippines National Bank of the 19th of said month, cancelled certificate No. 772 and in lieu thereof issued
certificate No. 1155 in favor of said bank, which certificate includes the 6,300 stock dividends, among other shares.
On the other hand, the garnishment obtained by the plaintiff, upon which it bases all its alleged preferred right was
notified to the parties and became effective on August 11, 1930, more than five months after the delivery of
certificate No. 772. The plaintiff, in its second assignment of error, maintains that the pledge is ineffective as against
it because evidence of its date was not made to appear in a public instrument and concludes that its right to the
6,300 stock dividends is superior and preferred. It is admitted that the delivery of the certificate in question and the
pledge thereof were not made to appear in a public instrument.

It is true, according to article 1865 of the Civil Code, that in order that a pledge may be effective as against third
person, evidence of its date must appear in a public instrument in addition to the delivery of the thing pledged to the
creditor. This provision has been interpreted in the sense that for the contract to affect third person, it must appear in
a public instrument in addition to delivery of the thing pledged (Ocejo, Perez and Co., vs. International Banking
Corporation, 37 Phil., 631: Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil., 596; Te Pate vs.
Ingersoll, 43 Phil., 394). It cannot be denied, however, that section 4 of Act No. 1508, otherwise known as the
Chattel Mortgage Law, implicitly modified article 1865 of the Civil Code in the sense that a contract of pledge and
that of chattel mortgage, to be effective as against third persons, need not appear in public instruments provided the
thing pledged or mortgaged be delivered or placed in the possession of the creditor. In the case of Mahoney vs.
Tuason (39 Phil., 952, 958), where this doctrine was laid down, it was stated; "From the foregoing provisions of the
abovecited Act, it is inferred that the same does not entirely repeal the provisions of the Civil Code, but only modify
them in part and amplify them in another, as may be seen from an examination of, and comparison between, the
provisions of the Civil Code regarding pledge and the abovequoted provisions of Act No. 1508. Article 1865 of the
Civil Code provides that no pledge shall be effective against a third person unless evidence of its date appears in a
public instrument. The provision of this article has, undoubtedly, been modified by section 4 of the Chattel Mortgage
Law, in so far as it provides that a chattel mortgage shall not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides.
From the date the said Act No. 1508 was in force, a contract of pledge or chattel mortgage should be deemed
legally entered into and should produce all its effects and consequences, provided it appears to have been in some
manner perfected and that the things pledged have been delivered, and in a contrary case, and even if the creditor
has not received them or has not retained them in his custody, provided that the contract of pledge or chattel
mortgage appears in a notarial document and is inscribed in the registry of deeds of the province." Therefore, this
court holds that the pledge of the 6,300 stock dividends is valid against the plaintiff for the reason that the certificate
was delivered to the creditor bank, notwithstanding the fact that the contract does not appear in a public instrument.

The plaintiff further contends that the pledge could not legally exist because the certificate was not the shares
themselves, making it understood that a certificate of stock or of stock dividends can not be the subject matter of the
contract of pledge or of chattel mortgage. Neither is this contention tenable. Certificates of stock or of stock
dividends, under the Corporation Law, are quasi negotiable instruments in the sense that they may be given in
pledge or mortgage to secure an obligation. The question is settled in this wise by the weight of American authorities
and it is the modern doctrine of general acceptance by the courts.

In view, however, of the fact that certificates of stock, while not negotiable in the sense of the law merchant,
like bills and notes, are so framed and dealt with as to be transferable, when property endorsed, by mere
delivery, and as they frequently convey, by estoppel against the corporation or against prior holders, as
good a title to the transferee as if they were negotiable, and inasmuch as a large commercial use is made of
such certificates as collateral security, and it is to the public interest that such use should be simplify and
facilitated by placing them as nearly as possible on the plane of commercial paper, they are often spoken of
and treated as quasi negotiable, that is as having some of the attributes and partaking of the character of
negotiable instruments, in passing from hand to hand, especially where they are accompanied by an
assignment and power of attorney, executed in blank, to transfer them to anyone who may obtain
possession as holders, even though such assignment and power are under seal. (14 C. J., 665, sec 1034;
89
South Bend First Nat. Bank vs. Lanier, 20 Law. ed., 172; Weniger vs. Success Min. Co., 227 Fedd., 548;
Scott vs. Pequonnock Nat. Bank, 15 Fed., 494.)

III. In the third assignment of error, the plaintiff maintains that the court erred in holding that the stock dividends are
civil fruits or an extension of the original shares. This court deems it unnecessary to determine whether or not the
stock devidends are civil fruits or an extension of the original shares. This point becomes immaterial after the case
has been decided in the manner stated in the discussion of the second assignment of error .

IV. In the forth assignment of error, the plaintiff contends that court erred in not declaring null and void the sale of
the 6,300 stock dividends in execution of the judgment rendered in favor of the Philippine National Bank in civil case
No. 4706 of the Court of First Instance of Occidental Negros. Inasmuch as this court has declared that the stock
dividends in question were pledged to the bank, it follows that the sale thereof in execution of said judgment is legal
and valid.

V. In the fifth assignment of error, the plaintiff argues that the court erred in declaring the Philippine National Bank's
right to the stock dividends a preferred one. After it has been held that these stock dividends had been pledged to
the Philippine National Bank and that this contract was prior to the garnishment of the plaintiff, it appear clear that
the court violated no law in holding the right of the Philippine National Bank, as pledgee, a superior one.

VI. The plaintiff assigns as sixth and last error committed by the court the fact of its having absolved all the
defendants. The case having been decided in favor of the Philippine National Bank, on the grounds stated in
passing upon the second assignment of error, the absolution of the defendants is unavoidable, thereby making this
last assignment of error likewise untenable.

For the foregoing consideration the appealed judgment is affirmed, with the costs of this instance to the plaintiff-
appellant. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Diaz, Laurel and Concepcion, JJ., concur.
90
BLACK EAGLE MINING CO. v. CONROY
1923 OK 945
221 P. 425
94 Okla. 199
Case Number: 14347
Decided: 11/13/1923
Supreme Court of Oklahoma

BLACK EAGLE MINING CO.


v.
CONROY et al.

Syllabus

¶0 1. Corporations -- Shares of Stock -- Status as Personalty.


Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such
shares of stock are personal property.
2. Same -- Certificate of Stock as Evidence of Property.
A certificate of stock in a corporation is merely the paper representative of an incorporeal right, and stands on a
footing similar to that of other muniments of title. It is not the property itself, but is merely the symbol or paper
evidence of the property, shares of stock.
3. Executors and Administrators--Situs of Property--Shares of Corporate Stock.
For the purpose of administration, the situs of shares of stock in a corporation, as evidenced by certificates of stock,
is in the state in which the corporation was organized and has its place of business.
4. Same -- Estate of Nonresident -- Right of Creditors to Local Administration.
Where a nonresident died, owning shares of stock in a corporation organized under the laws of this state and having
its principal place of business in this state, and foreign administration acquired possession of the certificates of
stock, the same does not affect the rights of creditors to have an administrator of the estate of said nonresident
appointed in this state, who will have jurisdiction over said shares of stock, which may be subjected to payment of
the indebtedness of the deceased, in this state.

Verne E. Thompson, for plaintiff in error.


A. C. Towne and E. C. Fitzgerald, for defendants in error.

JARMAN, C.

¶1 This was an action in the district court of Ottawa county by Essie Conroy, M. T. Long, and J. A. Long against the
Black Eagle Mining Company, a corporation, for damages for the alleged conversion of certain shares of stock. The
cause was tried to the court without a jury and judgment was rendered for the plaintiffs in the sum of $ 701, from
which the defendant brings error. The cause was submitted upon an agreed statement of facts, the material portion
thereof being as follows:

"The Black Eagle Mining Company is a corporation organized under the laws of Oklahoma and having its
headquarters and principal place of business at Miami, Ottawa county, Oklahoma, and the books and records of the
corporation and of the shares of stock are kept at Miami; that Jane McSpadden, nee Russell, owned 50 shares of
stock in the Black Eagle Mining Company of the par value of $ 10 each and held Stock Certificate No. 90 issued by
the company for said stock; that she owned no property in Oklahoma except this stock; that Mrs. McSpadden was a
resident of and died in Sebastian county, Arkansas, in 1920 as the owner of said shares of stock and at the time of
her death she had physical possession of the stock certificate; John Conroy was appointed in Sebastian county,
Arkansas, as administrator of the estate of Mrs. McSpadden, who took possession of this Stock Certificate and after
the estate was administered upon, said Stock Certificate was distributed under orders of the court to the plaintiffs,
Essie Conroy, M. T. Long and J. A. Long, sole heirs of Mrs. McSpadden. While administration was pending in
Sebastian county, Arkansas, an application was made in the county court of Ottawa county, Oklahoma, by a creditor
of Mrs. McSpadden residing in Ottawa county, Oklahoma, for the appointment of an administrator of the estate of
Mrs. McSpadden, and Steen M. Johnson was appointed by the county court of Ottawa county, Oklahoma, as such
administrator, who filed a petition to procure an order from the county court of Ottawa county to sell the shares of
stock of Mrs. McSpadden in the Black Eagle Mining Company for payments of debts due in Ottawa county, said
order was granted and the stock was offered for sale and was bid in by J. B. Pinnell and C. H. Pinnell, doing
business under the firm name of Pinnell Brothers, for a cash consideration of $ 350, which sale was confirmed and
approved by the county court of Ottawa county, Oklahoma, and an order was made by said court directing that the
Black Eagle Mining Company issue certificates to Pinnell Brothers for said stock, which was done."

¶2 The defendant contends that the shares of stock of Mrs. McSpadden in the Black Eagle Mining Company are
personal property and that the situs of this property, for administration purposes, is in Ottawa county, Okla., the
domicile of the corporation. The plaintiffs concede that the shares of stock are personal property but contend that
the situs of said property is at the residence of the owner, which was in Sebastian county, Ark., and as the stock
certificate was in the physical possession of the owner, Mrs. McSpadden, in Sebastian county, Ark., at the time of
her death and passed into the physical possession of the plaintiffs, as heirs, that said plaintiffs became the owners
of the shares of stock represented by said certificate.
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¶3 The main question presented is whether the county court of Ottawa county, Okla., had jurisdiction to
administer on the shares of stock of Mrs. McSpadden in the Black Eagle Mining Company. If the county court of
Ottawa county had such jurisdiction, then it is by virtue of the third subdivision of section 1088, Comp. Stat. 1921
(6193, Rev. Laws 1910), which provides that letters of administration may be granted in any county of the state of
Oklahoma, in which any part of the property or estate of the deceased may be, where the decedent died out of the
state and was not a resident thereof at the time of his death. In order to determine this question it is necessary to
ascertain whether the shares of stock of Mrs. McSpadden in the Black Eagle Mining Company are property in
Ottawa county, Okla. In the outset, it is important to note the language used by the statute in defining shares of
stock, which is as follows:

"* * * Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such
shares of stock are personal property and may be transferred," etc. Section 5318, Comp. Stat. 1921.

¶4 It will be observed that it is the shares of stock that are personal property and not the certificates of stock. There
is a distinction between a stock certificate and a share of stock. The certificate is merely the evidence of the
ownership of stock, just as a note is the evidence of an indebtedness. "A stock certificate is merely the paper
representative of an incorporeal right, and stands on a footing similar to that of other muniments of title. It is not in
itself property, but is merely the symbol or paper evidence of property; hence the proprietory right may exist without
a certificate." 10 Cyc. 588. It is immaterial, therefore, where the stock certificate is located; the thing we are
concerned with is the location or domicile of the shares of stock. By section 5318, Comp. Stat. 1921, shares of stock
are defined as personal property. In enacting this statute, the Legislature was acting for Oklahoma, and since
shares of stock are personal property in Oklahoma, the county courts of this state have jurisdiction to appoint an
administrator of the estate of a nonresident who dies owning stock in an Oklahoma corporation. It is well settled that
shares of stock may, for certain purposes, have a situs at two separate places at the same time, such as rights to
title, taxation, etc. 2 Cook on Corporations (7th Ed.) 363. We are dealing with shares of stock as property for the
purpose of administration, separate and apart from its owner. Shares of stock are a peculiar kind of personal
property, and are unlike other classes of personal property in that the property right of shares of stock can only be
exercised or enforced where the corporation is organized and has its place of business and can exist, only, as an
incident to and connected with the corporation, and, this class of property is inseparable from the domicile of the
corporation itself. "For the purpose of determining where administration is proper, shares of corporate stock have
been considered personal property in the county where the corporate property is located. * * *" 18 Cyc. 73. "It has
frequently been said that personal property has no situs, but follows the domicile or person of the owner. This is true
to the extent that the law of the domicile is held to govern the succession and descent of personal property of an
estate. But this principle does not always apply in determining the location of assets for the purpose of conferring
jurisdiction on a court for their administration. * * * It is a general rule that for the purpose of founding administration,
all simple contract debts are assets at the domicile of the debtor, and the locality of the debt for this purpose is not
affected by a promissory note or bill of exchange having been given for it." 11 R. C. L. 67. "There has been some
question as to whether an action concerning shares of stock should be brought in the home of the holder of the
certificates, or where they are located, or in the jurisdiction where the corporation which issued them is located. As
the habitation or domicile of the company is and must be in the state that created it, the property represented by its
certificates of stock for most purposes properly may be deemed to be held by the company within the state whose
creature it is, whenever it is sought by suit to determine who is its real owner. The stock of a corporation for which a
certificate has been issued to a subscriber or purchaser is, nevertheless, deemed to be in possession of the
corporation, and, as property in its possession, may be subjected to proceedings in aid of execution against a
stockholder." 7 R. C. L. 167.

¶5 "The general rule is that shares of stock in a corporation are personal property, whose location is in the state
where the corporation is created. It is true that for purposes of taxation and some other similar purpose stock follows
the domicile of the owner; but considered as property separated from its owner, stock is in existence only in the
state of the corporation. On this point the Supreme Court of the United States has said: 'The certificates are only
evidence of the ownership of the shares, and the interest represented by the shares is held by the company for the
benefit of the true owner. As the habitation or domicile of the company is and must be in the state that created it, the
property represented by its certificates of stock may be deemed to be held by the company within the state whose
creature it is, whenever it is sought by suit to determine who is its real owner.'" 4 Thompson on Corporations (2nd
Ed.) sec. 3471. The Supreme Court of California, in the case of Murphy v. Crouse, 135 Cal. 14, 66 P. 971, held that
shares of stock for the purpose of ad- ministration have their situs within the state where the corporation is
organized and has its place of business. The facts in that case are similar to those of the instant case; the main
question there was, whether the administrator in Minnesota of the estate of the deceased who died in Minnesota in
the possession of certificate of shares of stock of the corporation in California had jurisdiction of said shares of stock
or whether said shares of stock were under the jurisdiction of the administrator in California, where the corporation
was organized and had its place of business. In commenting on this question, the court in the body of the opinion
used the following language, to wit:

"And this brings us to the principal contention of the respondent. He contends that shares of stock, negotiable notes,
and all choses in action evidenced by writing, have their situs where the owner resides, and when they are in the
physical possession of the owner at the time of his death, and pass into the physical possession of the
representative, he is the owner, and may transfer them, and such title will be recognized everywhere. Such rule is
recognized in some states, and by comity the personal representative has been allowed to collect debts in a foreign
jurisdiction when the debtors pay voluntarily, but he cannot sue as executor in such foreign country. No country will
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allow a foreign court to exercise its jurisdiction within its borders. Perhaps by comity such assignment of a chose
in action would be permitted in this state when there is no local administration. But I do not see how an assignment
of a foreign executor would be held good here, where we do not admit that the executor himself was vested with
title. It is true, however, that for most purposes a chose in action adheres to the person of the owner, but for the
purpose of founding administration this is not true. For such purpose the situs is where the debtor resides. For this
exception there are at least two good reasons: It may be necessary to bring an action upon notes to enforce
payment, and this a foreign administrator or executor cannot do. As to other personal property, it may be necessary
to have the aid of the law for its recovery and protection. But the main reason, no doubt, why local administration is
provided for, is for the protection of local creditors and claimants. No state should allow property to be taken from its
borders until debts due its own citizens have been satisfied. Our statute provides for administration upon the estate
of any nonresident who has died, leaving property in this state. To obtain such letters, it is necessary to show that
there are creditors, or that the property requires care to preserve it. And a mode is provided for ascertaining whether
there are creditors. The administration, though called 'Ancillary' to distinguish it from the admin- istration of the last
residence of the decedent, is wholly independent of it."

¶6 Counsel for plaintiffs cite some authorities holding the opposite to the propositions above stated, among which
being the case of Miller's Estate v. Executrix of Miller's Estate (Kan.) 90 Kan. 819, 136 P. 255, but the dissenting
opinion, 136 P. 255, written by Chief Justice Johnston and concurred in by two Asso- ciate Justices of the Supreme
Court of Kansas, is more in accord with reasoning and with the weight of authority; and we think the conclusion set
out in the dissenting opinion is the proper one, to wit:

"In my view the Legislature intended that property such as shares of stock situated in Kansas should be
administered in Kansas, and that it was never the legislative inten- tion that property of a decedent should be
removed from the state until the debts due to its own citizens had been paid. The officers of the corporation are
really the agents and representatives of the owners of the shares wherever they may be, and their claims must be
presented in Kansas in order to obtain either the profits in the enterprise or a share of the assets in case of final
dissolution and distribution. The property being situated in Kansas, the administrator appointed in Missouri did not
acquire any title to the shares, and has no authority to dispose of them."

¶7 While the courts are not uniform in their holdings on this question, yet the great weight of authority is in keeping
with the holding of the California courts and in keeping with the holding of the Supreme Court of Alabama and other
states, wherein it is held:

"For the purpose of administration, the situs of the interest in a corporation, as evidenced by certificates of stock, is
in the state in which the corporation was organized and has its place of business; and the fact that a nonresident
died owning stock in a corporation organized and having its place of business in this state, and the foreign
administration acquired possession of the certificates of stock, does not affect the situs of the interest owned by the
decedent in such corporation." Grayson v. Robertson, 122 Ala. 330, 25 So. 229; Winter v. London, 99 Ala. 263, 12
So. 438; Luce v. R. R. Co., 63 N.H. 588, 3 A. 618; In Re Fitch, 160 N.Y. 87, 54 N.E. 701; Wyman v. Halstead, 109
U.S. 654, 27 L. Ed. 1068, 3 S. Ct. 417; Jellenik v. Huron Copper Mining Co., 177 U.S. 1, 44 L. Ed. 647, 20 S. Ct.
559; Way v. International Port. Cement Co. (Wash.) 100 Wash. 182, 170 P. 553.

¶8 The Supreme Court of Oklahoma, in the case of Harris v. Ins. Co., 75 Okla. 105, 182 P. 85, held that for the
purpose of attachment the situs of shares of stock is within Oklahoma, where the corporation resides, and may be
lawfully levied upon in such state, though owned by a nonresident. The court, in that case, recognized that shares of
stock are property in Oklahoma, where the corporation is organized and transacts its business; otherwise, there
would be nothing to attach, and if such shares of stock are property in Oklahoma, then, under section 1088, Comp.
Stat. 1921, an administrator could be appointed in Oklahoma and could lawfully and rightfully exercise jurisdiction
over such shares of stock. It would be manifestly unfair to permit persons to organize a corporation under the laws
of Oklahoma and incur indebtedness there and later move out of the state and carry their certificates of stock with
them and then to hold that their shares of stock in the corporation in Oklahoma are not subject to the jurisdiction of
our courts, to protect the creditors. The county court of Ottawa county, Okla., had jurisdiction to appoint an ancillary
administrator of the estate of Mrs. McSpadden, and to subject the shares of stock of Mrs. McSpadden to the
payment of her indebtedness in Oklahoma.

¶9 The judgment of the trial court is reversed, with instructions to proceed in conformity with this opinion.