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1. G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD,
plaintiffs-appellees, vs. ALBERTA VICENCIO and EMILIANO
SIMEON, defendants appellants.
REYES, J.B.L., J.: Case certified to this Court by the Court of
Appeals (CA-G.R. No. 27824-R) for the reason that only questions of
law are involved.
This case was originally commenced by defendants-appellants in the
municipal court of Manila in Civil Case No. 43073, for ejectment.
Having lost therein, defendants-appellants appealed to the court a quo
(Civil Case No. 30993) which also rendered a decision against them,
the dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment
in favor of the plaintiffs and against the defendants,
ordering the latter to pay jointly and severally the
former a monthly rent of P200.00 on the house,
subject-matter of this action, from March 27, 1956,
to January 14, 1967, with interest at the legal rate
from April 18, 1956, the filing of the complaint,
until fully paid, plus attorney's fees in the sum of
P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-
appellants executed a chattel mortgage in favor of plaintiffs-appellees
over their house of strong materials located at No. 550 Int. 3, Quezon
Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No.
2554, which were being rented from Madrigal & Company, Inc. The
mortgage was registered in the Registry of Deeds of Manila on 2
September 1955. The herein mortgage was executed to guarantee a
loan of P4,800.00 received from plaintiffs-appellees, payable within
one year at 12% per annum. The mode of payment was P150.00
monthly, starting September, 1955, up to July 1956, and the lump sum
of P3,150 was payable on or before August, 1956. It was also agreed
that default in the payment of any of the amortizations, would cause
the remaining unpaid balance to becomeimmediately due and Payable
and —
the Chattel Mortgage will be enforceable in
accordance with the provisions of Special Act No.
3135, and for this purpose, the Sheriff of the City of
Manila or any of his deputies is hereby empowered
and authorized to sell all the Mortgagor's property
after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly
interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was
extrajudicially foreclosed, and on 27 March 1956, the house was sold
at public auction pursuant to the said contract. As highest bidder,
plaintiffs-appellees were issued the corresponding certificate of sale.3
Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil
Case No. 43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its possession surrendered
to them, and for defendants-appellants to pay rent of P200.00 monthly
from 27 March 1956 up to the time the possession is surrendered.4 On
21 September 1956, the municipal court rendered its decision —
... ordering the defendants to vacate the premises
described in the complaint; ordering further to pay
monthly the amount of P200.00 from March 27,
1956, until such (time that) the premises is (sic)
completely vacated; plus attorney's fees of P100.00
and the costs of the suit.5
Defendants-appellants, in their answers in both the municipal court
and court a quo impugned the legality of the chattel mortgage,
claiming that they are still the owners of the house; but they waived
the right to introduce evidence, oral or documentary. Instead, they
relied on their memoranda in support of their motion to dismiss,
predicated mainly on the grounds that: (a) the municipal court did not
have jurisdiction to try and decide the case because (1) the issue
involved, is ownership, and (2) there was no allegation of prior
possession; and (b) failure to prove prior demand pursuant to Section
2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First Instance,
defendants-appellants failed to deposit the rent for November, 1956
within the first 10 days of December, 1956 as ordered in the decision
of the municipal court. As a result, the court granted plaintiffs-
appellees' motion for execution, and it was actually issued on 24
January 1957. However, the judgment regarding the surrender of
possession to plaintiffs-appellees could not be executed because the
subject house had been already demolished on 14 January 1957
pursuant to the order of the court in a separate civil case (No. 25816)
for ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the
supersedeas bond and withdrawal of deposited rentals was denied for
the reason that the liability therefor was disclaimed and was still being
litigated, and under Section 8, Rule 72, rentals deposited had to be
held until final disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance rendered its
decision, the dispositive portion of which is quoted earlier. The said
decision was appealed by defendants to the Court of Appeals which,
in turn, certified the appeal to this Court. Plaintiffs-appellees failed to
file a brief and this appeal was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error
which can be condensed into two questions, namely: .
(a) Whether the municipal court from which the
case originated had jurisdiction to adjudicate the
same;
(b) Whether the defendants are, under the law,
legally bound to pay rentals to the plaintiffs during
the period of one (1) year provided by law for the
redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the
municipal court from which the case originated, and consequently, the
appellate jurisdiction of the Court of First Instance a quo, on the
theory that the chattel mortgage is void ab initio; whence it would
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follow that the extrajudicial foreclosure, and necessarily the
consequent auction sale, are also void. Thus, the ownership of the
house still remained with defendants-appellants who are entitled to
possession and not plaintiffs-appellees. Therefore, it is argued by
defendants-appellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First Instance transferred to the mortgagee by way of mortgage "the following
which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel
mortgage on two grounds, which are: (a) that, their signatures on the
chattel mortgage were obtained through fraud, deceit, or trickery; and that it was a valid Chattel mortgage because it was so expressly
(b) that the subject matter of the mortgage is a house of strong
materials, and, being an immovable, it can only be the subject of a real house of mixed materials, which by its very nature is considered
estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance
found defendants-appellants' contentions as not supported by evidence
and accordingly dismissed the charge,8 confirming the earlier finding
of the municipal court that "the defense of ownership as well as the
allegations of fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that
"the answer is a mere statement of the facts which the party filing it
expects to prove, but it is not evidence;11 and further, that when the
question to be determined is one of title, the Court is given the
authority to proceed with the hearing of the cause until this fact is
clearly established. In the case of Sy vs. Dalman,12 wherein the
defendant was also a successful bidder in an auction sale, it was
likewise held by this Court that in detainer cases the aim of ownership
"is a matter of defense and raises an issue of fact which should be
determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the
relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit does
not render a contract void ab initio, and can only be a ground for
rendering the contract voidable or annullable pursuant to Article 1390
of the New Civil Code, by a proper action in court. 14 There is
nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis of a voidable
contract which has not been voided fails.
Certain deviations, however, have been allowed for various reasons.
In the case of Manarang and Manarang vs. Ofilada,17 this Court
stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be
real property", citing Standard Oil Company of New York vs.
Jaramillo. 18 In the latter case, the mortgagor conveyed and
described personal property." 19 The "personal property" consisted of
leasehold rights and a building. Again, in the case of Luna vs.
Encarnacion,20 the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and this Court hold therein
designated and specifically that the property given as security "is a
personal property." In the later case of Navarro vs. Pineda,21 this
Court stated that —
The view that parties to a deed of chattel mortgage
may agree to consider a house as personal property
for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is
based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April
1958). In a case, a mortgaged house built on a
rented land was held to be a personal property, not
only because the deed of mortgage considered it as
such, but also because it did not form part of the
land (Evangelists vs. Abad, [CA]; 36 O.G. 2913),
for it is now settled that an object placed on land by
one who had only a temporary right to the same,
such as the lessee or usufructuary, does not become
immobilized by attachment (Valdez vs. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill
Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if
a house belonging to a person stands on a rented
land belonging to another person, it may be
mortgaged as a personal property as so stipulated in
the document of mortgage. (Evangelista vs. Abad,
Supra.) It should be noted, however that the
principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that
may conceivably estop him from subsequently
claiming otherwise. (Ladera vs. C.N. Hodges, [CA]
48 O.G. 5374): 22

It is claimed in the alternative by defendants-appellants that even if In the contract now before Us, the house on rented land is not only
there was no fraud, deceit or trickery, the chattel mortgage was still expressly designated as Chattel Mortgage; it specifically provides that
null and void ab initio because only personal properties can be subject "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by
of a chattel mortgage. The rule about the status of buildings as way of Chattel Mortgage23 the property together with its leasehold
immovable property is stated in Lopez vs. Orosa, Jr. and Plaza rights over the lot on which it is constructed and participation ..." 24
Theatre Inc.,15 cited in Associated Insurance Surety Co., Inc. vs. Iya, Although there is no specific statement referring to the subject house
et al. 16 to the effect that — as personal property, yet by ceding, selling or transferring a property
by way of chattel mortgage defendants-appellants could only have
... it is obvious that the inclusion of the building, meant to convey the house as chattel, or at least, intended to treat the
separate and distinct from the land, in the same as such, so that they should not now be allowed to make an
enumeration of what may constitute real properties inconsistent stand by claiming otherwise. Moreover, the subject house
(art. 415, New Civil Code) could only mean one stood on a rented lot to which defendats-appellants merely had a
thing — that a building is by itself an immovable temporary right as lessee, and although this can not in itself alone
property irrespective of whether or not said structure determine the status of the property, it does so when combined with
and the land on which it is adhered to belong to the other factors to sustain the interpretation that the parties, particularly
same owner. the mortgagors, intended to treat the house as personalty. Finally
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unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. for the amount so received and the same will be
25 and Leung Yee vs. F. L. Strong Machinery and Williamson, 26 duly credited against the redemption price when the
wherein third persons assailed the validity of the chattel mortgage,27 said debtor or mortgagor effects the redemption.
it is the defendants-appellants themselves, as debtors-mortgagors, who Differently stated, the rentals receivable from
are attacking the validity of the chattel mortgage in this case. The tenants, although they may be collected by the
doctrine of estoppel therefore applies to the herein defendants- purchaser during the redemption period, do not
appellants, having treated the subject house as personalty. belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to
(b) Turning to the question of possession and rentals of the premises secure for the benefit of the debtor or mortgagor, the
in question. The Court of First Instance noted in its decision that payment of the redemption amount and the
nearly a year after the foreclosure sale the mortgaged house had been consequent return to him of his properties sold at
demolished on 14 and 15 January 1957 by virtue of a decision public auction. (Emphasis supplied)
obtained by the lessor of the land on which the house stood. For this
reason, the said court limited itself to sentencing the erstwhile The Hamada case reiterates the previous ruling in Chan vs. Espe.36
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March
1956 (when the chattel mortgage was foreclosed and the house sold) Since the defendants-appellants were occupying the house at the time
until 14 January 1957 (when it was torn down by the Sheriff), plus of the auction sale, they are entitled to remain in possession during the
P300.00 attorney's fees. period of redemption or within one year from and after 27 March
1956, the date of the auction sale, and to collect the rents or profits
Appellants mortgagors question this award, claiming that they were during the said period.
entitled to remain in possession without any obligation to pay rent
during the one year redemption period after the foreclosure sale, i.e., It will be noted further that in the case at bar the period of redemption
until 27 March 1957. On this issue, We must rule for the appellants. had not yet expired when action was instituted in the court of origin,
and that plaintiffs-appellees did not choose to take possession under
Chattel mortgages are covered and regulated by the Chattel Mortgage Section 7, Act No. 3135, as amended, which is the law selected by the
Law, Act No. 1508.28 Section 14 of this Act allows the mortgagee to parties to govern the extrajudicial foreclosure of the chattel mortgage.
have the property mortgaged sold at public auction through a public Neither was there an allegation to that effect. Since plaintiffs-
officer in almost the same manner as that allowed by Act No. 3135, as appellees' right to possess was not yet born at the filing of the
amended by Act No. 4118, provided that the requirements of the law complaint, there could be no violation or breach thereof. Wherefore,
relative to notice and registration are complied with. 29 In the instant the original complaint stated no cause of action and was prematurely
case, the parties specifically stipulated that "the chattel mortgage will filed. For this reason, the same should be ordered dismissed, even if
be enforceable in accordance with the provisions of Special Act No. there was no assignment of error to that effect. The Supreme Court is
3135 ... ." 30 (Emphasis supplied). clothed with ample authority to review palpable errors not assigned as
such if it finds that their consideration is necessary in arriving at a just
Section 6 of the Act referred to 31 provides that the debtor-mortgagor decision of the cases. 37
(defendants-appellants herein) may, at any time within one year from
and after the date of the auction sale, redeem the property sold at the It follows that the court below erred in requiring the mortgagors to pay
extra judicial foreclosure sale. Section 7 of the same Act 32 allows the rents for the year following the foreclosure sale, as well as attorney's
purchaser of the property to obtain from the court the possession fees.
during the period of redemption: but the same provision expressly
requires the filing of a petition with the proper Court of First Instance FOR THE FOREGOING REASONS, the decision appealed from is
and the furnishing of a bond. It is only upon filing of the proper reversed and another one entered, dismissing the complaint. With
motion and the approval of the corresponding bond that the order for a costs against plaintiffs-appellees.
writ of possession issues as a matter of course. No discretion is left to
the court. 33 In the absence of such a compliance, as in the instant
2. G.R. No. L-11658 February 15, 1918
case, the purchaser can not claim possession during the period of
redemption as a matter of right. In such a case, the governing
provision is Section 34, Rule 39, of the Revised Rules of Court 34 LEUNG YEE, plaintiff-appellant,
which also applies to properties purchased in extrajudicial vs.
foreclosure proceedings.35 Construing the said section, this Court FRANK L. STRONG MACHINERY COMPANY and J. G.
stated in the aforestated case of Reyes vs. Hamada. WILLIAMSON, defendants-appellees.

In other words, before the expiration of the 1-year
period within which the judgment-debtor or
mortgagor may redeem the property, the purchaser
thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the
Rules of Court allow the purchaser to receive the
rentals if the purchased property is occupied by
tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be,
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 fraud and oppression by one who secures an inscription therein in bad
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, bad faith," to the benefit of the person who thus makes the inscription.
the ownership shall be transfer to the person who may have
the first taken possession thereof in good faith, if it should be Construing the second paragraph of this article of the code, the
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.
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The registry her referred to is of course the registry of real property,
and it must be apparent that the annotation or inscription of a deed of
sale of real property in a chattel mortgage registry cannot be given the
legal effect of an inscription in the registry of real property. By its
express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose
and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal
property executed in the manner and form prescribed in the statute.
The building of strong materials in which the rice-cleaning machinery
was installed by the "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
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
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.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity bond thereon, upon which date she executed a document in the form of a
and bought in the property at the sheriff's sale, and it appearing further chattel mortgage, purporting to convey to the petitioner by way of
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.
Page 5 of 35
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.
3. 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.
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
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
Then, after quoting section 5 of the Chattel Mortgage Law (Act No.
Jaramillo, as register of deeds of the City of Manila, for the purpose of
1508), his Honor continued:
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 decisive of the question now before us, which has reference to the
they are now found. There is nothing in any of these provisions conferring
upon the register of deeds any authority whatever in respect to the
"qualification," as the term is used in Spanish law, of chattel mortgage. His
duties in respect to such instruments are ministerial only. The efficacy of the
act of recording a chattel mortgage consists in the fact that it operates as
constructive notice of the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in relation with the fact of
notice. Registration adds nothing to the instrument, considered as a source of
title, and affects nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for
purpose of the application of the Chattel Mortgage Law. Those
articles state rules which, considered as a general doctrine, are law in
this jurisdiction; but it must not be forgotten that under given
conditions property may have character different from that imputed to
it in said articles. It is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be
real property; and it is a familiar phenomenon to see things classed as
real property for purposes of taxation which on general principle
might be considered personal property. Other situations are constantly
arising, and from time to time are presented to this court, in which the
proper classification of one thing or another as real or personal
property may be said to be doubtful.
Page 6 of 35
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.
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
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.
5. G.R. No. 106041 January 29, 1993
BENGUET CORPORATION, petitioner, vs.CENTRAL
BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES,
PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE
OF ZAMBALES, and MUNICIPALITY OF SAN
MARCELINO, respondents.

CRUZ, J.: The realty tax assessment involved in this case amounts to
P11,319,304.00. It has been imposed on the petitioner's tailings dam
and the land thereunder over its protest.
The controversy arose in 1985 when the Provincial Assessor of
Zambales assessed the said properties as taxable improvements. The
assessment was appealed to the Board of Assessment Appeals of the
Province of Zambales. On August 24, 1988, the appeal was dismissed
mainly on the ground of the petitioner's "failure to pay the realty taxes
that fell due during the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of
Assessment Appeals,1 one of the herein respondents. In its decision
dated March 22, 1990, the Board reversed the dismissal of the appeal
but, on the merits, agreed that "the tailings dam and the lands
submerged thereunder (were) subject to realty tax."
For purposes of taxation the dam is considered as
real property as it comes within the object
mentioned in paragraphs (a) and (b) of Article 415
of the New Civil Code. It is a construction adhered
to the soil which cannot be separated or detached
without breaking the material or causing destruction
on the land upon which it is attached. The
immovable nature of the dam as an improvement
determines its character as real property, hence
taxable under Section 38 of the Real Property Tax
Code. (P.D. 464).
Although the dam is partly used as an anti-pollution
device, this Board cannot accede to the request for
tax exemption in the absence of a law authorizing
the same.
xxx xxx xxx
We find the appraisal on the land submerged as a
result of the construction of the tailings dam,
covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with
the Schedule of Market Values for Zambales which
was reviewed and allowed for use by the Ministry
(Department) of Finance in the 1981-1982 general
revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to
impugn its reasonableness, i.e., that the P50.00 per
square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and
unconscionable. Hence, we find no cause to disturb
the market value applied by Respondent Appellee
Provincial Assessor of Zambales on the properties
of Petitioner-Appellant Benguet Corporation
covered by Tax Declaration Nos. 002-0260 and 002-
0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land
Page 7 of 35
within the meaning of the Real Property Tax Code. More particularly,
it is claimed —
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no
value separate from and
independent of the mine; hence,
by itself it cannot be considered an
improvement separately
assessable;
(b) that it is an integral part of the
mine;
(c) that at the end of the mining
operation of the petitioner
corporation in the area, the tailings
dam will benefit the local
community by serving as an
irrigation facility;
(d) that the building of the dam
has stripped the property of any
commercial value as the property
is submerged under water wastes
from the mine;
(e) that the tailings dam is an
environmental pollution control
device for which petitioner must
be commended rather than
penalized with a realty tax
assessment;
(f) that the installation and
utilization of the tailings dam as a
pollution control device is a
requirement imposed by law;
(2) as regards the valuation of the tailings dam and
the submerged lands:
(a) that the subject properties have
no market value as they cannot be
sold independently of the mine;
(b) that the valuation of the
tailings dam should be based on
its incidental use by petitioner as a
water reservoir and not on the
alleged cost of construction of the
dam and the annual build-up
expense;
(c) that the "residual value
formula" used by the Provincial
Assessor and adopted by

respondent CBAA is arbitrary and
erroneous; and
(3) as regards the petitioner's liability for penalties
for
non-declaration of the tailings dam and the
submerged lands for realty tax purposes:
(a) that where a tax is not paid in
an honest belief that it is not due,
no penalty shall be collected in
addition to the basic tax;
(b) that no other mining
companies in the Philippines
operating a tailings dam have been
made to declare the dam for realty
tax purposes.
The petitioner does not dispute that the tailings dam may be
considered realty within the meaning of Article 415. It insists,
however, that the dam cannot be subjected to realty tax as a separate
and independent property because it does not constitute an "assessable
improvement" on the mine although a considerable sum may have
been spent in constructing and maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this
Court considered the dikes and gates constructed by the taxpayer in
connection with a fishpond operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100
Phil. 303), involving a road constructed by the timber concessionaire
in the area, where this Court did not impose a realty tax on the road
primarily for two reasons:
In the first place, it cannot be disputed that the
ownership of the road that was constructed by
appellee belongs to the government by right of
accession not only because it is inherently
incorporated or attached to the timber land . . . but
also because upon the expiration of the concession
said road would ultimately pass to the national
government. . . . In the second place, while the road
was constructed by appellee primarily for its use and
benefit, the privilege is not exclusive, for . . .
appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also
duty bound to allow the free use of forest products
within the concession for the personal use of
individuals residing in or within the vicinity of the
land. . . . In other words, the government has
practically reserved the rights to use the road to
promote its varied activities. Since, as above shown,
the road in question cannot be considered as an
improvement which belongs to appellee, although in
part is for its benefit, it is clear that the same cannot
be the subject of assessment within the meaning of
Page 8 of 35
Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was
an integral part of the lumber concession but because the government
had the right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an
American case, where it was declared that the reservoir dam went with
and formed part of the reservoir and that the dam would be "worthless
and useless except in connection with the outlet canal, and the water
rights in the reservoir represent and include whatever utility or value
there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the
United States. This case involved drain tunnels constructed by
plaintiff when it expanded its mining operations downward, resulting
in a constantly increasing flow of water in the said mine. It was held
that:
Whatever value they have is connected with and in
fact is an integral part of the mine itself. Just as
much so as any shaft which descends into the earth
or an underground incline, tunnel, or drift would be
which was used in connection with the mine.
On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of
the mine. The primary function of the dam is to receive, retain and
hold the water coming from the operations of the mine, and it also
enables the petitioner to impound water, which is then recycled for use
in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as
appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty
tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas
station would be useless and which have been
attached or affixed permanently to the gas station
site or embedded therein, are taxable improvements
and machinery within the meaning of the
Assessment Law and the Real Property Tax Code.
(Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not
embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry.
It is undeniable that the two tanks have been
installed with some degree of permanence as
receptacles for the considerable quantities of oil
needed by MERALCO for its operations. (Manila
Electric Co. v. CBAA, 114 SCRA 273).
The pipeline system in question is indubitably a
construction adhering to the soil. It is attached to the
land in such a way that it cannot be separated
 Page 9 of 35

therefrom without dismantling the steel pipes which drain tunnels, which were indispensable to the successful development
were welded to form the pipeline. (MERALCO and extraction of the minerals therein. This is not true in the present
Securities Industrial Corp. v. CBAA, 114 SCRA case.
261).
Even without the tailings dam, the petitioner's mining operation can
The tax upon the dam was properly assessed to the still be carried out because the primary function of the dam is merely
plaintiff as a tax upon real estate. (Flax-Pond Water to receive and retain the wastes and water coming from the mine.
Co. v. City of Lynn, 16 N.E. 742). There is no allegation that the water coming from the dam is the sole
source of water for the mining operation so as to make the dam an
The oil tanks are structures within the statute, that integral part of the mine. In fact, as a result of the construction of the
they are designed and used by the owner as dam, the petitioner can now impound and recycle water without
permanent improvement of the free hold, and that having to spend for the building of a water reservoir. And as the
for such reasons they were properly assessed by the petitioner itself points out, even if the petitioner's mine is shut down or
respondent taxing district as improvements. ceases operation, the dam may still be used for irrigation of the
(Standard Oil Co. of New Jersey v. Atlantic City, 15 surrounding areas, again unlike in the Ontario case.
A 2d. 271)
As correctly observed by the CBAA, the Kendrick case is also not
The Real Property Tax Code does not carry a definition of "real applicable because it involved water reservoir dams used for different
property" and simply says that the realty tax is imposed on "real purposes and for the benefit of the surrounding areas. By contrast, the
property, such as lands, buildings, machinery and other improvements tailings dam in question is being used exclusively for the benefit of the
affixed or attached to real property." In the absence of such a petitioner.
definition, we apply Article 415 of the Civil Code, the pertinent
portions of which state: Curiously, the petitioner, while vigorously arguing that the tailings
dam has no separate existence, just as vigorously contends that at the
Art. 415. The following are immovable property. end of the mining operation the tailings dam will serve the local
community as an irrigation facility, thereby implying that it can exist
(1) Lands, buildings and constructions of all kinds independently of the mine.
adhered to the soil;
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of the
xxx xxx xxx
status of realty would depend upon the degree of permanence intended
in its construction and use. The expression "permanent" as applied to
(3) Everything attached to an immovable in a fixed an improvement does not imply that the improvement must be used
manner, in such a way that it cannot be separated perpetually but only until the purpose to which the principal realty is
therefrom without breaking the material or devoted has been accomplished. It is sufficient that the improvement
deterioration of the object. is intended to remain as long as the land to which it is annexed is still
used for the said purpose.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law,
provides that the realty tax is due "on the real property, including land, The Court is convinced that the subject dam falls within the definition
buildings, machinery and other improvements" not specifically of an "improvement" because it is permanent in character and it
exempted in Section 3 thereof. A reading of that section shows that enhances both the value and utility of petitioner's mine. Moreover, the
the tailings dam of the petitioner does not fall under any of the classes immovable nature of the dam defines its character as real property
of exempt real properties therein enumerated. under Article 415 of the Civil Code and thus makes it taxable under
Section 38 of the Real Property Tax Code.
Is the tailings dam an improvement on the mine? Section 3(k) of the
Real Property Tax Code defines improvement as follows: The Court will also reject the contention that the appraisal at P50.00
per square meter made by the Provincial Assessor is excessive and
(k) Improvements — is a valuable addition made to that his use of the "residual value formula" is arbitrary and erroneous.
property or an amelioration in its condition,
amounting to more than mere repairs or replacement Respondent Provincial Assessor explained the use of the "residual
of waste, costing labor or capital and intended to value formula" as follows:
enhance its value, beauty or utility or to adopt it for
new or further purposes.
A 50% residual value is applied in the computation
because, while it is true that when slime fills the
The term has also been interpreted as "artificial alterations of the dike, it will then be covered by another dike or
physical condition of the ground that are reasonably permanent in stage, the stage covered is still there and still exists
character."2 and since only one face of the dike is filled, 50% or
the other face is unutilized.
The Court notes that in the Ontario case the plaintiff admitted that the
mine involved therein could not be operated without the aid of the In sustaining this formula, the CBAA gave the following justification:
 Page 10 of 35

We find the appraisal on the land submerged as a DAVAO SAW MILL CO., INC., plaintiff-appellant,
result of the construction of the tailings dam, vs.APRONIANO G. CASTILLO and DAVAO LIGHT &
covered by Tax Declaration Nos. POWER CO., INC., defendants-appellees.
002-0260 and 002-0266, to be in accordance with
the Schedule of Market Values for San Marcelino,
MALCOLM, J.: The issue in this case, as announced in the opening
Zambales, which is fifty (50.00) pesos per square
sentence of the decision in the trial court and as set forth by counsel
meter for third class industrial land (TSN, page 17,
for the parties on appeal, involves the determination of the nature of
July 5, 1989) and Schedule of Market Values for
the properties described in the complaint. The trial judge found that
Zambales which was reviewed and allowed for use
those properties were personal in nature, and as a consequence
by the Ministry (Department) of Finance in the
absolved the defendants from the complaint, with costs against the
1981-1982 general revision. No serious attempt was
plaintiff.
made by Petitioner-Appellant Benguet Corporation
to impugn its reasonableness, i.e, that the P50.00 per
square meter applied by Respondent-Appellee The Davao Saw Mill Co., Inc., is the holder of a lumber concession
Provincial Assessor is indeed excessive and from the Government of the Philippine Islands. It has operated a
unconscionable. Hence, we find no cause to disturb sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,
the market value applied by Respondent-Appellee Province of Davao. However, the land upon which the business was
Provincial Assessor of Zambales on the properties conducted belonged to another person. On the land the sawmill
of Petitioner-Appellant Benguet Corporation company erected a building which housed the machinery used by it.
covered by Tax Declaration Nos. 002-0260 and 002- Some of the implements thus used were clearly personal property, the
0266. 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
It has been the long-standing policy of this Court to respect the
provision:
conclusions of quasi-judicial agencies like the CBAA, which, because
of the nature of its functions and its frequent exercise thereof, has
developed expertise in the resolution of assessment problems. The That on the expiration of the period agreed upon, all the
only exception to this rule is where it is clearly shown that the improvements and buildings introduced and erected by the
administrative body has committed grave abuse of discretion calling party of the second part shall pass to the exclusive ownership
for the intervention of this Court in the exercise of its own powers of of the party of the first part without any obligation on its part
review. There is no such showing in the case at bar. 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
We disagree, however, with the ruling of respondent CBAA that it
improvements and buildings shall likewise pass to the
cannot take cognizance of the issue of the propriety of the penalties
ownership of the party of the first part as though the time
imposed upon it, which was raised by the petitioner for the first time
agreed upon had expired: Provided, however, That the
only on appeal. The CBAA held that this "is an entirely new matter
machineries and accessories are not included in the
that petitioner can take up with the Provincial Assessor (and) can be
improvements which will pass to the party of the first part on
the subject of another protest before the Local Board or a negotiation
the expiration or abandonment of the land leased.
with the local sanggunian . . ., and in case of an adverse decision by
either the Local Board or the local sanggunian, (it can) elevate the
same to this Board for appropriate action." 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
There is no need for this time-wasting procedure. The Court may
the defendant in that action; a writ of execution issued thereon, and
resolve the issue in this petition instead of referring it back to the local
the properties now in question were levied upon as personalty by the
authorities. We have studied the facts and circumstances of this case
sheriff. No third party claim was filed for such properties at the time
as above discussed and find that the petitioner has acted in good faith
of the sales thereof as is borne out by the record made by the plaintiff
in questioning the assessment on the tailings dam and the land
herein. Indeed the bidder, which was the plaintiff in that action, and
submerged thereunder. It is clear that it has not done so for the
the defendant herein having consummated the sale, proceeded to take
purpose of evading or delaying the payment of the questioned tax.
possession of the machinery and other properties described in the
Hence, we hold that the petitioner is not subject to penalty for its
corresponding certificates of sale executed in its favor by the sheriff of
non-declaration of the tailings dam and the submerged lands for realty
Davao.
tax purposes.
As connecting up with the facts, it should further be explained that the
WHEREFORE, the petition is DISMISSED for failure to show that
Davao Saw Mill Co., Inc., has on a number of occasions treated the
the questioned decision of respondent Central Board of Assessment
machinery as personal property by executing chattel mortgages in
Appeals is tainted with grave abuse of discretion except as to the
favor of third persons. One of such persons is the appellee by
imposition of penalties upon the petitioner which is hereby SET
assignment from the original mortgages.
ASIDE. Costs against the petitioner. It is so ordered.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point.

6. G.R. No. L-40411 August 7, 1935 According to the Code, real property consists of —

1. Land, buildings, roads and constructions of all kinds
adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of
such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain no doubt that the trial judge and
appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant should
have registered its protest before or at the time of the sale of this
property. It must further be pointed out that while not conclusive, the
characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this court
in the case of Standard Oil Co. of New 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
Page 11 of 35
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.
7. G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.

THE CITY ASSESSOR & TREASURER and the BOARD OF
TAX APPEALS of Cagayan de Oro City, respondents.
is a petition for the review of the decision of the Court of Tax Appeals
in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus
Company is liable to the payment of the realty tax on its maintenance
and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of
Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following
stipulation of facts:
Petitioner and respondents, thru their respective counsels
agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in
transporting passengers and cargoes by motor trucks, over its
authorized lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de
Oro City. It maintains Branch Offices and/or stations at
Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao
City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the
respondent as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in
the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the
attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the
attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the
attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph, marked
Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the
attached photograph, marked Annex "G".
Page 12 of 35
4. That these machineries are sitting on cement or wooden
platforms as may be seen in the attached photographs which
form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains
and operates a garage for its TPU motor trucks; a repair shop;
blacksmith and carpentry shops, and with these machineries
which are placed therein, its TPU trucks are made; body
constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it
operates;
6. That these machineries have never been or were never
used as industrial equipments to produce finished products
for sale, nor to repair machineries, parts and the like offered
to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged
in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following
errors:
1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments are
valid; and that said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of
Article 415 of the New Civil Code, and holding that pursuant
thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an
industry.
3. The Court of Tax Appeals erred in denying petitioner's
contention that the respondent City Assessor's power to
assess and levy real estate taxes on machineries is further
restricted by section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works. (Emphasis ours.)

Note that the stipulation expressly states that the equipment are placed The law that governs the determination of the question at issue is as
on wooden or cement platforms. They can be moved around and about follows:
in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu
Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code,
gives the character of real property to "machinery, liquid
containers, instruments or implements intended by the owner
of any building or land for use in connection with any
industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade or
industry."
If the installation of the machinery and equipment in question
in the central of the Mabalacat Sugar Co., Inc., in lieu of the
other of less capacity existing therein, for its sugar and
industry, converted them into real property by reason of their
purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and
principle elements of a sugar central, without them the sugar
central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central
is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent.
(Emphasis ours.)
So that movable equipments to be immobilized in contemplation of
the law must first be "essential and principal elements" of an industry
or works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable
which become immobilized by destination because they are essential
and principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not
essential and principal. Thus, cash registers, typewriters, etc., usually
found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by
destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the
other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found
within their industrial compounds are merely incidental and retain
their movable nature.
Similarly, the tools and equipments in question in this instant case are,
by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used
only for expediency to facilitate and/or improve its service. Even
without such tools and equipments, its business may be carried on, as
petitioner has carried on, without such equipments, before the war.
The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another
shop belonging to another.
Page 13 of 35
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra,
the "machinery, liquid containers, and instruments or implements" are
found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the
sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on in
a building or permanently on a piece of land, as demanded by the law.
Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments
in question are not absolutely essential to the petitioner's
transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not
be considered real estate within the meaning of Article 415 (c) of the
Civil Code.
WHEREFORE, the decision subject of the petition for review is
hereby set aside and the equipment in question declared not subject to
assessment as real estate for the purposes of the real estate tax.
Without costs.
So ordered.
8. G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS
and CITY ASSESSOR OF PASAY, respondents.
AQUINO, J.: This case is about the realty tax on machinery and
equipment installed by Caltex (Philippines) Inc. in its gas stations
located on leased land.
The machines and equipment consists of underground tanks, elevated
tank, elevated water tanks, water tanks, gasoline pumps, computing
pumps, water pumps, car washer, car hoists, truck hoists, air
compressors and tireflators. The city assessor described the said
equipment and machinery in this manner:

A gasoline service station is a piece of lot where a
building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists are
placed in an adjacent shed, an air compressor is
attached in the wall of the shed or at the concrete
wall fence.
The controversial underground tank, depository of
gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed. This
is done to prevent conflagration because gasoline
and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe
to the gasoline pump and the gasoline pump is
commonly placed or constructed under the shed.
The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the
shed, and evidence that the gasoline underground
tank is attached and connected to the shed or
building through the pipe to the pump and the pump
is attached and affixed to the cement pad and
pavement covered by the roof of the building or
shed.
The building or shed, the elevated water tank, the
car hoist under a separate shed, the air compressor,
the underground gasoline tank, neon lights
signboard, concrete fence and pavement and the lot
where they are all placed or erected, all of them used
in the pursuance of the gasoline service station
business formed the entire gasoline service-station.
As to whether the subject properties are attached
and affixed to the tenement, it is clear they are, for
the tenement we consider in this particular case are
(is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and providing that the Tax Court had jurisdiction to review by appeal
the improvement which holds all the properties
under question, they are attached and affixed to the
pavement and to the improvement.
The pavement covering the entire lot of the gasoline assessment appeals and is, therefore, in the same category as the Tax
service station, as well as all the improvements,
machines, equipments and apparatus are allowed by
Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the
shed by the steel pipe to the pump, so with the water by the appellant. Within that fifteen-day period, a petition for
tank it is connected also by a steel pipe to the
pavement, then to the electric motor which electric
motor is placed under the shed. So to say that the
gasoline pumps, water pumps and underground
tanks are outside of the service station, and to
consider only the building as the service station is
grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station
operators under an appropriate lease agreement or receipt. It is
stipulated in the lease contract that the operators, upon demand, shall
Page 14 of 35
return to Caltex the machines and equipment in good condition as
when received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein.
Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. The realty tax on
said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city
board of tax appeals ruled that they are personalty. The assessor
appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata
as chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and
Secretary of Local Government and Community Development Jose
Roño, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) & (m)
and 38 of the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil
Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad
Santos took Macaraig's place) in its resolution of January 12, 1978,
denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed
for the setting aside of the Board's decision and for a declaration that t
he said machines and equipment are personal property not subject to
realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has
exclusive appellate jurisdiction over this case is not correct. When
Republic act No. 1125 created the Tax Court in 1954, there was as yet
no Central Board of Assessment Appeals. Section 7(3) of that law in
decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not the Central Board
of Assessment Appeals which under the Real Property Tax Code has
appellate jurisdiction over decisions of the said local boards of
Court.
Section 36 of the Real Property Tax Code provides that the decision of
the Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the receipt of its decision
reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this
Court of the decision of the Central Board of Assessment Appeals is
the special civil action of certiorari, the recourse resorted to herein by
Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax. This issue has
 Page 15 of 35

to be resolved primarily under the provisions of the Assessment Law Court of Appeals, 96 Phil. 70, where in a replevin case machinery was
and the Real Property Tax Code. treated as realty).

Section 2 of the Assessment Law provides that the realty tax is due
"on real property, including land, buildings, machinery, and other
improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property
Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There
shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land,
buildings, machinery and other improvements
affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements — is a valuable addition made to
property or an amelioration in its condition,
amounting to more than mere repairs or replacement place when unscrewed and dismantled.
of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for Nor are Caltex's gas station equipment and machinery the same as
new or further purposes.
m) Machinery — shall embrace machines,
mechanical contrivances, instruments, appliances
and apparatus attached to the real estate. It includes The Central Board of Assessment Appeals did not commit a grave
the physical facilities available for production, as
well as the installations and appurtenant service
facilities, together with all other equipment designed
for or essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f], Assessment
Law).
Here, the question is whether the gas station equipment and machinery
permanently affixed by Caltex to its gas station and pavement (which
are indubitably taxable realty) should be subject to the realty tax. This
question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for
some purposes they might be considered personalty (84 C.J.S. 181-2,
Notes 40 and 41). "It is a familiar phenomenon to see things classed as
real property for purposes of taxation which on general principle
might be considered personal property" (Standard Oil Co. of New
York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment
Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco's steel
towers were considered poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The steel towers
were considered personalty because they were attached to square
metal frames by means of bolts and could be moved from place to
tools and equipment in the repair shop of a bus company which were
held to be personal property not subject to realty tax (Mindanao Bus
Co. vs. City Assessor, 116 Phil. 501).
abuse of discretion in upholding the city assessor's is imposition of the
realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central
Board of Assessment Appeals are affirmed. The petition for certiorari
is dismissed for lack of merit. No costs.

We hold that the said equipment and machinery, as appurtenances to SO ORDERED.

the gas station building or shed owned by Caltex (as to which it is
subject to realty tax) and which fixtures are necessary to the operation
of the gas station, for without them the gas station would be useless, 9. G.R. No. L-41643 July 31, 1935
and which have been attached or affixed permanently to the gas
station site or embedded therein, are taxable improvements and B.H. BERKENKOTTER, plaintiff-appellant,
machinery within the meaning of the Assessment Law and the Real vs.CU UNJIENG E HIJOS, YEK TONG LIN FIRE
Property Tax Code.
AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE
Caltex invokes the rule that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the PROVINCE SHERIFF OF PAMPANGA, defendants-
property or plant but not when so placed by a tenant, a usufructuary, appellees.
or any person having only a temporary right, unless such person acted
as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil VILLA-REAL, J.:This is an appeal taken by the plaintiff, B.H.
709). Berkenkotter, from the judgment of the Court of First Instance of
Manila, dismissing said plaintiff's complaint against Cu Unjiengs e
That ruling is an interpretation of paragraph 5 of article 415 of the Hijos et al., with costs.
Civil Code regarding machinery that becomes real property by
destination. In the Davao Saw Mills case the question was whether the In support of his appeal, the appellant assigns six alleged errors as
machinery mounted on foundations of cement and installed by the committed by the trial court in its decision in question which will be
lessee on leased land should be regarded as real property for purposes discussed in the course of this decision.
of execution of a judgment against the lessee. The sheriff treated the
machinery as personal property. This Court sustained the sheriff's The first question to be decided in this appeal, which is raised in the
action. (Compare with Machinery & Engineering Supplies, Inc. vs. 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 Furthermore, the fact that B.A. Green bound himself to the plaintiff
IMPROVEMENTS AND FIXTURES. — It is a rule, B.H. Berkenkotter to hold said machinery and equipment as security
Page 16 of 35
established by the Civil Code and also by the Mortgage Law,
with which the decisions of the courts of the United States
are in accord, that in a mortgage of real estate, the
improvements on the same are included; therefore, all objects
permanently attached to a mortgaged building or land,
although they may have been placed there after the mortgage
was constituted, are also included. (Arts. 110 and 111 of the
Mortgage Law, and 1877 of the Civil Code; decision of U.S.
Supreme Court in the matter of Royal Insurance Co. vs. R.
Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199
U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF
MACHINERY, ETC. — In order that it may be understood
that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the
mortgage, when it was stated in the mortgage that the
improvements, buildings, and machinery that existed thereon
were also comprehended, it is indispensable that the
exclusion thereof be stipulated between the contracting
parties.
The appellant contends that the installation of the machinery and
equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A.
Green, in proposing to him to advance the money for the purchase
thereof, made it appear in the letter, Exhibit E, that in case B.A. Green
should fail to obtain an additional loan from the defendants Cu
Unjieng e Hijos, said machinery and equipment would become
security therefor, said B.A. Green binding himself not to mortgage nor
encumber them to anybody until said plaintiff be fully reimbursed for
the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money
obtained as loan from the plaintiff-appellant by B.A. Green, as
president of the Mabalacat Sugar Co., Inc., the latter became owner of
said machinery and equipment, otherwise B.A. Green, as such
president, could not have offered them to the plaintiff as security for
the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection
with any industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar industry, converted them into
real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been
established must necessarily be permanent.

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.
10. 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.
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:
Page 17 of 35
In this case for certiorari and prohibition with preliminary
injunction, it appears from the records that the respondent
Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959,
basing said judgment on a compromise agreement between
the parties.
On August 15, 1959, upon petition, the Court of First
Instance issued a writ of execution.
Petitioner's motion for reconsideration dated October 12,
1959 alleges that he, or his counsel, did not receive a formal
and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of
November 14, 1959.
Petitioner now contends that the respondent Judge exceeded
in his jurisdiction in rendering the execution without valid
and formal notice of the decision.
A compromise agreement is binding between the parties and
becomes the law between them. (Gonzales vs. Gonzales G.R.
No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,
G.R. No. L-12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment based
on a compromise agreement is not appealable and is
immediately executory, unless a motion is filed on the
ground fraud, mistake or duress. (De los Reyes vs. Ugarte, 75
Phil. 505; Lapena vs. Morfe, G.R. No. L-10089, July 31,
1957)
Petitioner's claim that he was not notified or served notice of
the decision is untenable. The judgment on the compromise
agreement rendered by the court below dated January 28,
1959, was given in open court. This alone is a substantial
compliance as to notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not
exceed nor abuse its jurisdiction in ordering the execution of
the judgment. The petition for certiorari is hereby dismissed
and the writ of preliminary injunction heretofore dissolved,
with costs against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957,
petitioner Pastor D. Ago bought sawmill machineries and equipments
from respondent Grace Park Engineer domineering, Inc., executing a
chattel mortgage over said machineries and equipments to secure the
payment of balance of the price remaining unpaid of P32,000.00,
which petitioner agreed to pay on installment basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent
Grace Park Engineering, Inc. instituted extra-judicial foreclosure
proceedings of the mortgage. To enjoin said foreclosure, petitioner
herein instituted Special Civil Case No. 53 in the Court of First
Instance of Agusan. The parties to the case arrived at a compromise
agreement and submitted the same in court in writing, signed by
Pastor D. Ago and the Grace Park Engineering, Inc. The Hon.

Montano A. Ortiz, Judge of the Court of First Instance of Agusan,
then presiding, dictated a decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in the
judgment by compromise, so Grace Park Engineering, Inc. filed with
the lower court a motion for execution, which was granted by the
court on August 15, 1959. A writ of execution, dated September 23,
1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the
writ of execution issued by the lower court, levied upon and ordered
the sale of the sawmill machineries and equipments in question. These
machineries and equipments had been taken to and installed in a
sawmill building located in Lianga, Surigao del Sur, and owned by the
Golden Pacific Sawmill, Inc., to whom, petitioner alleges, he had sold
them on February 16, 1959 (a date after the decision of the lower court
but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set the clerk of court that constitutes rendition. While it is to be presumed
for December 4, 1959, petitioner, on December 1, 1959, filed the
petition for certiorari and prohibition with preliminary injunction with of the court, the court may still modify said order as the same is being
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 Regarding the notice of judgment, the mere fact that a party heard the
Surigao was acting illegally upon the allegedly void writ of execution judge dictating the judgment in open court, is not a valid notice of said
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 in court cannot be considered as notice of the real judgment. No
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
Page 18 of 35
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
that the judgment that was dictated in open court will be the judgment
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.
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
judgment can be notified to the parties unless it has previously been
rendered. The notice, therefore, that a party has of a judgment that was
being dictated is of no effect because at the time no judgment has as
yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be
served personally or by registered mail. Section 7 of Rule 27 provides
as follows:
SEC. 7. Service of final orders or judgments. — Final orders
or judgments shall be served either personally or by
registered mail.
In accordance with this provision, a party is not considered as having
been served with the judgment merely because he heard the judgment
dictating the said judgment in open court; it is necessary that he be
served with a copy of the signed judgment that has been filed with the
clerk in order that he may legally be considered as having been served
with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial
judge dictating the judgment in open court, is not sufficient to
constitute the service of judgement as required by the above-quoted
section 7 of Rule 2 the signed judgment not having been served upon
the petitioner, said judgment could not be effective upon him
 Page 19 of 35

(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.
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.

The record shows that after petitioner herein Pastor D. Ago had WHEREFORE, the decision of the Court of Appeals sought to be
purchased the sawmill machineries and equipments he assigned the reviewed is hereby set aside and We declare that the issuance of the
same to the Golden Pacific Sawmill, Inc. in payment of his writ of execution in this case against the sawmill machineries and
subscription to the shares of stock of said corporation. Thereafter the equipments purchased by petitioner Pastor D. Ago from the Grace
sawmill machinery and equipments were installed in a building and Park Engineering, Inc., as well as the sale of the same by the Sheriff
permanently attached to the ground. By reason of such installment in a of Surigao, are null and void. Costs shall be against the respondent
building, the said sawmill machineries and equipment became real Grace Park Engineering, Inc.
estate properties in accordance with the provision of Art. 415 (5) of
the Civil Code, thus: 11. G.R. No. L-47943 May 31, 1982
ART. 415. The following are immovable property:
MANILA ELECTRIC COMPANY, petitioner,
xxx xxx xxx
vs.CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF
(5) Machinery, receptacles, instruments or implements BATANGAS and PROVINCIAL ASSESSOR OF
tended by the owner of the tenement for an industry or works BATANGAS, respondents.
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 AQUINO, J.:This case is about the imposition of the realty tax on
or works; two oil storage tanks installed in 1969 by Manila Electric Company on
a lot in San Pascual, Batangas which it leased in 1968 from Caltex
This Court in interpreting a similar question raised before it in the case (Phil.), Inc. The tanks are within the Caltex refinery compound. They
of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683, held that the have a total capacity of 566,000 barrels. They are used for storing fuel
installation of the machine and equipment in the central of the oil for Meralco's power plants.
Mabalacat Sugar Co., Inc. for use in connection with the industry
carried by the company, converted the said machinery and equipment According to Meralco, the storage tanks are made of steel plates
into real estate by reason of their purpose. Paraphrasing language of welded and assembled on the spot. Their bottoms rest on a foundation
said decision we hold that by the installment of the sawmill consisting of compacted earth as the outermost layer, a sand pad as the
machineries in the building of the Gold Pacific Sawmill, Inc., for use intermediate layer and a two-inch thick bituminous asphalt stratum as
in the sawing of logs carried on in said building, the same became a the top layer. The bottom of each tank is in contact with the asphalt
necessary and permanent part of the building or real estate on which layer,
the same was constructed, converting the said machineries and
equipments into real estate within the meaning of Article 415(5) The steel sides of the tank are directly supported underneath by a
above-quoted of the Civil Code of the Philippines. circular wall made of concrete, eighteen inches thick, to prevent the
tank from sliding. Hence, according to Meralco, the tank is not
Considering that the machineries and equipments in question valued at attached to its foundation. It is not anchored or welded to the concrete
more than P15,000.00 appear to have been sold without the necessary circular wall. Its bottom plate is not attached to any part of the
advertisement of sale by publication in a newspaper, as required in foundation by bolts, screws or similar devices. The tank merely sits on
Sec. 16 of Rule 39 of the Rules of Court, which is as follows: its foundation. Each empty tank can be floated by flooding its dike-
inclosed location with water four feet deep. (pp. 29-30, Rollo.)
SEC. 16. Notice of sale of property on execution. — Before
the sale of property on execution, notice thereof must be On the other hand, according to the hearing commissioners of the
given as follows: Central Board of Assessment Appeals, the area where the two tanks
are located is enclosed with earthen dikes with electric steel poles on
xxx xxx xxx top thereof and is divided into two parts as the site of each tank. The
foundation of the tanks is elevated from the remaining area. On both
(c) In case of real property, by posting a similar notice sides of the earthen dikes are two separate concrete steps leading to
particularly describing the property for twenty days in three the foundation of each tank.
public places in the municipality or city where the property is
situated, and also where the property is to be sold, and, if the Tank No. 2 is supported by a concrete foundation with an asphalt
assessed value of the property exceeds four hundred pesos, lining about an inch thick. Pipelines were installed on the sides of
 Page 20 of 35

each tank and are connected to the pipelines of the Manila Enterprises
Industrial Corporation whose buildings and pumping station are near
Tank No. 2.
The Board concludes that while the tanks rest or sit on their
foundation, the foundation itself and the walls, dikes and steps, which
are integral parts of the tanks, are affixed to the land while the
pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis of an assessment
made by the provincial assessor, required Meralco to pay realty taxes
on the two tanks. For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo). The Board
required Meralco to pay the tax and penalties as a condition for
entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting
Secretary of Finance Pedro M. Almanzor as chairman and Secretary
of Justice Vicente Abad Santos and Secretary of Local Government
and Community Development Jose Roño as members) in its decision
dated November 5, 1976 ruled that the tanks together with the
foundation, walls, dikes, steps, pipelines and other appurtenances
constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the
fifteenth day, it filed a motion for reconsideration which the Board
denied in its resolution of November 25, 1977, a copy of which was
received by Meralco on February 28, 1978.
affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements — is a valuable addition made to
property or an amelioration in its condition,
amounting to more than mere repairs or replacement
of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for
new or further purposes.
We hold that while the two storage tanks are not embedded in the
land, they may, nevertheless, be considered as improvements on the
land, enhancing its utility and rendering it useful to the oil industry. It
is undeniable that the two tanks have been installed with some degree
of permanence as receptacles for the considerable quantities of oil
needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of
New Jersey vs. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things
which should generally be regarded as personal property(84 C.J.S.
171, Note 8). It is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be
considered personal property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).

On March 15, 1978, Meralco filed this special civil action of certiorari
The case of Board of Assessment Appeals vs. Manila Electric
to annul the Board's decision and resolution. It contends that the Board
Company, 119 Phil. 328, wherein Meralco's steel towers were held not
acted without jurisdiction and committed a grave error of law in to be subject to realty tax, is not in point because in that case the steel
holding that its storage tanks are taxable real property. towers were regarded as poles and under its franchise Meralco's poles
are exempt from taxation. Moreover, the steel towers were not
Meralco contends that the said oil storage tanks do not fall within any attached to any land or building. They were removable from their
of the kinds of real property enumerated in article 415 of the Civil metal frames.
Code and, therefore, they cannot be categorized as realty by nature, by
incorporation, by destination nor by analogy. Stress is laid on the fact Nor is there any parallelism between this case and Mindanao Bus Co.
that the tanks are not attached to the land and that they were placed on
vs. City Assessor, 116 Phil. 501, where the tools and equipment in the
leased land, not on the land owned by Meralco.
repair, carpentry and blacksmith shops of a transportation company
were held not subject to realty tax because they were personal
This is one of those highly controversial, borderline or penumbral property.
cases on the classification of property where strong divergent opinions
are inevitable. The issue raised by Meralco has to be resolved in the
WHEREFORE, the petition is dismissed. The Board's questioned
light of the provisions of the Assessment Law, Commonwealth Act
decision and resolution are affirmed. No costs.
No. 470, and the Real Property Tax Code, Presidential Decree No.
464 which took effect on June 1, 1974.
SO ORDERED.
Section 2 of the Assessment Law provides that the realty tax is due
"on real property, including land, buildings, machinery, and other 12. G.R. No. L-58469 May 16, 1983
improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property MAKATI LEASING and FINANCE
Tax Code which provides:
CORPORATION, petitioner,
vs.WEAREVER TEXTILE MILLS, INC., and
Sec. 38. Incidence of Real Property Tax. — They
shall be levied, assessed and collected in all HONORABLE COURT OF APPEALS, respondents.
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land, DE CASTRO, J.:Petition for review on certiorari of the decision of
buildings, machinery and other improvements the Court of Appeals (now Intermediate Appellate Court) promulgated
on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain

Orders later specified herein, of Judge Ricardo J. Francisco, as
Presiding Judge of the Court of First instance of Rizal Branch VI,
issued in Civil Case No. 36040, as wen as the resolution dated
September 22, 1981 of the said appellate court, denying petitioner's
motion for reconsideration.
It appears that in order to obtain financial accommodations from
herein petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned,
private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero
Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However, the
Deputy Sheriff assigned to implement the foreclosure failed to gain
entry into private respondent's premises and was not able to effect the SCRA 143 where this Court, speaking through Justice J.B.L. Reyes,
seizure of the aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First Instance of
Rizal, Branch VI, docketed as Civil Case No. 36040, the case before
the lower court.
Acting on petitioner's application for replevin, the lower court issued a
writ of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued
on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent's filing of a further
motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to
the premises of private respondent and removed the main drive motor
of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders
of the lower court and ordered the return of the drive motor seized by
the sheriff pursuant to said Orders, after ruling that the machinery in
suit cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil
Code, the same being attached to the ground by means of bolts and the
only way to remove it from respondent's plant would be to drill out or
destroy the concrete floor, the reason why all that the sheriff could do
to enfore the writ was to take the main drive motor of said machinery.
The appellate court rejected petitioner's argument that private
respondent is estopped from claiming that the machine is real property
by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for
review by writ of certiorari. It is contended by private respondent,
however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
Page 21 of 35
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear
that said action was without prejudice to a motion for reconsideration
of the Court of Appeals decision, as shown by the receipt duly signed
by respondent's representative. 1 Considering that petitioner has
reserved its right to question the propriety of the Court of Appeals'
decision, the contention of private respondent that this petition has
been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition
is whether the machinery in suit is real or personal property from the
point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was
sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by
said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
ruled:
Although there is no specific statement referring to
the subject house as personal property, yet by
ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendants-
appellants merely had a temporary right as lessee,
and although this can not in itself alone determine
the status of the property, it does so when combined
with other factors to sustain the interpretation that
the parties, particularly the mortgagors, intended to
treat the house as personality. Finally, unlike in the
Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc.
& Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-
appellants themselves, as debtors-mortgagors, who
are attacking the validity of the chattel mortgage in
this case. The doctrine of estoppel therefore applies
to the herein defendants-appellants, having treated
the subject house as personality.
Examining the records of the instant case, We find no logical
justification to exclude the rule out, as the appellate court did, the
present case from the application of the abovequoted pronouncement.
If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the
chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house

involved therein was built on a land that did not belong to the owner
of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not
lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject
machinery as chattel by the private respondent is indicative of
intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44
Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be
prejudiced thereby.
Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit from the People's Bank & Trust Company — hereinafter referred to as
be considered as personal property but was merely required and
dictated on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. This
contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery executed by both DALCO and the Dahican America Lumber
as movable or immovable was never placed in issue before the lower
court and the Court of Appeals except in a supplemental memorandum hereinafter referred to as DAMCO, all payable to the BANK or its
in support of the petition filed in the appellate court. Moreover, even order.
granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new
Civil Code, by a proper action in court. There is nothing on record to itself and as trustee for the Export-Import Bank of Washington D.C.
show that the mortgage has been annulled. Neither is it disclosed that — a deed of mortgage covering five parcels of land situated in the
steps were taken to nullify the same. On the other hand, as pointed out
by petitioner and again not refuted by respondent, the latter has
indubitably benefited from said contract. Equity dictates that one
should not benefit at the expense of another. Private respondent could
not now therefore, be allowed to impugn the efficacy of the chattel
mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in
ruling that the questioned machinery is real, not personal property,
becomes very apparent. Moreover, the case of Machinery and
Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by
said court is not applicable to the case at bar, the nature of the
machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a
Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly
perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED.
13. 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
Page 22 of 35
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
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,
Corporation, a foreign corporation and a stockholder of DALCO, —
As security for the payment of the abovementioned loans, on July 13,
1950 DALCO executed in favor of the BANK — the latter acting for
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 After due trial, the Court, on July 15, 1960, rendered judgment as
submit complete lists of said properties but the latter failed to do so. In follows:
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.
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.
Page 23 of 35
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".
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.
 Page 24 of 35

From the above-quoted decision, all the parties appealed. A. Under the fourth paragraph of both deeds of mortgage, it is crystal
clear that all property of every nature and description taken in
Main contentions of plaintiffs as appellants are the following: that the exchange or replacement, as well as all buildings, machineries,
"after acquired properties" were subject to the deeds of mortgage fixtures, tools, equipments, and other property that the mortgagor may
mentioned heretofore; that said properties were acquired from acquire, construct, install, attach; or use in, to upon, or in connection
suppliers other than DAMCO and CONNELL; that even granting that with the premises — that is, its lumber concession — "shall
DAMCO and CONNELL were the real suppliers, the rescission of the immediately be and become subject to the lien" of both mortgages in
sales to DALCO could not prejudice the mortgage lien in favor of the same manner and to the same extent as if already included therein
plaintiffs; that considering the foregoing, the proceeds obtained from at the time of their execution. As the language thus used leaves no
the sale of the "after acquired properties" as well as those obtained room for doubt as to the intention of the parties, We see no useful
from the sale of the "undebated properties" in the total sum of purpose in discussing the matter extensively. Suffice it to say that the
P175,000.00 should have been awarded exclusively to plaintiffs by stipulation referred to is common, and We might say logical, in all
reason of the mortgage lien they had thereon; that damages should cases where the properties given as collateral are perishable or subject
have been awarded to plaintiffs against defendants, all of them being to inevitable wear and tear or were intended to be sold, or to be used
guilty of an attempt to defraud the former when they sought to rescind — thus becoming subject to the inevitable wear and tear — but with
the sales already mentioned for the purpose of defeating their the understanding — express or implied — that they shall be replaced
mortgage lien, and finally, that defendants should have been made to with others to be thereafter acquired by the mortgagor. Such
bear all the expenses of the receivership, costs and attorney's fees. 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
On the other hand, defendants-appellants contend that the trial court
the nature already referred to, it would be poor judgment on the part of
erred: firstly, in not holding that plaintiffs had no cause of action
the creditor who does not see to it that a similar provision is included
against them because the promissory note sued upon was not yet due
in the contract.
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 B. But defendants contend that, granting without admitting, that the
they were not registered in accordance with the Chattel Mortgage deeds of mortgage in question cover the "after acquired properties" of
Law, the court erring, as a consequence, in holding that said properties DALCO, the same are void and ineffectual because they were not
were subject to the mortgage lien in favor of plaintiffs; thirdly, in not registered in accordance with the Chattel Mortgage Law. In support of
holding that the provision of the fourth paragraph of each of said this and of the proposition that, even if said mortgages were valid,
mortgages did not automatically make subject to such mortgages the they should not prejudice them, the defendants argue (1) that the deeds
"after acquired properties", the only meaning thereof being that the do not describe the mortgaged chattels specifically, nor were they
mortgagor was willing to constitute a lien over such properties; registered in accordance with the Chattel Mortgage Law; (2) that the
fourthly, in not ruling that said stipulation was void as against stipulation contained in the fourth paragraph thereof constitutes "mere
DAMCO and CONNELL and in not awarding the proceeds obtained executory agreements to give a lien" over the "after acquired
from the sale of the "after acquired properties" to the latter properties" upon their acquisition; and (3) that any mortgage
exclusively; fifthly, in appointing a Receiver and in holding that the stipulation concerning "after acquired properties" should not prejudice
damages suffered by DAMCO and CONNELL by reason of the creditors and other third persons such as DAMCO and CONNELL.
depreciation or loss in value of the "after acquired properties" placed
under receivership was damnum absque injuria and, consequently, in The stipulation under consideration strongly belies defendants
not awarding, to said parties the corresponding damages claimed in contention. As adverted to hereinbefore, it states that all property of
their counterclaim; lastly, in sentencing DALCO and DAMCO to pay every nature, building, machinery etc. taken in exchange or
attorney's fees and in requiring DAMCO and CONNELL to pay the replacement by the mortgagor "shall immediately be and become
costs of the Receivership, instead of sentencing plaintiffs to pay subject to the lien of this mortgage in the same manner and to the
attorney's fees. same extent as if now included therein". No clearer language could
have been chosen.
Plaintiffs' brief as appellants submit six assignments of error, while
that of defendants also as appellants submit a total of seventeen. Conceding, on the other hand, that it is the law in this jurisdiction that,
However, the multifarious issues thus before Us may be resolved, to affect third persons, a chattel mortgage must be registered and must
directly or indirectly, by deciding the following issues: describe the mortgaged chattels or personal properties sufficiently to
enable the parties and any other person to identify them, We say that
Firstly, are the so-called "after acquired properties" covered by and such law does not apply to this case.
subject to the deeds of mortgage subject of foreclosure?; secondly,
assuming that they are subject thereto, are the mortgages valid and As the mortgages in question were executed on July 13, 1950 with the
binding on the properties aforesaid inspite of the fact that they were old Civil Code still in force, there can be no doubt that the provisions
not registered in accordance with the provisions of the Chattel of said code must govern their interpretation and the question of their
Mortgage Law?; thirdly, assuming again that the mortgages are valid validity. It happens however, that Articles 334 and 1877 of the old
and binding upon the "after acquired properties", what is the effect Civil Code are substantially reproduced in Articles 415 and 2127,
thereon, if any, of the rescission of sales entered into, on the one hand, respectively, of the new Civil Code. It is, therefore, immaterial in this
between DAMCO and DALCO, and between DALCO and case whether we take the former or the latter as guide in deciding the
CONNELL, on the other?; and lastly, was the action to foreclose the point under consideration.
mortgages premature?

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 This contention — it is obvious — would have validity only if it were
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 CONNELL had supplied any of the goods of which they respective
involved as personal property by executing chattel mortgages thereon claimed to be the unpaid seller; that all items were supplied by
in favor of third parties, while in the present case the parties had
treated the "after acquired properties" as real properties by expressly CONNELL that, in fact, CONNELL collected a 5% service charge on
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
Page 25 of 35
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.
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.
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
different parties, neither of whom appeared to be DAMCO or
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 be given retroactive effect (Arts. 225253) — or under Arts. 1902 and
in that plaintiffs, as a matter of grace, conceded an extension 2176 of the Old Civil Code.
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 The facts of this case, as stated heretofore, clearly show that DALCO
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 . . . rights thus jeopardized. Defendants' liability for damages is therefore
(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
Page 26 of 35
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
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
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
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.
 Page 27 of 35

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.
18, 1998 Resolution[8 denied petitioners Motion for Special
Protective Order, praying that the deputy sheriff be enjoined from
seizing immobilized or other real properties in (petitioners) factory in
Cainta, Rizal and to return to their original place whatever
immobilized machineries or equipments he may have removed.[9
The Facts chanrobles virtual law library

14. [G.R. No. 137705. August 22, 2000] The undisputed facts are summarized by the Court of Appeals as
follows:10 chanrobles virtual law library
SERGS PRODUCTS, INC., and SERGIO T.
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI
GOQUIOLAY, Petitioners, vs. PCI LEASING AND Leasing for short) filed with the RTC-QC a complaint for [a] sum of
FINANCE, INC., Respondent. money (Annex E), with an application for a writ of replevin docketed
as Civil Case No. Q-98-33500. chanrobles virtual law library
PANGANIBAN, J.: chanrobles virtual law library
On March 6, 1998, upon an ex-parte application of PCI Leasing,
After agreeing to a contract stipulating that a real or immovable respondent judge issued a writ of replevin (Annex B) directing its
property be considered as personal or movable, a party is estopped sheriff to seize and deliver the machineries and equipment to PCI
from subsequently claiming otherwise. Hence, such property is a Leasing after 5 days and upon the payment of the necessary expenses.
proper subject of a writ of replevin obtained by the other contracting chanrobles virtual law library
party.
On March 24, 1998, in implementation of said writ, the sheriff
The Case chanrobles virtual law library proceeded to petitioners factory, seized one machinery with [the] word
that he [would] return for the other machineries. chanrobles virtual
Before us is a Petition for Review on Certiorari assailing the January law library
6, 1999 Decision1 of the Court of Appeals (CA)[2 in CA-GR SP No.
47332 and its February 26, 1999 Resolution[3 denying On March 25, 1998, petitioners filed a motion for special protective
reconsideration. The decretal portion of the CA Decision reads as order (Annex C), invoking the power of the court to control the
follows: chanrobles virtual law library conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of
WHEREFORE, premises considered, the assailed Order dated replevin. chanrobles virtual law library
February 18, 1998 and Resolution dated March 31, 1998 in Civil Case
No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary This motion was opposed by PCI Leasing (Annex F), on the ground
injunction issued on June 15, 1998 is hereby LIFTED. 4 chanrobles that the properties [were] still personal and therefore still subject to
virtual law library seizure and a writ of replevin. chanrobles virtual law library

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of In their Reply, petitioners asserted that the properties sought to be
Quezon City (Branch 218)[6 issued a Writ of Seizure.[7 The March seized [were] immovable as defined in Article 415 of the Civil Code,
 Page 28 of 35

the parties agreement to the contrary notwithstanding. They argued
that to give effect to the agreement would be prejudicial to innocent
third parties. They further stated that PCI Leasing [was] estopped
from treating these machineries as personal because the contracts in
which the alleged agreement [were] embodied [were] totally sham and
farcical. chanrobles virtual law library
On April 6, 1998, the sheriff again sought to enforce the writ of
seizure and take possession of the remaining properties. He was able
to take two more, but was prevented by the workers from taking the
rest. chanrobles virtual law library
B. Whether or not the contract between the parties is a loan or a
lease.12 chanrobles virtual law library
In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of a
writ of replevin. As a preliminary matter, the Court will also address
briefly the procedural points raised by respondent.
The Courts Ruling chanrobles virtual law library
The Petition is not meritorious.

On April 7, 1998, they went to [the CA] via an original action for
Preliminary Matter:Procedural Questionschanrobles virtual law
certiorari.
library

Ruling of the Court of Appeals chanrobles virtual law library Respondent contends that the Petition failed to indicate expressly
whether it was being filed under Rule 45 or Rule 65 of the Rules of
Citing the Agreement of the parties, the appellate court held that the Court. It further alleges that the Petition erroneously impleaded Judge
subject machines were personal property, and that they had only been Hilario Laqui as respondent. chanrobles virtual law library
leased, not owned, by petitioners. It also ruled that the words of the
contract are clear and leave no doubt upon the true intention of the There is no question that the present recourse is under Rule 45. This
contracting parties. Observing that Petitioner Goquiolay was an
conclusion finds support in the very title of the Petition, which is
experienced businessman who was not unfamiliar with the ways of the
Petition for Review on Certiorari.13 chanrobles virtual law library
trade, it ruled that he should have realized the import of the document
he signed. The CA further held: chanrobles virtual law library
While Judge Laqui should not have been impleaded as a respondent,14
substantial justice requires that such lapse by itself should not warrant
Furthermore, to accord merit to this petition would be to preempt the
the dismissal of the present Petition. In this light, the Court deems it
trial court in ruling upon the case below, since the merits of the whole
proper to remove, motu proprio, the name of Judge Laqui from the
matter are laid down before us via a petition whose sole purpose is to
caption of the present case.
inquire upon the existence of a grave abuse of discretion on the part of
the [RTC] in issuing the assailed Order and Resolution. The issues
raised herein are proper subjects of a full-blown trial, necessitating Main Issue: Nature of the Subject Machinerychanrobles virtual law
presentation of evidence by both parties. The contract is being library
enforced by one, and [its] validity is attacked by the other a matter x x
x which respondent court is in the best position to determine. Petitioners contend that the subject machines used in their factory
chanrobles virtual law library were not proper subjects of the Writ issued by the RTC, because they
were in fact real property. Serious policy considerations, they argue,
Hence, this Petition.11 militate against a contrary characterization. chanrobles virtual law
library
The Issues chanrobles virtual law library
Rule 60 of the Rules of Court provides that writs of replevin are
issued for the recovery of personal property only. 15 Section 3 thereof
In their Memorandum, petitioners submit the following issues for our
reads: chanrobles virtual law library
consideration: chanrobles virtual law library
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the
A. Whether or not the machineries purchased and imported by SERGS bond, the court shall issue an order and the corresponding writ of
became real property by virtue of immobilization. chanrobles virtual replevin describing the personal property alleged to be wrongfully
law library
 Page 29 of 35

detained and requiring the sheriff forthwith to take such property into
his custody. chanrobles virtual law library
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows: chanrobles virtual law library
ART. 415. The following are immovable property:
x x x. Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to treat
the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. chanrobles virtual law
library

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

x x x....................................x x x....................................x x x
Wearever Textile Mills[20] also held that the machinery used in a
chanrobles virtual law library
factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal
(5) Machinery, receptacles, instruments or implements intended by the property in a contract. Pertinent portions of the Courts ruling are
owner of the tenement for an industry or works which may be carried reproduced hereunder: chanrobles virtual law library
on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works;
x x x. If a house of strong materials, like what was involved in the
above Tumalad case, may be considered as personal property for
x x x....................................x x x....................................x x x purposes of executing a chattel mortgage thereon as long as the parties
chanrobles virtual law library to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is
In the present case, the machines that were the subjects of the Writ of movable in its nature and becomes immobilized only by destination or
Seizure were placed by petitioners in the factory built on their own purpose, may not be likewise treated as such. This is really because
land. Indisputably, they were essential and principal elements of their one who has so agreed is estopped from denying the existence of the
chocolate-making industry. Hence, although each of them was chattel mortgage. chanrobles virtual law library
movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal In the present case, the Lease Agreement clearly provides that the
elements in the industry.16 In that sense, petitioners are correct in machines in question are to be considered as personal property.
arguing that the said machines are real, not personal, property Specifically, Section 12.1 of the Agreement reads as follows:21
pursuant to Article 415 (5) of the Civil Code.[17 chanrobles virtual chanrobles virtual law library
law library
12.1 The PROPERTY is, and shall at all times be and remain,
Be that as it may, we disagree with the submission of the petitioners personal property notwithstanding that the PROPERTY or any part
that the said machines are not proper subjects of the Writ of Seizure. thereof may now be, or hereafter become, in any manner affixed or
chanrobles virtual law library attached to or embedded in, or permanently resting upon, real property
or any building thereon, or attached in any manner to what is
The Court has held that contracting parties may validly stipulate that a permanent. chanrobles virtual law library
real property be considered as personal.18 After agreeing to such
stipulation, they are consequently estopped from claiming otherwise. Clearly then, petitioners are estopped from denying the
Under the principle of estoppel, a party to a contract is ordinarily characterization of the subject machines as personal property. Under
precluded from denying the truth of any material fact found therein. the circumstances, they are proper subjects of the Writ of Seizure.
chanrobles virtual law library chanrobles virtual law library

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the It should be stressed, however, that our holding -- that the machines
parties to treat a house as a personal property because it had been should be deemed personal property pursuant to the Lease Agreement
made the subject of a chattel mortgage. The Court ruled: chanrobles
virtual law library

is good only insofar as the contracting parties are concerned. 22 Hence,
while the parties are bound by the Agreement, third persons acting in
good faith are not affected by its stipulation characterizing the subject
machinery as personal.[23 In any event, there is no showing that any
specific third party would be adversely affected.
Validity of the Lease Agreement chanrobles virtual law library
In their Memorandum, petitioners contend that the Agreement is a
loan and not a lease.24 Submitting documents supposedly showing that
they own the subject machines, petitioners also argue in their Petition
that the Agreement suffers from intrinsic ambiguity which places in
serious doubt the intention of the parties and the validity of the lease
agreement itself.[25 In their Reply to respondents Comment, they
further allege that the Agreement is invalid.[26 chanrobles virtual law
library
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of
the merits of the case. Hence, they should be threshed out in the trial,
not in the proceedings involving the issuance of the Writ of Seizure.
chanrobles virtual law library
Indeed, in La Tondea Distillers v. CA,27 the Court explained that the
policy under Rule 60 was that questions involving title to the subject
property questions which petitioners are now raising -- should be
determined in the trial. In that case, the Court noted that the remedy of Neither is it disclosed that steps were taken to nullify the same. x x x
defendants under Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiffs bond. They were not allowed,
however, to invoke the title to the subject property. The Court ruled:
chanrobles virtual law library
Petitioners contend that if the Court allows these machineries to be
In other words, the law does not allow the defendant to file a motion seized, then its workers would be out of work and thrown into the
to dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor,
as in proceedings on preliminary attachment or injunction, and thereby
put at issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being that said
matter should be ventilated and determined only at the trial on the
merits.28 chanrobles virtual law library
Page 30 of 35
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this
Court under Rule 45.29
Reliance on the Lease Agreement chanrobles virtual law library
It should be pointed out that the Court in this case may rely on the
Lease Agreement, for nothing on record shows that it has been
nullified or annulled. In fact, petitioners assailed it first only in the
RTC proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law
between the parties. chanrobles virtual law library
Makati Leasing and Finance Corporation30 is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized
the subject machinery as personal property, was also assailed because
respondent had allegedly been required to sign a printed form of
chattel mortgage which was in a blank form at the time of signing.
The Court rejected the argument and relied on the Deed, ruling as
follows: chanrobles virtual law library
x x x. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article
1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled.
Alleged Injustice Committed on the Part of Petitioners chanrobles
virtual law library

streets.31 They also allege that the seizure would nullify all efforts to
rehabilitate the corporation. chanrobles virtual law library
Petitioners arguments do not preclude the implementation of the Writ.
As earlier discussed, law and jurisprudence support its propriety.
Verily, the above-mentioned consequences, if they come true, should
not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows
the filing of a counter-bond. The provision states: chanrobles virtual
law library
SEC. 5. Return of property. -- If the adverse party objects to the
sufficiency of the applicants bond, or of the surety or sureties thereon,
he cannot immediately require the return of the property, but if he
does not so object, he may, at any time before the delivery of the
property to the applicant, require the return thereof, by filing with the
court where the action is pending a bond executed to the applicant, in
double the value of the property as stated in the applicants affidavit for
the delivery thereof to the applicant, if such delivery be adjudged, and
for the payment of such sum to him as may be recovered against the
adverse party, and by serving a copy bond on the applicant.
chanrobles virtual law library
WHEREFORE, the Petition is DENIED and the assailed Decision of
the Court of Appeals AFFIRMED. Costs against petitioners.
chanrobles virtual law library
SO ORDERED. chanrobles virtual law library
15. G.R. No. L-64261 December 26, 1984
JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO
and J. BURGOS MEDIA SERVICES, INC., petitioners,
vs.
THE CHIEF OF STAFF, ARMED FORCES OF THE
PHILIPPINES, THE CHIEF, PHILIPPINE CONSTABULARY,
THE CHIEF LEGAL OFFICER, PRESIDENTIAL SECURITY
COMMAND, THE JUDGE ADVOCATE GENERAL, ET AL.,
respondents.
ESCOLIN, J.:Assailed in this petition for certiorari prohibition and
mandamus with preliminary mandatory and prohibitory injunction is
the validity of two [2] search warrants issued on December 7, 1982 by
respondent Judge Ernani Cruz-Pano, Executive Judge of the then
Court of First Instance of Rizal [Quezon City], under which the
premises known as No. 19, Road 3, Project 6, Quezon City, and 784
Units C & D, RMS Building, Quezon Avenue, Quezon City, business
addresses of the "Metropolitan Mail" and "We Forum" newspapers,
respectively, were searched, and office and printing machines,
equipment, paraphernalia, motor vehicles and other articles used in the
printing, publication and distribution of the said newspapers, as well
as numerous papers, documents, books and other written literature
alleged to be in the possession and control of petitioner Jose Burgos,
Jr. publisher-editor of the "We Forum" newspaper, were seized.
Petitioners further pray that a writ of preliminary mandatory and
prohibitory injunction be issued for the return of the seized articles,
Page 31 of 35
and that respondents, "particularly the Chief Legal Officer,
Presidential Security Command, the Judge Advocate General, AFP,
the City Fiscal of Quezon City, their representatives, assistants,
subalterns, subordinates, substitute or successors" be enjoined from
using the articles thus seized as evidence against petitioner Jose
Burgos, Jr. and the other accused in Criminal Case No. Q- 022782 of
the Regional Trial Court of Quezon City, entitled People v. Jose
Burgos, Jr. et al. 1
In our Resolution dated June 21, 1983, respondents were required to
answer the petition. The plea for preliminary mandatory and
prohibitory injunction was set for hearing on June 28, 1983, later reset
to July 7, 1983, on motion of the Solicitor General in behalf of
respondents.
At the hearing on July 7, 1983, the Solicitor General, while opposing
petitioners' prayer for a writ of preliminary mandatory injunction,
manifested that respondents "will not use the aforementioned articles
as evidence in the aforementioned case until final resolution of the
legality of the seizure of the aforementioned articles. ..." 2 With this
manifestation, the prayer for preliminary prohibitory injunction was
rendered moot and academic.
Respondents would have this Court dismiss the petition on the ground
that petitioners had come to this Court without having previously
sought the quashal of the search warrants before respondent judge.
Indeed, petitioners, before impugning the validity of the warrants
before this Court, should have filed a motion to quash said warrants in
the court that issued them. 3 But this procedural flaw notwithstanding,
we take cognizance of this petition in view of the seriousness and
urgency of the constitutional issues raised not to mention the public
interest generated by the search of the "We Forum" offices, which was
televised in Channel 7 and widely publicized in all metropolitan
dailies. The existence of this special circumstance justifies this Court
to exercise its inherent power to suspend its rules. In the words of the
revered Mr. Justice Abad Santos in the case of C. Vda. de Ordoveza v.
Raymundo, 4 "it is always in the power of the court [Supreme Court]
to suspend its rules or to except a particular case from its operation,
whenever the purposes of justice require it...".
Respondents likewise urge dismissal of the petition on ground of
laches. Considerable stress is laid on the fact that while said search
warrants were issued on December 7, 1982, the instant petition
impugning the same was filed only on June 16, 1983 or after the lapse
of a period of more than six [6] months.
Laches is failure or negligence for an unreasonable and unexplained
length of time to do that which, by exercising due diligence, could or
should have been done earlier. It is negligence or omission to assert a
right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it. 5
Petitioners, in their Consolidated Reply, explained the reason for the
delay in the filing of the petition thus:
Respondents should not find fault, as they now do
[p. 1, Answer, p. 3, Manifestation] with the fact that

the Petition was filed on June 16, 1983, more than
half a year after the petitioners' premises had been
raided.
The climate of the times has given petitioners no
other choice. If they had waited this long to bring
their case to court, it was because they tried at first
to exhaust other remedies. The events of the past
eleven fill years had taught them that everything in
this country, from release of public funds to release
of detained persons from custody, has become a
matter of executive benevolence or largesse
Hence, as soon as they could, petitioners, upon
suggestion of persons close to the President, like
Fiscal Flaminiano, sent a letter to President Marcos, and intent were to search two distinct premises. It would be quite
through counsel Antonio Coronet asking the return
at least of the printing equipment and vehicles. And
after such a letter had been sent, through Col.
Balbino V. Diego, Chief Intelligence and Legal
Officer of the Presidential Security Command, they
were further encouraged to hope that the latter
would yield the desired results.
After waiting in vain for five [5] months, petitioners Avenue, Quezon City, which address appeared in the opening
finally decided to come to Court. [pp. 123-124,
Rollo]
Although the reason given by petitioners may not be flattering to our
judicial system, We find no ground to punish or chastise them for an
error in judgment. On the contrary, the extrajudicial efforts exerted by
petitioners quite evidently negate the presumption that they had
abandoned their right to the possession of the seized property, thereby
refuting the charge of laches against them.
Respondents also submit the theory that since petitioner Jose Burgos,
Jr. had used and marked as evidence some of the seized documents in
Criminal Case No. Q- 022872, he is now estopped from challenging
the validity of the search warrants. We do not follow the logic of
respondents. These documents lawfully belong to petitioner Jose
Burgos, Jr. and he can do whatever he pleases with them, within legal
bounds. The fact that he has used them as evidence does not and
cannot in any way affect the validity or invalidity of the search
warrants assailed in this petition.
Several and diverse reasons have been advanced by petitioners to
nullify the search warrants in question.
1. Petitioners fault respondent judge for his alleged failure to conduct
an examination under oath or affirmation of the applicant and his
witnesses, as mandated by the above-quoted constitutional provision
as wen as Sec. 4, Rule 126 of the Rules of Court .6 This objection,
however, may properly be considered moot and academic, as
petitioners themselves conceded during the hearing on August 9,
1983, that an examination had indeed been conducted by respondent
judge of Col. Abadilla and his witnesses.
2. Search Warrants No. 20-82[a] and No. 20- 82[b] were used to
search two distinct places: No. 19, Road 3, Project 6, Quezon City and
784 Units C & D, RMS Building, Quezon Avenue, Quezon City,
Page 32 of 35
respectively. Objection is interposed to the execution of Search
Warrant No. 20-82[b] at the latter address on the ground that the two
search warrants pinpointed only one place where petitioner Jose
Burgos, Jr. was allegedly keeping and concealing the articles listed
therein, i.e., No. 19, Road 3, Project 6, Quezon City. This assertion is
based on that portion of Search Warrant No. 20- 82[b] which states:
Which have been used, and are being used as
instruments and means of committing the crime of
subversion penalized under P.D. 885 as amended
and he is keeping and concealing the same at 19
Road 3, Project 6, Quezon City.
The defect pointed out is obviously a typographical error. Precisely,
two search warrants were applied for and issued because the purpose
absurd and illogical for respondent judge to have issued two warrants
intended for one and the same place. Besides, the addresses of the
places sought to be searched were specifically set forth in the
application, and since it was Col. Abadilla himself who headed the
team which executed the search warrants, the ambiguity that might
have arisen by reason of the typographical error is more apparent than
real. The fact is that the place for which Search Warrant No. 20- 82[b]
was applied for was 728 Units C & D, RMS Building, Quezon
paragraph of the said warrant. 7 Obviously this is the same place that
respondent judge had in mind when he issued Warrant No. 20-82 [b].
In the determination of whether a search warrant describes the
premises to be searched with sufficient particularity, it has been held
"that the executing officer's prior knowledge as to the place intended
in the warrant is relevant. This would seem to be especially true where
the executing officer is the affiant on whose affidavit the warrant had
issued, and when he knows that the judge who issued the warrant
intended the building described in the affidavit, And it has also been
said that the executing officer may look to the affidavit in the official
court file to resolve an ambiguity in the warrant as to the place to be
searched." 8
3. Another ground relied upon to annul the search warrants is the fact
that although the warrants were directed against Jose Burgos, Jr.
alone, articles b belonging to his co-petitioners Jose Burgos, Sr.,
Bayani Soriano and the J. Burgos Media Services, Inc. were seized.
Section 2, Rule 126 of the Rules of Court, enumerates the personal
properties that may be seized under a search warrant, to wit:
Sec. 2. Personal Property to be seized. — A search
warrant may be issued for the search and seizure of
the following personal property:
[a] Property subject of the offense;
[b] Property stolen or embezzled
and other proceeds or fruits of the
offense; and
[c] Property used or intended to be
used as the means of committing
an offense.
 Page 33 of 35

The above rule does not require that the property to be seized should warrant applied for is directed against a newspaper publisher or editor
be owned by the person against whom the search warrant is directed. in connection with the publication of subversive materials, as in the
It may or may not be owned by him. In fact, under subsection [b] of case at bar, the application and/or its supporting affidavits must
the above-quoted Section 2, one of the properties that may be seized is contain a specification, stating with particularity the alleged
stolen property. Necessarily, stolen property must be owned by one subversive material he has published or is intending to publish. Mere
other than the person in whose possession it may be at the time of the generalization will not suffice. Thus, the broad statement in Col.
search and seizure. Ownership, therefore, is of no consequence, and it Abadilla's application that petitioner "is in possession or has in his
is sufficient that the person against whom the warrant is directed has control printing equipment and other paraphernalia, news publications
control or possession of the property sought to be seized, as petitioner and other documents which were used and are all continuously being
Jose Burgos, Jr. was alleged to have in relation to the articles and used as a means of committing the offense of subversion punishable
property seized under the warrants. under Presidential Decree 885, as amended ..." 12 is a mere
conclusion of law and does not satisfy the requirements of probable
4. Neither is there merit in petitioners' assertion that real properties cause. Bereft of such particulars as would justify a finding of the
were seized under the disputed warrants. Under Article 415[5] of the existence of probable cause, said allegation cannot serve as basis for
Civil Code of the Philippines, "machinery, receptables, instruments or the issuance of a search warrant and it was a grave error for
implements intended by the owner of the tenement for an industry or respondent judge to have done so.
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" Equally insufficient as basis for the determination of probable cause is
are considered immovable property. In Davao Sawmill Co. v. the statement contained in the joint affidavit of Alejandro M.
Castillo9 where this legal provision was invoked, this Court ruled that Gutierrez and Pedro U. Tango, "that the evidence gathered and
machinery which is movable by nature becomes immobilized when collated by our unit clearly shows that the premises above- mentioned
placed by the owner of the tenement, property or plant, but not so and the articles and things above-described were used and are
when placed by a tenant, usufructuary, or any other person having continuously being used for subversive activities in conspiracy with,
only a temporary right, unless such person acted as the agent of the and to promote the objective of, illegal organizations such as the
owner. Light-a-Fire Movement, Movement for Free Philippines, and April 6
Movement." 13
In the case at bar, petitioners do not claim to be the owners of the land
and/or building on which the machineries were placed. This being the In mandating that "no warrant shall issue except upon probable cause
case, the machineries in question, while in fact bolted to the ground to be determined by the judge, ... after examination under oath or
remain movable property susceptible to seizure under a search affirmation of the complainant and the witnesses he may produce; 14
warrant. the Constitution requires no less than personal knowledge by the
complainant or his witnesses of the facts upon which the issuance of a
5. The questioned search warrants were issued by respondent judge search warrant may be justified. In Alvarez v. Court of First Instance,
upon application of Col. Rolando N. Abadilla Intelligence Officer of 15 this Court ruled that "the oath required must refer to the truth of the
the P.C. Metrocom.10 The application was accompanied by the Joint facts within the personal knowledge of the petitioner or his witnesses,
Affidavit of Alejandro M. Gutierrez and Pedro U. Tango, 11 members because the purpose thereof is to convince the committing magistrate,
of the Metrocom Intelligence and Security Group under Col. Abadilla not the individual making the affidavit and seeking the issuance of the
which conducted a surveillance of the premises prior to the filing of warrant, of the existence of probable cause." As couched, the quoted
the application for the search warrants on December 7, 1982. averment in said joint affidavit filed before respondent judge hardly
meets the test of sufficiency established by this Court in Alvarez case.
It is contended by petitioners, however, that the abovementioned
documents could not have provided sufficient basis for the finding of Another factor which makes the search warrants under consideration
a probable cause upon which a warrant may validly issue in constitutionally objectionable is that they are in the nature of general
accordance with Section 3, Article IV of the 1973 Constitution which warrants. The search warrants describe the articles sought to be seized
provides: in this wise:

SEC. 3. ... and no search warrant or warrant of arrest
shall issue except upon probable cause to be
determined by the judge, or such other responsible
officer as may be authorized by law, after
examination under oath or affirmation of the
complainant and the witnesses he may produce, and
particularly describing the place to be searched and
the persons or things to be seized.
1] All printing equipment, paraphernalia, paper, ink,
photo (equipment, typewriters, cabinets, tables,
communications/recording equipment, tape
recorders, dictaphone and the like used and/or
connected in the printing of the "WE FORUM"
newspaper and any and all documents
communication, letters and facsimile of prints
related to the "WE FORUM" newspaper.

We find petitioners' thesis impressed with merit. Probable cause for a 2] Subversive documents, pamphlets, leaflets,
search is defined as such facts and circumstances which would lead a books, and other publication to promote the
reasonably discreet and prudent man to believe that an offense has objectives and piurposes of the subversive
been committed and that the objects sought in connection with the organization known as Movement for Free
offense are in the place sought to be searched. And when the search Philippines, Light-a-Fire Movement and April 6
Movement; and,

3] Motor vehicles used in the distribution/circulation Respondents would justify the continued sealing of the printing
of the "WE FORUM" and other subversive
materials and propaganda, more particularly,
1] Toyota-Corolla, colored yellow engaged in subversive activities against the government and its duly
with Plate No. NKA 892;
2] DATSUN pick-up colored
white with Plate No. NKV 969
3] A delivery truck with Plate No.
NBS 524;
4] TOYOTA-TAMARAW,
colored white with Plate No. PBP
665; and,
5] TOYOTA Hi-Lux, pick-up
truck with Plate No. NGV 427
with marking "Bagong Silang."
In Stanford v. State of Texas 16 the search warrant which authorized
the search for "books, records, pamphlets, cards, receipts, lists,
memoranda, pictures, recordings and other written instruments
concerning the Communist Party in Texas," was declared void by the
U.S. Supreme Court for being too general. In like manner, directions
to "seize any evidence in connectionwith the violation of SDC 13-
3703 or otherwise" have been held too general, and that portion of a
search warrant which authorized the seizure of any "paraphernalia
which could be used to violate Sec. 54-197 of the Connecticut General
Statutes [the statute dealing with the crime of conspiracy]" was held to
be a general warrant, and therefore invalid. 17 The description of the
articles sought to be seized under the search warrants in question
cannot be characterized differently.
In the Stanford case, the U.S. Supreme Courts calls to mind a notable
chapter in English history: the era of disaccord between the Tudor
Government and the English Press, when "Officers of the Crown were
given roving commissions to search where they pleased in order to
suppress and destroy the literature of dissent both Catholic and Puritan
Reference herein to such historical episode would not be relevant for
it is not the policy of our government to suppress any newspaper or
publication that speaks with "the voice of non-conformity" but poses
no clear and imminent danger to state security.
As heretofore stated, the premises searched were the business and
printing offices of the "Metropolitan Mail" and the "We Forum
newspapers. As a consequence of the search and seizure, these
premises were padlocked and sealed, with the further result that the
printing and publication of said newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship
abhorrent to the freedom of the press guaranteed under the
fundamental law, 18 and constitutes a virtual denial of petitioners'
freedom to express themselves in print. This state of being is patently concur.
anathematic to a democratic framework where a free, alert and even
militant press is essential for the political enlightenment and growth of Aquino, J., took no part.
the citizenry.
Page 34 of 35
machines on the ground that they have been sequestered under Section
8 of Presidential Decree No. 885, as amended, which authorizes "the
sequestration of the property of any person, natural or artificial,
constituted authorities ... in accordance with implementing rules and
regulations as may be issued by the Secretary of National Defense." It
is doubtful however, if sequestration could validly be effected in view
of the absence of any implementing rules and regulations promulgated
by the Minister of National Defense.
Besides, in the December 10, 1982 issue of the Daily Express, it was
reported that no less than President Marcos himself denied the request
of the military authorities to sequester the property seized from
petitioners on December 7, 1982. Thus:
The President denied a request flied by government
prosecutors for sequestration of the WE FORUM
newspaper and its printing presses, according to
Information Minister Gregorio S. Cendana.
On the basis of court orders, government agents
went to the We Forum offices in Quezon City and
took a detailed inventory of the equipment and all
materials in the premises.
Cendaña said that because of the denial the
newspaper and its equipment remain at the disposal
of the owners, subject to the discretion of the court.
19
That the property seized on December 7, 1982 had not been
sequestered is further confirmed by the reply of then Foreign Minister
Carlos P. Romulo to the letter dated February 10, 1983 of U.S.
Congressman Tony P. Hall addressed to President Marcos, expressing
alarm over the "WE FORUM " case. 20 In this reply dated February
11, 1983, Minister Romulo stated:
2. Contrary to reports, President Marcos turned
down the recommendation of our authorities to close
the paper's printing facilities and confiscate the
equipment and materials it uses. 21
IN VIEW OF THE FOREGOING, Search Warrants Nos. 20-82[a] and
20-82[b] issued by respondent judge on December 7, 1982 are hereby
declared null and void and are accordingly set aside. The prayer for a
writ of mandatory injunction for the return of the seized articles is
hereby granted and all articles seized thereunder are hereby ordered
released to petitioners. No costs.
SO ORDERED.
Fernando, C.J., Teehankee, Makasiar, Concepcion, Jr., Melencio-
Herrera, Plana, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ.,
 Page 35 of 35

Separate Opinions Conformably with existing jurisprudence everything seized pursuant

to the warrants should be returned to the owners and all of the items
ABAD SANTOS, J., concurring are subject to the exclusionary rule of evidence.

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

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

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

The Constitutional requirement which is expressed in Section 3,

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

Any search warrant is conducted in disregard of the points mentioned

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

The two search warrants were issued without probable cause. To

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

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

Subversive documents, pamphlets, leaflets, books

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

The obvious question is: Why were the documents, pamphlets,

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

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

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