Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16513 January 18, 1921
THE UNITED STATES, plaintiff-appellee,
vs.
MANUEL TAMBUNTING, defendant-appellant.
Manuel Garcia Goyena for appellant.
Acting Attorney-General Feria for appellee.
STREET, J.:
This appeal was instituted for the purpose of reversing a judgment of the Court of First Instance of the
city of Manila, finding the accused, Manuel Tambunting, guilty of stealing a quantity of gas belonging
to the Manila Gas Corporation, and sentencing him to undergo imprisonment for two months and one
day, of arresto mayor, with the accessories prescribed by law; to indemnify the said corporation in the
sum of P2, with subsidiary imprisonment in case of insolvency; and to pay the costs.
The evidence submitted in behalf of the prosecution shows that in January of the year 1918, the
accused and his wife became occupants of the upper floor of the house situated at No. 443, Calle
Evangelista, in the city of Manila. In this house the Manila Gas Corporation had previously installed
apparatus for the delivery of gas on both the upper and lower floors, consisting of the necessary
piping and a gas meter, which last mentioned apparatus was installed below. When the occupants at
whose request this installation had been made vacated the premises, the gas company disconnected
the gas pipe and removed the meter, thus cutting off the supply of gas from said premises.
Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and found
that gas was being used, without the knowledge and consent of the gas company, for cooking in the
quarters occupied by the defendant and his wife: to effect which a short piece of iron pipe had been
inserted in the gap where the gas meter had formerly been placed, and piece of rubber tubing had
been used to connect the gas pipe of rubber tubing had been used to connect the gas pipe in kitchen
with the gas stove, or plate, used for cooking.
At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he
presently arrived and admitted to the agent to the gas company that he had made the connection with
the rubber tubing between the gas pipe and the stove, though he denied making the connection
below. He also admitted that he knew he was using gas without the knowledge of the company and
that he had been so using it for probably two or three months.
The clandestine use of gas by the accused in the manner stated is thus established in our opinion
beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only remains to consider, first,
whether gas can be the subject to larceny and, secondly, whether the quantity of gas appropriated in
the two months, during which the accused admitted having used the same, has been established with
sufficient certainty to enable the court to fix an appropriate penalty.
Some legal minds, perhaps more academic than practical, have entertained doubt upon the question
whether gas can be the subject of larceny; but no judicial decision has been called to our attention
wherein any respectable court has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175),
this court, speaking through Mr. Justice Torres, said ". . . the right of the ownership of electric current
is secured by article 517 and 518 of the Penal Code; the application of these articles in cases of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed
by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and April 1,
1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of that
country, articles identical with articles 517 and 518 of the code in force in these Islands." These
expressions were used in a case which involved the subtraction and appropriation of electrical energy
and the court held, in accordance with the analogy of the case involving the theft of gas, that electrical
energy could also be the subject of theft. The same conclusion was reached in U.S. vs. Carlos (21
Phil., 553), which was also a case of prosecution for stealing electricity.

The precise point whether the taking of gas may constitute larceny has never before, so far as the
present writer is aware, been the subject of adjudication in this court, but the decisions of Spanish,
English, and American courts all answer the question in the affirmative. (See U.S. vs. Carlos, 21 Phil.,
553, 560.)
In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol. 17, of
Ruling Case Law:
There is nothing in the nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or larger quantity and of being
transported from place to place. Likewise water which is confined in pipes and electricity which is
conveyed by wires are subjects of larceny."
As to the amount and value of the gas appropriated by the accused in the period during which he
admits having used it, the proof is not entirely satisfactory. Nevertheless we think the trial court was
justified in fixing the value of the gas at P2 per month, which is the minimum charge for gas made by
the gas company, however small the amount consumed. That is to say, no person desiring to use gas
at all for domestic purposes can purchase the commodity at a lower rate per month than P2. There
was evidence before the court showing that the general average of the monthly bills paid by
consumers throughout the city for the use of gas in a kitchen equipped like that used by the accused
is from P18 to 20, while the average minimum is about P8 per month. We think that the facts above
stated are competent evidence; and the conclusion is inevitable that the accused is at least liable to
the extent of the minimum charge of P2 per month. The market value of the property at the time and
place of the theft is of court the proper value to be proven (17 R.C.L., p. 66); and when it is found that
the least amount that a consumer can take costs P2 per months, this affords proof that the amount
which the accused took was certainly worth that much. Absolute certainty as to the full amount taken
is of course impossible, because no meter wad used; but absolute certainty upon this point is not
necessary, when it is certain that the minimum that could have been taken was worth a determinable
amount.
It appears that before the present prosecution was instituted, the accused had been unsuccessfully
prosecuted for an infraction of section 504 of the Revised Ordinances of the city of Manila, under a
complaint charging that the accused, not being a registered installer of gas equipment had placed a
gas installation in the house at No. 443, Calle Evangelista. Upon this it is argued for the accused that,
having been acquitted of that charge, he is not now subject to prosecution for the offense of theft,
having been acquitted of the former charge. The contention is evidently not well-founded, since the
two offenses are of totally distinct nature. Furthermore, a prosecution for violation of a city ordinance
is not ordinarily a bar to a subsequent prosecution for the same offense under the general law of the
land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)
The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518 of the
Penal Code, for the gas taken in the course of two months a the rate of P2 per month. There being no
aggravating or attenuating circumstance to be estimated, it results that the proper penalty is two
months and one day of arresto mayor, as fixed by the trial court. The judgment will therefore be
affirmed, with costs against the appellant, it being understood that the amount of the indemnity which
the accused shall pay to the gas company is P4, instead of P2, with subsidiary imprisonment for one
day in case of insolvency. So ordered.
Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 155076 February 27, 2006
LUIS MARCOS P. LAUREL, Petitioner,
vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, Branch
150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CAG.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar, Regional Trial Court (RTC),
Makati City, Branch 150, which denied the "Motion to Quash (With Motion to Defer Arraignment)" in
Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative franchise to render
local and international telecommunication services under Republic Act No. 7082.2 Under said law,
PLDT is authorized to establish, operate, manage, lease, maintain and purchase telecommunication
systems, including transmitting, receiving and switching stations, for both domestic and international
calls. For this purpose, it has installed an estimated 1.7 million telephone lines nationwide. PLDT also
offers other services as authorized by Certificates of Public Convenience and Necessity (CPCN) duly
issued by the National Telecommunications Commission (NTC), and operates and maintains an
International Gateway Facility (IGF). The PLDT network is thus principally composed of the Public
Switch Telephone Network (PSTN), telephone handsets and/or telecommunications equipment used
by its subscribers, the wires and cables linking said telephone handsets and/or telecommunications
equipment, antenna, the IGF, and other telecommunications equipment which provide
interconnections.3 1avvphil.net
PLDT alleges that one of the alternative calling patterns that constitute network fraud and violate its
network integrity is that which is known as International Simple Resale (ISR). ISR is a method of
routing and completing international long distance calls using International Private Leased Lines
(IPL), cables, antenna or air wave or frequency, which connect directly to the local or domestic
exchange facilities of the terminating country (the country where the call is destined). The IPL is
linked to switching equipment which is connected to a PLDT telephone line/number. In the process,
the calls bypass the IGF found at the terminating country, or in some instances, even those from the
originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which sells "Bay
Super Orient Card" phone cards to people who call their friends and relatives in the Philippines. With
said card, one is entitled to a 27-minute call to the Philippines for about 37.03 per minute. After
dialing the ISR access number indicated in the phone card, the ISR operator requests the subscriber
to give the PIN number also indicated in the phone card. Once the callers identity (as purchaser of
the phone card) is confirmed, the ISR operator will then provide a Philippine local line to the
requesting caller via the IPL. According to PLDT, calls made through the IPL never pass the toll center
of IGF operators in the Philippines. Using the local line, the Baynet card user is able to place a call to
any point in the Philippines, provided the local line is National Direct Dial (NDD) capable.5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its incoming
international long distance calls from Japan. The IPL is linked to switching equipment, which is then
connected to PLDT telephone lines/numbers and equipment, with Baynet as subscriber. Through the
use of the telephone lines and other auxiliary equipment, Baynet is able to connect an international
long distance call from Japan to any part of the Philippines, and make it appear as a call originating
from Metro Manila. Consequently, the operator of an ISR is able to evade payment of access,
termination or bypass charges and accounting rates, as well as compliance with the regulatory

requirements of the NTC. Thus, the ISR operator offers international telecommunication services at a
lower rate, to the damage and prejudice of legitimate operators like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its ISR activities: lines, cables, and
antennas or equipment or device capable of transmitting air waves or frequency, such as an IPL and
telephone lines and equipment; computers or any equipment or device capable of accepting
information applying the prescribed process of the information and supplying the result of this
process; modems or any equipment or device that enables a data terminal equipment such as
computers to communicate with other data terminal equipment via a telephone line; multiplexers or
any equipment or device that enables two or more signals from different sources to pass through a
common cable or transmission line; switching equipment, or equipment or device capable of
connecting telephone lines; and software, diskettes, tapes or equipment or device used for recording
and storing information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone lines/numbers.8
Based on the Traffic Study conducted on the volume of calls passing through Baynets ISR network
which bypass the IGF toll center, PLDT incurred an estimated monthly loss of P10,185,325.96.9
Records at the Securities and Exchange Commission (SEC) also revealed that Baynet was not
authorized to provide international or domestic long distance telephone service in the country. The
following are its officers: Yuji Hijioka, a Japanese national (chairman of the board of directors); Gina
C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a Filipino (board
member and corporate secretary); Ricky Chan Pe, a Filipino (board member and treasurer); and
Yasushi Ueshima, also a Japanese national (board member).
Upon complaint of PLDT against Baynet for network fraud, and on the strength of two search
warrants10 issued by the RTC of Makati, Branch 147, National Bureau of Investigation (NBI) agents
searched its office at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City on November 8,
1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando J. Villegas were arrested
by NBI agents while in the act of manning the operations of Baynet. Seized in the premises during the
search were numerous equipment and devices used in its ISR activities, such as multiplexers,
modems, computer monitors, CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of accounts, parabolic antennae and
voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a Resolution11 on
January 28, 2000, finding probable cause for theft under Article 308 of the Revised Penal Code and
Presidential Decree No. 40112 against the respondents therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati City charging
Matsuura, Miyake, Lacson and Villegas with theft under Article 308 of the Revised Penal Code. After
conducting the requisite preliminary investigation, the State Prosecutor filed an Amended Information
impleading Laurel (a partner in the law firm of Ingles, Laurel, Salinas, and, until November 19, 1999, a
member of the board of directors and corporate secretary of Baynet), and the other members of the
board of directors of said corporation, namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson and
Villegas, as accused for theft under Article 308 of the Revised Penal Code. The inculpatory portion of
the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City, and within the jurisdiction of this
Honorable Court, the accused, conspiring and confederating together and all of them mutually helping
and aiding one another, with intent to gain and without the knowledge and consent of the Philippine
Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously take, steal
and use the international long distance calls belonging to PLDT by conducting International Simple
Resale (ISR), which is a method of routing and completing international long distance calls using
lines, cables, antennae, and/or air wave frequency which connect directly to the local or domestic
exchange facilities of the country where the call is destined, effectively stealing this business from
PLDT while using its facilities in the estimated amount of P20,370,651.92 to the damage and
prejudice of PLDT, in the said amount.
CONTRARY TO LAW.13

Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the ground that the
factual allegations in the Amended Information do not constitute the felony of theft under Article 308 of
the Revised Penal Code. He averred that the Revised Penal Code, or any other special penal law for
that matter, does not prohibit ISR operations. He claimed that telephone calls with the use of PLDT
telephone lines, whether domestic or international, belong to the persons making the call, not to
PLDT. He argued that the caller merely uses the facilities of PLDT, and what the latter owns are the
telecommunication infrastructures or facilities through which the call is made. He also asserted that
PLDT is compensated for the callers use of its facilities by way of rental; for an outgoing overseas
call, PLDT charges the caller per minute, based on the duration of the call. Thus, no personal
property was stolen from PLDT. According to Laurel, the P20,370,651.92 stated in the Information, if
anything, represents the rental for the use of PLDT facilities, and not the value of anything owned by
it. Finally, he averred that the allegations in the Amended Information are already subsumed under
the Information for violation of Presidential Decree (P.D.) No. 401 filed and pending in the
Metropolitan Trial Court of Makati City, docketed as Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed the motion,14 contending that the
movant unlawfully took personal property belonging to it, as follows: 1) intangible telephone services
that are being offered by PLDT and other telecommunication companies, i.e., the connection and
interconnection to their telephone lines/facilities; 2) the use of those facilities over a period of time;
and 3) the revenues derived in connection with the rendition of such services and the use of such
facilities.15
The prosecution asserted that the use of PLDTs intangible telephone services/facilities allows
electronic voice signals to pass through the same, and ultimately to the called partys number. It
averred that such service/facility is akin to electricity which, although an intangible property, may,
nevertheless, be appropriated and be the subject of theft. Such service over a period of time for a
consideration is the business that PLDT provides to its customers, which enables the latter to send
various messages to installed recipients. The service rendered by PLDT is akin to merchandise which
has specific value, and therefore, capable of appropriation by another, as in this case, through the
ISR operations conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and revenues constitute personal
property envisaged in Article 308 of the Revised Penal Code." Moreover, the intangible telephone
services/facilities belong to PLDT and not to the movant and the other accused, because they have
no telephone services and facilities of their own duly authorized by the NTC; thus, the taking by the
movant and his co-accused of PLDT services was with intent to gain and without the latters consent.
The prosecution pointed out that the accused, as well as the movant, were paid in exchange for their
illegal appropriation and use of PLDTs telephone services and facilities; on the other hand, the
accused did not pay a single centavo for their illegal ISR operations. Thus, the acts of the accused
were akin to the use of a "jumper" by a consumer to deflect the current from the house electric meter,
thereby enabling one to steal electricity. The prosecution emphasized that its position is fortified by
the Resolutions of the Department of Justice in PLDT v. Tiongson, et al. (I.S. No. 97-0925) and in
PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which were issued on August 14,
2000 finding probable cause for theft against the respondents therein.
On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash the Amended
Information. The court declared that, although there is no law that expressly prohibits the use of ISR,
the facts alleged in the Amended Information "will show how the alleged crime was committed by
conducting ISR," to the damage and prejudice of PLDT.
Laurel filed a Motion for Reconsideration17 of the Order, alleging that international long distance calls
are not personal property, and are not capable of appropriation. He maintained that business or
revenue is not considered personal property, and that the prosecution failed to adduce proof of its
existence and the subsequent loss of personal property belonging to another. Citing the ruling of the
Court in United States v. De Guzman,18 Laurel averred that the case is not one with telephone calls
which originate with a particular caller and terminates with the called party. He insisted that telephone
calls are considered privileged communications under the Constitution and cannot be considered as
"the property of PLDT." He further argued that there is no kinship between telephone calls and

electricity or gas, as the latter are forms of energy which are generated and consumable, and may be
considered as personal property because of such characteristic. On the other hand, the movant
argued, the telephone business is not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants Motion for Reconsideration.
This time, it ruled that what was stolen from PLDT was its "business" because, as alleged in the
Amended Information, the international long distance calls made through the facilities of PLDT formed
part of its business. The RTC noted that the movant was charged with stealing the business of PLDT.
To support its ruling, it cited Strochecker v. Ramirez,20 where the Court ruled that interest in business
is personal property capable of appropriation. It further declared that, through their ISR operations,
the movant and his co-accused deprived PLDT of fees for international long distance calls, and that
the ISR used by the movant and his co-accused was no different from the "jumper" used for stealing
electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He alleged that
the respondent judge gravely abused his discretion in denying his Motion to Quash the Amended
Information.21 As gleaned from the material averments of the amended information, he was charged
with stealing the international long distance calls belonging to PLDT, not its business. Moreover, the
RTC failed to distinguish between the business of PLDT (providing services for international long
distance calls) and the revenues derived therefrom. He opined that a "business" or its revenues
cannot be considered as personal property under Article 308 of the Revised Penal Code, since a
"business" is "(1) a commercial or mercantile activity customarily engaged in as a means of livelihood
and typically involving some independence of judgment and power of decision; (2) a commercial or
industrial enterprise; and (3) refers to transactions, dealings or intercourse of any nature." On the
other hand, the term "revenue" is defined as "the income that comes back from an investment (as in
real or personal property); the annual or periodical rents, profits, interests, or issues of any species of
real or personal property."22
Laurel further posited that an electric companys business is the production and distribution of
electricity; a gas companys business is the production and/or distribution of gas (as fuel); while a
water companys business is the production and distribution of potable water. He argued that the
"business" in all these cases is the commercial activity, while the goods and merchandise are the
products of such activity. Thus, in prosecutions for theft of certain forms of energy, it is the electricity
or gas which is alleged to be stolen and not the "business" of providing electricity or gas. However,
since a telephone company does not produce any energy, goods or merchandise and merely renders
a service or, in the words of PLDT, "the connection and interconnection to their telephone lines/
facilities," such service cannot be the subject of theft as defined in Article 308 of the Revised Penal
Code.23
He further declared that to categorize "business" as personal property under Article 308 of the
Revised Penal Code would lead to absurd consequences; in prosecutions for theft of gas, electricity
or water, it would then be permissible to allege in the Information that it is the gas business, the
electric business or the water business which has been stolen, and no longer the merchandise
produced by such enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza,25 where it was
ruled that the Revised Penal Code, legislated as it was before present technological advances were
even conceived, is not adequate to address the novel means of "stealing" airwaves or airtime. In said
resolution, it was noted that the inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The
Anti-Telecommunications Fraud of 1997" to deter cloning of cellular phones and other forms of
communications fraud. The said bill "aims to protect in number (ESN) (sic) or Capcode, mobile
identification number (MIN), electronic-international mobile equipment identity (EMEI/IMEI), or
subscriber identity module" and "any attempt to duplicate the data on another cellular phone without
the consent of a public telecommunications entity would be punishable by law."26 Thus, Laurel
concluded, "there is no crime if there is no law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the petition.27 The appellate court ruled
that a petition for certiorari under Rule 65 of the Rules of Court was not the proper remedy of the
petitioner. On the merits of the petition, it held that while business is generally an activity

which is abstract and intangible in form, it is nevertheless considered "property" under Article 308 of
the Revised Penal Code. The CA opined that PLDTs business of providing international calls is
personal property which may be the object of theft, and cited United States v. Carlos28 to support
such conclusion. The tribunal also cited Strochecker v. Ramirez,29 where this Court ruled that one-half
interest in a days business is personal property under Section 2 of Act No. 3952, otherwise known as
the Bulk Sales Law. The appellate court held that the operations of the ISR are not subsumed in the
charge for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending that THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY ALLEGEDLY
STOLEN PER THE INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE CALLS" BUT
THE "BUSINESS OF PLDT."
THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS PERSONAL
PROPERTY WITHIN THE MEANING OF ART. 308 OF THE REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an interlocutory order of
the trial court which was issued with grave abuse of discretion amounting to excess or lack of
jurisdiction. In support of his petition before the Court, he reiterates the arguments in his pleadings
filed before the CA. He further claims that while the right to carry on a business or an interest or
participation in business is considered property under the New Civil Code, the term "business,"
however, is not. He asserts that the Philippine Legislature, which approved the Revised Penal Code
way back in January 1, 1932, could not have contemplated to include international long distance calls
and "business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General (OSG) maintains that the amended
information clearly states all the essential elements of the crime of theft. Petitioners interpretation as
to whether an "international long distance call" is personal property under the law is inconsequential,
as a reading of the amended information readily reveals that specific acts and circumstances were
alleged charging Baynet, through its officers, including petitioner, of feloniously taking, stealing and
illegally using international long distance calls belonging to respondent PLDT by conducting ISR
operations, thus, "routing and completing international long distance calls using lines, cables, antenna
and/or airwave frequency which connect directly to the local or domestic exchange facilities of the
country where the call is destined." The OSG maintains that the international long distance calls
alleged in the amended information should be construed to mean "business" of PLDT, which, while
abstract and intangible in form, is personal property susceptible of appropriation.31 The OSG avers
that what was stolen by petitioner and his co-accused is the business of PLDT providing international
long distance calls which, though intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of the Revised Penal
Code comprehends intangible property such as electricity and gas which are valuable articles for
merchandise, brought and sold like other personal property, and are capable of appropriation. It
insists that the business of international calls and revenues constitute personal property because the
same are valuable articles of merchandise. The respondent reiterates that international calls involve
(a) the intangible telephone services that are being offered by it, that is, the connection and
interconnection to the telephone network, lines or facilities; (b) the use of its telephone network, lines
or facilities over a period of time; and (c) the income derived in connection therewith.33
PLDT further posits that business revenues or the income derived in connection with the rendition of
such services and the use of its telephone network, lines or facilities are personal properties under
Article 308 of the Revised Penal Code; so is the use of said telephone services/telephone network,
lines or facilities which allow electronic voice signals to pass through the same and ultimately to the
called partys number. It is akin to electricity which, though intangible property, may nevertheless be
appropriated and can be the object of theft. The use of respondent PLDTs telephone network, lines,
or facilities over a period of time for consideration is the business that it provides to its customers,
which enables the latter to send various messages to intended recipients. Such use over a period of
time is akin to merchandise which has value and, therefore, can be appropriated by another.
According to respondent PLDT, this is what actually happened when petitioner Laurel and the other
accused below conducted illegal ISR operations.34

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for certiorari is the proper
remedy of the petitioner in the Court of Appeals; (b) whether or not international telephone calls using
Bay Super Orient Cards through the telecommunication services provided by PLDT for such calls, or,
in short, PLDTs business of providing said telecommunication services, are proper subjects of theft
under Article 308 of the Revised Penal Code; and (c) whether or not the trial court committed grave
abuse of discretion amounting to excess or lack of jurisdiction in denying the motion of the petitioner
to quash the amended information.
On the issue of whether or not the petition for certiorari instituted by the petitioner in the CA is proper,
the general rule is that a petition for certiorari under Rule 65 of the Rules of Court, as amended, to
nullify an order denying a motion to quash the Information is inappropriate because the aggrieved
party has a remedy of appeal in the ordinary course of law. Appeal and certiorari are mutually
exclusive of each other. The remedy of the aggrieved party is to continue with the case in due course
and, when an unfavorable judgment is rendered, assail the order and the decision on appeal.
However, if the trial court issues the order denying the motion to quash the Amended Information with
grave abuse of discretion amounting to excess or lack of jurisdiction, or if such order is patently
erroneous, or null and void for being contrary to the Constitution, and the remedy of appeal would not
afford adequate and expeditious relief, the accused may resort to the extraordinary remedy of
certiorari.35 A special civil action for certiorari is also available where there are special circumstances
clearly demonstrating the inadequacy of an appeal. As this Court held in Bristol Myers Squibb (Phils.),
Inc. v. Viloria:36
Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where, despite
availability of appeal after trial, there is at least a prima facie showing on the face of the petition and
its annexes that: (a) the trial court issued the order with grave abuse of discretion amounting to lack
of or in excess of jurisdiction; (b) appeal would not prove to be a speedy and adequate remedy; (c)
where the order is a patent nullity; (d) the decision in the present case will arrest future litigations; and
(e) for certain considerations such as public welfare and public policy.37
In his petition for certiorari in the CA, petitioner averred that the trial court committed grave abuse of
its discretion amounting to excess or lack of jurisdiction when it denied his motion to quash the
Amended Information despite his claim that the material allegations in the Amended Information do
not charge theft under Article 308 of the Revised Penal Code, or any offense for that matter. By so
doing, the trial court deprived him of his constitutional right to be informed of the nature of the charge
against him. He further averred that the order of the trial court is contrary to the constitution and is,
thus, null and void. He insists that he should not be compelled to undergo the rigors and tribulations
of a protracted trial and incur expenses to defend himself against a non-existent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly every act or omission constituting an
offense38 and must allege facts establishing conduct that a penal statute makes criminal;39 and
describes the property which is the subject of theft to advise the accused with reasonable certainty of
the accusation he is called upon to meet at the trial and to enable him to rely on the judgment
thereunder of a subsequent prosecution for the same offense.40 It must show, on its face, that if the
alleged facts are true, an offense has been committed. The rule is rooted on the constitutional right of
the accused to be informed of the nature of the crime or cause of the accusation against him. He
cannot be convicted of an offense even if proven unless it is alleged or necessarily included in the
Information filed against him.
As a general prerequisite, a motion to quash on the ground that the Information does not constitute
the offense charged, or any offense for that matter, should be resolved on the basis of said
allegations whose truth and veracity are hypothetically committed;41 and on additional facts admitted
or not denied by the prosecution.42 If the facts alleged in the Information do not constitute an offense,
the complaint or information should be quashed by the court.43
We have reviewed the Amended Information and find that, as mentioned by the petitioner, it does not
contain material allegations charging the petitioner of theft of personal property under Article 308 of
the Revised Penal Code. It, thus, behooved the trial court to quash the Amended Information. The

Order of the trial court denying the motion of the petitioner to quash the Amended Information is a
patent nullity.
On the second issue, we find and so hold that the international telephone calls placed by Bay Super
Orient Card holders, the telecommunication services provided by PLDT and its business of providing
said services are not personal properties under Article 308 of the Revised Penal Code. The
construction by the respondents of Article 308 of the said Code to include, within its coverage, the
aforesaid international telephone calls, telecommunication services and business is contrary to the
letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is founded on the tenderness of the
law for the rights of individuals and on the plain principle that the power of punishment is vested in
Congress, not in the judicial department. It is Congress, not the Court, which is to define a crime, and
ordain its punishment.44 Due respect for the prerogative of Congress in defining crimes/felonies
constrains the Court to refrain from a broad interpretation of penal laws where a "narrow
interpretation" is appropriate. The Court must take heed to language, legislative history and purpose,
in order to strictly determine the wrath and breath of the conduct the law forbids.45 However, when the
congressional purpose is unclear, the court must apply the rule of lenity, that is, ambiguity concerning
the ambit of criminal statutes should be resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the fair meaning of the language
used; and may not be held to include offenses other than those which are clearly described,
notwithstanding that the Court may think that Congress should have made them more
comprehensive.47 Words and phrases in a statute are to be construed according to their common
meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the principle that a
case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime not enumerated in the statute
because it is of equal atrocity, or of kindred character with those which are enumerated.48 When
interpreting a criminal statute that does not explicitly reach the conduct in question, the Court should
not base an expansive reading on inferences from subjective and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person who, with intent to gain but
without violence, against or intimidation of persons nor force upon things, shall take personal property
of another without the latters consent.
The provision was taken from Article 530 of the Spanish Penal Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas ni fuerza en las
cosas, toman las cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal (animus furandi) personal
property, meaning the intent to deprive another of his ownership/lawful possession of personal
property which intent is apart from and concurrently with the general criminal intent which is an
essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements: (a) the taking of
personal property; (b) the said property belongs to another; (c) the taking be done with intent to gain;
and (d) the taking be accomplished without the use of violence or intimidation of person/s or force
upon things.51
One is apt to conclude that "personal property" standing alone, covers both tangible and intangible
properties and are subject of theft under the Revised Penal Code. But the words "Personal property"
under the Revised Penal Code must be considered in tandem with the word "take" in the law. The
statutory definition of "taking" and movable property indicates that, clearly, not all personal properties
may be the proper subjects of theft. The general rule is that, only movable properties which have
physical or material existence and susceptible of occupation by another are proper objects of theft.52
As explained by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal, material, susceptible
de ser aprehendida que tenga un valor cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only those movable properties which
can be taken and carried from the place they are found are proper subjects of theft. Intangible

properties such as rights and ideas are not subject of theft because the same cannot be "taken" from
the place it is found and is occupied or appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustraccin de cosas
inmuebles y la cosas incorporales (v. gr., los derechos, las ideas) no puede integrar este delito, pues
no es posible asirlas, tomarlas, para conseguir su apropiacin. El Codigo emplea la expresin "cosas
mueble" en el sentido de cosa que es susceptible de ser llevada del lugar donde se encuentra, como
dinero, joyas, ropas, etctera, asi que su concepto no coincide por completo con el formulado por el
Codigo civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised Penal Code should be distinguished from
the rights or interests to which they relate. A naked right existing merely in contemplation of law,
although it may be very valuable to the person who is entitled to exercise it, is not the subject of theft
or larceny.55 Such rights or interests are intangible and cannot be "taken" by another. Thus, right to
produce oil, good will or an interest in business, or the right to engage in business, credit or franchise
are properties. So is the credit line represented by a credit card. However, they are not proper
subjects of theft or larceny because they are without form or substance, the mere "breath" of the
Congress. On the other hand, goods, wares and merchandise of businessmen and credit cards
issued to them are movable properties with physical and material existence and may be taken by
another; hence, proper subjects of theft.
There is "taking" of personal property, and theft is consummated when the offender unlawfully
acquires possession of personal property even if for a short time; or if such property is under the
dominion and control of the thief. The taker, at some particular amount, must have obtained complete
and absolute possession and control of the property adverse to the rights of the owner or the lawful
possessor thereof.56 It is not necessary that the property be actually carried away out of the physical
possession of the lawful possessor or that he should have made his escape with it.57 Neither
asportation nor actual manual possession of property is required. Constructive possession of the thief
of the property is enough.58
The essence of the element is the taking of a thing out of the possession of the owner without his
privity and consent and without animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent persons without any felonious
intent, as well as any mechanical device, such as an access device or card, or any agency, animate
or inanimate, with intent to gain. Intent to gain includes the unlawful taking of personal property for the
purpose of deriving utility, satisfaction, enjoyment and pleasure.60
We agree with the contention of the respondents that intangible properties such as electrical energy
and gas are proper subjects of theft. The reason for this is that, as explained by this Court in United
States v. Carlos61 and United States v. Tambunting,62 based on decisions of the Supreme Court of
Spain and of the courts in England and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical energy may be taken, carried away
and appropriated. In People v. Menagas,63 the Illinois State Supreme Court declared that electricity,
like gas, may be seen and felt. Electricity, the same as gas, is a valuable article of merchandise,
bought and sold like other personal property and is capable of appropriation by another. It is a
valuable article of merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity and of being transported from place to place. Electrical energy
may, likewise, be taken and carried away. It is a valuable commodity, bought and sold like other
personal property. It may be transported from place to place. There is nothing in the nature of gas
used for illuminating purposes which renders it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of Appeals of New York held
that electric energy is manufactured and sold in determinate quantities at a fixed price, precisely as
are coal, kerosene oil, and gas. It may be conveyed to the premises of the consumer, stored in cells
of different capacity known as an accumulator; or it may be sent through a wire, just as gas or oil may
be transported either in a close tank or forced through a pipe. Having reached the premises of the
consumer, it may be used in any way he may desire, being, like illuminating gas, capable of being
transformed either into heat, light, or power, at the option of the purchaser. In Woods v. People,65 the
Supreme Court of Illinois declared that there is nothing in the nature of gas used for illuminating

purposes which renders it incapable of being feloniously taken and carried away. It is a valuable
article of merchandise, bought and sold like other personal property, susceptible of being severed
from a mass or larger quantity and of being transported from place to place.
Gas and electrical energy should not be equated with business or services provided by business
entrepreneurs to the public. Business does not have an exact definition. Business is referred as that
which occupies the time, attention and labor of men for the purpose of livelihood or profit. It embraces
everything that which a person can be employed.66 Business may also mean employment, occupation
or profession. Business is also defined as a commercial activity for gain benefit or advantage.67
Business, like services in business, although are properties, are not proper subjects of theft under the
Revised Penal Code because the same cannot be "taken" or "occupied." If it were otherwise, as
claimed by the respondents, there would be no juridical difference between the taking of the business
of a person or the services provided by him for gain, vis--vis, the taking of goods, wares or
merchandise, or equipment comprising his business.68 If it was its intention to include "business" as
personal property under Article 308 of the Revised Penal Code, the Philippine Legislature should
have spoken in language that is clear and definite: that business is personal property under Article
308 of the Revised Penal Code.69
We agree with the contention of the petitioner that, as gleaned from the material averments of the
Amended Information, he is charged of "stealing the international long distance calls belonging to
PLDT" and the use thereof, through the ISR. Contrary to the claims of the OSG and respondent
PLDT, the petitioner is not charged of stealing P20,370,651.95 from said respondent. Said amount of
P20,370,651.95 alleged in the Amended Information is the aggregate amount of access, transmission
or termination charges which the PLDT expected from the international long distance calls of the
callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property
without the consent of the owner thereof, the Philippine legislature could not have contemplated the
human voice which is converted into electronic impulses or electrical current which are transmitted to
the party called through the PSTN of respondent PLDT and the ISR of Baynet Card Ltd. within its
coverage. When the Revised Penal Code was approved, on December 8, 1930, international
telephone calls and the transmission and routing of electronic voice signals or impulses emanating
from said calls, through the PSTN, IPL and ISR, were still non-existent. Case law is that, where a
legislative history fails to evidence congressional awareness of the scope of the statute claimed by
the respondents, a narrow interpretation of the law is more consistent with the usual approach to the
construction of the statute. Penal responsibility cannot be extended beyond the fair scope of the
statutory mandate.70
Respondent PLDT does not acquire possession, much less, ownership of the voices of the telephone
callers or of the electronic voice signals or current emanating from said calls. The human voice and
the electronic voice signals or current caused thereby are intangible and not susceptible of
possession, occupation or appropriation by the respondent PLDT or even the petitioner, for that
matter. PLDT merely transmits the electronic voice signals through its facilities and equipment.
Baynet Card Ltd., through its operator, merely intercepts, reroutes the calls and passes them to its toll
center. Indeed, the parties called receive the telephone calls from Japan.
In this modern age of technology, telecommunications systems have become so tightly merged with
computer systems that it is difficult to know where one starts and the other finishes. The telephone
set is highly computerized and allows computers to communicate across long distances.71 The
instrumentality at issue in this case is not merely a telephone but a telephone inexplicably linked to a
computerized communications system with the use of Baynet Cards sold by the Baynet Card Ltd. The
corporation uses computers, modems and software, among others, for its ISR.72
The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang term for the
action of making a telephone system to do something that it normally should not allow by "making the
phone company bend over and grab its ankles"). A "phreaker" is one who engages in the act of
manipulating phones and illegally markets telephone services.73 Unless the phone company replaces
all its hardware, phreaking would be impossible to stop. The phone companies in North America were
impelled to replace all their hardware and adopted full digital switching system known as the Common

Channel Inter Office Signaling. Phreaking occurred only during the 1960s and 1970s, decades after
the Revised Penal Code took effect.
The petitioner is not charged, under the Amended Information, for theft of telecommunication or
telephone services offered by PLDT. Even if he is, the term "personal property" under Article 308 of
the Revised Penal Code cannot be interpreted beyond its seams so as to include "telecommunication
or telephone services" or computer services for that matter. The word "service" has a variety of
meanings dependent upon the context, or the sense in which it is used; and, in some instances, it
may include a sale. For instance, the sale of food by restaurants is usually referred to as "service,"
although an actual sale is involved.74 It may also mean the duty or labor to be rendered by one
person to another; performance of labor for the benefit of another.75 In the case of PLDT, it is to
render local and international telecommunications services and such other services as authorized by
the CPCA issued by the NTC. Even at common law, neither time nor services may be taken and
occupied or appropriated.76 A service is generally not considered property and a theft of service would
not, therefore, constitute theft since there can be no caption or asportation.77 Neither is the
unauthorized use of the equipment and facilities of PLDT by the petitioner theft under the aforequoted
provision of the Revised Penal Code.78
If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of theft, it
should have incorporated the same in Article 308 of the Revised Penal Code. The Legislature did not.
In fact, the Revised Penal Code does not even contain a definition of services.
If taking of telecommunication services or the business of a person, is to be proscribed, it must be by
special statute79 or an amendment of the Revised Penal Code. Several states in the United States,
such as New York, New Jersey, California and Virginia, realized that their criminal statutes did not
contain any provisions penalizing the theft of services and passed laws defining and penalizing theft
of telephone and computer services. The Pennsylvania Criminal Statute now penalizes theft of
services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for himself or for another which he
knows are available only for compensation, by deception or threat, by altering or tampering with the
public utility meter or measuring device by which such services are delivered or by causing or
permitting such altering or tampering, by making or maintaining any unauthorized connection,
whether physically, electrically or inductively, to a distribution or transmission line, by attaching or
maintaining the attachment of any unauthorized device to any cable, wire or other component of an
electric, telephone or cable television system or to a television receiving set connected to a cable
television system, by making or maintaining any unauthorized modification or alteration to any device
installed by a cable television system, or by false token or other trick or artifice to avoid payment for
the service.
In the State of Illinois in the United States of America, theft of labor or services or use of property is
penalized:
(a) A person commits theft when he obtains the temporary use of property, labor or services of
another which are available only for hire, by means of threat or deception or knowing that such use is
without the consent of the person providing the property, labor or services.
In 1980, the drafters of the Model Penal Code in the United States of America arrived at the
conclusion that labor and services, including professional services, have not been included within the
traditional scope of the term "property" in ordinary theft statutes. Hence, they decided to incorporate
in the Code Section 223.7, which defines and penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he knows are available only for
compensation, by deception or threat, or by false token or other means to avoid payment for the
service. "Services" include labor, professional service, transportation, telephone or other public
service, accommodation in hotels, restaurants or elsewhere, admission to exhibitions, use of vehicles
or other movable property. Where compensation for service is ordinarily paid immediately upon the
rendering of such service, as in the case of hotels and restaurants, refusal to pay or absconding
without payment or offer to pay gives rise to a presumption that the service was obtained by
deception as to intention to pay; (2) A person commits theft if, having control over the disposition of

services of others, to which he is not entitled, he knowingly diverts such services to his own benefit or
to the benefit of another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund v.
Commonwealth,80 declaring that neither time nor services may be taken and carried away and are not
proper subjects of larceny, the General Assembly of Virginia enacted Code No. 18-2-98 which reads:
Computer time or services or data processing services or information or data stored in connection
therewith is hereby defined to be property which may be the subject of larceny under 18.2-95 or
18.2-96, or embezzlement under 18.2-111, or false pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975 penalizes
theft of services:
"A person commits the crime of theft of services if: (a) He intentionally obtains services known by him
to be available only for compensation by deception, threat, false token or other means to avoid
payment for the services "
In the Philippines, Congress has not amended the Revised Penal Code to include theft of services or
theft of business as felonies. Instead, it approved a law, Republic Act No. 8484, otherwise known as
the Access Devices Regulation Act of 1998, on February 11, 1998. Under the law, an access device
means any card, plate, code, account number, electronic serial number, personal identification
number and other telecommunication services, equipment or instrumentalities-identifier or other
means of account access that can be used to obtain money, goods, services or any other thing of
value or to initiate a transfer of funds other than a transfer originated solely by paper instrument.
Among the prohibited acts enumerated in Section 9 of the law are the acts of obtaining money or
anything of value through the use of an access device, with intent to defraud or intent to gain and
fleeing thereafter; and of effecting transactions with one or more access devices issued to another
person or persons to receive payment or any other thing of value. Under Section 11 of the law,
conspiracy to commit access devices fraud is a crime. However, the petitioner is not charged of
violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to any liability for violation of any
provisions of the Revised Penal Code inclusive of theft under Rule 308 of the Revised Penal Code
and estafa under Article 315 of the Revised Penal Code. Thus, if an individual steals a credit card and
uses the same to obtain services, he is liable of the following: theft of the credit card under Article 308
of the Revised Penal Code; violation of Republic Act No. 8484; and estafa under Article 315(2)(a) of
the Revised Penal Code with the service provider as the private complainant. The petitioner is not
charged of estafa before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a computer system/
server or information and communication system; or any access in order to corrupt, alter, steal, or
destroy using a computer or other similar information and communication devices, without the
knowledge and consent of the owner of the computer or information and communications system,
including the introduction of computer viruses and the like, resulting on the corruption, destruction,
alteration, theft or loss of electronic data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00) and a maximum commensurate to the
damage incurred and a mandatory imprisonment of six (6) months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the Regional
Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The Regional
Trial Court is directed to issue an order granting the motion of the petitioner to quash the Amended
Information.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendantsappellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First
Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its
decision in question which will be discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first assignment of alleged error,
is whether or not the lower court erred in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the mortgage deed executed in favor of the
defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar
central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan
secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements,
sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is
necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may
in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc.,
decided to increase the capacity of its sugar central by buying additional machinery and equipment,
so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional
machinery and equipment was approximately P100,000. In order to carry out this plan, B.A. Green,
president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary
amount for the purchase of said machinery and equipment, promising to reimburse him as soon as he
could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos.
Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H.
Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president
of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been
P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid
salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e
Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment
acquired by said B.A. Green and installed in the sugar central after the execution of the original
mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said
loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not
collected when the obligation falls due, and the amount of any indemnities paid or due the owner by
the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain,
with the declarations, amplifications, and limitations established by law, whether the estate continues
in the possession of the person who mortgaged it or whether it passes into the hands of a third
person.

In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES. It is
a rule, established by the Civil Code and also by the Mortgage Law, with which the decisions of the
courts of the United States are in accord, that in a mortgage of real estate, the improvements on the
same are included; therefore, all objects permanently attached to a mortgaged building or land,
although they may have been placed there after the mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court
in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199
U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be
understood that the machinery and other objects placed upon and used in connection with a
mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that the
improvements, buildings, and machinery that existed thereon were also comprehended, it is
indispensable that the exclusion thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in the
sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as
B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in the
letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the defendants
Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said B.A. Green
binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully reimbursed
for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became
owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid
containers, instruments or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to
meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar
Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them
into real property by reason of their purpose, it cannot be said that their incorporation therewith was
not permanent in character because, as essential and principal elements of a sugar central, without
them the sugar central would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has been established must
necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said
machinery and equipment as security for the payment of the latter's credit and to refrain from
mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of the incorporation of said machinery and equipment
with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from
giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had
been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the
mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery
and equipment had been incorporated, was transferred thereby, subject to the right of the defendants
Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a
machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the
purpose of carrying out the industrial functions of the latter and increasing production, constitutes a

permanent improvement on said sugar central and subjects said machinery and equipment to the
mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the new
machinery and equipment has bound himself to the person supplying him the purchase money to
hold them as security for the payment of the latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest
the creditor with ownership of said machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the
appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41506 March 25, 1935
PHILIPPINE REFINING CO., INC., plaintiff-appellant,
vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco
Jarque, appellee.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:
First of all the reason why the case has been decided by the court in banc needs explanation. A
motion was presented by counsel for the appellant in which it was asked that the case be heard and
determined by the court sitting in banc because the admiralty jurisdiction of the court was involved,
and this motion was granted in regular course. On further investigation it appears that this was error.
The mere mortgage of a ship is a contract entered into by the parties to it without reference to
navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction. (Bogart vs.
Steamboat John Jay [1854], 17 How., 399.)
Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and
Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These
documents were recorded in the record of transfers and incumbrances of vessels for the port of Cebu
and each was therein denominated a "chattel mortgage". Neither of the first two mortgages had
appended an affidavit of good faith. The third mortgage contained such an affidavit, but this mortgage
was not registered in the customs house until May 17, 1932, or within the period of thirty days prior to
the commencement of insolvency proceedings against Francisco Jarque; also, while the last
mentioned mortgage was subscribed by Francisco Jarque and M. N. Brink, there was nothing to
disclose in what capacity the said M. N. Brink signed. A fourth mortgage was executed by Francisco
Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the thirty-day period before the
institution of insolvency proceedings. These proceedings were begun on June 2, 1932, when a
petition was filed with the Court of First Instance of Cebu in which it was prayed that Francisco Jarque
be declared an insolvent debtor, which soon thereafter was granted, with the result that an
assignment of all the properties of the insolvent was executed in favor of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on
the contrary sustained the special defenses of fatal defectiveness of the mortgages. In so doing we
believe that the trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)
Similarly under the common law, vessels are personal property although occasionally referred to as a
peculiar kind of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime

Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term "personal property" includes vessels,
they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law. (Act No. 1508,
section 2.) Indeed, it has heretofore been accepted without discussion that a mortgage on a vessel is
in nature a chattel mortgage. (McMicking vs. Banco Espaol-Filipino [1909], 13 Phil., 429; Arroyo vs.
Yu de Sane [1930], 54 Phil., 511.) The only difference between a chattel mortgage of a vessel and a
chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage of a vessel
to be noted n the registry of the register of deeds, but it is essential that a record of documents
affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry.
(Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a
mortgage on a vessel is generally like other chattel mortgages as to its requisites and validity. (58
C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute
a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the
mortgage and recorded therewith. The absence of the affidavit vitiates a mortgage as against
creditors and subsequent encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216;
Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros [1923], 46
Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the affidavit of good faith
required by the Chattel Mortgage Law is lacking, is unenforceable against third persons.
In effect appellant asks us to find that the documents appearing in the record do not constitute chattel
mortgages or at least to gloss over the failure to include the affidavit of good faith made a requisite for
a good chattel mortgage by the Chattel Mortgage Law. Counsel would further have us disregard
article 585 of the Code of Commerce, but no reason is shown for holding this article not in force.
Counsel would further have us revise doctrines heretofore announced in a series of cases, which it is
not desirable to do since those principles were confirmed after due liberation and constitute a part of
the commercial law of the Philippines. And finally counsel would have us make rulings on points
entirely foreign to the issues of the case. As neither the facts nor the law remains in doubt, the seven
assigned errors will be overruled.
Judgment affirmed, the costs of this instance to be paid by the appellant.
Avancea, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ.,
concur

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City, respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the
ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor,
so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor
trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex
"F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached
photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial equipments to produce
finished products for sale, nor to repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are immovable
taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and
holding that pursuant thereto the movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes on machineries is further restricted by section
31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
xxxxxxxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar
Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry, converted
them into real property by reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for which it has been
established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they are
essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals
and are not and should not be considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments. Airline companies use forklifts,
jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus
retain their movable nature. On the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments, its business may be
carried on, as petitioner has carried on, without such equipments, before the war. The transportation
business could be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxxxxxxxx

(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.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.
[endif]

THIRD DIVISION
[G.R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE, INC., respondent.

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

The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision[if !supportFootnotes][1][endif] of the Court of Appeals (CA)[if !supportFootnotes][2][endif] in
CA-GR SP No. 47332 and its February 26, 1999 Resolution[if !supportFootnotes][3][endif]
denying reconsideration. The decretal portion of the CA Decision reads as follows:

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution
dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary
injunction issued on June 15, 1998 is hereby LIFTED.[if !supportFootnotes][4][endif]
In its February 18, 1998 Order,[if !supportFootnotes][5][endif] the Regional Trial Court
(RTC) of Quezon City (Branch 218)[if !supportFootnotes][6][endif] issued a Writ of Seizure.[if !
supportFootnotes][7][endif] The March 18, 1998 Resolution[if !supportFootnotes][8][endif] 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.[if !supportFootnotes][9][endif]

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:[if !
supportFootnotes][10][endif]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with
the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of
replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized
one machinery with [the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the
power of the court to control the conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still
personal and therefore still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding. They
argued that to give effect to the agreement would be prejudicial to innocent third parties. They further

stated that PCI Leasing [was] estopped from treating these machineries as personal because the
contracts in which the alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from taking
the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned,
by petitioners. It also ruled that the words of the contract are clear and leave no
doubt upon the true intention of the contracting parties. Observing that Petitioner
Goquiolay was an experienced businessman who was not unfamiliar with the ways
of the trade, it ruled that he should have realized the import of the document he
signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case
below, since the merits of the whole matter are laid down before us via a petition whose sole purpose
is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being enforced by one, and
[its] validity is attacked by the other a matter x x x which respondent court is in the best position to
determine.
Hence, this Petition.[if !supportFootnotes][11][endif]

The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:

A. Whether or not the machineries purchased and imported by SERGS became real property by
virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.[if !supportFootnotes][12][endif]
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised by
respondent.

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

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

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

While Judge Laqui should not have been impleaded as a respondent,[if !

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

Main Issue: Nature of the Subject Machinery

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

Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[if !supportFootnotes][15][endif] Section 3 thereof reads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an
order and the corresponding writ of replevin describing the personal property alleged to be wrongfully
detained and requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x
(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;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them
have become immobilized by destination because they are essential and principal
elements in the industry.[if !supportFootnotes][16][endif] In that sense, petitioners are correct
in arguing that the said machines are real, not personal, property pursuant to Article
415 (5) of the Civil Code.[if !supportFootnotes][17][endif]

Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[if !supportFootnotes][18][endif] After agreeing to such
stipulation, they are consequently estopped from claiming otherwise. Under the
principle of estoppel, a party to a contract is ordinarily precluded from denying the
truth of any material fact found therein.

Hence, in Tumalad v. Vicencio,[if !supportFootnotes][19][endif] the Court upheld the

intention of the parties to treat a house as a personal property because it had been
made the subject of a chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or at least, intended to treat the same as such, so
that they should not now be allowed to make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills[if !supportFootnotes][20][endif] also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ of
replevin because it was treated as personal property in a contract. Pertinent
portions of the Courts ruling are reproduced hereunder:

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only
by destination or purpose, may not be likewise treated as such. This is really because one who has
so agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section 12.1 of
the Agreement reads as follows:[if !supportFootnotes][21][endif]

12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that
the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.[if !supportFootnotes][22][endif] 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.[if !supportFootnotes][23]
[endif] In any event, there is no showing that any specific third party would be
adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.[if !supportFootnotes][24][endif] 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.[if !supportFootnotes]
[25][endif] In their Reply to respondents Comment, they further allege that the
Agreement is invalid.[if !supportFootnotes][26][endif]

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

Indeed, in La Tondea Distillers v. CA,[if !supportFootnotes][27][endif] the Court explained

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

In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ
of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds 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.[if !
supportFootnotes][28][endif]

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.[if !supportFootnotes][29][endif]

Reliance on the Lease Agreement

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

Makati Leasing and Finance Corporation[if !supportFootnotes][30][endif] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as personal property,
was also assailed because respondent had allegedly been required to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. The Court rejected the argument and
relied on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void
ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same.
xxx
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets.[if !supportFootnotes][31]
[endif] They also allege that the seizure would nullify all efforts to rehabilitate the
corporation.

Petitioners arguments do not preclude the implementation of the Writ. As

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

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or
of the surety or sureties thereon, he cannot immediately require the return of the property, but if he
does not so object, he may, at any time before the delivery of the property to the applicant, require the

return thereof, by filing with the court where the action is pending a bond executed to the applicant, in
double the value of the property as stated in the applicants affidavit for the delivery thereof to the
applicant, if such delivery be adjudged, and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED.
Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
[