Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE
OF ZAMBALES, and MUNICIPALITY OF SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Although the dam is partly used as an anti-pollution device, this Board

cannot accede to the request for tax exemption in the absence of a law
authorizing the same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of the construction
of the tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market
Values for Zambales which was reviewed and allowed for use by the
Ministry (Department) of Finance in the 1981-1982 general revision. No
serious attempt was made by Petitioner-Appellant Benguet Corporation to
impugn its reasonableness, i.e., that the P50.00 per square meter applied
by Respondent-Appellee Provincial Assessor is indeed excessive and
unconscionable. Hence, we find no cause to disturb the market value
applied by Respondent Appellee Provincial Assessor of Zambales on the
properties of Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
This petition for certiorari now seeks to reverse the above ruling.

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

The principal contention of the petitioner is that the tailings dam is not subject to realty tax
because it is not an "improvement" upon the land within the meaning of the Real Property Tax
Code. More particularly, it is claimed
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate from
and independent of the mine; hence, by itself it cannot
be considered an improvement separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the
petitioner corporation in the area, the tailings dam will
benefit the local community by serving as an irrigation
facility;
(d) that the building of the dam has stripped the
property of any commercial value as the property is
submerged under water wastes from the mine;

(e) that the tailings dam is an environmental pollution

control device for which petitioner must be
commended rather than penalized with a realty tax
assessment;
(f) that the installation and utilization of the tailings
dam as a pollution control device is a requirement
imposed by law;
(2) as regards the valuation of the tailings dam and the submerged lands:
(a) that the subject properties have no market value as
they cannot be sold independently of the mine;
(b) that the valuation of the tailings dam should be
based on its incidental use by petitioner as a water
reservoir and not on the alleged cost of construction of
the dam and the annual build-up expense;
(c) that the "residual value formula" used by the
Provincial Assessor and adopted by respondent CBAA
is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for realty tax
purposes:
(a) that where a tax is not paid in an honest belief that
it is not due, no penalty shall be collected in addition
to the basic tax;
(b) that no other mining companies in the Philippines
operating a tailings dam have been made to declare the
dam for realty tax purposes.
The petitioner does not dispute that the tailings dam may be considered realty within the
meaning of Article 415. It insists, however, that the dam cannot be subjected to realty tax as a
separate and independent property because it does not constitute an "assessable improvement"
on the mine although a considerable sum may have been spent in constructing and maintaining
it.
To support its theory, the petitioner cites the following cases:

1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes
and gates constructed by the taxpayer in connection with a fishpond operation as integral parts
of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a
road constructed by the timber concessionaire in the area, where this Court did not impose a
realty tax on the road primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the road that
was constructed by appellee belongs to the government by right of
accession not only because it is inherently incorporated or attached to the
timber land . . . but also because upon the expiration of the concession said
road would ultimately pass to the national government. . . . In the second
place, while the road was constructed by appellee primarily for its use and
benefit, the privilege is not exclusive, for . . . appellee cannot prevent the
use of portions of the concession for homesteading purposes. It is also
duty bound to allow the free use of forest products within the concession
for the personal use of individuals residing in or within the vicinity of the
land. . . . In other words, the government has practically reserved the rights
to use the road to promote its varied activities. Since, as above shown, the
road in question cannot be considered as an improvement which belongs
to appellee, although in part is for its benefit, it is clear that the same
cannot be the subject of assessment within the meaning of Section 2 of
C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was an integral part of the
lumber concession but because the government had the right to use the road to promote its
varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was
declared that the reservoir dam went with and formed part of the reservoir and that the dam
would be "worthless and useless except in connection with the outlet canal, and the water
rights in the reservoir represent and include whatever utility or value there is in the dam and
headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case
involved drain tunnels constructed by plaintiff when it expanded its mining operations
downward, resulting in a constantly increasing flow of water in the said mine. It was held that:
Whatever value they have is connected with and in fact is an integral part
of the mine itself. Just as much so as any shaft which descends into the
earth or an underground incline, tunnel, or drift would be which was used
in connection with the mine.

On the other hand, the Solicitor General argues that the dam is an assessable improvement
because it enhances the value and utility of the mine. The primary function of the dam is to
receive, retain and hold the water coming from the operations of the mine, and it also enables
the petitioner to impound water, which is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to the gas station
building or shed owned by Caltex (as to which it is subject to realty tax)
and which fixtures are necessary to the operation of the gas station, for
without them the gas station would be useless and which have been
attached or affixed permanently to the gas station site or embedded
therein, are taxable improvements and machinery within the meaning of
the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc.
v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded in the land,
they may, nevertheless, be considered as improvements on the land,
enhancing its utility and rendering it useful to the oil industry. It is
undeniable that the two tanks have been installed with some degree of
permanence as receptacles for the considerable quantities of oil needed by
MERALCO for its operations. (Manila Electric Co. v. CBAA, 114 SCRA
273).
The pipeline system in question is indubitably a construction adhering to
the soil. It is attached to the land in such a way that it cannot be separated
therefrom without dismantling the steel pipes which were welded to form
the pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA
261).
The tax upon the dam was properly assessed to the plaintiff as a tax upon
real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are designed and
used by the owner as permanent improvement of the free hold, and that for
such reasons they were properly assessed by the respondent taxing district
as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A
2d. 271)
The Real Property Tax Code does not carry a definition of "real property" and simply says that
the realty tax is imposed on "real property, such as lands, buildings, machinery and other
improvements affixed or attached to real property." In the absence of such a definition, we
apply Article 415 of the Civil Code, the pertinent portions of which state:

Art. 415. The following are immovable property.

(1) Lands, buildings and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty
tax is due "on the real property, including land, buildings, machinery and other improvements"
not specifically exempted in Section 3 thereof. A reading of that section shows that the tailings
dam of the petitioner does not fall under any of the classes of exempt real properties therein
enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code
defines improvement as follows:
(k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adopt it for new or further purposes.
The term has also been interpreted as "artificial alterations of the physical condition of the
ground that are reasonably permanent in character." 2
The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein
could not be operated without the aid of the drain tunnels, which were indispensable to the
successful development and extraction of the minerals therein. This is not true in the present
case.
Even without the tailings dam, the petitioner's mining operation can still be carried out
because the primary function of the dam is merely to receive and retain the wastes and water
coming from the mine. There is no allegation that the water coming from the dam is the sole
source of water for the mining operation so as to make the dam an integral part of the mine. In
fact, as a result of the construction of the dam, the petitioner can now impound and recycle
water without having to spend for the building of a water reservoir. And as the petitioner itself
points out, even if the petitioner's mine is shut down or ceases operation, the dam may still be
used for irrigation of the surrounding areas, again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not applicable because it
involved water reservoir dams used for different purposes and for the benefit of the

surrounding areas. By contrast, the tailings dam in question is being used exclusively for the
benefit of the petitioner.

Benguet Corporation to impugn its reasonableness, i.e, that the P50.00 per
square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to disturb
the market value applied by Respondent-Appellee Provincial Assessor of
Zambales on the properties of Petitioner-Appellant Benguet Corporation
covered by Tax Declaration Nos. 002-0260 and 002-0266.

Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate
existence, just as vigorously contends that at the end of the mining operation the tailings dam
will serve the local community as an irrigation facility, thereby implying that it can exist
independently of the mine.
From the definitions and the cases cited above, it would appear that whether a structure
constitutes an improvement so as to partake of the status of realty would depend upon the
degree of permanence intended in its construction and use. The expression "permanent" as
applied to an improvement does not imply that the improvement must be used perpetually but
only until the purpose to which the principal realty is devoted has been accomplished. It is
sufficient that the improvement is intended to remain as long as the land to which it is annexed
is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an "improvement"
because it is permanent in character and it enhances both the value and utility of petitioner's
mine. Moreover, the immovable nature of the dam defines its character as real property under
Article 415 of the Civil Code and thus makes it taxable under Section 38 of the Real Property
Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per square meter made by
the Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary
and erroneous.
Respondent Provincial Assessor explained the use of the "residual value formula" as follows:
A 50% residual value is applied in the computation because, while it is
true that when slime fills the dike, it will then be covered by another dike
or stage, the stage covered is still there and still exists and since only one
face of the dike is filled, 50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the construction
of the tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market
Values for San Marcelino, Zambales, which is fifty (50.00) pesos per
square meter for third class industrial land (TSN, page 17, July 5, 1989)
and Schedule of Market Values for Zambales which was reviewed and
allowed for use by the Ministry (Department) of Finance in the 1981-1982
general revision. No serious attempt was made by Petitioner-Appellant

It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial
agencies like the CBAA, which, because of the nature of its functions and its frequent exercise
thereof, has developed expertise in the resolution of assessment problems. The only exception
to this rule is where it is clearly shown that the administrative body has committed grave abuse
of discretion calling for the intervention of this Court in the exercise of its own powers of
review. There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of
the issue of the propriety of the penalties imposed upon it, which was raised by the petitioner
for the first time only on appeal. The CBAA held that this "is an entirely new matter that
petitioner can take up with the Provincial Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the local sanggunian . . ., and in case of an
adverse decision by either the Local Board or the local sanggunian, (it can) elevate the same
to this Board for appropriate action."
There is no need for this time-wasting procedure. The Court may resolve the issue in this
petition instead of referring it back to the local authorities. We have studied the facts and
circumstances of this case as above discussed and find that the petitioner has acted in good
faith in questioning the assessment on the tailings dam and the land submerged thereunder. It
is clear that it has not done so for the purpose of evading or delaying the payment of the
questioned tax. Hence, we hold that the petitioner is not subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of
respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion
except as to the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs
against the petitioner. It is so ordered.

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

their original place whatever immobilized machineries or equipments he may have removed. 9
[9]

PANGANIBAN, J.:
The Facts
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 undisputed facts are summarized by the Court of Appeals as follows: 10[10]

The Case

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.

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision 1[1] of
the Court of Appeals (CA)2[2] in CA-GR SP No. 47332 and its February 26, 1999
Resolution3[3] denying reconsideration. The decretal portion of the CA Decision reads as
follows:
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The
writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.4[4]
In its February 18, 1998 Order,5[5] the Regional Trial Court (RTC) of Quezon City (Branch
218)6[6] issued a Writ of Seizure. 7[7] The March 18, 1998 Resolution 8[8] denied petitioners
Motion for Special Protective Order, praying that the deputy sheriff be enjoined from seizing
immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to return to

1
2
3

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

6
7

10

Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled
that the words of the contract are clear and leave no doubt upon the true intention of the
contracting parties. Observing that Petitioner Goquiolay was an experienced businessman who
was not unfamiliar with the ways of the trade, it ruled that he should have realized the import
of the document he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition
whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part
of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both parties. The
contract is being enforced by one, and [its] validity is attacked by the other a matter x x x
which respondent court is in the best position to determine.
Hence, this Petition.11[11]
The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
A. Whether or not the machineries purchased and imported by SERGS became real property
by virtue of immobilization.

There is no question that the present recourse is under Rule 45. This conclusion finds support
in the very title of the Petition, which is Petition for Review on Certiorari. 13[13]
While Judge Laqui should not have been impleaded as a respondent, 14[14] substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In
this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from
the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects of
the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.15[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall
issue an order and the corresponding writ of replevin describing the personal property alleged
to be wrongfully detained and requiring the sheriff forthwith to take such property into his
custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:

B. Whether or not the contract between the parties is a loan or a lease. 12[12]
ART. 415. The following are immovable property:
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.

x x x....................................x x x....................................x x x

The Courts Ruling

(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;

The Petition is not meritorious.

x x x....................................x x x....................................x x x
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.

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

13
11

14

12

15

movable or personal property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry. 16[16] In that sense,
petitioners are correct in arguing that the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.17[17]
Be that as it may, we disagree with the submission of the petitioners that the said machines are
not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal. 18[18] 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,19[19] the Court upheld the intention of the parties to treat a
house as a personal property because it had been made the subject of a chattel mortgage. The
Court ruled:
x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills20[20] also held that the machinery used in a factory and essential to the industry, as in
the present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad case, may
be considered as personal property for purposes of executing a chattel mortgage thereon as
long as the parties to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise treated as such.

This is really because one who has so agreed is estopped from denying the existence of the
chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines in question are to
be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:21[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in
any manner affixed or attached to or embedded in, or permanently resting upon, real property
or any building thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the Writ
of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the contracting
parties are concerned.22[22] Hence, while the parties are bound by the Agreement, third
persons acting in good faith are not affected by its stipulation characterizing the subject
machinery as personal. 23[23] In any event, there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a lease. 24[24]
Submitting documents supposedly showing that they own the subject machines, petitioners
also argue in their Petition that the Agreement suffers from intrinsic ambiguity which places in
serious doubt the intention of the parties and the validity of the lease agreement itself. 25[25] In
their Reply to respondents Comment, they further allege that the Agreement is invalid. 26[26]

21

16

22

17

23

18

24

19

25

20

26

These arguments are unconvincing. The validity and the nature of the contract are the lis mota
of the civil action pending before the RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the case. Hence, they should be threshed out in the
trial, not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,27[27] the Court explained that the policy under Rule 60
was that questions involving title to the subject property questions which petitioners are now
raising -- should be determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of
the plaintiffs bond. They were not allowed, however, to invoke the title to the subject property.
The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby
put at issue the matter of the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should be ventilated and determined
only at the trial on the merits.28[28]
Besides, these questions require a determination of facts and a presentation of evidence, both
of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for
review in this Court under Rule 45.29[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it
first only in the RTC proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation30[30] is also instructive on this point. In that case,
the Deed of Chattel Mortgage, which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly been required to sign a printed
form of chattel mortgage which was in a blank form at the time of signing. The Court rejected
the argument and relied on the Deed, ruling as follows:

x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized, then its workers
would be out of work and thrown into the streets. 31[31] They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed,
law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they
come true, should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counterbond. 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.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

27
G.R. No. 120098

28
29
30

October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.

31

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

Serial Numbers Size of Machines

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.

xxx

xxx

xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx

xxx

xxx

C. Two (2) Circular Knitting Machines made in West Germany.

QUISUMBING, J.:
These consolidated cases assail the decision 1 of the Court of Appeals in CA-G.R. CV No.
32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case
No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for
reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three
million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications
(PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real
and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the
chattels located therein as enumerated in a schedule attached to the mortgage contract. The
pertinent portions of the Real and Chattel Mortgage are quoted below:

xxx

xxx

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx

SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx

xxx

xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the
above-mentioned lot.

MORTGAGE
(REAL AND CHATTEL)
xxx

xxx

xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage,

to the MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings
and improvements now existing or which may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications continued)

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the

above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in
Hongkong:

IV. Any and all replacements, substitutions, additions, increases and accretions to
above properties.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan
was secured by a Chattel Mortgage over personal properties enumerated in a list attached
thereto. These listed properties were similar to those listed in Annex A of the first mortgage
deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,
Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135,
otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in
or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice
of Sheriff's Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner PBCom emerged as
the highest bidder and a Certificate of Sale was issued in its favor on the same date. On
December 23, 1982, another public auction was held and again, PBCom was the highest
bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it.
In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for
P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai
for P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the
extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law.
EVERTEX claimed that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should
reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and Chattel Mortgage of November
26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties
included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . .
dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular
Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1
Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since
these were not included in the schedules attached to the mortgage contracts. The trial court
decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and
against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it
affects the personal properties listed in par. 9 of the complaint, and their return to the
plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for
disposition by the Insolvency Court, to be done within ten (10) days from finality of
this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P5,200,000.00 as compensation for the use and possession of the properties
in question from November 1986 to February 1991 and P100,000.00 every month
thereafter, with interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision
dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and
reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to appellees, the judgment appealed from is
hereby AFFIRMED, in all other respects. No pronouncement as to costs. 5

Motion for reconsideration of the above decision having been denied in the resolution of April
28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE
1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL
PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL
MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE
SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND
EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND
LEGAL BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND
LACHES.6

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED

UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY
OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED
THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM
DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED
PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART
THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE
BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED
BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE
TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN
GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH
AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND
SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK
TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER
THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT
SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned properties in
the foreclosed properties is proper. The secondary issue is whether or not the sale of these
properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by
treating the 1981 acquired units of machinery as chattels instead of real properties within their
earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage. 8
Additionally, Tsai argues that respondent court erred in holding that the disputed 1981
machineries are not real properties. 9 Finally, she contends that the Court of Appeals erred in
holding against petitioner's arguments on prescription and laches 10 and in assessing petitioner
actual damages, attorney's fees and expenses of litigation, for want of valid factual and legal
basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could
not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals'
pronouncement that the pieces of machinery in question were personal properties have no
factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages
and attorney's fees against PBCom.

In G.R. No. 120098, PBCom raised the following issues:

I.

In opposition, private respondents argue that the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not part of the foreclosed real properties,
rendering the lease and the subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid
of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of facts. 13 This rule
is applied more stringently when the findings of fact of the RTC is affirmed by the Court of
Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted machineries" are not covered by, or included in,
either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel
Mortgage; (2) the said machineries were not included in the list of properties appended to the
Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed
properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion,
however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We
have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate courts reached the same finding
that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and
equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted
below:
As stressed upon by appellees, appellant bank treated the machineries as chattels;
never as real properties. Indeed, the 1975 mortgage contract, which was actually real
and chattel mortgage, militates against appellants' posture. It should be noted that
the printed form used by appellant bank was mainly for real estate mortgages. But
reflective of the true intention of appellant PBCOM and appellee EVERTEX was the
typing in capital letters, immediately following the printed caption of mortgage, of
the phrase "real and chattel." So also, the "machineries and equipment" in the
printed form of the bank had to be inserted in the blank space of the printed contract
and connected with the word "building" by typewritten slash marks. Now, then, if
the machineries in question were contemplated to be included in the real estate
mortgage, there would have been no necessity to ink a chattel mortgage specifically
mentioning as part III of Schedule A a listing of the machineries covered thereby. It
would have sufficed to list them as immovables in the Deed of Real Estate Mortgage
of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond
question. It refers solely to chattels. The inventory list of the mortgaged properties is
an itemization of sixty-three (63) individually described machineries while the
schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and
natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by
the evidence on record, we find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage
and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to
treat all properties included therein as immovable, and (2) attached to the said contract a
separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the
conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori,
the contested after-acquired properties, which are of the same description as the units
enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated
as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that
inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as
equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides
in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property
described therein and not like or substituted property thereafter acquired by the mortgagor
and placed in the same depository as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been involved
in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff
to include subject machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its
favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of
nemo dat quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a
nullity, she is nevertheless a purchaser in good faith and for value who now has a better right
than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is
not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a
purchaser in good faith and for value has the burden of proving such assertion. 18 Petitioner
Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full
and fair price for the same, at the time of purchase, or before he has notice of the claims or
interest of some other person in the property. 19 Records reveal, however, that when Tsai
purchased the controverted properties, she knew of respondent's claim thereon. As borne out
by the records, she received the letter of respondent's counsel, apprising her of respondent's
claim, dated February 27, 1987.20 She replied thereto on March 9, 1987. 21 Despite her
knowledge of respondent's claim, she proceeded to buy the contested units of machinery on
May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not to sale
of properties situated therein. Likewise, the mere fact that the lot where the factory and the
disputed properties stand is in PBCom's name does not automatically make PBCom the owner
of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its
claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find no
cogent reason to disturb the consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the reglementary period. Here, in our
view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed
EVERTEX's claim, respondent company immediately filed an action to recover possession
and ownership of the disputed properties. There is no evidence showing any failure or neglect
on its part, for an unreasonable and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier. The doctrine of stale demands would
apply only where by reason of the lapse of time, it would be inequitable to allow a party to
enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to
apply the doctrine of laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation, representing
rentals for the contested units of machinery, the exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the
unpaid rentals of the contested properties based on the testimony of John Chua, who testified
that the P100,000.00 was based on the accepted practice in banking and finance, business and
investments that the rental price must take into account the cost of money used to buy them.
The Court of Appeals did not give full credence to Chua's projection and reduced the award to
P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable
of proof but must actually be proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual amount thereof. 23 However, the
allegations of respondent company as to the amount of unrealized rentals due them as actual
damages remain mere assertions unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss. 24 However, we are not prepared to disregard
the following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record
warranting the said award of P5,200,000.00, representing monthly rental income of
P100,000.00 from November 1986 to February 1991, and the additional award of
P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies
of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate
the actual damages allegedly sustained by appellees, by way of unrealized rental
income of subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on
what is claimed to be a practice in business and industry. But such a testimony
cannot serve as the sole basis for assessing the actual damages complained of. What
is more, there is no showing that had appellant Tsai not taken possession of the
machineries and equipments in question, somebody was willing and ready to rent
the same for P100,000.00 a month.
xxx

xxx

xxx

Then, too, even assuming arguendo that the said machineries and equipments could
have generated a rental income of P30,000.00 a month, as projected by witness
Mamerto Villaluz, the same would have been a gross income. Therefrom should be
deducted or removed, expenses for maintenance and repairs . . . Therefore, in the
determination of the actual damages or unrealized rental income sued upon, there is
a good basis to calculate that at least four months in a year, the machineries in
dispute would have been idle due to absence of a lessee or while being repaired. In
the light of the foregoing rationalization and computation, We believe that a net
unrealized rental income of P20,000.00 a month, since November 1986, is more
realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a
requisite to award exemplary damages that the wrongful act must be accompanied by bad

faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted properties
despite her knowledge of EVERTEX's claim was oppressive and subjected the already
insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters
of Atty. Villaluz, responding thereto on March 24, 1987. 28 Thus, PBCom's act of taking all the
properties found in the factory of the financially handicapped respondent, including those
properties not covered by or included in the mortgages, is equally oppressive and tainted with
bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is
proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of
the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of
exemplary damages, their assessment being left to the discretion of the court in accordance
with the circumstances of each case. 29 While the imposition of exemplary damages is justified
in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R.
No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial
discretion granted to the courts in the assessment of damages must always be exercised with
balanced restraint and measured objectivity. Thus, here the award of exemplary damages by
way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when
exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees
and expenses of litigation is reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court
of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners
Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and
severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation
for the use and possession of the properties in question from November 1986 31 until subject
personal properties are restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs
against petitioners.
SO ORDERED.