G.R. No. L-11658 February 15, 1918 demanding the release of the property from the levy.
e release of the property from the levy. Thereafter, upon
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of
rice-cleaning machinery company from the defendant machinery
company, and executed a chattel mortgage thereon to secure
payment of the purchase price. It included in the mortgage deed the
building of strong materials in which the machinery was installed,
without any reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms
of the mortgage instrument, and was bought in by the machinery
company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in
satisfaction of the mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compañia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of
sale, although executed in a public document, was not registered. This
deed makes no reference to the building erected on the land and
would appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery company's
title to the building under the sheriff's certificate of sale. The
machinery company went into possession of the building at or about
the time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor
of the machinery company, the mortgagor, the "Compañia Agricola
Filipina" executed another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to secure payment
of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to
pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the
building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly
registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with
the sheriff a sworn statement setting up its claim of title and
demand of the sheriff, the plaintiff executed an indemnity bond in
favor of the sheriff in the sum of P12,000, in reliance upon which the
sheriff sold the property at public auction to the plaintiff, who was the
highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil
Code, gave judgment in favor of the machinery company, on the
ground that the company had its title to the building registered prior
to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the person who
may have the first taken possession thereof in good faith,
if it should be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in
the absence thereof, to the person who presents the oldest
title, provided there is good faith.
The registry her referred to is of course the registry of real property,
and it must be apparent that the annotation or inscription of a deed
of sale of real property in a chattel mortgage registry cannot be given
the legal effect of an inscription in the registry of real property. By its
express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose
and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal
property executed in the manner and form prescribed in the statute.
The building of strong materials in which the rice-cleaning machinery
was installed by the "Compañia Agricola Filipina" was real property,
and the mere fact that the parties seem to have dealt with it separate
and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry
in the chattel mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building
was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground
that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription
of the sheriff's certificate of sale in his favor was made in good faith,
and that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the
code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the
machinery company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the
Civil Code require "good faith," in express terms, in relation to
"possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the
registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the
preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and
collusion. The public records cannot be converted into instruments of
fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public
record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes
the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of May, 1908,
that:
This rule is always to be understood on the basis of the
good faith mentioned in the first paragraph; therefore, it
having been found that the second purchasers who record
their purchase had knowledge of the previous sale, the
question is to be decided in accordance with the following
paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides
that the title of conveyance of ownership of the real
property that is first recorded in the registry shall have
preference, this provision must always be understood on
the basis of the good faith mentioned in the first paragraph;
the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued
by the publishers of the La Revista de los Tribunales, 13th
edition.)
The agreed statement of facts clearly discloses that the plaintiff, when
he bought the building at the sheriff's sale and inscribed his title in
the land registry, was duly notified that the machinery company had
bought the building from plaintiff's judgment debtor; that it had gone
into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff,
after the machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the building
at the sheriff's sale with full knowledge that at the time of the levy
and sale the building had already been sold to the machinery company
by the judgment debtor, the plaintiff cannot be said to have been a
purchaser in good faith; and of course, the subsequent inscription of
the sheriff's certificate of title must be held to have been tainted with
the same defect.
Perhaps we should make it clear that in holding that the inscription of
the sheriff's certificate of sale to the plaintiff was not made in good
faith, we should not be understood as questioning, in any way, the
good faith and genuineness of the plaintiff's claim against the
"Compañia Agricola Filipina." The truth is that both the plaintiff and
the defendant company appear to have had just and righteous claims
against their common debtor. No criticism can properly be made of
the exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the estate
of the common debtor. We are strongly inclined to believe that in
procuring the levy of execution upon the factory building and in
buying it at the sheriff's sale, he considered that he was doing no
more than he had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that time that
he would be able to maintain his position in a contest with the
machinery company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and
if later developments had confirmed his unfounded hopes, no one
could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity bond
and bought in the property at the sheriff's sale, and it appearing
further that the machinery company's claim of ownership was well
founded, he cannot be said to have been an innocent purchaser for
value. He took the risk and must stand by the consequences; and it
is in this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of
title in his vendor cannot claim that he has acquired title thereto in
good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect
in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if afterwards develops that the title was
in fact defective, and it appears that he had such notice of the defects
as would have led to its discovery had he acted with that measure of
precaution which may reasonably be acquired of a prudent man in a
like situation. Good faith, or lack of it, is in its analysis a question of
intention; but in ascertaining the intention by which one is actuated
on a given occasion, we are necessarily controlled by the evidence as
to the conduct and outward acts by which alone the inward motive
may, with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought
to put a person on inquiry," and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith, or the
want of it, is not a visible, tangible fact that can be seen or touched,
but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504,
505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part
of the decision and judgment entered in the court below should be
affirmed with costs of this instance against the appellant. So ordered.
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of
rice-cleaning machinery company from the defendant machinery
company, and executed a chattel mortgage thereon to secure
payment of the purchase price. It included in the mortgage deed the
building of strong materials in which the machinery was installed,
without any reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms
of the mortgage instrument, and was bought in by the machinery
company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in
satisfaction of the mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compañia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of
sale, although executed in a public document, was not registered. This
deed makes no reference to the building erected on the land and
would appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery company's
title to the building under the sheriff's certificate of sale. The
machinery company went into possession of the building at or about
the time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor
of the machinery company, the mortgagor, the "Compañia Agricola
Filipina" executed another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to secure payment
of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to
pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the
building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly
registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with
the sheriff a sworn statement setting up its claim of title and
demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in
favor of the sheriff in the sum of P12,000, in reliance upon which the
sheriff sold the property at public auction to the plaintiff, who was the
highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil
Code, gave judgment in favor of the machinery company, on the
ground that the company had its title to the building registered prior
to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the person who
may have the first taken possession thereof in good faith,
if it should be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in
the absence thereof, to the person who presents the oldest
title, provided there is good faith.
The registry her referred to is of course the registry of real property,
and it must be apparent that the annotation or inscription of a deed
of sale of real property in a chattel mortgage registry cannot be given
the legal effect of an inscription in the registry of real property. By its
express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose
and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal
property executed in the manner and form prescribed in the statute.
The building of strong materials in which the rice-cleaning machinery
was installed by the "Compañia Agricola Filipina" was real property,
and the mere fact that the parties seem to have dealt with it separate
and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry
in the chattel mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building
was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground
that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription
of the sheriff's certificate of sale in his favor was made in good faith,
and that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the
code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the
machinery company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the
Civil Code require "good faith," in express terms, in relation to
"possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the
registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the
preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and
collusion. The public records cannot be converted into instruments of
fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public
record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes
the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of May, 1908,
that:
This rule is always to be understood on the basis of the
good faith mentioned in the first paragraph; therefore, it
having been found that the second purchasers who record
their purchase had knowledge of the previous sale, the
question is to be decided in accordance with the following
paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides
that the title of conveyance of ownership of the real
property that is first recorded in the registry shall have
preference, this provision must always be understood on
the basis of the good faith mentioned in the first paragraph;
the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued
by the publishers of the La Revista de los Tribunales, 13th
edition.)
The agreed statement of facts clearly discloses that the plaintiff, when
he bought the building at the sheriff's sale and inscribed his title in
the land registry, was duly notified that the machinery company had
bought the building from plaintiff's judgment debtor; that it had gone
into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff,
after the machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the building
at the sheriff's sale with full knowledge that at the time of the levy
and sale the building had already been sold to the machinery company
by the judgment debtor, the plaintiff cannot be said to have been a
purchaser in good faith; and of course, the subsequent inscription of
the sheriff's certificate of title must be held to have been tainted with
the same defect.
Perhaps we should make it clear that in holding that the inscription of
the sheriff's certificate of sale to the plaintiff was not made in good
faith, we should not be understood as questioning, in any way, the
good faith and genuineness of the plaintiff's claim against the
"Compañia Agricola Filipina." The truth is that both the plaintiff and
the defendant company appear to have had just and righteous claims
against their common debtor. No criticism can properly be made of
the exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the estate
of the common debtor. We are strongly inclined to believe that in
procuring the levy of execution upon the factory building and in
buying it at the sheriff's sale, he considered that he was doing no
more than he had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that time that
he would be able to maintain his position in a contest with the
machinery company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and
if later developments had confirmed his unfounded hopes, no one
could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity bond
and bought in the property at the sheriff's sale, and it appearing
further that the machinery company's claim of ownership was well
founded, he cannot be said to have been an innocent purchaser for
value. He took the risk and must stand by the consequences; and it
is in this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of
title in his vendor cannot claim that he has acquired title thereto in
good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect
in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if afterwards develops that the title was
in fact defective, and it appears that he had such notice of the defects
as would have led to its discovery had he acted with that measure of
precaution which may reasonably be acquired of a prudent man in a
like situation. Good faith, or lack of it, is in its analysis a question of
intention; but in ascertaining the intention by which one is actuated
on a given occasion, we are necessarily controlled by the evidence as
to the conduct and outward acts by which alone the inward motive
may, with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought
to put a person on inquiry," and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith, or the
want of it, is not a visible, tangible fact that can be seen or touched,
but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504,
505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part
of the decision and judgment entered in the court below should be
affirmed with costs of this instance against the appellant. So ordered.
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin
Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the
decision in the trial court and as set forth by counsel for the parties
on appeal, involves the determination of the nature of the properties
described in the complaint. The trial judge found that those properties
were personal in nature, and as a consequence absolved the
defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession
from the Government of the Philippine Islands. It has operated a
sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill
company erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following
provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the
party of the second part shall pass to the exclusive
ownership of the party of the first part without any
obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of
the second part should leave or abandon the land leased
before the time herein stipulated, the improvements and
buildings shall likewise pass to the ownership of the party
of the first part as though the time agreed upon had
expired: Provided, however, That the machineries and
accessories are not included in the improvements which will
pass to the party of the first part on the expiration or
abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was
the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a
judgment was rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution issued thereon, and
the properties now in question were levied upon as personalty by the
sheriff. No third party claim was filed for such properties at the time
of the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and
the defendant herein having consummated the sale, proceeded to
take possession of the machinery and other properties described in
the corresponding certificates of sale executed in its favor by the
sheriff of Davao.
As connecting up with the facts, it should further be explained that
the Davao Saw Mill Co., Inc., has on a number of occasions treated
the machinery as personal property by executing chattel mortgages
in favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point.
According to the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds
adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in
connection with any industry or trade being carried on
therein and which are expressly adapted to meet the
requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain no doubt that the trial judge and
appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant
should have registered its protest before or at the time of the sale of
this property. It must further be pointed out that while not conclusive,
the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this court
in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44
Phil., 630), whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the
resolution of this appeal on side issues. It is machinery which is
involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a
lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to
the United States Supreme Court, it was held that machinery which is
movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant, but not when so placed
by a tenant, a usufructuary, or any person having only a temporary charge against the lessor the cost such machinery, and it
right, unless such person acted as the agent of the owner. In the was expressly stipulated that the machinery so put in
opinion written by Chief Justice White, whose knowledge of the Civil should become a part of the plant belonging to the owner
Law is well known, it was in part said: without compensation to the lessee. Under such conditions
the tenant in putting in the machinery was acting but as the
To determine this question involves fixing the nature and agent of the owner in compliance with the obligations
character of the property from the point of view of the resting upon him, and the immobilization of the machinery
rights of Valdes and its nature and character from the point which resulted arose in legal effect from the act of the
of view of Nevers & Callaghan as a judgment creditor of the owner in giving by contract a permanent destination to the
Altagracia Company and the rights derived by them from machinery.
the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the xxx xxx xxx
Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in The machinery levied upon by Nevers & Callaghan, that is,
some cases to property of a movable nature, that is, that which was placed in the plant by the Altagracia
personal property, because of the destination to which it is Company, being, as regards Nevers & Callaghan, movable
applied. "Things," says section 334 of the Porto Rican Code, property, it follows that they had the right to levy on it
"may be immovable either by their own nature or by their under the execution upon the judgment in their favor, and
destination or the object to which they are applicable." the exercise of that right did not in a legal sense conflict
Numerous illustrations are given in the fifth subdivision of with the claim of Valdes, since as to him the property was
section 335, which is as follows: "Machinery, vessels, a part of the realty which, as the result of his obligations
instruments or implements intended by the owner of the under the lease, he could not, for the purpose of collecting
tenements for the industrial or works that they may carry his debt, proceed separately against. (Valdes vs. Central
on in any building or upon any land and which tend directly Altagracia [192], 225 U.S., 58.)
to meet the needs of the said industry or works." (See
also Code Nap., articles 516, 518 et seq. to and inclusive of Finding no reversible error in the record, the judgment appealed from
article 534, recapitulating the things which, though in will be affirmed, the costs of this instance to be paid by the appellant.
themselves movable, may be immobilized.) So far as the
subject-matter with which we are dealing — machinery
placed in the plant — it is plain, both under the provisions
of the Porto Rican Law and of the Code Napoleon, that
machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished,
therefore, by the placing of machinery in a plant by a tenant
or a usufructuary or any person having only a temporary
right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p.
12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles
522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a
temporary right to the possession or enjoyment of property
is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the
machinery put by the Altagracia Company in the plant
belonging to Sanchez did not lose its character of movable
property and become immovable by destination. But in the
concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of
improved machinery, deprived the tenant of any right to
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE
INSURANCE COMPANY, MABALACAT SUGAR COMPANY and
THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said
plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the
first assignment of alleged error, is whether or not the lower court
erred in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the
mortgage deed executed in favor of the defendants Cu Unjieng e
Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat
Sugar Co., Inc., owner of the sugar central situated in Mabalacat,
Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan
secured by a first mortgage constituted on two parcels and land "with
all its buildings, improvements, sugar-cane mill, steel railway,
telephone line, apparatus, utensils and whatever forms part or is
necessary complement of said sugar-cane mill, steel railway,
telephone line, now existing or that may in the future exist is said
lots."
On October 5, 1926, shortly after said mortgage had been constituted,
the Mabalacat Sugar Co., Inc., decided to increase the capacity of its
sugar central by buying additional machinery and equipment, so that
instead of milling 150 tons daily, it could produce 250. The estimated
cost of said additional machinery and equipment was approximately
P100,000. In order to carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance
the necessary amount for the purchase of said machinery and
equipment, promising to reimburse him as soon as he could obtain an
additional loan from the mortgagees, the herein defendants Cu
Unjieng e Hijos. Having agreed to said proposition made in a letter
dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th
of the same year, delivered the sum of P1,710 to B.A. Green,
president of the Mabalacat Sugar Co., Inc., the total amount supplied
by him to said B.A. Green having been P25,750. Furthermore, B.H.
Berkenkotter had a credit of P22,000 against said corporation for
unpaid salary. With the loan of P25,750 and said credit of P22,000,
the Mabalacat Sugar Co., Inc., purchased the additional machinery
and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co.,
Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000
offering as security the additional machinery and equipment acquired
by said B.A. Green and installed in the sugar central after the
execution of the original mortgage deed, on April 27, 1927, together
with whatever additional equipment acquired with said loan. B.A.
Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when
the obligation falls due, and the amount of any indemnities
paid or due the owner by the insurers of the mortgaged
property or by virtue of the exercise of the power of
eminent domain, with the declarations, amplifications, and
limitations established by law, whether the estate continues
in the possession of the person who mortgaged it or
whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compañia General de
Tabacos (12 Phil., 690), cited with approval in the case of Cea vs.
Villanueva (18 Phil., 538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES
IMPROVEMENTS AND FIXTURES. — It is a rule, established
by the Civil Code and also by the Mortgage Law, with which
the decisions of the courts of the United States are in
accord, that in a mortgage of real estate, the improvements
on the same are included; therefore, all objects
permanently attached to a mortgaged building or land,
although they may have been 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.
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.

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
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-
appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother
Juana Gonzales (married to Gregorio Pineda), borrowed from plaintiff
Conrado P. Navarro, the sum of P2,500.00, payable 6 months after
said date or on June 14, 1959. To secure the indebtedness, Rufino
executed a document captioned "DEED OF REAL ESTATE and
CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real
Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer
Certificate of Title No. 25776, and Rufino G. Pineda, by way of Chattel
Mortgage, mortgaged his two-story residential house, having a floor
area of 912 square meters, erected on a lot belonging to Atty. Vicente
Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck,
registered in his name, under Motor Vehicle Registration Certificate
No. A-171806. Both mortgages were contained in one instrument,
which was registered in both the Office of the Register of Deeds and
the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants,
after demands made on them, failed to pay. They, however, asked
and were granted extension up to June 30, 1960, within which to pay.
Came June 30, defendants again failed to pay and, for the second
time, asked for another extension, which was given, up to July 30,
1960. In the second extension, defendant Pineda in a document
entitled "Promise", categorically stated that in the remote event he
should fail to make good the obligation on such date (July 30, 1960),
the defendant would no longer ask for further extension and there
would be no need for any formal demand, and plaintiff could proceed
to take whatever action he might desire to enforce his rights, under
the said mortgage contract. In spite of said promise, defendants,
failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the
mortgage and for damages, which consisted of liquidated damages in
the sum of P500.00 and 12% per annum interest on the principal,
effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that
portion of paragraph 4 of the First Cause of Action which
states that the defendants unreasonably failed and refuse
to pay their obligation to the plaintiff the truth being the
defendants are hard up these days and pleaded to the
plaintiff to grant them more time within which to pay their
obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully
prayed that this Honorable Court render judgment granting
the defendants until January 31, 1961, within which to pay
their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary
Judgment, claiming that the Answer failed to tender any genuine and
material issue. The motion was set for hearing, but the record is not
clear what ruling the lower court made on the said motion. On
November 11, 1960, however, the parties submitted a Stipulation of
Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel
Mortgages; that the indebtedness has been due and unpaid since
June 14, 1960; that a liability of 12% per annum as interest was
agreed, upon failure to pay the principal when due and P500.00 as
liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province
of Tarlac; that the only issue in the case is whether or not the
residential house, subject of the mortgage therein, can be considered
a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant
Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses
Rufino Pineda and Ramon Reyes, to pay jointly and
severally and within ninety (90) days from the receipt of the
copy of this decision to the plaintiff Conrado P. Navarro the
principal sum of P2,550.00 with 12% compounded interest
per annum from June 14, 1960, until said principal sum and
interests are fully paid, plus P500.00 as liquidated damages
and the costs of this suit, with the warning that in default
of said payment of the properties mentioned in the deed of
real estate mortgage and chattel mortgage (Annex "A" to
the complaint) be sold to realize said mortgage debt,
interests, liquidated damages and costs, in accordance with
the pertinent provisions of Act 3135, as amended by Act
4118, and Art. 14 of the Chattel Mortgage Law, Act 1508;
and
(c) Ordering the defendants Rufino Pineda and Ramona
Reyes, to deliver immediately to the Provincial Sheriff of
Tarlac the personal properties mentioned in said Annex "A",
 immediately after the lapse of the ninety (90) days above-
mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the
defendants therein assigning only a single error, allegedly committed
by the lower court, to wit —
In holding that the deed of real estate and chattel
mortgages appended to the complaint is valid,
notwithstanding the fact that the house of the defendant
Rufino G. Pineda was made the subject of the chattel
mortgage, for the reason that it is erected on a land that
belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in
classifying a house as immovable property, makes no distinction
whether the owner of the land is or not the owner of the building; the
fact that the land belongs to another is immaterial, it is enough that
the house adheres to the land; that in case of immovables by
incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner
of the land, the only criterion being the union or incorporation with
the soil. In other words, it is claimed that "a building is an immovable
property, irrespective of whether or not said structure and the land
on which it is adhered to, belong to the same owner" (Lopez v. Orosa,
G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the case of Leung Yee
v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since
only movables can be the subject of a chattel mortgage (sec. 1, Act
No. 3952) then the mortgage in question which is the basis of the
present action, cannot give rise to an action for foreclosure, because
it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano
Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of
chattel mortgage valid solely on the ground that the house mortgaged
was erected on the land which belonged to a third person, but also
and principally on the doctrine of estoppel, in that "the parties have
so expressly agreed" in the mortgage to consider the house as chattel
"for its smallness and mixed materials of sawali and wood". In
construing arts. 334 and 335 of the Spanish Civil Code (corresponding
to arts. 415 and 416, N.C.C.), for purposes of the application of the
Chattel Mortgage Law, it was held that under certain conditions, "a
property may have a character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may by
agreement, treat as personal property that which by nature would be
real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed
materials may be the subject of a chattel mortgage, in which case, it
is considered as between the parties as personal property. ... The
matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it
is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada,
et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.) The
view that parties to a deed of chattel mortgagee may agree to
consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are
concerned. It is based partly, upon the principles of estoppel ..."
(Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a
mortgage house built on a rented land, was held to be a personal
property, not only because the deed of mortgage considered it as
such, but also because it did not form part of the land (Evangelista v.
Abad [CA];36 O.G. 2913), for it is now well settled that an object
placed on land by one who has only a temporary right to the same,
such as a lessee or usufructuary, does not become immobilized by
attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house
belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property is so stipulated
in the document of mortgage. (Evangelista v. Abad, supra.) It should
be noted, however, that the principle is predicated on statements by
the owner declaring his house to be a chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise (Ladera,
et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine,
therefore, gathered from these cases is that although in some
instances, a house of mixed materials has been considered as a
chattel between them, has been recognized, it has been a constant
criterion nevertheless that, with respect to third persons, who are not
parties to the contract, and specially in execution proceedings, the
house is considered as an immovable property (Art. 1431, New Civil
Code).
In the case at bar, the house in question was treated as personal or
movable property, by the parties to the contract themselves. In the
deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential
house and a truck. The mortgagor himself grouped the house with
the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden
walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case.
The Iya cases (L-10837-38, supra), refer to a building or a house of
strong materials, permanently adhered to the land, belonging to the
owner of the house himself. In the case of Lopez v. Orosa, (L-10817-
18), the subject building was a theatre, built of materials worth more
than P62,000, attached permanently to the soil. In these cases and in
the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the
parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed
from, should be, as it is hereby affirmed, with costs against appellants.
G.R. No. L-32030 July 2, 1930
SOFIA LAVARRO, ET AL., plaintiffs-appellants,
vs.
REGINA LABITORIA, ET AL., defendants-appellants.
M. H. de Joya and Enrique Tiangco for plaintiffs-appellants.
Mariano Escueta for defendants-appellants.
OSTRAND, J.:
Anastacio Labitoria, who died over thirty years ago, was the original
owner of a tract of land divided into three parcels and situated in the
barrio of Mangilag, municipality of Candelaria, Province of Tayabas.
He left four children, Francisco, Liberata, Tirso, and Eustacio Labitoria.
Francisco acquired the shares of Tirso and Eustacio together with the
greater part of that of Liberata, and thus became the owner of nearly
all of the land. After his death, his children, Macario and Regina
Labitoria, became the owners of his interest in the land.
Sofia Lavarro is the daughter of Liberata Labitoria, and in or about the
year 1897, her first husband, Crispulo Alcantara, borrowed P330 from
Francisco Labitoria on the condition that Alcantara should plant 3,300
coconut palms on the land to be divided in equal shares between the
parties, the loan to be paid back by turning over to the creditor 330
coconut palms out of the share of Alcantara and Sofia. Under this
agreement, about 1,700 palms were planted by Alcantara, but later
on, further plantings were made by his wife, Sofia Lavarro.
In July, 1916, the land was registered in the names of Macario
Labitoria, Regina Labitoria, Bernardo Labitoria, Vidal Labitoria, Ariston
Lavarro, Sofia Lavarro, and Isidro Lavaris. Nothing seems to have
been said about the improvements on the land and no special mention
of them appears in the certificate of title. Neither were the respective
shares of the persons to whom the land was adjudicated definitely
determined.
On October 31, 1916, Macario, Regina, and Bernardo Labitoria and
Ariston Lavarro brought an action against Sofia Lavarro and her then
husband, Emeterio Pureza, for the partition of the land with its
improvements. The action is civil case No. 351 of the Court of First
Instance of Tayabas. In her answer in that case, Sofia Lavarro set up
a cross-complaint alleging, among other things, that she was a
coowner of the land and was entitled to a large proportion of the
coconut palms thereon. The prayer of the cross-complaint reads as
follows:
Wherefore, by this cross-complaint Sofia Lavarro and
Emeterio Pureza, through their undersigned attorney, pray
the court to decree the partition of the three parcels of land
described above, with all the improvements thereon,
allotting to Sofia Lavarro and Emeterio Pureza their rightful
portion, and ordering Macario Labitoria to render the proper
accounts, and to deliver to his coheirs their proportionate
part of the fruits and products of said lands, with costs
against the cross-complaint defendants. (Emphasis
supplied.)
Upon trial partition was ordered, and Sofia Lavarro was awarded 520
coconut trees and 43,391 square meters of land. She thereupon
appealed to the Supreme Court, and a decision was rendered by that
court on March 24, 1927,1 in which it was held that Sofia Lavarro was
entitled to 1/28 of the land. In all the respects, the decision of the
Court of First Instances was affirmed. The partition seems to have
been carried out in conformity with the decision of the Supreme Court,
and Sofia was awarded 6 hectares, 88 ares, and 77 centiares of land,
together with 850 coconut palms instead of 520.
The present action was initiated by Sofia Lavarro and her daughters,
Apolonia and Isabel Alcantara, on August 15, 1927, against Regina
Labitoria and Marciano Labitoria, the latter as administrator of the
estate of the deceased Macario Labitoria. In their amended complaint,
the plaintiffs allege that on or about the year 1897, Sofia Lavarro and
her husband, Crispulo Alcantara, planted 2,850 coconut palms on the
land above-mentioned, of which 1,970 trees were actually alive and
bearing fruit; that after the death of Crispulo Alcantara in the year
1910, Sofia Lavarro, being then a widow, planted 2,200 coconut palms
on the same tract of land, 2,000 palms being still in existence and the
greater part of them bearing fruit; that from the year 1897, the
plaintiffs had been in possession of the above-mentioned plantings
and had collected the fruits, but that the defendants were now
endeavoring to take possession of said coconut palms; and that each
coconut palm was worth P12. The plaintiffs therefore prayed that
unless the defendants paid to the plaintiffs the sum of P47,640, the
value of the 3,970 palms planted, it be ordered that said plaintiffs be
allowed to continue in possession of said coconut palms in accordance
with the law.
In their answer to the complaint, the defendants set up as special
defenses res judicata and prescription.
Upon trial, the court below, basing its decision on the case of Bautista
vs. Jimenez (24 Phil., 111), and article 361 of the Civil Code, ordered
the defendants to pay the plaintiffs the sum of P4,820 for 1,205
coconut palms or to require the plaintiffs to purchase the land, the
plaintiffs to retain the coconut palms until the aforesaid sum was paid.
From this judgment both the plaintiffs and defendants appealed.
It is very obvious that the court below erred in rendering judgment in
favor of the plaintiffs. This is an action for compensation for
improvements alleged to have been made by the plaintiffs on the land
awarded to the defendants and is brought notwithstanding the fact
that the question of improvements was put in issue in case No. 351
and that the portion of land due Sofia Lavarro, and the improvements
as well, were determined and adjudicated by the court in that case.
Her rights in regard to the improvements are consequently res
judicata.

But it is intimated that, while in the earlier case the issues related to
the ownership of the improvements, the issue here is only a question
of money payment and that therefore the causes of action are
different. Assuming, without conceding, that such is the case, the
result would be the same. The issues in both cases arose from the
same source or transactions and should have been determined in the
same case (sec. 97, Code of Civil Procedure). A judgment upon the
merits bars a subsequent suit upon the same cause, though brought
in a different form of action. (White vs. Martin, 1 Port. [Ala.], 215.)
"The principle is firmly established that a party will not be permitted
to split up a single cause of action and make it the basis for several
suits. If several suits be brought for different parts of such a claim,
the pendency of the first may be pleaded in abatement of the others,
and a recovery of any part of the cause of action will be a bar to an
action brought upon the other part. Not only is it a bar to suit, but the
plaintiff in the former action cannot subsequently avail himself of the
residue by way of offset in an action against him by the opposite
party." (15 R. C. L., 965) In passing, it may be noted that a close
examination of the facts in the case of Bautista vs. Jimenez (24 Phil.,
111), will show that it differs materially from the present case; the
case of Berses vs. Villanueva (25 Phil., 473), is more in point.

As to the other plaintiffs, Apolonia and Isabel Alcantara, it is sufficient

to say that if they had any claim to the property or improvements,
such claims should have been presented in the registration
proceedings in 1916; trees and plants annexed to the land are parts
thereof and unless rights or interests in such trees or plants are
claimed in the registration proceedings by others, they become the
property of the persons to whom the land is adjudicated. By timely
proceedings in equity, matters of that character, if fraudulent, may
sometimes be corrected, but in the present case, the plaintiffs
Apolonia and Isabel Alcantara did not prosecute their alleged rights
until eleven years after the registration of the property, and it is
obvious that whatever rights they may have had are now lost by
prescription.

The judgment of the court below is therefore reversed, and the case
is dismissed with the costs in both instances against the plaintiffs,
jointly and severally. So ordered.
G.R. Nos. L-10817-18 February 28, 1958
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co.,
Inc. Jose B. Macatangay for respondent Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business
under the trade name of Lopez-Castelo Sawmill. Sometime in May,
1946, Vicente Orosa, Jr., also a resident of the same province,
dropped at Lopez' house and invited him to make an investment in
the theatre business. It was intimated that Orosa, his family and close
friends were organizing a corporation to be known as Plaza Theatre,
Inc., that would engage in such venture. Although Lopez expressed
his unwillingness to invest of the same, he agreed to supply the
lumber necessary for the construction of the proposed theatre, and at
Orosa's behest and assurance that the latter would be personally
liable for any account that the said construction might incur, Lopez
further agreed that payment therefor would be on demand and not
cash on delivery basis. Pursuant to said verbal agreement, Lopez
delivered the lumber which was used for the construction of the Plaza
Theatre on May 17, 1946, up to December 4 of the same year. But of
the total cost of the materials amounting to P62,255.85, Lopez was
paid only P20,848.50, thus leaving a balance of P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on
a piece of land with an area of 679.17 square meters formerly owned
by Vicente Orosa, Jr., and was acquired by the corporation on
September 25, 1946, for P6,000. As Lopez was pressing Orosa for
payment of the remaining unpaid obligation, the latter and Belarmino
Rustia, the president of the corporation, promised to obtain a bank
loan by mortgaging the properties of the Plaza Theatre., out of which
said amount of P41,771.35 would be satisfied, to which assurance
Lopez had to accede. Unknown to him, however, as early as
November, 1946, the corporation already got a loan for P30,000 from
the Philippine National Bank with the Luzon Surety Company as
surety, and the corporation in turn executed a mortgage on the land
and building in favor of said company as counter-security. As the land
at that time was not yet brought under the operation of the Torrens
System, the mortgage on the same was registered on November 16,
1946, under Act No. 3344. Subsequently, when the corporation
applied for the registration of the land under Act 496, such mortgage
was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any
encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due
him caused Vicente Orosa, Jr. to execute on March 17, 1947, an
alleged "deed of assignment" of his 420 shares of stock of the Plaza
Theater, Inc., at P100 per share or with a total value of P42,000 in
favor of the creditor, and as the obligation still remained unsettled,
Lopez filed on November 12, 1947, a complaint with the Court of First
Instance of Batangas (Civil Case No. 4501 which later became R-57)
against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that
defendants be sentenced to pay him jointly and severally the sum of
P41,771.35, with legal interest from the firing of the action; that in
case defendants fail to pay the same, that the building and the land
covered by OCT No. O-391 owned by the corporation be sold at public
auction and the proceeds thereof be applied to said indebtedness; or
that the 420 shares of the capital stock of the Plaza Theatre, Inc.,
assigned by Vicente Orosa, Jr., to said plaintiff be sold at public
auction for the same purpose; and for such other remedies as may be
warranted by the circumstances. Plaintiff also caused the annotation
of a notice of lis pendens on said properties with the Register of
Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate
answers, the first denying that the materials were delivered to him as
a promoter and later treasurer of the corporation, because he had
purchased and received the same on his personal account; that the
land on which the movie house was constructed was not charged with
a lien to secure the payment of the aforementioned unpaid obligation;
and that the 420 shares of stock of the Plaza Theatre, Inc., was not
assigned to plaintiff as collaterals but as direct security for the
payment of his indebtedness. As special defense, this defendant
contended that as the 420 shares of stock assigned and conveyed by
the assignor and accepted by Lopez as direct security for the payment
of the amount of P41,771.35 were personal properties, plaintiff was
barred from recovering any deficiency if the proceeds of the sale
thereof at public auction would not be sufficient to cover and satisfy
the obligation. It was thus prayed that he be declared exempted from
the payment of any deficiency in case the proceeds from the sale of
said personal properties would not be enough to cover the amount
sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up
the same line of defense by alleging that the building materials
delivered to Orosa were on the latter's personal account; and that
there was no understanding that said materials would be paid jointly
and severally by Orosa and the corporation, nor was a lien charged
on the properties of the latter to secure payment of the same
obligation. As special defense, defendant corporation averred that
while it was true that the materials purchased by Orosa were sold by
the latter to the corporation, such transactions were in good faith and
for valuable consideration thus when plaintiff failed to claim said
materials within 30 days from the time of removal thereof from Orosa,
lumber became a different and distinct specie and plaintiff lost
whatever rights he might have in the same and consequently had no
recourse against the Plaza Theatre, Inc., that the claim could not have
been refectionary credit, for such kind of obligation referred to an
indebtedness incurred in the repair or reconstruction of something
already existing and this concept did not include an entirely new work;
and that the Plaza Theatre, Inc., having been incorporated on October
14, 1946, it could not have contracted any obligation prior to said
date. It was, therefore, prayed that the complaint be dismissed; that
said defendant be awarded the sum P 5,000 for damages, and such
other relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land
was already registered under the Torrens System and that there was
a notice of lis pendens thereon, filed on August 17, 1948, or within
the 1-year period after the issuance of the certificate of title, a petition
for review of the decree of the land registration court dated October
18, 1947, which was made the basis of OCT No. O-319, in order to
annotate the rights and interests of the surety company over said
properties (Land Registration Case No. 17 GLRO Rec. No. 296).
Opposition thereto was offered by Enrique Lopez, asserting that the
amount demanded by him constituted a preferred lien over the
properties of the obligors; that the surety company was guilty of
negligence when it failed to present an opposition to the application
for registration of the property; and that if any violation of the rights
and interest of said surety would ever be made, same must be subject
to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30,
1952, the lower Court, after making an exhaustive and detailed
analysis of the respective stands of the parties and the evidence
adduced at the trial, held that defendants Vicente Orosa, Jr., and the
Plaza Theatre, Inc., were jointly liable for the unpaid balance of the
cost of lumber used in the construction of the building and the plaintiff
thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and
did not extend to the land on which the construction was made, the
trial judge took into consideration the fact that when plaintiff started
the delivery of lumber in May, 1946, the land was not yet owned by
the corporation; that the mortgage in favor of Luzon Surety Company
was previously registered under Act No. 3344; that the codal provision
(Art. 1923 of the old Spanish Civil Code) specifying that refection
credits are preferred could refer only to buildings which are also
classified as real properties, upon which said refection was made. It
was, however, declared that plaintiff's lien on the building was
superior to the right of the surety company. And finding that the Plaza
Theatre, Inc., had no objection to the review of the decree issued in
its favor by the land registration court and the inclusion in the title of
the encumbrance in favor of the surety company, the court a
quo granted the petition filed by the latter company. Defendants
Orosa and the Plaza Theatre, Inc., were thus required to
pay jointly the amount of P41,771.35 with legal interest and costs
within 90 days from notice of said decision; that in case of default,
the 420 shares of stock assigned by Orosa to plaintiff be sold at public
auction and the proceeds thereof be applied to the payment of the
amount due the plaintiff, plus interest and costs; and that the
encumbrance in favor of the surety company be endorsed at the back
of OCT No. O-391, with notation I that with respect to the building,
said mortgage was subject to the materialman's lien in favor of
Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it
declared that the obligation of therein defendants was joint instead of
solidary, and that the lien did not extend to the land, but same was
denied by order the court of December 23, 1952. The matter was thus
appealed to the Court of appeals, which affirmed the lower court's
ruling, and then to this Tribunal. In this instance, plaintiff-appellant
raises 2 issues: (1) whether a materialman's lien for the value of the
materials used in the construction of a building attaches to said
structure alone and does not extend to the land on which the building
is adhered to; and (2) whether the lower court and the Court of
Appeals erred in not providing that the material mans liens is superior
to the mortgage executed in favor surety company not only on the
building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any
question against the part of the decision sentencing defendants Orosa
and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We
will not take up or consider anything on that point. Appellant,
however, contends that the lien created in favor of the furnisher of
the materials used for the construction, repair or refection of a
building, is also extended to the land which the construction was
made, and in support thereof he relies on Article 1923 of the Spanish
Civil Code, pertinent law on the matter, which reads as follows:
ART. 1923. With respect to determinate real property and
real rights of the debtor, the following are preferred:
xxx xxx xxx
5. Credits for refection, not entered or recorded, with
respect to the estate upon which the refection was made,
and only with respect to other credits different from those
mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate,
or immovable property, and inasmuch as said provision does not
contain any specification delimiting the lien to the building, said article
must be construed as to embrace both the land and the building or
structure adhering thereto. We cannot subscribe to this view, for while
it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building,
separate and distinct from the land, in the enumeration of what may
constitute real properties1 could mean only one thing — that a
building is by itself an immovable property, a doctrine already
pronounced by this Court in the case of Leung Yee vs. Strong
Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of
any specific provision of law to the contrary, a building is an
immovable property, irrespective of whether or not said structure and
the land on which it is adhered to belong to the same owner.
A close examination of the provision of the Civil Code invoked by
appellant reveals that the law gives preference to unregistered
refectionary credits only with respect to the real estate upon which
the refection or work was made. This being so, the inevitable
conclusion must be that the lien so created attaches merely to the
immovable property for the construction or repair of which the
obligation was incurred. Evidently, therefore, the lien in favor of
appellant for the unpaid value of the lumber used in the construction
of the building attaches only to said structure and to no other property
of the obligors.

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

Wherefore, and on the strength of the foregoing considerations, the

decision appealed from is hereby affirmed, with costs against
appellant. It is so ordered.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT
OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals
(now Intermediate Appellate Court) promulgated on August 27, 1981
in CA-G.R. No. SP-12731, setting aside certain Orders later specified
herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court
of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as
wen as the resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from
herein petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned,
private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero
Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However,
the Deputy Sheriff assigned to implement the foreclosure failed to
gain entry into private respondent's premises and was not able to
effect the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with the Court of
First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040,
the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued
a writ of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued
on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent's filing of a further
motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to
the premises of private respondent and removed the main drive motor
of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders
of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery
in suit cannot be the subject of replevin, much less of a chattel
mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of
bolts and the only way to remove it from respondent's plant would be
to drill out or destroy the concrete floor, the reason why all that the
sheriff could do to enfore the writ was to take the main drive motor
of said machinery. The appellate court rejected petitioner's argument
that private respondent is estopped from claiming that the machine is
real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for
review by writ of certiorari. It is contended by private respondent,
however, that the instant petition was rendered moot and academic
by petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When
petitioner returned the subject motor drive, it made itself
unequivocably clear that said action was without prejudice to a motion
for reconsideration of the Court of Appeals decision, as shown by the
receipt duly signed by respondent's representative. 1 Considering that
petitioner has reserved its right to question the propriety of the Court
of Appeals' decision, the contention of private respondent that this
petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition
is whether the machinery in suit is real or personal property from the
point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was
sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended
by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
SCRA 143 where this Court, speaking through Justice J.B.L. Reyes,
ruled:
Although there is no specific statement referring
to the subject house as personal property, yet by
ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel,
or at least, intended to treat the same as such,
so that they should not now be allowed to make
 an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented
lot to which defendants-appellants merely had a
temporary right as lessee, and although this can
not in itself alone determine the status of the
property, it does so when combined with other
factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to
treat the house as personality. Finally, unlike in
the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons
assailed the validity of the chattel mortgage, it is
the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the
validity of the chattel mortgage in this case. The
doctrine of estoppel therefore applies to the
herein defendants-appellants, having treated the
subject house as personality.
Examining the records of the instant case, We find no logical
justification to exclude the rule out, as the appellate court did, the
present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved
in the above Tumalad case, may be considered as personal property
for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner
of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not
lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject
machinery as chattel by the private respondent is indicative of
intention and impresses upon the property the character determined
by the parties. As stated in Standard Oil Co. of New York v. Jaramillo,
44 Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be
prejudiced thereby.
Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in
suit be considered as personal property but was merely required and
dictated on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. This
contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery
as movable or immovable was never placed in issue before the lower
court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court.
Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article
1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On
the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract.
Equity dictates that one should not benefit at the expense of another.
Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in
ruling that the questioned machinery is real, not personal property,
becomes very apparent. Moreover, the case of Machinery and
Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by
said court is not applicable to the case at bar, the nature of the
machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a
Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly
perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the
lower court are hereby reinstated, with costs against the private
respondent.
SO ORDERED.
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY
TREASURER OF QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the
hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484
which authorized the Municipal Board of Manila to grant a franchise
to construct, maintain and operate an electric street railway and
electric light, heat and power system in the City of Manila and its
suburbs to the person or persons making the most favorable bid.
Charles M. Swift was awarded the said franchise on March 1903, the
terms and conditions of which were embodied in Ordinance No. 44
approved on March 24, 1903. Respondent Manila Electric Co. (Meralco
for short), became the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant
located at Botocan Falls, Laguna and is transmitted to the City of
Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires
which carry high voltage current, are fastened to insulators attached
on steel towers constructed by respondent at intervals, from its hydro-
electric plant in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel towers within
Quezon City, on land belonging to it. A photograph of one of these
steel towers is attached to the petition for review, marked Annex A.
Three steel towers were inspected by the lower court and parties and
the following were the descriptions given there of by said court:
The first steel tower is located in South Tatalon, España
Extension, Quezon City. The findings were as follows: the
ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one
(1) meter in diameter, decreased to about a quarter of a
meter as it we deeper until it reached the bottom of the
post; at the bottom of the post were two parallel steel bars
attached to the leg means of bolts; the tower proper was
attached to the leg three bolts; with two cross metals to
prevent mobility; there was no concrete foundation but
there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high,
it could not be determined with certainty to whether said
adobe stone was placed purposely or not, as the place
abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road,
K-F, Quezon City, on land owned by the petitioner
approximate more than one kilometer from the first tower.
As in the first tower, the ground around one of the four legs
was excavate from seven to eight (8) feet deep and one
and a half (1-½) meters wide. There being very little water
at the bottom, it was seen that there was no concrete
foundation, but there soft adobe beneath. The leg was
likewise provided with two parallel steel bars bolted to a
square metal frame also bolted to each corner. Like the first
one, the second tower is made up of metal rods joined
together by means of bolts, so that by unscrewing the bolts,
the tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road,
Quezon City. As in the first two towers given above, the
ground around the two legs of the third tower was
excavated to a depth about two or three inches beyond the
outside level of the steel bar foundation. It was found that
there was no concrete foundation. Like the two previous
ones, the bottom arrangement of the legs thereof were
found to be resting on soft adobe, which, probably due to
high humidity, looks like mud or clay. It was also found that
the square metal frame supporting the legs were not
attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City
declared the aforesaid steel towers for real property tax under Tax
declaration Nos. 31992 and 15549. After denying respondent's
petition to cancel these declarations, an appeal was taken by
respondent to the Board of Assessment Appeals of Quezon City, which
required respondent to pay the amount of P11,651.86 as real property
tax on the said steel towers for the years 1952 to 1956. Respondent
paid the amount under protest, and filed a petition for review in the
Court of Tax Appeals (CTA for short) which rendered a decision on
December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund
to the respondent the sum of P11,651.86. The motion for
reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the
steel towers come within the term "poles" which are declared exempt
from taxes under part II paragraph 9 of respondent's franchise; (2)
the steel towers are personal properties and are not subject to real
property tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are assigned as
errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
 PAR 9. The grantee shall be liable to pay the same taxes
upon its real estate, buildings, plant (not including poles,
wires, transformers, and insulators), machinery and
personal property as other persons are or may be hereafter
required by law to pay ... Said percentage shall be due and
payable at the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all taxes and
assessments of whatsoever nature and by whatsoever
authority upon the privileges, earnings, income, franchise,
and poles, wires, transformers, and insulators of the
grantee from which taxes and assessments the grantee is
hereby expressly exempted. (Par. 9, Part Two, Act No. 484
Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually
cylindrical piece of wood or timber, as typically the stem of a small
tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers
to "an upright standard to the top of which something is affixed or by
which something is supported; as a dovecote set on a pole; telegraph
poles; a tent pole; sometimes, specifically a vessel's master
(Webster's New International Dictionary 2nd Ed., p. 1907.) Along the
streets, in the City of Manila, may be seen cylindrical metal poles,
cubical concrete poles, and poles of the PLDT Co. which are made of
two steel bars joined together by an interlacing metal rod. They are
called "poles" notwithstanding the fact that they are no made of wood.
It must be noted from paragraph 9, above quoted, that the concept
of the "poles" for which exemption is granted, is not determined by
their place or location, nor by the character of the electric current it
carries, nor the material or form of which it is made, but the use to
which they are dedicated. In accordance with the definitions, pole is
not restricted to a long cylindrical piece of wood or metal, but includes
"upright standards to the top of which something is affixed or by
which something is supported. As heretofore described, respondent's
steel supports consists of a framework of four steel bars or strips
which are bound by steel cross-arms atop of which are cross-arms
supporting five high voltage transmission wires (See Annex A) and
their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are
embraced in the term "poles" is not a novelty. Several courts of last
resort in the United States have called these steel supports "steel
towers", and they denominated these supports or towers, as electric
poles. In their decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that jurisdiction that a
transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires,
in which the law provided that wires shall be constructed upon
suitable poles, this term was construed to mean either wood or metal
poles and in view of the land being subject to overflow, and the
necessary carrying of numerous wires and the distance between
poles, the statute was interpreted to include towers or poles.
(Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words
and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or
towers used by an association used to convey its electric power
furnished to subscribers and members, constructed for the purpose
of fastening high voltage and dangerous electric wires alongside
public highways. The steel supports or towers were made of iron or
other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the
said two metal pieces being connected with criss-cross iron running
from the bottom to the top, constructed like ladders and loaded with
high voltage electricity. In form and structure, they are like the steel
towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P.
2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric
company engaged in the generation of hydro-electric power
generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base
and extended to a height of about 35 feet to a point, and are
embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford,
and to the towers are attached insulators, arms, and other equipment
capable of carrying wires for the transmission of electric power
(Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl.
p. 1).
In a case, the defendant admitted that the structure on which a
certain person met his death was built for the purpose of supporting
a transmission wire used for carrying high-tension electric power, but
claimed that the steel towers on which it is carried were so large that
their wire took their structure out of the definition of a pole line. It
was held that in defining the word pole, one should not be governed
by the wire or material of the support used, but was considering the
danger from any elevated wire carrying electric current, and that
regardless of the size or material wire of its individual members, any
continuous series of structures intended and used solely or primarily
for the purpose of supporting wires carrying electric currents is a pole
line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484
and incorporated in the petitioner's franchise, should not be given a
restrictive and narrow interpretation, as to defeat the very object for
which the franchise was granted. The poles as contemplated thereon,
should be understood and taken as a part of the electric power system
of the respondent Meralco, for the conveyance of electric current from
the source thereof to its consumers. If the respondent would be
required to employ "wooden poles", or "rounded poles" as it used to
do fifty years back, then one should admit that the Philippines is one
century behind the age of space. It should also be conceded by now
that steel towers, like the ones in question, for obvious reasons, can
better effectuate the purpose for which the respondent's franchise
was granted.
Granting for the purpose of argument that the steel supports or
towers in question are not embraced within the term poles, the logical
question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not
provide for a definition of real property; but Article 415 of the Civil
Code does, by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all
kinds adhered to the soil;
xxx xxx xxx
not a party to the suit, notwithstanding its capacity to sue and be
sued, he should not be ordered to effect the refund. This question has
not been raised in the court below, and, therefore, it cannot be
properly raised for the first time on appeal. The herein petitioner is
indulging in legal technicalities and niceties which do not help him
any; for factually, it was he (City Treasurer) whom had insisted that
respondent herein pay the real estate taxes, which respondent paid
under protest. Having acted in his official capacity as City Treasurer
of Quezon City, he would surely know what to do, under the
circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with
costs against the petitioners.

(3) Everything attached to an immovable in a fixed manner,

in such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object;

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements

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

xxx xxx xxx

The steel towers or supports in question, do not come within the

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

It is finally contended that the CTA erred in ordering the City Treasurer
of Quezon City to refund the sum of P11,651.86, despite the fact that
Quezon City is not a party to the case. It is argued that as the City
Treasurer is not the real party in interest, but Quezon City, which was
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.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following
errors:
1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments
are valid; and that said tools, equipments or machineries
are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5
of Article 415 of the New Civil Code, and holding that
pursuant thereto the movable equipments are taxable
realties, by reason of their being intended or destined for
use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's
contention that the respondent City Assessor's power to
 assess and levy real estate taxes on machineries is further
restricted by section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the
said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are
placed on wooden or cement platforms. They can be moved around
and about in petitioner's repair shop. In the case of B. H. Berkenkotter
vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code,
gives the character of real property to "machinery, liquid
containers, instruments or implements intended by the
owner of any building or land for use in connection with any
industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such
trade or industry."
If the installation of the machinery and equipment in
question in the central of the Mabalacat Sugar Co., Inc., in
lieu of the other of less capacity existing therein, for its
sugar and industry, converted them into real property by
reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar
central, without them the sugar central would be unable to
function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has
been established must necessarily be permanent.
(Emphasis ours.)
So that movable equipments to be immobilized in contemplation of
the law must first be "essential and principal elements" of an industry
or works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable
which become immobilized by destination because they are essential
and principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not
essential and principal. Thus, cash registers, typewriters, etc., usually
found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by
destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On
the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found
within their industrial compounds are merely incidental and retain
their movable nature.
Similarly, the tools and equipments in question in this instant case
are, by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used
only for expediency to facilitate and/or improve its service. Even
without such tools and equipments, its business may be carried on,
as petitioner has carried on, without such equipments, before the war.
The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the
said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra,
the "machinery, liquid containers, and instruments or implements" are
found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the
sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only
to repair or service the transportation business, which is not carried
on in a building or permanently on a piece of land, as demanded by
the law. Said equipments may not, therefore, be deemed real
property.

Resuming what we have set forth above, we hold that the equipments
in question are not absolutely essential to the petitioner's
transportation business, and petitioner's business is not carried on in
a building, tenement or on a specified land, so said equipment may
not be considered real estate within the meaning of Article 415 (c) of
the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby

set aside and the equipment in question declared not subject to
assessment as real estate for the purposes of the real estate tax.
Without costs.

So ordered.
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF BATANGAS and PROVINCIAL
ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage
tanks installed in 1969 by Manila Electric Company on a lot in San
Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The
tanks are within the Caltex refinery compound. They have a total
capacity of 566,000 barrels. They are used for storing fuel oil for
Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates
welded and assembled on the spot. Their bottoms rest on a
foundation consisting of compacted earth as the outermost layer, a
sand pad as the intermediate layer and a two-inch thick bituminous
asphalt stratum as the top layer. The bottom of each tank is in contact
with the asphalt layer,
The steel sides of the tank are directly supported underneath by a
circular wall made of concrete, eighteen inches thick, to prevent the
tank from sliding. Hence, according to Meralco, the tank is not
attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of
the foundation by bolts, screws or similar devices. The tank merely
sits on its foundation. Each empty tank can be floated by flooding its
dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the
Central Board of Assessment Appeals, the area where the two tanks
are located is enclosed with earthen dikes with electric steel poles on
top thereof and is divided into two parts as the site of each tank. The
foundation of the tanks is elevated from the remaining area. On both
sides of the earthen dikes are two separate concrete steps leading to
the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt
lining about an inch thick. Pipelines were installed on the sides of each
tank and are connected to the pipelines of the Manila Enterprises
Industrial Corporation whose buildings and pumping station are near
Tank No. 2.
The Board concludes that while the tanks rest or sit on their
foundation, the foundation itself and the walls, dikes and steps, which
are integral parts of the tanks, are affixed to the land while the
pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required Meralco to pay
realty taxes on the two tanks. For the five-year period from 1970 to
1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo).
The Board required Meralco to pay the tax and penalties as a condition
for entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting
Secretary of Finance Pedro M. Almanzor as chairman and Secretary of
Justice Vicente Abad Santos and Secretary of Local Government and
Community Development Jose Roño as members) in its decision dated
November 5, 1976 ruled that the tanks together with the foundation,
walls, dikes, steps, pipelines and other appurtenances constitute
taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On
the fifteenth day, it filed a motion for reconsideration which the Board
denied in its resolution of November 25, 1977, a copy of which was
received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari
to annul the Board's decision and resolution. It contends that the
Board acted without jurisdiction and committed a grave error of law
in holding that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any
of the kinds of real property enumerated in article 415 of the Civil
Code and, therefore, they cannot be categorized as realty by nature,
by incorporation, by destination nor by analogy. Stress is laid on the
fact that the tanks are not attached to the land and that they were
placed on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral
cases on the classification of property where strong divergent opinions
are inevitable. The issue raised by Meralco has to be resolved in the
light of the provisions of the Assessment Law, Commonwealth Act No.
470, and the Real Property Tax Code, Presidential Decree No. 464
which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due
"on real property, including land, buildings, machinery, and
other improvements" not specifically exempted in section 3 thereof.
This provision is reproduced with some modification in the Real
Property Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. — They
shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land,
buildings, machinery and
other improvements affixed or attached to real
property not hereinafter specifically exempted.
The Code contains the following definition in its section 3:

k) Improvements — is a valuable addition made

to property or an amelioration in its condition,
amounting to more than mere repairs or
replacement of waste, costing labor or capital
and intended to enhance its value, beauty or
utility or to adapt it for new or further purposes.

We hold that while the two storage tanks are not embedded in the
land, they may, nevertheless, be considered as improvements on the
land, enhancing its utility and rendering it useful to the oil industry. It
is undeniable that the two tanks have been installed with some degree
of permanence as receptacles for the considerable quantities of oil
needed by Meralco for its operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of
New Jersey vs. Atlantic City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things
which should generally be regarded as personal property(84 C.J.S.
171, Note 8). It is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be
considered personal property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric

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

Nor is there any parallelism between this case and Mindanao Bus Co.
vs. City Assessor, 116 Phil. 501, where the tools and equipment in the
repair, carpentry and blacksmith shops of a transportation company
were held not subject to realty tax because they were personal
property.

WHEREFORE, the petition is dismissed. The Board's questioned

decision and resolution are affirmed. No costs.

SO ORDERED.
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY
ASSESSOR OF PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment installed
by Caltex (Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated
tank, elevated water tanks, water tanks, gasoline pumps, computing
pumps, water pumps, car washer, car hoists, truck hoists, air
compressors and tireflators. The city assessor described the said
equipment and machinery in this manner:
A gasoline service station is a piece of lot where
a building or shed is erected, a water tank if there
is any is placed in one corner of the lot, car hoists
are placed in an adjacent shed, an air compressor
is attached in the wall of the shed or at the
concrete wall fence.
The controversial underground tank, depository
of gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed.
This is done to prevent conflagration because
gasoline and other combustible oil are very
inflammable.
This underground tank is connected with a steel
pipe to the gasoline pump and the gasoline pump
is commonly placed or constructed under the
shed. The footing of the pump is a cement pad
and this cement pad is imbedded in the
pavement under the shed, and evidence that the
gasoline underground tank is attached and
connected to the shed or building through the
pipe to the pump and the pump is attached and
affixed to the cement pad and pavement covered
by the roof of the building or shed.
The building or shed, the elevated water tank,
the car hoist under a separate shed, the air
compressor, the underground gasoline tank,
neon lights signboard, concrete fence and
pavement and the lot where they are all placed
or erected, all of them used in the pursuance of
the gasoline service station business formed the
entire gasoline service-station.
As to whether the subject properties are attached
and affixed to the tenement, it is clear they are,
for the tenement we consider in this particular
case are (is) the pavement covering the entire lot
which was constructed by the owner of the
gasoline station and the improvement which
holds all the properties under question, they are
attached and affixed to the pavement and to the
improvement.
The pavement covering the entire lot of the
gasoline service station, as well as all the
improvements, machines, equipments and
apparatus are allowed by Caltex (Philippines) Inc.
...
The underground gasoline tank is attached to the
shed by the steel pipe to the pump, so with the
water tank it is connected also by a steel pipe to
the pavement, then to the electric motor which
electric motor is placed under the shed. So to say
that the gasoline pumps, water pumps and
underground tanks are outside of the service
station, and to consider only the building as the
service station is grossly erroneous. (pp. 58-60,
Rollo).
The said machines and equipment are loaned by Caltex to gas station
operators under an appropriate lease agreement or receipt. It is
stipulated in the lease contract that the operators, upon demand, shall
return to Caltex the machines and equipment in good condition as
when received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein.
Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. The realty tax on
said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city
board of tax appeals ruled that they are personalty. The assessor
appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata
as chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and
Secretary of Local Government and Community Development Jose
Roño, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) &
(m) and 38 of the Real Property Tax Code, Presidential Decree No.
464, which took effect on June 1, 1974, and that the definitions of
real property and personal property in articles 415 and 416 of the Civil
Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad
Santos took Macaraig's place) in its resolution of January 12, 1978,
denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed
for the setting aside of the Board's decision and for a declaration that
t he said machines and equipment are personal property not subject
to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has
exclusive appellate jurisdiction over this case is not correct. When
Republic act No. 1125 created the Tax Court in 1954, there was as
yet no Central Board of Assessment Appeals. Section 7(3) of that law
in providing that the Tax Court had jurisdiction to review by appeal
decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the Real
Property Tax Code has appellate jurisdiction over decisions of the said
local boards of assessment appeals and is, therefore, in the same
category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision
of the Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the receipt of its decision
by the appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this
Court of the decision of the Central Board of Assessment Appeals is
the special civil action of certiorari, the recourse resorted to herein by
Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax. This issue
has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due
"on real property, including land, buildings, machinery, and other
improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property
Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There
shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
valorem tax on real property, such as land,
buildings, machinery and other improvements
affixed or attached to real property not
hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements — is a valuable addition made
to property or an amelioration in its condition,
amounting to more than mere repairs or
replacement of waste, costing labor or capital
and intended to enhance its value, beauty or
utility or to adapt it for new or further purposes.
m) Machinery — shall embrace machines,
mechanical contrivances, instruments,
appliances and apparatus attached to the real
estate. It includes the physical facilities available
for production, as well as the installations and
appurtenant service facilities, together with all
other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes
(See sec. 3[f], Assessment Law).
We hold that 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 invokes the rule that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the
property or plant but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted
as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil
709).
That ruling is an interpretation of paragraph 5 of article 415 of the
Civil Code regarding machinery that becomes real property by
destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by
the lessee on leased land should be regarded as real property
for purposes of execution of a judgment against the lessee. The
sheriff treated the machinery as personal property. This Court
sustained the sheriff's action. (Compare with Machinery & Engineering
Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin
case machinery was treated as realty).
Here, the question is whether the gas station equipment and
machinery permanently affixed by Caltex to its gas station and
pavement (which are indubitably taxable realty) should be subject to
the realty tax. This question is different from the issue raised in
the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for

some purposes they might be considered personalty (84 C.J.S. 181-
2, Notes 40 and 41). "It is a familiar phenomenon to see things classed
as real property for purposes of taxation which on general principle
might be considered personal property" (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment

Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco's steel
towers were considered poles within the meaning of paragraph 9 of
its franchise which exempts its poles from taxation. The steel towers
were considered personalty because they were attached to square
metal frames by means of bolts and could be moved from place to
place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as
tools and equipment in the repair shop of a bus company which were
held to be personal property not subject to realty tax (Mindanao Bus
Co. vs. City Assessor, 116 Phil. 501).

The Central Board of Assessment Appeals did not commit a grave

abuse of discretion in upholding the city assessor's is imposition of the
realty tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central

Board of Assessment Appeals are affirmed. The petition for certiorari
is dismissed for lack of merit. No costs.

SO ORDERED.
G.R. No. 106041 January 29, 1993 We find the appraisal on the land submerged as
a result of the construction of the tailings dam,
BENGUET CORPORATION, petitioner, covered by Tax Declaration Nos.
vs. 002-0260 and 002-0266, to be in accordance
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF with the Schedule of Market Values for Zambales
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL which was reviewed and allowed for use by the
ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and Ministry (Department) of Finance in the 1981-
MUNICIPALITY OF SAN MARCELINO, respondents. 1982 general revision. No serious attempt was
made by Petitioner-Appellant Benguet
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Corporation to impugn its reasonableness, i.e.,
petitioner. 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
CRUZ, J.: by Respondent Appellee Provincial Assessor of
Zambales on the properties of Petitioner-
The realty tax assessment involved in this case amounts to Appellant Benguet Corporation covered by Tax
P11,319,304.00. It has been imposed on the petitioner's tailings dam Declaration Nos. 002-0260 and 002-0266.
and the land thereunder over its protest.

This petition for certiorari now seeks to reverse the above ruling.
The controversy arose in 1985 when the Provincial Assessor of
Zambales assessed the said properties as taxable improvements. The The principal contention of the petitioner is that the tailings dam is
assessment was appealed to the Board of Assessment Appeals of the not subject to realty tax because it is not an "improvement" upon the
Province of Zambales. On August 24, 1988, the appeal was dismissed land within the meaning of the Real Property Tax Code. More
mainly on the ground of the petitioner's "failure to pay the realty taxes particularly, it is claimed —
that fell due during the pendency of the appeal."
(1) as regards the tailings dam as an
The petitioner seasonably elevated the matter to the Central Board of "improvement":
Assessment Appeals,1 one of the herein respondents. In its decision
dated March 22, 1990, the Board reversed the dismissal of the appeal (a) that the tailings dam has
but, on the merits, agreed that "the tailings dam and the lands no value separate from and
submerged thereunder (were) subject to realty tax." independent of the mine;
hence, by itself it cannot be
For purposes of taxation the dam is considered considered an improvement
as real property as it comes within the object separately assessable;
mentioned in paragraphs (a) and (b) of Article
415 of the New Civil Code. It is a construction (b) that it is an integral part
adhered to the soil which cannot be separated or of the mine;
detached without breaking the material or
causing destruction on the land upon which it is (c) that at the end of the
attached. The immovable nature of the dam as mining operation of the
an improvement determines its character as real petitioner corporation in the
property, hence taxable under Section 38 of the area, the tailings dam will
Real Property Tax Code. (P.D. 464). benefit the local community
by serving as an irrigation
Although the dam is partly used as an anti- facility;
pollution device, this Board cannot accede to the
request for tax exemption in the absence of a law (d) that the building of the
authorizing the same. dam has stripped the
property of any commercial
xxx xxx xxx 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
commended rather
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
properties have no market
value as they cannot be sold
independently of the mine;
(b) that the valuation of the
tailings dam should
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
Provincial Assessor
adopted by respondent
CBAA is arbitrary
erroneous; and
(3) as regards the petitioner's liability for
penalties
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.
be The petitioner does not dispute that the tailings dam may be
than 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
subject 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
be 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
the use of portions of the concession for
and homesteading purposes. It is also duty bound to
allow the free use of forest products within the
and 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
for 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.
Curiously, the petitioner, while vigorously arguing that the tailings
dam has no separate existence, just as vigorously contends that at
the end of the mining operation the tailings dam will serve the local
community as an irrigation facility, thereby implying that it can exist
independently of the mine.
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of
the status of realty would depend upon the degree of permanence
intended in its construction and use. The expression "permanent" as
applied to an improvement does not imply that the improvement must
be used perpetually but only until the purpose to which the principal
realty is devoted has been accomplished. It is sufficient that the
improvement is intended to remain as long as the land to which it is
annexed is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition
of an "improvement" because it is permanent in character and it
enhances both the value and utility of petitioner's mine. Moreover, the
immovable nature of the dam defines its character as real property
under Article 415 of the Civil Code and thus makes it taxable under
Section 38 of the Real Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00
per square meter made by the Provincial Assessor is excessive and
that his use of the "residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual
value formula" as follows:
A 50% residual value is applied in the
computation because, while it is true that when
slime fills the dike, it will then be covered by
another dike or stage, the stage covered is still
there and still exists and since only one face of
the dike is filled, 50% or the other face is
unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as
a result of the construction of the tailings dam,
covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance
with the Schedule of Market Values for San
Marcelino, Zambales, which is fifty (50.00) pesos
per square meter for third class industrial land
(TSN, page 17, July 5, 1989) and Schedule of
Market Values for Zambales which was reviewed
and allowed for use by the Ministry (Department)
of Finance in the 1981-1982 general revision. No
serious attempt was made by Petitioner-
Appellant Benguet Corporation to impugn its
reasonableness, i.e, that the P50.00 per square
meter applied by Respondent-Appellee Provincial
Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market
value applied by Respondent-Appellee Provincial
Assessor of Zambales on the properties of
Petitioner-Appellant Benguet Corporation
covered by Tax Declaration Nos. 002-0260 and
002-0266.
It has been the long-standing policy of this Court to respect the
conclusions of quasi-judicial agencies like the CBAA, which, because
of the nature of its functions and its frequent exercise thereof, has
developed expertise in the resolution of assessment problems. The
only exception to this rule is where it is clearly shown that the
administrative body has committed grave abuse of discretion calling
for the intervention of this Court in the exercise of its own powers of
review. There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it
cannot take cognizance of the issue of the propriety of the penalties
imposed upon it, which was raised by the petitioner for the first time
only on appeal. The CBAA held that this "is an entirely new matter
that petitioner can take up with the Provincial Assessor (and) can be
the subject of another protest before the Local Board or a negotiation
with the local sanggunian . . ., and in case of an adverse decision by
either the Local Board or the local sanggunian, (it can) elevate the
same to this Board for appropriate action."

There is no need for this time-wasting procedure. The Court may

resolve the issue in this petition instead of referring it back to the local
authorities. We have studied the facts and circumstances of this case
as above discussed and find that the petitioner has acted in good faith
in questioning the assessment on the tailings dam and the land
submerged thereunder. It is clear that it has not done so for the
purpose of evading or delaying the payment of the questioned tax.
Hence, we hold that the petitioner is not subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty
tax purposes.

WHEREFORE, the petition is DISMISSED for failure to show that the

questioned decision of respondent Central Board of Assessment
Appeals is tainted with grave abuse of discretion except as to the
imposition of penalties upon the petitioner which is hereby SET ASIDE.
Costs against the petitioner. It is so ordered.
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the
Province of Tarlac on the 14th day of December 1924. The facts are
about as conflicting as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant
Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue
of a writ of execution issued by the Court of First Instance of
Pampanga, attached and sold to the defendant Emiliano J. Valdez the
sugar cane planted by the plaintiff and his tenants on seven parcels
of land described in the complaint in the third paragraph of the first
cause of action; that within one year from the date of the attachment
and sale the plaintiff offered to redeem said sugar cane and tendered
to the defendant Valdez the amount sufficient to cover the price paid
by the latter, the interest thereon and any assessments or taxes which
he may have paid thereon after the purchase, and the interest
corresponding thereto and that Valdez refused to accept the money
and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant
Emiliano J. Valdez was attempting to harvest the palay planted in four
of the seven parcels mentioned in the first cause of action; that he
had harvested and taken possession of the palay in one of said seven
parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the
plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against
the defendant Emiliano J. Valdez his attorneys and agents, restraining
them (1) from distributing him in the possession of the parcels of land
described in the complaint; (2) from taking possession of, or
harvesting the sugar cane in question; and (3) from taking possession,
or harvesting the palay in said parcels of land. Plaintiff also prayed
that a judgment be rendered in his favor and against the defendants
ordering them to consent to the redemption of the sugar cane in
question, and that the defendant Valdez be condemned to pay to the
plaintiff the sum of P1,056 the value of palay harvested by him in the
two parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon
approval of the bond for P6,000 filed by the plaintiff, issued the writ
of preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied
generally and specifically each and every allegation of the complaint
and step up the following defenses:
(a) That the sugar cane in question had the nature of
personal property and was not, therefore, subject to
redemption;
(b) That he was the owner of parcels 1, 2 and 7 described
in the first cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and
7; and
(d) That he never attempted to harvest the palay in parcels
4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that
by reason of the preliminary injunction he was unable to gather the
sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said
parcels of land, representing a loss to him of P8,375.20 and that, in
addition thereto, he suffered damages amounting to P3,458.56. He
prayed, for a judgment (1) absolving him from all liability under the
complaint; (2) declaring him to be the absolute owner of the sugar
cane in question and of the palay in parcels 1, 2 and 7; and (3)
ordering the plaintiff to pay to him the sum of P11,833.76,
representing the value of the sugar cane and palay in question,
including damages.
Upon the issues thus presented by the pleadings the cause was
brought on for trial. After hearing the evidence, and on April 28, 1926,
the Honorable Cayetano Lukban, judge, rendered a judgment against
the plaintiff and in favor of the defendants —
(1) Holding that the sugar cane in question was personal
property and, as such, was not subject to redemption;
(2) Absolving the defendants from all liability under the
complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la
Cruz, Juan Sangalang and Marcos Sibal to jointly and
severally pay to the defendant Emiliano J. Valdez the sum
of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by
plaintiff;
 (d) 600.00, the value of 150 cavans of palay 3
which the defendant was not able to raise by ............................................... 120.93
reason of the injunction, at P4 cavan. 9,439.08 ......................
From that judgment the plaintiff appealed and in
his assignments of error contends that the lower 4

court erred: (1) In holding that the sugar cane in ............................................... 1,000.00

question was personal property and, therefore, ......................

not subject to redemption;

5
............................................... 1.00
(2) In holding that parcels 1 and 2 of the complaint
......................
belonged to Valdez, as well as parcels 7 and 8, and that the
palay therein was planted by Valdez; 6
............................................... 1.00

(3) In holding that Valdez, by reason of the preliminary ......................

injunction failed to realized P6,757.40 from the sugar cane

7 with the house thereon
and P1,435.68 from sugar-cane shoots (puntas de cana 150.00
..........................
dulce);

8
(4) In holding that, for failure of plaintiff to gather the sugar 1,000.00
...............................................
cane on time, the defendant was unable to raise palay on ======
......................
the land, which would have netted him the sum of P600; ====
and.
4,273.93

(5) In condemning the plaintiff and his sureties to pay to

the defendant the sum of P9,439.08. (3) That within one year from the sale of said parcel of land,
and on the 24th day of September, 1923, the judgment

It appears from the record: debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc.,
for the account of the redemption price of said parcels of

(1) That on May 11, 1923, the deputy sheriff of the Province land, without specifying the particular parcels to which said

of Tarlac, by virtue of writ of execution in civil case No. amount was to applied. The redemption price said eight

20203 of the Court of First Instance of Manila (Macondray parcels was reduced, by virtue of said transaction, to

& Co., Inc. vs. Leon Sibal),levied an attachment on eight P2,579.97 including interest (Exhibit C and 2).

parcels of land belonging to said Leon Sibal, situated in the

Province of Tarlac, designated in the second of attachment The record further shows:

as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(1) That on April 29, 1924, the defendant Vitaliano

(2) That on July 30, 1923, Macondray & Co., Inc., bought Mamawal, deputy sheriff of the Province of Tarlac, by virtue

said eight parcels of land, at the auction held by the sheriff of a writ of execution in civil case No. 1301 of the Province

of the Province of Tarlac, for the sum to P4,273.93, having of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1.º — the

paid for the said parcels separately as follows (Exhibit C, same parties in the present case), attached the personal

and 2-A): property of said Leon Sibal located in Tarlac, among which
was included the sugar cane now in question in the seven
parcels of land described in the complaint (Exhibit A).

Parcel
(2) That on May 9 and 10, 1924, said deputy sheriff sold at
1 public auction said personal properties of Leon Sibal,
............................................... P1.00 including the sugar cane in question to Emilio J. Valdez, who
...................... paid therefor the sum of P1,550, of which P600 was for the
sugar cane (Exhibit A).
2
............................................... 2,000.00
(3) That on April 29,1924, said deputy sheriff, by virtue of
......................
said writ of execution, also attached the real property of
said Leon Sibal in Tarlac, including all of his rights, interest
 and participation therein, which real property consisted of
eleven parcels of land and a house and camarin situated in
one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels,
including the house and the camarin, were bought by Emilio
J. Valdez at the auction held by the sheriff for the sum of
P12,200. Said eight parcels were designated in the
certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11. The
house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the
certificate of the sheriff as parcels 2, 12, and 13, were
released from the attachment by virtue of claims presented
by Agustin Cuyugan and Domiciano Tizon (Exhibit A).
(6) That on the same date, June 25, 1924, Macondray &
Co. sold and conveyed to Emilio J. Valdez for P2,579.97 all
of its rights and interest in the eight parcels of land acquired
by it at public auction held by the deputy sheriff of Tarlac
in connection with civil case No. 20203 of the Court of First
Instance of Manila, as stated above. Said amount
represented the unpaid balance of the redemption price of
said eight parcels, after payment by Leon Sibal of P2,000
on September 24, 1923, fro the account of the redemption
price, as stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question,
located in the seven parcels of land described in the first
cause of action of the complaint at public auction on May 9
and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the
owner of eight parcels of land situated in the Province of
Tarlac belonging to Leon Sibal and that on September 24,
1923, Leon Sibal paid to Macondray & Co. P2,000 for the
account of the redemption price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from
Macondray & Co. all of its rights and interest in the said
eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired
all of the rights and interest which Leon Sibal had or might
have had on said eight parcels by virtue of the P2,000 paid
by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said
eight parcels of land.
The first question raised by the appeal is, whether the sugar cane in
question is personal or real property. It is contended that sugar cane
comes under the classification of real property as "ungathered
products" in paragraph 2 of article 334 of the Civil Code. Said
paragraph 2 of article 334 enumerates as real property the following:
Trees, plants, and ungathered products, while they are annexed to
the land or form an integral part of any immovable property." That
article, however, has received in recent years an interpretation by
the Tribunal Supremo de España, which holds that, under certain
conditions, growing crops may be considered as personal property.
(Decision of March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in
discussing section 334 of the Civil Code, in view of the recent decisions
of the supreme Court of Spain, admits that growing crops are
sometimes considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la
excepcionque muchos autores hacen tocante a la venta de
toda cosecha o de parte de ella cuando aun no esta cogida
(cosa frecuente con la uvay y la naranja), y a la de lenas,
considerando ambas como muebles. El Tribunal Supremo,
en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve
que su terminacion por desahucio no extingue los derechos
del arrendario, para recolectar o percibir los frutos
correspondientes al año agricola, dentro del que nacieron
aquellos derechos, cuando el arrendor ha percibido a su vez
el importe de la renta integra correspondiente, aun cuando
lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria
al desahucio un alcance que no tiene, sino en que, y esto
es lo interesante a nuestro proposito, la consideracion de
inmuebles que el articulo 334 del Codigo Civil atribuge a los
frutos pendientes, no les priva del caracter de productos
pertenecientes, como tales, a quienes a ellos tenga
derecho, Ilegado el momento de su recoleccion.
xxx xxx xxx
Mas actualmente y por virtud de la nueva edicion de la Ley
Hipotecaria, publicada en 16 de diciembre de 1909, con las
reformas introducidas por la de 21 de abril anterior, la
hipoteca, salvo pacto expreso que disponga lo contrario, y
cualquiera que sea la naturaleza y forma de la obligacion
que garantice, no comprende los frutos cualquiera que sea
la situacion en que se encuentre. (3 Manresa, 5. edicion,
pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities,
pending fruits and ungathered products may be sold and transferred
as personal property; (2) that the Supreme Court of Spain, in a case
of ejectment of a lessee of an agricultural land, held that the lessee
was entitled to gather the products corresponding to the agricultural
year, because said fruits did not go with the land but belonged
separately to the lessee; and (3) that under the Spanish Mortgage
Law of 1909, as amended, the mortgage of a piece of land does not
include the fruits and products existing thereon, unless the contract
expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana
may give us some light on the question which we are discussing.
Article 465 of the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides: "Standing crops
and the fruits of trees not gathered, and trees before they are cut
down, are likewise immovable, and are considered as part of the land
to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that
provision, held that in some cases "standing crops" may be considered
and dealt with as personal property. In the case of Lumber Co. vs.
Sheriff and Tax Collector (106 La., 418) the Supreme Court said:
"True, by article 465 of the Civil Code it is provided that 'standing
crops and the fruits of trees not gathered and trees before they are
cut down . . . are considered as part of the land to which they are
attached, but the immovability provided for is only one in abstracto
and without reference to rights on or to the crop acquired by others
than the owners of the property to which the crop is attached. . . .
The existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired therein. Our jurisprudence
recognizes the possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761;
Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann.,
267.)
"It is true," as the Supreme Court of Louisiana said in the case
of Porche vs. Bodin (28 La. An., 761) that "article 465 of the Revised
Code says that standing crops are considered as immovable and as
part of the land to which they are attached, and article 466 declares
that the fruits of an immovable gathered or produced while it is under
seizure are considered as making part thereof, and incurred to the
benefit of the person making the seizure. But the evident meaning of
these articles, is where the crops belong to the owner of the plantation
they form part of the immovable, and where it is seized, the fruits
gathered or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of
the immovable. It belongs to the lessee, and may be sold
by him, whether it be gathered or not, and it may be sold
by his judgment creditors. If it necessarily forms part of the
leased premises the result would be that it could not be sold
under execution separate and apart from the land. If a
lessee obtain supplies to make his crop, the factor's lien
would not attach to the crop as a separate thing belonging
to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be
construed so as to result in such absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874
was an immovable, it would be destructive of the very
objects of the act, it would render the pledge of the crop
objects of the act, it would render the pledge of the crop
impossible, for if the crop was an inseparable part of the
realty possession of the latter would be necessary to that
of the former; but such is not the case. True, by article 465
C. C. it is provided that "standing crops and the fruits of
trees not gathered and trees before they are cut down are
likewise immovable and are considered as part of the land
to which they are attached;" but the immovability provided
for is only one in abstracto and without reference to rights
on or to the crop acquired by other than the owners of the
property to which the crop was attached. The immovability
of a growing crop is in the order of things temporary, for
the crop passes from the state of a growing to that of a
gathered one, from an immovable to a movable. The
existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering
the crop movable quoad the right acquired thereon. The
provision of our Code is identical with the Napoleon Code
520, and we may therefore obtain light by an examination
of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de
España but by the Supreme Court of Louisiana, is followed in
practically every state of the Union.
From an examination of the reports and codes of the State of
California and other states we find that the settle doctrine followed in
said states in connection with the attachment of property and
execution of judgment is, that growing crops raised by yearly labor
and cultivation are considered personal property. (6 Corpuz Juris, p.
197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329:
Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec.,
161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec.
126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65
Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich.,
174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment, sec.
249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which
though not yet actually in existence, is reasonably certain to come
into existence as the natural increment or usual incident of something
already in existence, and then belonging to the vendor, and then title
will vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have
a potential existence. A man may sell property of which he is
potentially and not actually possessed. He may make a valid sale of
the wine that a vineyard is expected to produce; or the gain a field
may grow in a given time; or the milk a cow may yield during the
coming year; or the wool that shall thereafter grow upon sheep; or
what may be taken at the next cast of a fisherman's net; or fruits to
grow; or young animals not yet in existence; or the good will of a
trade and the like. The thing sold, however, must be specific and
identified. They must be also owned at the time by the vendor.
(Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article
334 of the Civil Code has been modified by section 450 of the Code
of Civil Procedure as well as by Act No. 1508, the Chattel Mortgage
Law. Said section 450 enumerates the property of a judgment debtor
which may be subjected to execution. The pertinent portion of said
section reads as follows: "All goods, chattels, moneys, and other
property, both real and personal, * * * shall be liable to execution.
Said section 450 and most of the other sections of the Code of Civil
Procedure relating to the execution of judgment were taken from the
Code of Civil Procedure of California. The Supreme Court of California,
under section 688 of the Code of Civil Procedure of that state
(Pomeroy, p. 424) has held, without variation, that growing crops
were personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing
crops are personal property. Section 2 of said Act provides: "All
personal property shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in pursuance thereof
shall be termed a chattel mortgage." Section 7 in part provides: "If
growing crops be mortgaged the mortgage may contain an agreement
stipulating that the mortgagor binds himself properly to tend, care for
and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted
on the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated,
that paragraph 2 of article 334 of the Civil Code has been modified by
section 450 of Act No. 190 and by Act No. 1508 in the sense that
"ungathered products" as mentioned in said article of the Civil Code
have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered
products."
At common law, and generally in the United States, all
annual crops which are raised by yearly manurance and
labor, and essentially owe their annual existence to
cultivation by man, . may be levied on as personal
property." (23 C. J., p. 329.) On this question Freeman, in
his treatise on the Law of Executions, says: "Crops, whether
growing or standing in the field ready to be harvested, are,
when produced by annual cultivation, no part of the realty.
They are, therefore, liable to voluntary transfer as chattels.
It is equally well settled that they may be seized and sold
under execution. (Freeman on Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the
Civil Code has been modified by section 450 of the Code of Civil
Procedure and by Act No. 1508, in the sense that, for the purpose of
attachment and execution, and for the purposes of the Chattel
Mortgage Law, "ungathered products" have the nature of personal
property. The lower court, therefore, committed no error in holding
that the sugar cane in question was personal property and, as such,
was not subject to redemption.
All the other assignments of error made by the appellant, as above
stated, relate to questions of fact only. Before entering upon a
discussion of said assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at the trial during
the presentation of evidence by the defendant. His absence from the
trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first
cause of action of the complaint, the plaintiff made a futile attempt to
show that said two parcels belonged to Agustin Cuyugan and were
the identical parcel 2 which was excluded from the attachment and
sale of real property of Sibal to Valdez on June 25, 1924, as stated
above. A comparison of the description of parcel 2 in the certificate of
sale by the sheriff (Exhibit A) and the description of parcels 1 and 2
of the complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado
Leon Sibal 1.º en una parcela de terreno de la pertenencia
del citado ejecutado, situada en Libutad, Culubasa,
Bamban, Tarlac, de unas dos hectareas poco mas o menos
de superficie.
2. La caña dulce sembrada por el inquilino del ejecutado
Leon Sibal 1.º, Ilamado Alejandro Policarpio, en una parcela
de terreno de la pertenencia del ejecutado, situada en
Dalayap, Culubasa, Bamban, Tarlac de unas dos hectareas
de superficie poco mas o menos." The description of parcel
2 given in the certificate of sale (Exhibit A) is as follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac,
de 177,090 metros cuadrados de superficie, linda al N. con
Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E.
con Francisco Dizon, Felipe Mañu and others; al S. con
Alejandro Dayrit, Isidro Santos and Melecio Mañu; y al O.
con Alejandro Dayrit and Paulino Vergara. Tax No. 2854,
vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show
that parcels 1 and 2 of the complaint were included among the parcels
bought by Valdez from Macondray on June 25, 1924, and
corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and
were also included among the parcels bought by Valdez at the auction
of the real property of Leon Sibal on June 25, 1924, and corresponded
to parcel 3 in the certificate of sale made by the sheriff (Exhibit A).
The description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as
follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de
Culubasa,Bamban, Tarlac, I. F. de 145,000 metros
cuadrados de superficie, lindante al Norte con Road of the
barrio of Culubasa that goes to Concepcion; al Este con
Juan Dizon; al Sur con Lucio Maño y Canuto Sibal y al Oeste
con Esteban Lazatin, su valor amillarado asciende a la suma
de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and
2 of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit
A). But, inasmuch as the plaintiff did not care to appear at the trial
when the defendant offered his evidence, we are inclined to give more
weight to the evidence adduced by him that to the evidence adduced
by the plaintiff, with respect to the ownership of parcels 1 and 2 of
the compliant. We, therefore, conclude that parcels 1 and 2 of the
complaint belong to the defendant, having acquired the same from
Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal
on the same date.
It appears, however, that the plaintiff planted the palay in said parcels
and harvested therefrom 190 cavans. There being no evidence of bad
faith on his part, he is therefore entitled to one-half of the crop, or 95
cavans. He should therefore be condemned to pay to the defendant
for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for
the total of 190 cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows
that said parcel corresponds to parcel 1 of the deed of sale of
Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the
certificate of sale to Valdez of real property belonging to Sibal,
executed by the sheriff as above stated (Exhibit A). Valdez is therefore
the absolute owner of said parcel, having acquired the interest of both
Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in
paragraph 3 of the second cause of action, it appears from the
testimony of the plaintiff himself that said parcel corresponds to parcel
8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to
parcel 10 in the deed of sale executed by the sheriff in favor of Valdez
(Exhibit A). Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels
of land were attached under said execution. Said parcels of land were
sold to Macondray & Co. on the 30th day of July, 1923. Rice paid
P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray &
Co. P2,000 on the redemption of said parcels of land. (See Exhibits B
and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of
Sibal was attached, including the sugar cane in question. (Exhibit A)
The said personal property so attached, sold at public auction May 9
and 10, 1924. April 29, 1924, the real property was attached under
the execution in favor of Valdez (Exhibit A). June 25, 1924, said real
property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had
purchased at public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the
injunction, the evidence shows that the sugar cane in question
covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c);
that said area would have yielded an average crop of 1039 picos and
60 cates; that one-half of the quantity, or 519 picos and 80 cates
would have corresponded to the defendant, as owner; that during the
season the sugar was selling at P13 a pico (Exhibit 5 and 5-A).
Therefore, the defendant, as owner, would have netted P 6,757.40
from the sugar cane in question. The evidence also shows that the
defendant could have taken from the sugar cane 1,017,000 sugar-
cane shoots (puntas de cana) and not 1,170,000 as computed by the
lower court. During the season the shoots were selling at P1.20 a
thousand (Exhibits 6 and 7). The defendant therefore would have
netted P1,220.40 from sugar-cane shoots and not P1,435.68 as
allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the
complaint, amounting to 190 cavans, one-half of said quantity should
belong to the plaintiff, as stated above, and the other half to the
defendant. The court erred in awarding the whole crop to the
defendant. The plaintiff should therefore pay the defendant for 95
cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by
the lower court.
The evidence also shows that the defendant was prevented by the
acts of the plaintiff from cultivating about 10 hectares of the land
involved in the litigation. He expected to have raised about 600 cavans
of palay, 300 cavans of which would have corresponded to him as
owner. The lower court has wisely reduced his share to 150 cavans
only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby
modified. The plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal are hereby ordered to pay to the
defendant jointly and severally the sum of P8,900.80, instead of
P9,439.08 allowed by the lower court, as follows:
 P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;

for the palay harvested by plaintiff

323.00
in parcels 1 and 2;

for the palay which defendant

600.00
could have raised.

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

In all other respects, the judgment appealed from is hereby affirmed,

with costs. So ordered.
G.R. No. 18520 September 26, 1922
INVOLUNTARY INSOLVENCY OF PAUL
STROCHECKER, appellee,
vs.
ILDEFONSO RAMIREZ, creditor and appellant.
WILLIAM EDMONDS, assignee.
Lim & Lim for appellant.
Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity &
Surety Co.
ROMUALDEZ, J.:
The question at issue in this appeal is, which of the two mortgages
here in question must be given preference? Is it the one in favor of
the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez. The
first was declared by the trial court to be entitled to preference.
In the lower court there were three mortgagees each of whom
claimed preference. They were the two above mentioned and
Concepcion Ayala. The latter's claim was rejected by the trial court,
and from that ruling she did not appeal.
There is no question as to the priority in time of the mortgage in favor
of the Fidelity & Surety Co. which was executed on March 10, 1919,
and registered in due time in the registry of property, that in favor of
the appellant being dated September 22, 1919, and registered also in
the registry.
The appellant claims preference on these grounds: (a) That the first
mortgage above-mentioned is not valid because the property which is
the subject-matter thereof is not capable of being mortgaged, and the
description of said property is not sufficient; and (b) that the amount
due the appellant is a purchase price, citing article 1922 of the Civil
Code in support thereof, and that his mortgage is but a modification
of the security given by the debtor on February 15, 1919, that is, prior
to the mortgage executed in favor of the Fidelity & Surety Co.
may be the subject of mortgage. All personal property may be
mortgaged. (Sec. 2, Act No. 1508.)
The description contained in the document is sufficient. The law (sec.
7, Act No. 1508) requires only a description of the following nature:
The description of the mortgaged property shall be such as
to enable the parties to the mortgage, or any other person,
after reasonable inquiry and investigation, to identify the
same.
Turning to the second error assigned, numbers 1, 2, and 3 of article
1922 of the Civil Code invoked by the appellant are not applicable.
Neither he, as debtor, nor the debtor himself, is in possession of the
property mortgaged, which is, and since the registration of the
mortgage has been, legally in possession of the Fidelity & Surety Co.
(Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.)
In no way can the mortgage executed in favor of the appellant on
September 22, 1919, be given effect as of February 15, 1919, the
date of the sale of the drug store in question. On the 15th of February
of that year, there was a stipulation about a persons security, but not
a mortgage upon any property, and much less upon the property in
question.
Moreover, the appellant cannot deny the preferential character of the
mortgage in favor of the Fidelity & Surety Co. because in the very
document executed in his favor it was stated that his mortgage was
a second mortgage, subordinate to the one made in favor of the
Fidelity & Surety Co.
The judgment appealed from is affirmed with costs against the
appellant. So ordered.

As to the first ground, the thing that was mortgaged to this

corporation is described in the document as follows:

. . . his half interest in the drug business known as Antigua

Botica Ramirez (owned by Srta. Dolores del Rosario and the
mortgagor herein referred to as the partnership), located at
Calle Real Nos. 123 and 125, District of Intramuros, Manila,
Philippine Islands.

With regard to the nature of the property thus mortgaged, which is

one-half interest in the business above described, such interest is a
personal property capable of appropriation and not included in the
enumeration of real properties in article 335 of the Civil Code, and
G.R. No. L-42091 November 2, 1935
GONZALO CHUA GUAN, plaintiff-appellant,
vs.
SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO,
ADRIANO G. SOTTO, and EMILIO VERGARA, as president,
secretary and treasurer respectively of the same, defendants-
appellees.
Buenaventura C. Lopez for appellant.
Domingo L. Vergara for appellees.
BUTTE, J.:
This is an appeal from a judgment of the Court of First Instance of
Nueva Ecija in an action for a writ of mandamus. The case is
remarkable for the following reason: that the parties entered into a
stipulation in which the defendants admitted all of the allegations of
the complaint and the plaintiff admitted all of the special defenses in
the answer of the defendants, and on this stipulation they submitted
the case for decision.
The complaint alleges that the defendant Samahang Magsasaka, Inc.,
is a corporation duly organized under the laws of the Philippine Islands
with principal office in Cabanatuan, Nueva Ecija, and that the
individual defendants are the president, secretary and treasurer
respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco
was the owner of 5,894 shares of the capital stock of the said
corporation represented by nine certificates having a par value of P5
per share; that on said date Gonzalo H. Co Toco, a resident of Manila,
mortgaged said 5,894 shares to Chua Chiu to guarantee the payment
of a debt of P20,000 due on or before June 19, 1932. The said
certificates of stock were delivered with the mortgage to the
mortgagee, Chua Chiu. The said mortgage was duly registered in the
office of the register of deeds of Manila on June 23, 1931, and in the
office of the said corporation on September 30, 1931.
On November 28, 1931, Chua Chiu assigned all his right and interest
in the said mortgage to the plaintiff and the assignment was
registered in the office of the register of deeds in the City of Manila
on December 28, 1931, and in the office of the said corporation on
January 4, 1932.
The debtor, Gonzalo H. Co Toco, having defaulted in the payment of
said debt at maturity, the plaintiff foreclosed said mortgage and
delivered the certificates of stock and copies of the mortgage and
assignment to the sheriff of the City of Manila in order to sell the said
shares at public auction. The sheriff auctioned said 5,894 shares of
stock on December 22, 1932, and the plaintiff having been the highest
bidder for the sum of P14,390, the sheriff executed in his favor a
certificate of sale of said shares.
The plaintiff tendered the certificates of stock standing in the name
of Gonzalo H. Co Toco to the proper officers of the corporation for
cancellation and demanded that they issue new certificates in the
name of the plaintiff. The said officers (the individual defendants)
refused and still refuse to issue said new shares in the name of the
plaintiff.
The prayer is that a writ of mandamus be issued requiring the
defendants to transfer the said 5,894 shares of stock to the plaintiff
by cancelling the old certificates and issuing new ones in their stead.
The special defenses set up in the answer are as follows: that the
defendants refuse to cancel the said certificates standing in the name
of Gonzalo H. Co Toco on the books of the corporation and to issue
new ones in the name of the plaintiff because prior to the date when
the plaintiff made his demand, to wit, February 4, 1933, nine
attachments had been issued and served and noted on the books of
the corporation against the shares of Gonzalo H. Co Toco and the
plaintiff objected to having these attachments noted on the new
certificates which he demanded. These attachments noted on the
books of the corporation against the shares of Gonzalo H. Co Toco
are as follows:
MISSING PAGES: 475-477.
It will be noted that the first eight of the said writs of attachment were
served on the corporation and noted on its records before the
corporation received notice from the mortgagee Chua Chiu of the
mortgage of said shares dated June 18, 1931. No question is raised
as to the validity of said mortgage or of said writs of attachment and
the sole question presented for decision is whether the said mortgage
takes priority over the said writs of attachment.
It is not alleged that the said attaching creditors had actual notice of
the said mortgage and the question therefore narrows itself down to
this: Did the registration of said chattel mortgage in the registry of
chattel mortgages in the office of the register of deeds of Manila,
under date of July 23, 1931, give constructive notice to the said
attaching creditors?
In passing, let it be noted that the registration of the said chattel
mortgage in the office of the corporation was not necessary and had
no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) The long mooted
question as to whether or not shares of a corporation could be
hypothecated by placing a chattel mortgage on the certificate
representing such shares we now regard as settled by the case
of Monserrat vs. Ceron, supra. But that case did not deal with any
question relating to the registration of such a mortgage or the effect
of such registration. Nothing appears in the record of that case even
tending to show that the chattel mortgage there involved was ever
registered anywhere except in the office of the corporation, and there
was no question involved there as to the right of priority among
conflicting claims of creditors of the owner of the shares.
The Chattel Mortgage Law, Act No. 1508, as amended by Act No.
2496, contains the following provision:
SEC. 4. A chattel mortgage shall not be valid against any
person except the mortgagor, his executors or
administrators, unless the possession of the property is
delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds
of the province in which the mortgagor resides at the time
of making the same, or, if he resides the Philippine Islands,
in the province in which the property is situated: Provided,
however, That if the property is situated in a different
province from that in which the mortgagor resides, the
mortgage shall be recorded in the office of the register of
deeds of both the province in which the mortgagor resides
and that in which the property is situated, and for the
purposes of this Act the City of Manila Shall be deemed to
be a province.
The practical application of the Chattel Mortgage Law to shares of
stock of a corporation presents considerable difficulty and we have
obtained little aid from the decisions of other jurisdictions because
that form of mortgage is ill suited to the hypothecation of shares of
stock and has been rarely used elsewhere. In fact, it has been
doubted whether shares of stock in a corporation are chattels in the
sense in which that word is used chattel mortgage statutes. This doubt
is reflected in our own decision in the case of Fua Cun vs. Summers
and China Banking Corporation (44 Phil., 705), in which we said:
". . . an equity in shares of stock is of such an intangible character
that it is somewhat difficult to see how it can be treated as a chattel
and mortgaged in such a manner that the recording of the mortgage
will furnish constructive notice to third parties. . . ."And we held that
the chattel mortgage there involved: "at least operated as a
conditional equitable assignment." In that case we quoted the
following from Spalding vs. Paine's Adm'r. (81 Ky., 416), with regard
to a chattel mortgage of shares of stock:
"These certificates of stock are in the pockets of the owner,
and go with him where he may happen to locate, as choses
in action, or evidence of his right, without any means on
the part of those with whom he proposes to deal on the
faith of such a security of ascertaining whether or not this
stock is in pledge or mortgaged to others. He finds the
name of the owner on the books of the company as a
subscriber of paid-up stock, amounting to 180 shares, with
the certificates in his possession, pays for these certificates
their full value, and has the transfer to him made on the
books of the company, thereby obtaining a perfect title.
What other inquiry is he to make, so as to make his
investment certain and secure? Where is he to look, in order
to ascertain whether or not this stock has been mortgaged?
The chief office of the company may be at one place today
and at another tomorrow. The owner may have no fixed or
permanent abode, and with his notes in one pocket and his
certificates of stock in the other — the one evidencing the
extent of his interest in the stock of the corporation, the
other his right to money owing him by his debtor, we are
asked to say that the mortgage is effectual as to the one
and inoperative as to the other."
But the case of Fua Cun vs. Summers and China Banking Corporation,
supra, did not decide the question here presented and gave no light
as to the registration of a chattel mortgage of shares of stock of a
corporation under the provisions of section 4 of the Chattel Mortgage
Law, supra.
Section 4 of Act No. 1508 provides two ways for executing a valid
chattel mortgage which shall be effective against third persons. First,
the possession of the property mortgage must be delivered to and
retained by the mortgagee; and, second, without such delivery the
mortgage must be recorded in the proper office or offices of the
register or registers of deeds. If a chattel mortgage of shares of stock
of a corporation may validly be made without the delivery of
possession of the property to the mortgagee and the mere registration
of the mortgage is sufficient to constructive notice to third parties, we
are confronted with the question as to the proper place of registration
of such a mortgage. Section 4 provides that in such a case the
mortgage resides at the time of making the same or, if he is a non-
resident, in the province in which the property is situated; and it also
provides that if the property is situated in a different province from
that in which the mortgagor resides the mortgage shall be recorded
both in the province of the mortgagor's residence and in the province
where the property is situated.
If with respect to a chattel mortgage of shares of stock of a
corporation, registration in the province of the owner's domicile
should be sufficient, those who lend on such security would be
confronted with the practical difficulty of being compelled not only to
search the records of every province in which the mortgagor might
have been domiciled but also every province in which a chattel
mortgage by any former owner of such shares might be registered.
We cannot think that it was the intention of the legislature to put this
almost prohibitive impediment upon the hypothecation of shares of
stock in view of the great volume of business that is done on the faith
of the pledge of shares of stock as collateral.
It is a common but not accurate generalization that the situs of shares
of stock is at the domicile of the owner. The term situs is not one of
fixed of invariable meaning or usage. Nor should we lose sight of the
difference between the situs of the shares and the situs of the
certificates of shares. The situs of shares of stock for some purposes
may be at the domicile of the owner and for others at the domicile of
the corporation; and even elsewhere. (Cf. Vidal vs. South American
Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy, 94
Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7
Fed. [2d]. 158.) It is a general rule that for purposes of execution,
attachment and garnishment, it is not the domicile of the owner of a
certificate but the domicile of the corporation which is decisive.
(Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11,
paragraph 5106. Cf. sections 430 and 450, Code of Civil Procedure.)
pledge the shares covered thereby should be sufficient to give legal
effect to that intention and to consummate the juristic act without
necessity for registration.lawphil.net
We are fully conscious of the fact that our decisions in the case
of Monserrat vs. Ceron, supra, and in the present case have done little
perhaps to ameliorate the present uncertain and unsatisfactory state
of our law applicable to pledges and chattel mortgages of shares of
stock of Philippine corporations. The remedy lies with the legislature.

By analogy with the foregoing and considering the ownership of In view of the premises, the attaching creditors are entitled to priority
shares in a corporation as property distinct from the certificates which over the defectively registered mortgage of the appellant and the
are merely the evidence of such ownership, it seems to us a judgment appealed from must be affirmed without special
reasonable construction of section 4 of Act No. 1508 to hold that the pronouncement as to costs in this instance. 1
property in the shares may be deemed to be situated in the province
in which the corporation has its principal office or place of business.
If this province is also the province of the owner's domicile, a single
registration sufficient. If not, the chattel mortgage should be
registered both at the owner's domicile and in the province where the
corporation has its principal office or place of business. In this sense
the property mortgaged is not the certificate but the participation and
share of the owner in the assets of the corporation.

Apart from the cumbersome and unusual method of hypothecating

shares of stock by chattel mortgage, it appears that in the present
state of our law, the only safe way to accomplish the hypothecation
of share of stock of a Philippine corporation is for the creditor to insist
on the assignment and delivery of the certificate and to obtain the
transfer of the legal title to him on the books of the corporation by
the cancellation of the certificate and the issuance of a new one to
him. From the standpoint of the debtor this may be unsatisfactory
because it leaves the creditor as the ostensible owner of the shares
and the debtor is forced to rely upon the honesty and solvency of the
creditor. Of course, the mere possession and retention of the debtor's
certificate by the creditor gives some security to the creditor against
an attempted voluntary transfer by the debtor, provided the by-laws
of the corporation expressly enact that transfers may be made only
upon the surrender of the certificate. It is to be noted, however, that
section 35 of the Corporation Law (Act No. 1459) enacts that shares
of stock "may be transferred by delivery of the certificate endorsed by
the owner or his attorney in fact or other person legally authorized to
make the transfer." The use of the verb "may" does not exclude the
possibility that a transfer may be made in a different manner, thus
leaving the creditor in an insecure position even though he has the
certificate in his possession. Moreover, the shares still standing in the
name of the debtor on the books of the corporation will be liable to
seizure by attachment or levy on execution at the instance of other
creditors. (Cf. Uy Piaoco vs. McMicking, 10 Phil., 286, and
Uson vs. Diosomito, 61 Phil., 535.) This unsatisfactory state of our law
is well known to the bench and bar. (Cf. Fisher, The Philippine Law of
Stock Corporations, pages 163-168.) Loans upon stock securities
should be facilitated in order to foster economic development. The
transfer by endorsement and delivery of a certificate with intention to
G.R. No. L-42462 August 31, 1937
THE BACHRACH MOTOR CO., INC., plaintiff-appellant,
vs.
MARIANO LACSON LEDESMA, TALISAY-SILAY MILLING CO.,
INC., and THE PHILIPPINE NATIONAL BANK, defendant-
appellees.
William E. Greenbaum and Ohnick and Opisso for appellant.
Nolan and Hernaez for appellee Talisay-Silay Milling Co., Inc.
Roman J. Lacson and Francisco Fuentes for appellee Philippine
National Bank.
IMPERIAL, J.:
This is an action brought by the plaintiff to recover the amount of the
judgments obtained by it in civil cases Nos. 31597 and 31821 of the
Court of First Instance of Manila, praying in its complaint: (a) That the
transfer of certificate of stock dividends No. 772 of the Talisay-Silay
Milling of the Philippine National Bank, be declared null and void, as
against the plaintiff: (b) that the Talisay-Silay Milling Co., Inc., ordered
to cancel the entry of the transfer of the 6,300 stock dividends
covered by certificate No. 772, made by it on its books in favor of the
Philippine National Bank; (c) that said stock dividends be sold to
satisfy the judgment obtained by it in civil cases Nos. 31597 of the
Court of First Instance of Manila; (d) that the Talisay-Silay Milling Co.,
Inc., be ordered to pay to it amount of P21,379.39, with interest on
the sums and from the dates set forth in paragraph XV of the
complain, or any part thereof necessary to complete payment of said
sums and interest thereon , in case the 6,300 stock dividends can not
be sold or the proceeds of the sale thereof should be insufficient to
cover the sums in question, and (e) that the defendants pay the costs
of the suit. The plaintiff appealed from the judgment declaring the
right of the Philippine National Bank to the 6,300 stock dividends a
preferred one, and absolving the defendants from the complaint, with
costs.
The parties submitted the case upon the following stipulation of facts,
to wit:
STIPULATION OF FACTS. — That the plaintiff, the Bachrach Motor
Co., Inc., on June 30, 1927, obtained judgment in civil case No. 31597
of the Court of First Instance of Manila against the defendant Mariano
Lacson Ledesma, in the sum of P3,442.75, with interest thereon from
March 30, 1927, with costs. That a writ of execution of said judgment
was issued on August 20, 1927, and Jose Y. Orosa was appointed
Special sheriff to execute it. That on October 4, 1927, said Jose Y.
Orosa, as special sheriff, in compliance with the writ of execution in
question, attached all right, title to and interest which the defendant
Mariano Lacson Ledesma may have in "Any bonus, dividend, share of
stock, money, or other property which that defendant is entitle to
receive from the Talisay-Silay Milling Co., Inc., by virtue of the fact
that such defendant has mortgage his land in favor of the Philippine
National Bank to guarantee the indebtedness of the Talisay-Silay
Milling Co., Inc., or which such defendant is entitled to receive from
the Talisay-Silay Milling Co., Inc., on account of being a stockholder
in the corporation or which he is entitled to receive from that
corporation for any other cause or pretext whatsoever." That notice
of said attachment was served not only upon the defendant Mariano
Lacson Ledesma but also upon the herein defendant the Talisay-Silay
Milling Co., Inc., which received a copy of the notice of attachment,
as evidenced by the Annex A attached to this stipulation of facts. That
on October 3, 1927, the herein plaintiff, the Bachrach Motor Co., Inc.,
obtained judgment in case No. 31821 of the Court of First Instance of
Manila against the defendant Mariano Lacson Ledesma, in the sum of
four thousand four hundred pesos and seventy-eight centavos with
interest at 10 per cent per annum on the sum of P3,523.82 from April
30, 1927; in the sum of P14,171, 52 with interest at 10 per cent per
annum on the sum of P13,290.89 from April 30, 1927; and in the sum
of P1,150.72 with the legal interest of 6 per cent per annum thereon
from May 25, 1927, and the costs. A copy of said judgment is attached
to this stipulation of facts and marked Annex B. That a writ of
execution of said judgment was issue, thereby causing the
attachment, sale and adjudication to the plaintiff the Bachrach Motor
Co., Inc., for the sum of P100, Philippine currency, of the defendant
Mariano Lacson Ledesma's right of redemption over the following
properties to wit: "Original certificate of title No. 1929 (Lot No. 1473
of the Cadastral Survey of Bacolod) containing an area of 2,647
square meters, more or less.
Original certificate of title No. 2978 (Lot No. 1475 of the Cadastral
Survey of Bacolod) containing an area of 8.501 square meters, more
or less.
Original certificate of title No. 2624 (Lot No. 1474 of the Cadastral
Survey of Bacolod) containing an area of 8,714 square meter, more
or less.
Original certificate of title No. 9443 (Lot No. 426 of the
Cadastral Survey of Talisay) containing an area of 150,301
square meters more or less. Original certificate of title No.
1928 (Lot No. 1472 of the Cadastral Survey of Bacolod)
containing an area of 36,818 square meters, more or less.
Original certificate of title No. 2923 (Lot No. 1489 of the
Cadastral Survey of Bacolod) containing an area of 286,879
square meters, more or less. Original certificate of title No.
356 (Lot No. 4-A of the Cadastral Survey of Bacolod)
containing an area of 641,448 square meters, more or less.
Original certificate of title No. 356 (Lot No. 4-B of the
Cadastral Survey of Bacolod) containing an area of 280,556
square meters, more or less. Original certificate of title No.
356 (Lot No. 4-C of the cadastral Survey of Bacolod)
containing an area of 2,842,946 square meters, more or
less." The certificate of sale issued by the provincial sheriff
of Occidental Negros in favor of the Bachrach Motor Co.,
Inc., on March 29, 1928, is attached to this stipulation of
facts, and marked Annex C. That on the date of the
issuance of the execution in case No. 31597 of the Court of
First Instance of Manila as well as on that of the issuance
of the execution and sale of the properties described in
Exhibit C, in case No. 31821 of the same court, said real
properties were mortgaged to the Philippine National Bank
to secure the payment to said bank by Mariano Lacson
Ledesma of the sum of P624,000, Philippine currency, by
virtue of an instrument executed by the debtor Mariano
Lacson Ledesma in favor of said bank on August 9, 1923.
said instrument of mortgage is copied on pages 18 to 32,
both inclusive, of the bill of exceptions in case No. 8136 of
the Court of First Instance of Iloilo (G. R. No. 35223), which
is attached to this stipulation of facts and marked Annex D.
That in the same instrument of mortgage (pages 18 to 32
of Annex D) said debtor Mariano Lacson Ledesma
mortgaged in favor the bank, as part of the securities to
ensure compliance with his obligation, the following shares
owned by him in the Talisay-Silay Milling Co., Inc., to wit:
1,540 share covered by Certificate No. 147; 520 shares
covered by Certificate No. 146; 40 share covered by
Certificate in the preceeding two paragraph, there was
another mortgage constituted on the above-described real
properties in favor of the Philippine National Bank, to
answer for the debts contracted by the Central Talisay-Silay
Milling Co., with said bank. That on December 22, 1923, the
defendant, Central Talisay-Silay Milling Co. resolved to
grant a bonus or compensation to the owners of the real
properties mortgaged to answer for the debts contracted
by said central with the Philippine National Bank, for the
risk incurred by said properties upon being subjected to said
mortgage lien, and the resolution in question the defendant
Mariano Lacson Ledesma was allotted the sum of
P19,911.11, Philippine currency, which sum, however,
would not be payable until the month of January, 1930.
That on September 29, 1928, the Philippine National Bank
brought an action against the defendant Mariano Lacson
Ledesma and his wife Concepcion Diaz for the recovery of
a mortgage credit which, together with interest thereon
amounted to P853,729.49 on said date. Sometime later that
is, on January 2, 1929, the Philippine National Bank
amended its complaint by including the Bachrach Motor Co.,
Inc., as party defendant, among other, because they claim
to have some right to certain properties which are the
subject matter of this complaint." Said case bears No. 4706
of the Court of First Instance of Occidental Negros. That on
January 30, 1929, the defendant Bachrach Motor Co., Inc.,
file a general denial. That after due hearing the Court of
First Instance of Bacolod on September 3, 1930, rendered
judgment in case No. 4706 of said court in favor of the
Philippine National Bank and against the defendant Mariano
Lacson Ledesma, sentencing the latter to pay the amount
claimed by said bank and ordering, upon failure to satisfy
said amount, the sale at public auction of the real properties
mortgaged under the instrument of mortgage appearing on
pages 18 to 32 of Annex D. That the real estate and chattel
mortgage deed in question (pages 18 to 32 of Annex D),
marked as Exhibit G, was among the exhibits presented in
said case No. 4706 of the Court of First Instance of
Occidental Negros. That likewise, among the exhibit
presented in said case No. 4706 of the Court of First
Instance of Occidental Negros, was Exhibit H which was a
deed of mortgage of certain carabaos belonging to the
debtor Mariano Lacson Ledesma, executed by the latter in
favor of the Philippine National Bank on January 21, 1925.
That in the decision rendered by the Court of First Instance
of Occidental Negros in case No. 4706 thereof, said court,
referring to stock certificates Nos. 145 and 147 of the
Talisay-Silay Milling Co., Inc., which were pledged or
mortgaged by virtue of Exhibit G of said No. 4706, rendered
the following ruling: "(e) With respect to the chattel
mortgaged bank, which are described in Exhibit G and H,
the Philippine National Bank, as soon as this judgment
becomes final, shall have authority to sell them in
accordance with the provisions of section 23 of Act No.
2938, immediately informing this court of whatever action
it may take in the premises." That during the pendency of
case No. 4706 of the Court of First Instance of Bacolod
referred to in the foregoing paragraphs, the plaintiff
Bachrach Motor Co., Inc., on December 20, 1929, brought
an action in the Court of First Instance of Iloilo against the
Talisay-Silay Milling Co., Inc., recover from it the sum of
P13,850 against the bonus or dividend which, by virtue of
the resolution of December 22, 1923, said Central Talisay-
Silay Milling Co., Inc., had declared in favor of the
defendant Mariano Lacson Ledesma as one of the owners
of the hacienda which had been mortgaged to the Philippine
National Bank to secure the obligation of the Talisay-Silay
Milling Co., Inc. in favor of said bank. Copy of said complaint
appears on pages 2 to 5 of the bill of exceptions in case No.
8136 of the Court of First Instance of Iloilo (G. R. No.
35223), Annex D of this stipulation of facts. That on January
30, 1930, the Philippine National Bank sought permission to
intervene in said case No. 8136 of the Court of First
Instance of Iloilo and after the permission had been
granted, said bank, on February 13, 1930, filed a complaint
in intervention alleging that it had a preferred right to said
bonus granted by the central to the defendant Mariano
Lacson Ledesma as one of the owners of the haciendas
which had been mortgaged to said bank to answer for the
obligations of the Central Talisay-Silay Milling Co., Inc.,
basing such allegation on the fact that, as said properties
were mortgaged to it by the debtor Mariano Lacson
Ledesma, not Talisay Milling Co., Inc., but also by virtue of
the deed of August 9, 1923 (pages 18 to 32 of Annex D)
and said bonus being a civil fruit of the mortgaged lands,
said bank was entitled to it on the ground that the mortgage
of August 9, 1923, had become due. That after the trial of
civil case No. 8136 of the Court of First Instance of Iloilo,
said court, on December 8, 1930, rendered judgment in
favor of the plaintiff Bachrach Motor Co., Inc., Upon appeal,
the Supreme Court, on September 17, 1931, 1 affirmed the
judgment of the lower court, holding that the bonus had no
immediate relation to the lands in question but merely a
remote and accidental one and, therefore, it was not a civil
fruit of the real properties mortgaged to the Philippine
National Bank to secure the obligation of the Talisay-Silay
Milling Co., Inc., being a mere personal right of Mariano
Lacson Ledesma. The decision of the Supreme Court
published in Volume 30, No. 104, of the Official Gazette, on
August 29, 1932, is attached to this stipulation of facts and
marked Annex E. That on January 24, 1930, that Talisay-
Silay Milling Co., Inc., issued stock certificate No. 772 for
3,600 shares, as stock dividend to Mariano Lacson
Ledesma, which certificate was ordered by Mariano Lacson
Ledesma to be delivered to Roman Lacson, attorney for the
Philippine National Bank, by virtue of the letter of February
27, 1930, Annex G of this stipulation of facts, and of the
letter of the Philippine National Bank dated January 18,
1930, Annex G-1. Said 6,300 shares constituted the stock
dividend allotted to Mariano Lacson Ledesma for his 2,100
original shares in the Talisay-Silay Milling Co., Inc., which
were given as pledge to the Philippine National Bank under
the deed of mortgage appearing on pages 18 to 32 of Annex
D prior to the issuance of stock certificate No. 772, an were
covered by Stock Certificates Nos. 145, 146 and 147 of the
Talisay-Silay Milling Co., Inc. That stock certificate No. 772
was issued by virtue of resolution No. 4 of the general
meeting of stockholders of the Talisay-Silay Milling Co.,
Inc., which resolution is quote in paragraph 8 of the
complaint in this case. That in a letter of March 25, 1930,
addressed by the Philippine National Bank to the Talisay-
Silay Milling Co., said bank informed the letter that the
6,300 shares represented by stock certificate No. 772 had
been given by Mariano Lacson Ledesma as pledge to the
Philippine National Bank. Said letter is attached to this
stipulation of facts as Annex H. That said stock certificate
No. 772 has continuously been in the possession of the
Philippine National Bank from February 27, 1930, to
February 25, 1931, but like stock certificates Nos. 145, 146
and 147, it was registered in the books of the Talisay-Silay
Milling Co. in the name of Mariano Lacson Ledesma. That
on August 11, 1930, the plaintiff Bachrach Motor Co., by
virtue of an alias execution issued in case No. 31821 of the
Court of First Instance of Manila, attached all right, title to
an interest which the defendant Mariano Lacson Ledesma
might have in Any bonus, dividend, shares of stock, money
or other property specially on the sum of P19,911.11 which
the defendant is entitled to receive from the Talisay-Silay
Milling Co., Inc., by virtue of the fact that such defendant
has mortgage his lands in favor of the Philippine National
Bank to guarantee the indebtedness of the Talisay-Silay
Milling Co., Inc., or which such defendant is entitled to
receive from the Talisay-Silay Milling Co., Inc., on account
of being stockholder in that corporation, or which he is
entitle to receive from that corporation for any other cause
or pretext whatsoever." In connection with the proceedings
and attachment made notice of garnishment was served on
the Talisay-Silay Milling Co., Inc., as evidence by Annexes I
and J of this stipulation of facts. That on February 5, 1931,
the provincial the is positive part of the decision rendered
in civil case NO. 4706 of the Court of First Instance of
Occidental Negros, copy of which is attached to this
stipulation of facts as Annex I, sold at public auction not
only the 2,100 share specified in the deed of August 9,
1923, but also the 6,300 shares covered by stock certificate
No. 772, the sale of said shares having been made by order
and under the direction of the attachment creditor
Philippine National Bank. A copy of the certificate of sale
marked Exhibit K is attached hereto. That on February 25,
1931, the Talisay-Silay Milling Co., Inc., upon petition of the
Philippine National Bank, as shown by the letter dated
February 19,1931, marked and attached to this stipulation
as Annex L, which letter was accompanied by the certificate
of sale Exhibit K, issued stock certificate No. 1155
representing 8,968 shares, which include the 6,300 shares
formerly represented by stock certificate No. 772 and the
2,100 shares formerly represented by stock certificates Nos.
145, 146 and 147, the bank having acknowledged receipt
of certificate No. 1155 in a letter of March 4, 1931, marked
as Exhibit M. Attention is invited to the fact that of the 8,969
shares represented by stock certificate No. 1155, 568
shares formerly belonged to Concepcion Diaz e Lacson wife
of the defendant Mariano Lacson Ledesma, and of the 568
shares, 142 were mortgaged under the deed of August 9,
1923, and 426 were the stock dividend that had
corresponded to said 142 shares. That on the same date,
February 25,1931, Marino Lacson Ledesma endorsed the
back of stock certificate No. 772 in favor of the Philippine
National Bank. Said stock certificate with the endorsement
in question is attached to this stipulation of facts and
marked Annex N. That both on the date on which the
garnishment was carried out by the Bachrach Motor Co.,
that is, on August 11, 1930, and on the date on which the
6,300 shares, covered by stock certificate No. 772, were
sold, case No. 8136 of the Court of First Instance of Iloilo
(G. R. No. 35223) was still pending. That the amount of the
actual indebtedness of the defendant Mariano Lacson
Ledesma to the plaintiff the Bachrach Motor Co. is
P21,377.34 with the interest and other sums specified in
paragraph XV of the complaint. That the real properties
mortgaged to the Philippine National Bank were sold for
 P300,000 Philippine currency; the mortgaged carabaos for
P2,000 Philippine currency, and all the shares, that is, the
8,968 share for the sum of P90,000 Philippine currency, the
bank having been the highest bidder herein all these sales,
there still remaining unpaid in civil case No. 4796 of the
Court of First Instance of Occidental Negros the sum of
P695,421.74, as stated in Annex 9. That the notices of
garnishment issue by virtue of the execution in cases Nos.
31597 and 31821 of the Court of First Instance of Manila
are the same notices of attachment and garnishment
mentioned in the complaint in the case No. 8136 of the
Court of First Instance of Iloilo and presented as evidence
in said case, and are the same notices mentioned in this
case now submitted to the court for decision. That on March
20,1925, the Philippine National Bank served notice on the
Talisay-Silay Milling Co., Inc, of the pledge made by
Mariano Lacson Ledesma to said bank of the shares
represented by stock certificates Nos. 145, 146 and 147,
and on March 25th the Talisay-Silay Milling Co., Inc.,
acknowledged receipt thereof and considered itself notified
of said pledge, as evidenced by Annexes P and Q of this
stipulation of facts, That prior to the declaration of stock
divided by virtue of resolution No. 4 of the regular meeting
of stockholders of the Talisay-Silay Milling Co., Inc., the
shares of this corporation were quote in private sales at P32
a share; and immediately after the declaration of stock
dividend, the quotation of said shares dropped by P7 or P8
a share, the same having been P11.25 a share on the date
of their sale at public auction. Upon this stipulation of facts,
the parties submit the case to the court for decision.
I. The plaintiff bases the preferred right invoked by it over the 6,300
stock dividends, certificate No. 772, on the garnishment made thereon
by reason of the issuance of the alias execution in civil case No. 31821
of the Court of First Instance of Manila, which garnishment was
carried out on August 11, 1930. The plaintiff contends in its first
assignment of error that these stock dividends were certificate No.
772 thereof was delivered to the Philippine National Bank and when
the Talisay-Silay Milling Co., Inc., entered them in its books in the
name of said bank and issued certificate No. 1166 in favor of the
latter. The contention is unfounded because it appears that the stock
dividends in question were pledged to the bank prior to the
garnishment and because certificate No. 772 was in the possession of
said bank from February 27, 1930. The reasons upon which this court
base its opinion in declaring that the stock dividends were pledge
beforehand to the Philippine National Bank will be stated in the
discussion of the following assignment of error.
II. In the stipulation of facts, it appears stipulated by the parties that,
by virtue of the letters of the Philippine National Bank and having been
so asked by Mariano Lacson Ledesma, certificate No. 772 covering the
6,300 stock dividends was delivered as security to Attorney Roman
Lacson as representative of the bank, on February 27, 1930, in view
of the fact that the original shares covered by certificate Nos. 145,
146 and 147 had been previously mortgaged to the same bank. On
February 25, 1931, the Talisay-Silay Milling Co., Inc., in conformity
with the letter of the Philippines National Bank of the 19th of said
month, cancelled certificate No. 772 and in lieu thereof issued
certificate No. 1155 in favor of said bank, which certificate includes
the 6,300 stock dividends, among other shares. On the other hand,
the garnishment obtained by the plaintiff, upon which it bases all its
alleged preferred right was notified to the parties and became
effective on August 11, 1930, more than five months after the delivery
of certificate No. 772. The plaintiff, in its second assignment of error,
maintains that the pledge is ineffective as against it because evidence
of its date was not made to appear in a public instrument and
concludes that its right to the 6,300 stock dividends is superior and
preferred. It is admitted that the delivery of the certificate in question
and the pledge thereof were not made to appear in a public
instrument.
It is true, according to article 1865 of the Civil Code, that in order that
a pledge may be effective as against third person, evidence of its date
must appear in a public instrument in addition to the delivery of the
thing pledged to the creditor. This provision has been interpreted in
the sense that for the contract to affect third person, it must appear
in a public instrument in addition to delivery of the thing pledged
(Ocejo, Perez and Co., vs. International Banking Corporation, 37 Phil.,
631: Tec Bi & Co. vs. Chartered Bank of India, Australia and China,
41 Phil., 596; Te Pate vs. Ingersoll, 43 Phil., 394). It cannot be denied,
however, that section 4 of Act No. 1508, otherwise known as the
Chattel Mortgage Law, implicitly modified article 1865 of the Civil Code
in the sense that a contract of pledge and that of chattel mortgage,
to be effective as against third persons, need not appear in public
instruments provided the thing pledged or mortgaged be delivered or
placed in the possession of the creditor. In the case of Mahoney vs.
Tuason (39 Phil., 952, 958), where this doctrine was laid down, it was
stated; "From the foregoing provisions of the abovecited Act, it is
inferred that the same does not entirely repeal the provisions of the
Civil Code, but only modify them in part and amplify them in another,
as may be seen from an examination of, and comparison between,
the provisions of the Civil Code regarding pledge and the abovequoted
provisions of Act No. 1508. Article 1865 of the Civil Code provides that
no pledge shall be effective against a third person unless evidence of
its date appears in a public instrument. The provision of this article
has, undoubtedly, been modified by section 4 of the Chattel Mortgage
Law, in so far as it provides that a chattel mortgage shall not be valid
against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to
and retained by the mortgagee or unless the mortgage is recorded in
the office of the register of deeds of the province in which the
mortgagor resides. From the date the said Act No. 1508 was in force,
a contract of pledge or chattel mortgage should be deemed legally
entered into and should produce all its effects and consequences,
provided it appears to have been in some manner perfected and that
the things pledged have been delivered, and in a contrary case, and
even if the creditor has not received them or has not retained them dividends in execution of the judgment rendered in favor of the
in his custody, provided that the contract of pledge or chattel Philippine National Bank in civil case No. 4706 of the Court of First
mortgage appears in a notarial document and is inscribed in the Instance of Occidental Negros. Inasmuch as this court has declared
registry of deeds of the province." Therefore, this court holds that the that the stock dividends in question were pledged to the bank, it
pledge of the 6,300 stock dividends is valid against the plaintiff for follows that the sale thereof in execution of said judgment is legal and
the reason that the certificate was delivered to the creditor bank, valid.
notwithstanding the fact that the contract does not appear in a public
instrument. V. In the fifth assignment of error, the plaintiff argues that the court
erred in declaring the Philippine National Bank's right to the stock
The plaintiff further contends that the pledge could not legally exist dividends a preferred one. After it has been held that these stock
because the certificate was not the shares themselves, making it dividends had been pledged to the Philippine National Bank and that
understood that a certificate of stock or of stock dividends can not be this contract was prior to the garnishment of the plaintiff, it appear
the subject matter of the contract of pledge or of chattel mortgage. clear that the court violated no law in holding the right of the
Neither is this contention tenable. Certificates of stock or of stock Philippine National Bank, as pledgee, a superior one.
dividends, under the Corporation Law, are quasi negotiable
instruments in the sense that they may be given in pledge or VI. The plaintiff assigns as sixth and last error committed by the court
mortgage to secure an obligation. The question is settled in this wise the fact of its having absolved all the defendants. The case having
by the weight of American authorities and it is the modern doctrine of been decided in favor of the Philippine National Bank, on the grounds
general acceptance by the courts. stated in passing upon the second assignment of error, the absolution
of the defendants is unavoidable, thereby making this last assignment
In view, however, of the fact that certificates of stock, while of error likewise untenable.
not negotiable in the sense of the law merchant, like bills
and notes, are so framed and dealt with as to be For the foregoing consideration the appealed judgment is affirmed,
transferable, when property endorsed, by mere delivery, with the costs of this instance to the plaintiff-appellant. So ordered.
and as they frequently convey, by estoppel against the
corporation or against prior holders, as good a title to the
transferee as if they were negotiable, and inasmuch as a
large commercial use is made of such certificates as
collateral security, and it is to the public interest that such
use should be simplify and facilitated by placing them as
nearly as possible on the plane of commercial paper, they
are often spoken of and treated as quasi negotiable, that is
as having some of the attributes and partaking of the
character of negotiable instruments, in passing from hand
to hand, especially where they are accompanied by an
assignment and power of attorney, executed in blank, to
transfer them to anyone who may obtain possession as
holders, even though such assignment and power are under
seal. (14 C. J., 665, sec 1034; South Bend First Nat. Bank
vs. Lanier, 20 Law. ed., 172; Weniger vs. Success Min. Co.,
227 Fedd., 548; Scott vs. Pequonnock Nat. Bank, 15 Fed.,
494.)

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

IV. In the forth assignment of error, the plaintiff contends that court
erred in not declaring null and void the sale of the 6,300 stock
G.R. No. L-16218 November 29, 1962
ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO
BICERRA, CAYETANO BICERRA, LINDA BICERRA, PIO
BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-
appellees.
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.
Ernesto Parol for defendants-appellees.
MAKALINTAL, J.:
This case is before us on appeal from the order of the Court of First
Instance of Abra dismissing the complaint filed by appellants, upon
motion of defendants-appellate on the ground that the action was
within the exclude (original) jurisdiction of the Justice of the Peace
Court of Lagangilang, of the same province.
The complaint alleges in substance that appellants were the owners
of the house, worth P200.00, built on and owned by them and situated
in the said municipality Lagangilang; that sometime in January 1957
appealed forcibly demolished the house, claiming to be the owners
thereof; that the materials of the house, after it was dismantled, were
placed in the custody of the barrio lieutenant of the place; and that
as a result of appellate's refusal to restore the house or to deliver the
material appellants the latter have suffered actual damages the
amount of P200.00, plus moral and consequential damages in the
amount of P600.00. The relief prayed for is that "the plaintiffs be
declared the owners of the house in question and/or the materials
that resulted in (sic) its dismantling; (and) that the defendants be
orders pay the sum of P200.00, plus P600.00 as damages, the costs."
The issue posed by the parties in this appeal is whether the action
involves title to real property, as appellants contend, and therefore is
cognizable by the Court of First Instance (Sec. 44, par. [b], R.A. 296,
as amended), whether it pertains to the jurisdiction of the Justice of
the Peace Court, as stated in the order appealed from, since there is
no real property litigated, the house having ceased to exist, and the
amount of the demand does exceed P2,000.00 (Sec. 88, id.)1
The dismissal of the complaint was proper. A house is classified as
immovable property by reason of its adherence to the soil on which it
is built (Art. 415, par. 1, Civil Code). This classification holds true
regardless of the fact that the house may be situated on land
belonging to a different owner. But once the house is demolished, as
in this case, it ceases to exist as such and hence its character as an
immovable likewise ceases. It should be noted that the complaint here
is for recovery of damages. This is the only positive relief prayed for
by appellants. To be sure, they also asked that they be declared
owners of the dismantled house and/or of the materials. However,
such declaration in no wise constitutes the relief itself which if granted
by final judgment could be enforceable by execution, but is only
incidental to the real cause of action to recover damages.
The order appealed from is affirmed. The appeal having been
admitted in forma pauperis, no costs are adjudged.
G.R. No. 6295 September 1, 1911
THE UNITED STATES, plaintiff-appellee,
vs.
IGNACIO CARLOS, defendant-appellant.
A. D. Gibbs for appellant.
Acting Attorney-General Harvey for appellee.
PER CURIAM:
The information filed in this case is as follows:
The undersigned accuses Ignacio Carlos of the crime of
theft, committed as follows:
That on, during, and between the 13th day of February,
1909, and the 3d day of March, 1910, in the city of Manila,
Philippine Islands, the said Ignacio Carlos, with intent of
gain and without violence or intimidation against the person
or force against the thing, did then and there, willfully,
unlawfully, and feloniously, take, steal , and carry away two
thousand two hundred and seventy-three (2,273) kilowatts
of electric current, of the value of nine hundred and nine
(909) pesos and twenty (20) cents Philippine currency, the
property of the Manila Electric Railroad and Light Company,
a corporation doing business in the Philippine Islands,
without the consent of the owner thereof; to the damage
and prejudice of the said Manila Electric Railroad and Light
Company in the said sum of nine hundred and nine (909)
pesos and twenty (20) cents Philippine currency, equal to
and equivalent of 4,546 pesetas Philippine currency. All
contrary to law.
Subscribed and sworn to before me this 4th day of March,
1910, in the city of Manila, Philippine Islands, by L. M.
Southworth, prosecuting attorney for the city of Manila..
A preliminary investigation has heretofore been conducted
in this case, under my direction, having examined the
witness under oath, in accordance with the provisions of
section 39 of Act No. 183 of the Philippine Commission, as
amended by section 2 of Act No. 612 of the Philippine
Commission.
.
 Subscribed and sworn to before me this 4th day of March,
1910, in the city of Manila, Philippine Islands, by L. M.
Southworth, prosecuting attorney for the city of Manila.
A warrant for the arrest of the defendant was issued by the Honorable
J. C. Jenkins on the 4th of March and placed in the hands of the
sheriff. The sheriff's return shows that the defendant gave bond for
his appearance. On the 14th of the same month counsel for the
defendant demurrer to the complaint on the following grounds:
1 That the court has no jurisdiction over the person of the
accused nor of the offense charged because the accused
has not been accorded a preliminary investigation or
examination as required by law and no court, magistrate,
or other competent authority has determined from a sworn
complaint or evidence adduced that there is probable cause
to believe that a crime has been committed, or that this
defendant has committed any crime.
2 That the facts charged do not constitute a public offense.
The demurrer was overruled on the same day and the defendant
having refused to plead, a plea of not guilty was entered by direction
of the court for him and the trial proceeded.
After due consideration of all the proofs presented and the arguments
of counsel the trial court found the defendant guilty of the crime
charged and sentenced him to one year eight months and twenty-one
days' presidio correccional, to indemnify the offended party, The
Manila Electric Railroad and Light Company, in the sum of P865.26,
to the corresponding subsidiary imprisonment in case of insolvency
and to the payment of the costs. From this judgment the defendant
appealed and makes the following assignments of error:
I.
The court erred in overruling the objection of the accused
to the jurisdiction of the court, because he was not given a
preliminary investigation as required by law, and in
overruling his demurrer for the same reason.
II.
The court erred in declaring the accused to be guilty, in
view of the evidence submitted.
III.
The court erred in declaring that electrical energy may be
stolen.
IV.
The court erred in not declaring that the plaintiff consented
to the taking of the current.
V.
The court erred in finding the accused guilty of more than
one offense.
VI.
The court erred in condemning the accused to pay P865.26
to the electric company as damages.
Exactly the same question as that raised in the first assignment of
error, was after a through examination and due consideration,
decided adversely to appellant's contention in the case of U.
S. vs. Grant and Kennedy (18 Phil. Rep., 122). No sufficient reason is
presented why we should not follow the doctrine enunciated in that
case.
The question raised in the second assignment of error is purely one
fact. Upon this point the trial court said:
For considerably more than a year previous to the filing of
this complaint the accused had been a consumer of
electricity furnished by the Manila Electric Railroad and
Light Company for a building containing the residence of
the accused and three other residences, and which was
equipped, according to the defendant's testimony, with
thirty electric lights. On March 15, 1909, the representatives
of the company, believing that more light was being used
than their meter showed, installed an additional meter
(Exhibit A) on a pole outside of defendant's house, and both
it and the meter (Exhibit B) which had been previously
installed in the house were read on said date. Exhibit A read
218 kilowatt hours; Exhibit B, 745 kilowatt hours. On March
3, 1910 each was read again, Exhibit A showing 2,718
kilowatt hours and Exhibit B, 968. It is undisputed that the
current which supplied the house passed through both
meters and the city electrician testifies that each meter was
tested on the date of the last reading and was "in good
condition." The result of this registration therefore is that
while the outsider meter (Exhibit A) showed a consumption
in defendant's building of 2,500 kilowatt hours of electricity,
this inside meter (Exhibit B) showed but 223 kilowatt hours.
In other words the actual consumption, according to the
outside meter, was more than ten times as great as that
registered by the one inside. Obviously this difference could
not be due to normal causes, for while the electrician called
by the defense (Lanusa) testifies to the possibility of a
difference between two such meters, he places the extreme
limit of such difference between them 5 per cent. Here, as
we have seen, the difference is more than 900 per cent.
Besides, according to the defendant's electrician, the
outside meter should normally run faster, while according
to the test made in this case the inside meter (Exhibit B)
ran the faster. The city electrician also testifies that the
electric current could have been deflected from the inside
meter by placing thereon a device known as a "jumper"
connecting the two outside wires, and there is other
testimony that there were marks on the insulation of the
meter Exhibit B which showed the use of such a device.
There is a further evidence that the consumption of 223
kilowatt hours, registered by the inside meter would not be
a reasonable amount for the number of lights installed in
defendant's building during the period in question, and the
accused fails to explain why he should have had thirty lights
installed if he needed but four or five.
On the strength of this showing a search warrant was
issued for the examination of defendant's premises and was
duly served by a police officer (Hartpence). He was
accompanied at the time by three employees of the Manila
Electric Railroad and Light Company, and he found there
the accused, his wife and son, and perhaps one or two
others. There is a sharp conflict between the several
spectators on some points but on one there is no dispute.
All agree that the "jumper" (Exhibit C) was found in a
drawer of a small cabinet in the room of defendant's house
where the meter was installed and not more than 20 feet
therefrom. In the absence of a satisfactory explanation this
constituted possession on defendant's part, and such
possession, under the Code of Civil Procedure, section 334
(10), raises the presumption that the accused was the
owner of a device whose only use was to deflect the current
from the meter.
Is there any other "satisfactory explanation" of the
"jumper's" presence? The only one sought to be offered is
the statement by the son of the accused, a boy of twelve
years, that he saw the "jumper" placed there by the witness
Porter, an employee of the Light Company. The boy is the
only witness who so testifies and Porter himself squarely
denies it. We can not agree with counsel for the defense
that the boy's interest in the outcome of this case is less
than that of the witness for the prosecution. It seems to us
that his natural desire to shield his father would far
outweight any interest such an employee like Porter would
have and which, at most, would be merely pecuniary.
There is, however, one witness whom so far as appears,
has no interest in the matter whatsoever. This is officer
Hartpence, who executed the search warrant. He testifies
that after inspecting other articles and places in the building
as he and the other spectators, including the accused,
approached the cabinet in which the "jumper" was found,
the officer's attention was called to the defendant's
appearance and the former noticed that the latter was
becoming nervous. Where the only two witnesses who are
supposed to know anything of the matter thus contradict
each other this item of testimony by the officer is of more
than ordinary significance; for if, as the accused claims, the
"jumper" was placed in the cabinet for the first time by
Porter there would be no occasion for any change of
demeanor on the part of the accused. We do not think that
the officer's declination to wait until defendant should
secure a notary public shows bias. The presence of such an
official was neither required nor authorized by law and the
very efficacy of a search depends upon its swiftness.
We must also agree with the prosecuting attorney that the
attending circumstances do not strengthen the story told by
the boy; that the latter would have been likely to call out at
the time he saw the "jumper" being placed in the drawer,
or at least directed his father's attention to it immediately
instead of waiting, as he says, until the latter was called by
the officer. Finally, to accept the boy's story we must
believe that this company or its representatives deliberately
conspired not merely to lure the defendant into the
commission of a crime but to fasten upon him a crime which
he did not commit and thus convict an innocent man by
perjured evidence. This is a much more serious charge than
that contained in the complaint and should be supported by
very strong corroborating circumstances which we do not
find here. We are, accordingly, unable to consider as
satisfactory defendant's explanation of the "jumper's"
presence.
The only alternative is the conclusion that the "jumper" was
placed there by the accused or by some one acting for him
and that it was the instrument by which the current was
deflected from the matter Exhibit B and the Light Company
deprived of its lawful compensation.
After a careful examination of the entire record we are satisfied
beyond peradventure of a doubt that the proofs presented fully
support the facts as set forth in the foregoing finding.
Counsel for the appellant insists that the only corporeal property can
be the subject of the crime of larceny, and in the support of this
proposition cites several authorities for the purpose of showing that
the only subjects of larceny are tangible, movable, chattels,
something which could be taken in possession and carried away, and
which had some, although trifling, intrinsic value, and also to show
that electricity is an unknown force and can not be a subject of
larceny.
In the U. S. vs. Genato (15 Phi. Rep., 170) the defendant, the owner
of the store situated at No. 154 Escolta, Manila, was using a
contrivance known as a "jumper" on the electric meter installed by
the Manila Electric Railroad and the Light Company. As a result of the
use of this "jumper" the meter, instead of making one revolution in
every four seconds, registered one in seventy-seven seconds, thereby
reducing the current approximately 95 per cent. Genato was charged
in the municipal court with a violation of a certain ordinance of the
city of Manila, and was sentenced to pay a fine of P200. He appealed
to the Court of First Instance, was again tried and sentenced to pay
the same fine. An appeal was taken from the judgment of the Court
of First Instance to the Supreme Court on the ground that the
ordinance in question was null and void. It is true that the only
question directly presented was of the validity of the city ordinance.
The court, after holding that said ordinance was valid, said:
Even without them (ordinances), the right of ownership of
electric current is secured by articles 517 and 518 of the
Penal Code; the application of these articles in case 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
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.
Article 517 of the Penal Code above referred to reads as follows:
The following are guilty of larceny:
(1) Those who with intent of gain and without violence or
intimidation against the person, or force against things,
shall take another's personal property without the owner's
consent.
And article 518 fixes the penalty for larceny in proportion to the value
of the personal property stolen.
It is true that electricity is no longer, as formerly, regarded by
electricians as a fluid, but its manifestation and effects, like those of
gas, may be seen and felt. The true test of what is a proper subject
of larceny seems to be not whether the subject is corporeal, but
whether it is capable of appropriation by another than the owner.
It is well-settled that illuminating gas may be the subject of larceny,
even in the absence of a statute so providing. (Decisions of supreme
court of Spain, January 20, 1887, and April 1, 1897, supra; also
(England) Queen vs. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234;
Queen vs. White, 3 C. & K., 363, 6 Cox C. C., 213; Woods vs. People,
222 III., 293, 7 L. R. A., 520; Commonwealth vs. Shaw, 4 Allen
(Mass), 308; State vs. Wellman, 34 Minn., 221, N. W. Rep., 385, and
25 Cyc., p. 12, note 10.)
In the case of Commonwealth vs. Shaw, supra, the court, speaking
through Chief Justice Bigelow, said:
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. In the present
case it appears that it was the property of the Boston Gas
Light Company; that it was in their possession by being
confined in conduits and tubes which belonged to them,
and that the defendant severed a portion of that which was
in the pipes of the company by taking it into her house and
there consuming it. All this being proved to have been done
by her secretly and with intent to deprive the company of
their property and to appropriate it to her own use, clearly
constitutes the crime of larceny.
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. So no error was committed by the trial court
in holding that electricity is a subject of larceny.
It is urged in support of the fourth assignment of error that if it be
true that the appellant did appropriate to his own use the electricity
as charged he can not be held guilty of larceny for any part of the
electricity thus appropriated, after the first month, for the reason that
the complaining party, the Manila Electric Road and Light Company,
knew of this misappropriation and consented thereto.
The outside meter was installed on March 15, 1909, and read 218
kilowatt hours. On the same day the inside meter was read and
showed 745 kilowatt hours. Both meters were again read on March 3,
1910, and the outside one showed 2,718 kilowatt hours while the one
on the inside only showed 968, the difference in consumption during
this time being 2,277 kilowatt hours. The taking of this current
continued over a period of one year, less twelve days. Assuming that
the company read both meters at the end of each month; that it knew
the defendant was misappropriating the current to that extent; and
that t continued to furnish the current, thereby giving the defendant
an opportunity to continue the misppropriation, still, we think, that
the defendant is criminally responsible for the taking of the whole
amount, 2,277 kilowatt hours. The company had a contract with the
defendant to furnish him with current for lighting purposes. It could
not stop the misappropriation without cutting off the current entirely.
It could not reduce the current so as to just furnish sufficient for the
lighting of two, three, or five lights, as claimed by the defendant that
he used during the most of this time, but the current must always be
sufficiently strong to furnish current for the thirty lights, at any time
the defendant desired to use them.
There is no pretense that the accused was solicited by the company
or any one else to commit the acts charged. At most there was a mere
passive submission on the part of the company that the current should
be taken and no indication that it wished it to be taken, and no
knowledge by the defendant that the company wished him to take the
current, and no mutual understanding between the company and the
defendant, and no measures of inducement of any kind were
employed by the company for the purpose of leading the defendant
into temptation, and no preconcert whatever between him and
company. The original design to misappropriate this current was
formed by the defendant absolutely independent of any acts on the
part of the company or its agents. It is true, no doubt, as a general
proposition, that larceny is not committed when the property is taken
with the consent of its owner. It may be difficult in some instances to
determine whether certain acts constitute, in law, such "consent." But
under the facts in the case at bar it is not difficult to reach a conclusion
that the acts performed by the plaintiff company did not constitute a
consent on its part the defendant take its property. We have been
unable to find a well considered case holding contrary opinion under
similar facts, but, there are numerous cases holding that such acts do
not constitute such consent as would relieve the taker of criminal
responsibility. The fourth assignment of error is, therefore, not well
founded.
It is also contended that since the "jumper" was not used
continuously, the defendant committed not a single offense but a
series of offenses. It is, no doubt, true that the defendant did not
allow the "jumper" to remain in place continuously for any number of
days as the company inspected monthly the inside meter. So the
"jumper" was put on and taken off at least monthly, if not daily, in
order to avoid detection, and while the "jumper" was off the
defendant was not misappropriating the current. The complaint
alleged that the defendant did on, during, and between the 13th day
of February, 1909, and the 3d of March, 1910. willfully, unlawfully,
and feloniously take, steal, and carry away 2,277 kilowatts of electric
current of the value of P909. No demurrer was presented against this
complaint on the ground that more than one crime was charged. The
Government had no opportunity to amend or correct this error, if error
at all. In the case of U. S. vs. Macaspac (12 Phil. Rep., 26), the
defendant received from one Joquina Punu the sum of P31.50, with
the request to deliver it to Marcelina Dy-Oco. The defendant called
upon Marcelina, but instead of delivering the said amount she asked
Marcelina for P30 in the name of Joaquina who had in no way
authorized her to do so. Marcelina gave her P30, believing that
Joaquina had sent for it. Counsel for the defendant insisted that the
complaint charged his client with two different crimes of estafa in
violation of section 11 of General Orders, No. 58. In disposing of this
question this court said:
The said defect constitutes one of the dilatory pleas
indicated by section 21, and the accused ought to have
raised the point before the trial began. Had this been done,
the complaint might have been amended in time, because
it is merely a defect of form easily remedied. . . . Inasmuch
as in the first instance the accused did not make the
corresponding dilatory plea to the irregularity of the
complaint, it must be understood that has waived such
objection, and is not now entitled to raise for the first time
any question in reference thereto when submitting to this
court her assignment of errors. Apart from the fact that the
defense does not pretend that any of the essential rights of
the accused have been injured, the allegation of the defect
above alluded to, which in any case would only affect form
of the complaint, can not justify a reversal of the judgment
appealed from, according to the provisions of section 10 of
General Orders, No. 58.
In the case at bar it is not pointed out wherein any of the essential
rights of the defendant have been prejudiced by reason of the fact
that the complaint covered the entire period. If twelve distinct and
separate complaints had been filed against the defendant, one for
each month, the sum total of the penalties imposed might have been
very much greater than that imposed by the court in this case. The
covering of the entire period by one charge has been beneficial, if
anything, and not prejudicial to the rights of the defendant. The
prosecuting attorney elected to cover the entire period with one
charge and the accused having been convicted for this offense, he
can not again be prosecuted for the stealing of the current at any time
within that period. Then, again, we are of the opinion that the charge
was properly laid. The electricity was stolen from the same person, in
the same manner, and in the same place. It was substantially one
continuous act, although the "jumper" might have been removed and
replaced daily or monthly. The defendant was moved by one impulse
to appropriate to his own use the current, and the means adopted by
him for the taking of the current were in the execution of a general
fraudulent plan.
A person stole gas for the use of a manufactory by means
of pipe, which drew off the gas from the main without
allowing it to pass through the meter. The gas from this
pipe was burnt every day, and turned off at night. The pipe
was never closed at this junction with the main, and
consequently always remained full of gas. It was held, that
if the pipe always remained full, there was, in fact, a
continuous taking of the gas and not a series of separate
talkings. It was held also that even if the pipe had not been
kept full, the taking would have been continuous, as it was
substantially all one transaction. (Regina vs. Firth, L. R., 1
C. C., 172; 11 Cox C. C., 234. Cited on p. 758 of Wharton's
Criminal Law, vol. 1, 10th ed.)
The value of the electricity taken by the defendant was found by the trial court to be P865.26.
This finding is fully in accordance with the evidence presented. So no error was committed
in sentencing the defendant to indemnify the company in this amount, or to suffer the
corresponding subsidiary imprisonment in case of insolvency.
The judgment being strictly in accordance with the law and the merits of the case, same is
hereby affirmed, with costs against the appellant.
G.R. No. 137705 August 22, 2000
SERG'S 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 Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332
and its February 26, 1999 Resolution3 denying reconsideration. The
decretal portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated
February 18, 1998 and Resolution dated March 31, 1998 in Civil Case
No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary
injunction issued on June 15, 1998 is hereby LIFTED."4
In its February 18, 1998 Order, the Regional Trial Court (RTC) of
5
Quezon City (Branch 218)6 issued a Writ of Seizure.7 The March 18,
1998 Resolution8 denied petitioners’ Motion for Special Protective
Order, praying that the deputy sheriff be enjoined "from seizing
immobilized or other real properties in (petitioners’) factory in Cainta,
Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as
follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc.
("PCI Leasing" for short) filed with the RTC-QC a complaint for [a]
sum of money (Annex ‘E’), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing,
respondent judge issued a writ of replevin (Annex ‘B’) directing its
sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary
expenses.
"On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioner’s factory, seized one machinery with [the]
word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective
order (Annex ‘C’), invoking the power of the court to control the
conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of
replevin.
"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground
that the properties [were] still personal and therefore still subject to
seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be
seized [were] immovable as defined in Article 415 of the Civil Code,
the parties’ agreement to the contrary notwithstanding. They argued
that to give effect to the agreement would be prejudicial to innocent
third parties. They further stated that PCI Leasing [was] estopped
from treating these machineries as personal because the contracts in
which the alleged agreement [were] embodied [were] totally sham
and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of
seizure and take possession of the remaining properties. He was able
to take two more, but was prevented by the workers from taking the
rest.
"On April 7, 1998, they went to [the CA] via an original action for
certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the
subject machines were personal property, and that they had only
been leased, not owned, by petitioners. It also ruled that the "words
of the contract are clear and leave no doubt upon the true intention
of the contracting parties." Observing that Petitioner Goquiolay was
an experienced businessman who was "not unfamiliar with the ways
of the trade," it ruled that he "should have realized the import of the
document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt
the trial court in ruling upon the case below, since the merits of the
whole matter are laid down before us via a petition whose sole
purpose is to inquire upon the existence of a grave abuse of discretion
on the part of the [RTC] in issuing the assailed Order and Resolution.
The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract
is being enforced by one, and [its] validity is attacked by the other –
a matter x x x which respondent court is in the best position to
determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
"A. Whether or not the machineries purchased and imported by
SERG’S became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a
lease."12
In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of
a writ of replevin. As a preliminary matter, the Court will also address
briefly the procedural points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly
whether it was being filed under Rule 45 or Rule 65 of the Rules of
Court. It further alleges that the Petition erroneously impleaded Judge
Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is
"Petition for Review on Certiorari." 13
While Judge Laqui should not have been impleaded as a
respondent,14 substantial justice requires that such lapse by itself
should not warrant the dismissal of the present Petition. In this light,
the Court deems it proper to remove, motu proprio, the name of
Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory
were not proper subjects of the Writ issued by the RTC, because they
were in fact real property. Serious policy considerations, they argue,
militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued
for the recovery of personal property only.15 Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the
bond, the court shall issue an order and the corresponding writ of
replevin describing the personal property alleged to be wrongfully
detained and requiring the sheriff forthwith to take such property into
his custody."
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:
"ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;
xxx xxx x x x"
In the present case, the machines that were the subjects of the Writ
of Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become
"immobilized by destination because they are essential and principal
elements in the industry."16 In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.17
Be that as it may, we disagree with the submission of the petitioners
that the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that
a real property be considered as personal.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 the Court upheld the intention of the
parties to treat a house as a personal property because it had been
made the subject of a chattel mortgage. The Court ruled:
"x x x. Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills20 also held that the machinery used in a factory and essential to the
industry, as in the present case, was a proper subject of a writ of replevin
because it was treated as personal property in a contract. Pertinent portions
of the Court’s 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
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
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this
Court under Rule 45.29
Reliance on the Lease Agreement

"12.1 The PROPERTY is, and shall at all times be and remain, personal property
It should be pointed out that the Court in this case may rely on the
notwithstanding that the PROPERTY or any part thereof may now be, or
Lease Agreement, for nothing on record shows that it has been
hereafter become, in any manner affixed or attached to or embedded in, or
nullified or annulled. In fact, petitioners assailed it first only in the RTC
permanently resting upon, real property or any building thereon, or attached in
any manner to what is permanent." proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law

Clearly then, petitioners are estopped from denying the between the parties.

characterization of the subject machines as personal property. Under

the circumstances, they are proper subjects of the Writ of Seizure. Makati Leasing and Finance Corporation30 is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized
It should be stressed, however, that our holding -- that the machines should be the subject machinery as personal property, was also assailed
deemed personal property pursuant to the Lease Agreement – is good only because respondent had allegedly been required "to sign a printed
insofar as the contracting parties are concerned. 22 Hence, while the parties are
form of chattel mortgage which was in a blank form at the time of
bound by the Agreement, third persons acting in good faith are not affected by
signing." The Court rejected the argument and relied on the Deed,
its stipulation characterizing the subject machinery as personal. 23 In any event,
ruling as follows:
there is no showing that any specific third party would be adversely
affected.
"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
Validity of the Lease Agreement
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
In their Memorandum, petitioners contend that the Agreement is a loan and not
mortgage has been annulled. Neither is it disclosed that steps were taken to
a lease.24 Submitting documents supposedly showing that they own the subject
nullify the same. x x x"
machines, petitioners also argue in their Petition that the Agreement suffers
from "intrinsic ambiguity which places in serious doubt the intention of the
Alleged Injustice Committed on the Part of Petitioners
parties and the validity of the lease agreement itself." 25 In their Reply to
respondent’s Comment, they further allege that the Agreement is invalid.26
Petitioners contend that "if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets."31 They also
These arguments are unconvincing. The validity and the nature of the contract
allege that the seizure would nullify all efforts to rehabilitate the corporation.
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,
Petitioners’ arguments do not preclude the implementation of the
they should be threshed out in the trial, not in the proceedings involving the
Writ.1âwphi1 As earlier discussed, law and jurisprudence support its propriety.
issuance of the Writ of Seizure.
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
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy
the remedy under Section 5 of Rule 60, which allows the filing of a counter-
under Rule 60 was that questions involving title to the subject property –
bond. The provision states:
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
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of
was either to post a counter-bond or to question the sufficiency of the the applicant’s bond, or of the surety or sureties thereon, he cannot immediately
plaintiff’s bond. They were not allowed, however, to invoke the title require the return of the property, but if he does not so object, he may, at any
to the subject property. The Court ruled: 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

"In other words, the law does not allow the defendant to file a motion the applicant, in double the value of the property as stated in the applicant’s
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
to dissolve or discharge the writ of seizure (or delivery) on ground of against the adverse party, and by serving a copy bond on the applicant."

insufficiency of the complaint or of the grounds relied upon therefor,

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners.

as in proceedings on preliminary attachment or injunction, and

G.R. No. 168557 February 16, 2007
FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR
BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628 February 16, 2007
NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS,
LAURO C. ANDAYA, in his capacity as the Assessor of the
Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557
and G.R. No. 170628, which were filed by petitioners FELS Energy,
Inc. (FELS) and National Power Corporation (NPC), respectively. The
first is a petition for review on certiorari assailing the August 25, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and
its Resolution dated June 20, 2005; the second, also a petition for
2
review on certiorari, challenges the February 9, 2005 Decision and 3
November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491.
Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar
Energy, Inc. over 3x30 MW diesel engine power barges moored at
Balayan Bay in Calaca, Batangas. The contract, denominated as an
Energy Conversion Agreement (Agreement), was for a period of five
5
years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the
payment of (a) all taxes, import duties, fees, charges and other levies
imposed by the National Government of the Republic of the Philippines
or any agency or instrumentality thereof to which POLAR may be or
become subject to or in relation to the performance of their
obligations under this agreement (other than (i) taxes imposed or
calculated on the basis of the net income of POLAR and Personal
Income Taxes of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges) and
(b) all real estate taxes and assessments, rates and other charges in
respect of the Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the
Agreement to FELS. The NPC initially opposed the assignment of
rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property
taxes on the power barges from Provincial Assessor Lauro C. Andaya
OF of Batangas City. The assessed tax, which likewise covered those due
for 1994, amounted to ₱56,184,088.40 per annum. FELS referred the
matter to NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and authority
to represent it in any conference regarding the real property
assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of
the Provincial Assessor’s decision to assess real property taxes on the
power barges. However, the motion was denied on September 22,
1995, and the Provincial Assessor advised NPC to pay the
assessment.8 This prompted NPC to file a petition with the Local Board
of Assessment Appeals (LBAA) for the setting aside of the assessment
and the declaration of the barges as non-taxable items; it also prayed
that should LBAA find the barges to be taxable, the Provincial Assessor
be directed to make the necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the
barges were real property for purposes of taxation under Section
199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation,
informing the LBAA that the Department of Finance (DOF) had
rendered an opinion10 dated May 20, 1996, where it is clearly stated
that power barges are not real property subject to real property
assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the
petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay
the real estate tax in the amount of ₱56,184,088.40, for the year
1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be
classified as movable or personal property, are nevertheless
considered real property for taxation purposes because they are
installed at a specific location with a character of permanency. The
LBAA also pointed out that the owner of the barges–FELS, a private
corporation–is the one being taxed, not NPC. A mere agreement
making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege
can only be granted to NPC and cannot be extended to FELS. Finally,
the LBAA also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of
Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued
13
a Notice of Levy and Warrant by Distraint over the power barges,
seeking to collect real property taxes amounting to ₱232,602,125.91
as of July 31, 1996. The notice and warrant was officially served to
FELS on November 8, 1996. It then filed a Motion to Lift Levy dated
November 14, 1996, praying that the Provincial Assessor be further
restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy
and distraint on the properties of FELS in order not to preempt and
render ineffectual, nugatory and illusory any resolution or judgment
which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7,
1998 in the proceedings before the CBAA. This was approved by the
CBAA in an Order 16
dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several
motions to admit bond to guarantee the payment of real property
taxes assessed by the Provincial Assessor (in the event that the
judgment be unfavorable to them). The bonds were duly approved by
the CBAA.
On April 6, 2000, the CBAA rendered a Decision 17
finding the power
barges exempt from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment
Appeals of the Province of Batangas is hereby reversed. Respondent-
appellee Provincial Assessor of the Province of Batangas is hereby
ordered to drop subject property under ARP/Tax Declaration No. 018-
00958 from the List of Taxable Properties in the Assessment Roll. The
Provincial Treasurer of Batangas is hereby directed to act accordingly.
SO ORDERED. 18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power
barges belong to NPC; since they are actually, directly and exclusively
used by it, the power barges are covered by the exemptions under
Section 234(c) of R.A. No. 7160. As to the other jurisdictional issue,
19
the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206
of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution 20
on July 31,
2001 reversing its earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board
that:
(a) The decision of the Board dated 6 April 2000 is hereby
reversed.
(b) The petition of FELS, as well as the intervention of NPC,
is dismissed.
(c) The resolution of the Local Board of Assessment Appeals
of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the
Provincial Assessor of Batangas is likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were
timely opposed by the Provincial Assessor. The CBAA denied the said
motions in a Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed
as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition,
docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for
Consolidation in CA-G.R. SP No. 67490 praying for the consolidation
of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated
February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CA-G.R. SP No. 67491, since it is the
ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25,
2004, the Twelfth Division of the appellate court rendered judgment
in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and
the assailed Resolutions dated July 31, 2001 and October 19, 2001 of
the Central Board of Assessment Appeals are AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration
seeking the reversal of the appellate court’s decision in CA-G.R. SP
No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004
before this Court, docketed as G.R. No. 165113, assailing the
appellate court’s decision in CA-G.R. SP No. 67490. The petition was,
however, denied in this Court’s Resolution25 of November 8, 2004, for
NPC’s failure to sufficiently show that the CA committed any reversible
error in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a
Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP
No. 67491. It held that the right to question the assessment of the
Provincial Assessor had already prescribed upon the failure of FELS to
appeal the disputed assessment to the LBAA within the period
prescribed by law. Since FELS had lost the right to question the
assessment, the right of the Provincial Government to collect the tax
was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R.
SP No. 67491. The motion was denied in a Resolution27 dated
November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490
had been earlier denied for lack of merit in a Resolution 28
dated June
20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No.
168557 before this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal
properties and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether
they are exempt from real estate tax under Section 234 of the Local
Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real
estate tax, whether or not it should be NPC which should be made to
pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties,
whether or not the same is subject to depreciation just like any other
personal properties.
E.
Whether the right of the petitioner to question the patently null and
void real property tax assessment on the petitioner’s personal
properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this
Court (G.R. No. 170628), indicating the following errors committed by
the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
APPEAL TO THE LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the
Court ordered the consolidation of the two cases in a
Resolution dated March 8, 2006.1awphi1.net
31
In an earlier Resolution dated February 1, 2006, the Court had
required the parties to submit their respective Memoranda within 30
days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxes—the
lifeblood of our economy—are involved in the present controversy,
the Court was prompted to dispense with the said pleadings, with the
end view of advancing the interests of justice and avoiding further
delay.
In both petitions, FELS and NPC maintain that the appeal before the
LBAA was not time-barred. FELS argues that when NPC moved to have
the assessment reconsidered on September 7, 1995, the running of
the period to file an appeal with the LBAA was tolled. For its part, NPC
posits that the 60-day period for appealing to the LBAA should be
reckoned from its receipt of the denial of its motion for
reconsideration.
Petitioners’ contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. – Any owner or
person having legal interest in the property who is not satisfied with
the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date
of receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of
the tax declarations and such affidavits or documents submitted in
support of the appeal.
We note that the notice of assessment which the Provincial Assessor
sent to FELS on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty
(60) days from the date of receipt hereof, appeal to the Board of
Assessment Appeals of the province by filing a petition under oath on
the form prescribed for the purpose, together with copies of ARP/Tax
Declaration and such affidavits or documents submitted in support of
the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated
in the notice), NPC opted to file a motion for reconsideration of the
Provincial Assessor’s decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling
or action of the provincial, city or municipal assessor in the
assessment of the property. It follows then that the determination
made by the respondent Provincial Assessor with regard to the
taxability of the subject real properties falls within its power to assess
properties for taxation purposes subject to appeal before the LBAA. 33
We fully agree with the rationalization of the CA in both CA-G.R. SP
No. 67490 and CA-G.R. SP No. 67491. The two divisions of the
appellate court cited the case of Callanta v. Office of the
Ombudsman, where we ruled that under Section 226 of R.A. No
34
7160, the last action of the local assessor on a particular assessment
35
shall be the notice of assessment; it is this last action which gives the
owner of the property the right to appeal to the LBAA. The procedure
likewise does not permit the property owner the remedy of filing a
motion for reconsideration before the local assessor. The pertinent
holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners
should have brought their appeals before the LBAA. Unfortunately,
despite the advice to this effect contained in their respective notices
of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not
sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently
courts a graft-prone situation where values of real property may be
initially set unreasonably high, and then subsequently reduced upon
the request of a property owner. In the latter instance, allusions of a
possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be
prevented and excised from our system. 36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor
sends a notice to the owner or lawful possessor of real property of its
revised assessed value, the former shall no longer have any
jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is
the LBAA as provided by law. It follows ineluctably that the 60-day
period for making the appeal to the LBAA runs without interruption.
This is what We held in SP 67490 and reaffirm today in SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of
the local government to collect the taxes due with respect to the
taxpayer’s property becomes absolute upon the expiration of the
period to appeal.38 It also bears stressing that the taxpayer’s failure
to question the assessment in the LBAA renders the assessment of
the local assessor final, executory and demandable, thus, precluding
the taxpayer from questioning the correctness of the assessment, or
from invoking any defense that would reopen the question of its
liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners’
appeal for having been filed out of time; the CBAA and the appellate
court were likewise correct in affirming the dismissal. Elementary is
the rule that the perfection of an appeal within the period therefor is
both mandatory and jurisdictional, and failure in this regard renders
the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the
instant petition is barred by res judicata; that the final and executory
judgment in G.R. No. 165113 (where there was a final determination
on the issue of prescription), effectively precludes the claims herein;
and that the filing of the instant petition after an adverse judgment in
G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is
completely misplaced since it was not a party to the erroneous petition
which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never
acquired jurisdiction over it. As to the issue of forum shopping,
petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is
founded upon two grounds embodied in various maxims of common
law, namely: (1) public policy and necessity, which makes it to the
interest of the
State that there should be an end to litigation – republicae ut sit litium;
and (2) the hardship on the individual of being vexed twice for the
same cause – nemo debet bis vexari et eadem causa. A conflicting
doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious
disposition on the part of suitors to the preservation of the public
tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon
Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree – rendered upon the merits,
without fraud or collusion, by a court of competent jurisdiction acting
upon a matter within its authority – is conclusive on the rights of the
parties and their privies. This ruling holds in all other actions or suits,
in the same or any other judicial tribunal of concurrent jurisdiction,
touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will
not allow the same parties or their privies to litigate anew a question
once it has been considered and decided with finality. Litigations must
end and terminate sometime and somewhere. The effective and
efficient administration of justice requires that once a judgment has
become final, the prevailing party should not be deprived of the fruits
of the verdict by subsequent suits on the same issues filed by the
same parties.
This is in accordance with the doctrine of res judicata which has the
following elements: (1) the former judgment must be final; (2) the
court which rendered it had jurisdiction over the subject matter and
the parties; (3) the judgment must be on the merits; and (4) there
must be between the first and the second actions, identity of parties,
subject matter and causes of action. The application of the doctrine
of res judicata does not require absolute identity of parties but merely
substantial identity of parties. There is substantial identity of parties
when there is community of interest or privity of interest between a
party in the first and a party in the second case even if the first case
did not implead the latter. 43
To recall, FELS gave NPC the full power and authority to represent it
in any proceeding regarding real property assessment. Therefore,
when petitioner NPC filed its petition for review docketed as G.R. No.
165113, it did so not only on its behalf but also on behalf of FELS.
Moreover, the assailed decision in the earlier petition for review filed
in this Court was the decision of the appellate court in CA-G.R. SP No.
67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity
of interest. In fine, FELS and NPC are substantially "identical parties"
as to warrant the application of res judicata. FELS’s argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor.
Forum shopping exists when, as a result of an adverse judgment in
one forum, a party seeks another and possibly favorable judgment in
another forum other than by appeal or special civil action or certiorari.
There is also forum shopping when a party institutes two or more
actions or proceedings grounded on the same cause, on the gamble
that one or the other court would make a favorable disposition. 44
Petitioner FELS alleges that there is no forum shopping since the
elements of res judicata are not present in the cases at bar; however,
as already discussed, res judicata may be properly applied herein.
Petitioners engaged in forum shopping when they filed G.R. Nos.
168557 and 170628 after the petition for review in G.R. No. 165116.
Indeed, petitioners went from one court to another trying to get a
favorable decision from one of the tribunals which allowed them to
pursue their cases.
It must be stressed that an important factor in determining the
existence of forum shopping is the vexation caused to the courts and
the parties-litigants by the filing of similar cases to claim substantially
the same reliefs.45 The rationale against forum shopping is that a
party should not be allowed to pursue simultaneous remedies in two
different fora. Filing multiple petitions or complaints constitutes abuse
of court processes, which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the
congestion of the heavily burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties,
or at least such parties as represent the same interests in both actions,
(b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and (c) the identity of the two preceding
particulars is such that any judgment rendered in the pending case,
regardless of which party is successful, would amount to res judicata
in the other.47
Having found that the elements of res judicata and forum shopping
are present in the consolidated cases, a discussion of the other issues
is no longer necessary. Nevertheless, for the peace and contentment
of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges
are real property and are thus subject to real property tax. This is also
the inevitable conclusion, considering that G.R. No. 165113 was
dismissed for failure to sufficiently show any reversible error. Tax
assessments by tax examiners are presumed correct and made in
good faith, with the taxpayer having the burden of proving
otherwise.48 Besides, factual findings of administrative bodies, which
have acquired expertise in their field, are generally binding and
conclusive upon the Court; we will not assume to interfere with the
sensible exercise of the judgment of men especially trained in
appraising property. Where the judicial mind is left in doubt, it is a
sound policy to leave the assessment undisturbed.49 We find no
reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City
of New York, et al.,50 a power company brought an action to review
property tax assessment. On the city’s motion to dismiss, the Supreme
Court of New York held that the barges on which were mounted gas
turbine power plants designated to generate electrical power, the fuel
oil barges which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to real
property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks
and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of
machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece
of land and which tend directly to meet the needs of said industry or
work.51
Petitioners maintain nevertheless that the power barges are exempt
from real estate tax under Section 234 (c) of R.A. No. 7160 because
they are actually, directly and exclusively used by petitioner NPC, a
government- owned and controlled corporation engaged in the
supply, generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the
taxable properties is petitioner FELS, which in fine, is the entity being
taxed by the local government. As stipulated under Section 2.11,
Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges
and all the fixtures, fittings, machinery and equipment on the Site
used in connection with the Power Barges which have been supplied
by it at its own cost. POLAR shall operate, manage and maintain the
Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.52
It follows then that FELS cannot escape liability from the payment of
realty taxes by invoking its exemption in Section 234 (c) of R.A. No.
7160, which reads:
SECTION 234. Exemptions from Real Property Tax. – The following
are exempted from payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly
and exclusively used by the government owned or controlled
corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement
provides:
OPERATION. POLAR undertakes that until the end of the Lease
Period, subject to the supply of the necessary Fuel pursuant to Article
6 and to the other provisions hereof, it will operate the Power Barges
to convert such Fuel into electricity in accordance with Part A of Article
7.53
It is a basic rule that obligations arising from a contract have the force
of law between the parties. Not being contrary to law, morals, good
customs, public order or public policy, the parties to the contract are
bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the
rule and exemption is the exception.55 The law does not look with
favor on tax exemptions and the entity that would seek to be thus
privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.56 Thus, applying the rule of strict
construction of laws granting tax exemptions, and the rule that doubts
should be resolved in favor of provincial corporations, we hold that
FELS is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the
Agreement, that it shall be responsible for the payment of all real
estate taxes and assessments, does not justify the exemption. The
privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person
not privy thereto, in this case, the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has
seriously resulted in the local government’s deprivation of revenues.
The power to tax is an incident of sovereignty and is unlimited in its
magnitude, acknowledging in its very nature no perimeter so that
security against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituency who are to
pay for it.57 The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion. This consideration
is consistent with the State policy to guarantee the autonomy of local
governments58 and the objective of the Local Government Code that
they enjoy genuine and meaningful local autonomy to empower them
to achieve their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.59
In conclusion, we reiterate that the power to tax is the most potent
instrument to raise the needed revenues to finance and support
myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions
and Resolutions AFFIRMED.
SO ORDERED.
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 CA-G.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. 1avvphil.net
3
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 caller’s 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 Baynet’s 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 warrants issued by the RTC of Makati, Branch
10
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 caller’s
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 PLDT’s intangible telephone
services/facilities allows electronic voice signals to pass through the
same, and ultimately to the called party’s 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 latter’s consent.
The prosecution pointed out that the accused, as well as the movant,
were paid in exchange for their illegal appropriation and use of PLDT’s
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 Order 16
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 Reconsideration 17
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 movant’s
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 company’s business is the
production and distribution of electricity; a gas company’s business is
the production and/or distribution of gas (as fuel); while a water
company’s 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 PLDT’s 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 day’s 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. Petitioner’s 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
party’s 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 PLDT’s 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, PLDT’s 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. A special civil action for certiorari is also available where
35
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 offense 38
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 latter’s consent.
The provision was taken from Article 530 of the Spanish Penal Code
which reads:
1. Los que con ánimo de lucrarse, y sin violencia o intimidación en las
personas ni fuerza en las cosas, toman las cosas muebles ajenas sin
la voluntad de su dueño.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 sustracción 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 apropiación. El Codigo emplea la
expresión "cosas mueble" en el sentido de cosa que es susceptible de
ser llevada del lugar donde se encuentra, como dinero, joyas, ropas,
etcétera, 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 offender’s 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.
63
Menagas, 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-à-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 1960’s and 1970’s, 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. In the case of PLDT, it is to render local and international
75
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. Neither is the unauthorized use of the equipment and
77
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 IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
obtains services known by him to be available only for compensation assailed Orders of the Regional Trial Court and the Decision of the
by deception, threat, false token or other means to avoid payment for Court of Appeals are REVERSED and SET ASIDE. The Regional Trial
the services …" Court is directed to issue an order granting the motion of the
petitioner to quash the Amended Information.
In the Philippines, Congress has not amended the Revised Penal Code
to include theft of services or theft of business as felonies. Instead, it SO ORDERED.
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.