G.R. No.
L-20329 March 16, 1923 After said document had been duly acknowledge
THE STANDARD OIL COMPANY OF NEW
YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of
the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas
for respondent.
STREET, J.:
This cause is before us upon demurrer interposed
by the respondent, Joaquin Jaramillo, register of
deeds of the City of Manila, to an original petition of
the Standard Oil Company of New York, seeking a
peremptory mandamus to compel the respondent
to record in the proper register a document
purporting to be a chattel mortgage executed in the
City of Manila by Gervasia de la Rosa, Vda. de
Vera, in favor of the Standard Oil Company of New
York. (on last part of facts)
It appears from the petition that on November 27,
1922, Gervasia de la Rosa, Vda. de Vera, was the
lessee of a parcel of land situated in the City of
Manila and owner of the house of strong materials
built thereon, upon which date she executed a
document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of
mortgage both the leasehold interest in said lot and
the building which stands thereon.
The clauses in said document describing the
property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby
conveys and transfer to the mortgage, by
way of mortgage, the following described
personal property, situated in the City of
Manila, and now in possession of the
mortgagor, to wit:
(1) All of the right, title, and interest of the
mortgagor in and to the contract of lease
hereinabove referred to, and in and to the
premises the subject of the said lease;
(2) The building, property of the mortgagor,
situated on the aforesaid leased premises.
and delivered, the petitioner caused the same to be
presented to the respondent, Joaquin Jaramillo, as
register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of
record of chattel mortgages. Upon examination of
the instrument, the respondent was of the opinion
that it was not a chattel mortgage, for the reason
that the interest therein mortgaged did not appear
to be personal property, within the meaning of the
Chattel Mortgage Law, and registration was refused
on this ground only.
We are of the opinion that the position taken by the
respondent is untenable; and it is his duty to accept
the proper fee and place the instrument on record.
The duties of a register of deeds in respect to the
registration of chattel mortgage are of a purely
ministerial character; and no provision of law can
be cited which confers upon him any judicial or
quasi-judicial power to determine the nature of any
document of which registration is sought as a
chattel mortgage.
The original provisions touching this matter are
contained in section 15 of the Chattel Mortgage
Law (Act No. 1508), as amended by Act No. 2496;
but these have been transferred to section 198 of
the Administrative Code, where they are now
found. There is nothing in any of these provisions
conferring upon the register of deeds any authority
whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage.
His duties in respect to such instruments are
ministerial only. The efficacy of the act of recording
a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of
the contract, and the legal effects of the contract
must be discovered in the instrument itself in
relation with the fact of notice. Registration adds
nothing to the instrument, considered as a source
of title, and affects nobody's rights except as a
specifies of notice.
Articles 334 and 335 of the Civil Code supply no
absolute criterion for discriminating between real
property and personal property for purpose of the
application of the Chattel Mortgage Law. Those
articles state rules which, considered as a general
doctrine, are law in this jurisdiction; but it must not
be forgotten that under given conditions property
may have character different from that imputed to it
in said articles. It is undeniable that the parties to a
contract may by agreement treat as personal
1
property that which by nature would be real
property; and it is a familiar phenomenon to see
things classed as real property for purposes of
taxation which on general principle might be
considered personal property. Other situations are
constantly arising, and from time to time are
presented to this court, in which the proper
classification of one thing or another as real or
personal property may be said to be doubtful.
The point submitted to us in this case was
determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable
James A. Ostrand, now a Justice of this Court, but
acting at that time in the capacity of Judge of the
fourth branch of the Court of First Instance of the
Ninth Judicial District, in the City of Manila; and little
of value can be here added to the observations
contained in said ruling. We accordingly quote
therefrom as follows:
It is unnecessary here to determine whether
or not the property described in the
document in question is real or personal;
the discussion may be confined to the point
as to whether a register of deeds has
authority to deny the registration of a
document purporting to be a chattel
mortgage and executed in the manner and
form prescribed by the Chattel Mortgage
Law.
Then, after quoting section 5 of the Chattel
Mortgage Law (Act No. 1508), his Honor continued:
Based principally upon the provisions of
section quoted the Attorney-General of the
Philippine Islands, in an opinion dated
August 11, 1909, held that a register of
deeds has no authority to pass upon the
capacity of the parties to a chattel mortgage
which is presented to him for record. A
fortiori a register of deeds can have no
authority to pass upon the character of the
property sought to be encumbered by a
chattel mortgage. Of course, if the
mortgaged property is real instead of
personal the chattel mortgage would no
doubt be held ineffective as against third
parties, but this is a question to be
determined by the courts of justice and not
by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co.
and Williamson (37 Phil., 644), this court held that
where the interest conveyed is of the nature of real,
property, the placing of the document on record in
the chattel mortgage register is a futile act; but that
decision is not decisive of the question now before
us, which has reference to the function of the
register of deeds in placing the document on
record.
In the light of what has been said it becomes
unnecessary for us to pass upon the point whether
the interests conveyed in the instrument now in
question are real or personal; and we declare it to
be the duty of the register of deeds to accept the
estimate placed upon the document by the
petitioner and to register it, upon payment of the
proper fee.
The demurrer is overruled; and unless within the
period of five days from the date of the notification
hereof, the respondent shall interpose a sufficient
answer to the petition, the writ of mandamus will be
issued, as prayed, but without costs. So ordered.
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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
2
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
3
plant, but not when so placed by a tenant, a
usufructuary, or any person having only a
temporary right, unless such person acted as the
agent of the owner. In the opinion written by Chief
Justice White, whose knowledge of the Civil Law is
well known, it was in part said:
To determine this question involves fixing
the nature and character of the property
from the point of view of the rights of Valdes
and its nature and character from the point
of view of Nevers & Callaghan as a
judgment creditor of the Altagracia
Company and the rights derived by them
from the execution levied on the machinery
placed by the corporation in the plant.
Following the Code Napoleon, the Porto
Rican Code treats as immovable (real)
property, not only land and buildings, but
also attributes immovability in some cases
to property of a movable nature, that is,
personal property, because of the
destination to which it is applied. "Things,"
says section 334 of the Porto Rican Code,
"may be immovable either by their own
nature or by their destination or the object to
which they are applicable." Numerous
illustrations are given in the fifth subdivision
of section 335, which is as follows:
"Machinery, vessels, instruments or
implements intended by the owner of the
tenements for the industrial or works that
they may carry on in any building or upon
any land and which tend directly to meet the
needs of the said industry or works." (See
also Code Nap., articles 516, 518 et seq. to
and inclusive of article 534, recapitulating
the things which, though in themselves
movable, may be immobilized.) So far as
the subject-matter with which we are
dealing — machinery placed in the plant —
it is plain, both under the provisions of the
Porto Rican Law and of the Code Napoleon,
that machinery which is movable in its
nature only becomes immobilized when
placed in a plant by the owner of the
property or plant. Such result would not be
accomplished, therefore, by the placing of
machinery in a plant by a tenant or a
usufructuary or any person having only a
temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section
164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code
Napoleon under articles 522 et seq.) The
distinction rests, as pointed out by
Demolombe, upon the fact that one only
having a temporary right to the possession
or enjoyment of property is not presumed by
the law to have applied movable property
belonging to him so as to deprive him of it
by causing it by an act of immobilization to
become the property of another. It follows
that abstractly speaking the machinery put
by the Altagracia Company in the plant
belonging to Sanchez did not lose its
character of movable property and become
immovable by destination. But in the
concrete immobilization took place because
of the express provisions of the lease under
which the Altagracia held, since the lease in
substance required the putting in of
improved machinery, deprived the tenant of
any right to charge against the lessor the
cost such machinery, and it was expressly
stipulated that the machinery so put in
should become a part of the plant belonging
to the owner without compensation to the
lessee. Under such conditions the tenant in
putting in the machinery was acting but as
the agent of the owner in compliance with
the obligations resting upon him, and the
immobilization of the machinery which
resulted arose in legal effect from the act of
the owner in giving by contract a permanent
destination to the machinery.
xxx xxx xxx
The machinery levied upon by Nevers &
Callaghan, that is, that which was placed in
the plant by the Altagracia Company, being,
as regards Nevers & Callaghan, movable
property, it follows that they had the right to
levy on it under the execution upon the
judgment in their favor, and the exercise of
that right did not in a legal sense conflict
with the claim of Valdes, since as to him the
property was a part of the realty which, as
the result of his obligations under the lease,
he could not, for the purpose of collecting
his debt, proceed separately against.
(Valdes vs. Central Altagracia [192], 225
U.S., 58.)
Finding no reversible error in the record, the
judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.
4
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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:
5
 1. REALTY; MORTGAGE OF REAL
ESTATE INCLUDES IMPROVEMENTS
AND FIXTURES. — It is a rule, established
by the Civil Code and also by the Mortgage
Law, with which the decisions of the courts
of the United States are in accord, that in a
mortgage of real estate, the improvements
on the same are included; therefore, all
objects permanently attached to a
mortgaged building or land, although they
may have been placed there after the
mortgage was constituted, are also
included. (Arts. 110 and 111 of the
Mortgage Law, and 1877 of the Civil Code;
decision of U.S. Supreme Court in the
matter of Royal Insurance Co. vs. R. Miller,
liquidator, and Amadeo [26 Sup. Ct. Rep.,
46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION
OF MACHINERY, ETC. — In order that it
may be understood that the machinery and
other objects placed upon and used in
connection with a mortgaged estate are
excluded from the mortgage, when it was
stated in the mortgage that the
improvements, buildings, and machinery
that existed thereon were also
comprehended, it is indispensable that the
exclusion thereof be stipulated between the
contracting parties.
The appellant contends that the installation of the
machinery and equipment claimed by him in the
sugar central of the Mabalacat Sugar Company,
Inc., was not permanent in character inasmuch as
B.A. Green, in proposing to him to advance the
money for the purchase thereof, made it appear in
the letter, Exhibit E, that in case B.A. Green should
fail to obtain an additional loan from the defendants
Cu Unjieng e Hijos, said machinery and equipment
would become security therefor, said B.A. Green
binding himself not to mortgage nor encumber them
to anybody until said plaintiff be fully reimbursed for
the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in
question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the
Mabalacat Sugar Co., Inc., the latter became owner
of said machinery and equipment, otherwise B.A.
Green, as such president, could not have offered
them to the plaintiff as security for the payment of
his credit.
Article 334, paragraph 5, of the Civil Code gives the
character of real property to "machinery, liquid
containers, instruments or implements intended by
the owner of any building or land for use in
connection with any industry or trade being carried
on therein and which are expressly adapted to
meet the requirements of such trade or industry.
If the installation of the machinery and
equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of
less capacity existing therein, for its sugar
industry, converted them into real property by
reason of their purpose, it cannot be said that
their incorporation therewith was not
permanent in character because, as essential
and principal elements of a sugar central,
without them the sugar central would be unable
to function or carry on the industrial purpose
for which it was established. Inasmuch as the
central is permanent in character, the
necessary machinery and equipment installed
for carrying on the sugar industry for which it
has been established must necessarily be
permanent.
Furthermore, the fact that B.A. Green bound
himself to the plaintiff B.H. Berkenkotter to hold
said machinery and equipment as security for the
payment of the latter's credit and to refrain from
mortgaging or otherwise encumbering them until
Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of
the incorporation of said machinery and equipment
with the sugar central of the Mabalacat Sugar Co.,
Inc., as nothing could prevent B.A. Green from
giving them as security at least under a second
mortgage.
As to the alleged sale of said machinery and
equipment to the plaintiff and appellant after they
had been permanently incorporated with sugar
central of the Mabalacat Sugar Co., Inc., and while
the mortgage constituted on said sugar central to
Cu Unjieng e Hijos remained in force, only the right
of redemption of the vendor Mabalacat Sugar Co.,
Inc., in the sugar central with which said machinery
and equipment had been incorporated, was
transferred thereby, subject to the right of the
defendants Cu Unjieng e Hijos under the first
mortgage.
For the foregoing considerations, we are of the
opinion and so hold: (1) That the installation of a
6
machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the
purpose of carrying out the industrial functions of
the latter and increasing production, constitutes a
permanent improvement on said sugar central and
subjects said machinery and equipment to the
mortgage constituted thereon (article 1877, Civil
Code); (2) that the fact that the purchaser of the
new machinery and equipment has bound himself
to the person supplying him the purchase money to
hold them as security for the payment of the latter's
credit, and to refrain from mortgaging or otherwise
encumbering them does not alter the permanent
character of the incorporation of said machinery
and equipment with the central; and (3) that the
sale of the machinery and equipment in question by
the purchaser who was supplied the purchase
money, as a loan, to the person who supplied the
money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor
with ownership of said machinery and equipment
but simply with the right of redemption.
Wherefore, finding no error in the appealed
judgment, it is affirmed in all its parts, with costs to
the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
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- Davao City and Kibawe, Bukidnon Province;
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;
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";
7
 (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
8
 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.
9
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.
10
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
11
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-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
12
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. 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)2in 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,5 the Regional Trial
Court (RTC) of 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
13
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.15Section 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."
14
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.18After 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
"12.1 The PROPERTY is, and shall at all times be
and remain, personal property notwithstanding that
the PROPERTY or any part thereof may now be, or
hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting
upon, real property or any building thereon, or
attached in any manner to what is permanent."
Clearly then, petitioners are estopped from denying
the characterization of the subject machines as
personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding --
that the machines should be deemed personal
property pursuant to the Lease Agreement – is
good only insofar as the contracting parties are
concerned.22 Hence, while the parties are bound by
the Agreement, third persons acting in good faith
are not affected by its stipulation characterizing the
subject machinery as personal.23 In any event,
there is no showing that any specific third party
would be adversely affected.
15
 Validity of the Lease Agreement
In their Memorandum, petitioners contend that the
Agreement is a loan and not a lease.24 Submitting
documents supposedly showing that they own the
subject machines, petitioners also argue in their
Petition that the Agreement suffers from "intrinsic
ambiguity which places in serious doubt the
intention of the parties and the validity of the lease
agreement itself."25 In their Reply to respondent’s
Comment, they further allege that the Agreement is
invalid.26
These arguments are unconvincing. The validity
and the nature of the contract are the lis mota of
the civil action pending before the RTC. A
resolution of these questions, therefore, is
effectively a resolution of the merits of the case.
Hence, they should be threshed out in the trial, not
in the proceedings involving the issuance of the
Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court
explained that the policy under Rule 60 was that
questions involving title to the subject property –
questions which petitioners are now raising --
should be determined in the trial. In that case, the
Court noted that the remedy of defendants under
Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiff’s bond. They
were not allowed, however, to invoke the title to the
subject property. The Court ruled:
"In other words, the law does not allow the
defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on
preliminary attachment or injunction, and thereby
put at issue the matter of the title or right of
possession over the specific chattel being
replevied, the policy apparently being that said
matter should be ventilated and determined only at
the trial on the merits."28
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
It should be pointed out that the Court in this case
may rely on the Lease Agreement, for nothing on
record shows that it has been nullified or annulled.
In fact, petitioners assailed it first only in the RTC
proceedings, which had ironically been instituted by
respondent. Accordingly, it must be presumed valid
and binding as the law between the parties.
Makati Leasing and Finance Corporation30 is also
instructive on this point. In that case, the Deed of
Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed
because respondent had allegedly been required
"to sign a printed form of chattel mortgage which
was in a blank form at the time of signing." The
Court rejected the argument and relied on the
Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is
true, such fact alone does not render a contract
void ab initio, but can only be a ground for
rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither
is it disclosed that steps were taken to nullify the
same. x x x"
Alleged Injustice Committed on the Part of
Petitioners
Petitioners contend that "if the Court allows these
machineries to be seized, then its workers would be
out of work and thrown into the streets."31 They also
allege that the seizure would nullify all efforts to
rehabilitate the corporation.
Petitioners’ arguments do not preclude the
implementation of the Writ.1âwphi1 As earlier
discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned
consequences, if they come true, should not be
blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under
Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party
objects to the sufficiency of the applicant’s bond, or
of the surety or sureties thereon, he cannot
immediately require the return of the property, but if
he does not so object, he may, at any time before
the delivery of the property to the applicant, require
the return thereof, by filing with the court where the
16
action is pending a bond executed to 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
against the adverse party, and by serving a copy
bond on the applicant."
WHEREFORE, the Petition is DENIED and the
assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Digest :
Serg's v. PCI Leasing
Serg’s Products, Inc. vs. PCI Leasing G.R. No.
137705. August 22, 2000
FACTS:
PCI Leasing and Finance filed a complaint for sum
of money, with an application for a writ of replevin.
Judge issued a writ of replevin 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.
The sheriff proceeded to petitioner's factory, seized
one machinery, with word that he would return for
other machineries.
Petitioner (Serg’s Products) filed a motion for
special protective order to defer enforcement of the
writ of replevin.
PCI Leasing opposed the motion on the ground that
the properties were still personal and therefore can
still be subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be
seized were immovable as defined in Article 415 of
the Civil Code.
Sheriff was still able to take possession of two more
machineries
In its decision on the original action for certiorari
filed by the Petitioner, the appellate court, Citing the
Agreement of the parties, held that the subject
machines were personal property, and that they
had only been leased, not owned, by petitioners;
and ruled that the "words of the contract are clear
and leave no doubt upon the true intention of the
contracting parties."
ISSUE: Whether or not the machineries became
real property by virtue of immobilization.
Ruling:
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.
Writ of Replevin: Rule 60 of the Rules of Court
provides that writs of replevin are issued for the
recovery of personal property only.
Article 415 (5) of the Civil Code provides that
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
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.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.”
However, contracting parties may validly stipulate
that a real property be considered as personal.
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.
Section 12.1 of the Agreement between the parties
provides “The PROPERTY is, and shall at all times
be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting
upon, real property or any building thereon, or
attached in any manner to what is permanent.”
17
The machines are personal property and they are
proper subjects of the Writ of Replevin
------------------------------------------------------------------
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO
SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals
(CA-G.R. No. 27824-R) for the reason that only
questions of law are involved.
This case was originally commenced by
defendants-appellants in the municipal court of
Manila in Civil Case No. 43073, for ejectment.
Having lost therein, defendants-appellants
appealed to the court a quo (Civil Case No. 30993)
which also rendered a decision against them, the
dispositive portion of which follows:
WHEREFORE, the court hereby
renders judgment in favor of the
plaintiffs and against the defendants,
ordering the latter to pay jointly and
severally the former a monthly rent
of P200.00 on the house, subject-
matter of this action, from March 27,
1956, to January 14, 1967, with
interest at the legal rate from April
18, 1956, the filing of the complaint,
until fully paid, plus attorney's fees in
the sum of P300.00 and to pay the
costs.
It appears on the records that on 1 September
1955 defendants-appellants executed a chattel
mortgage in favor of plaintiffs-appellees over their
house of strong materials located at No. 550 Int. 3,
Quezon Boulevard, Quiapo, Manila, over Lot Nos.
6-B and 7-B, Block No. 2554, which were being
rented from Madrigal & Company, Inc. The
mortgage was registered in the Registry of Deeds
of Manila on 2 September 1955. The herein
mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees,
payable within one year at 12% per annum. The
mode of payment was P150.00 monthly, starting
September, 1955, up to July 1956, and the lump
sum of P3,150 was payable on or before August,
1956. It was also agreed that default in the
payment of any of the amortizations, would cause
the remaining unpaid balance to
becomeimmediately due and Payable and —
the Chattel Mortgage will be
enforceable in accordance with the
provisions of Special Act No. 3135,
and for this purpose, the Sheriff of
the City of Manila or any of his
deputies is hereby empowered and
authorized to sell all the Mortgagor's
property after the necessary
publication in order to settle the
financial debts of P4,800.00, plus
12% yearly interest, and attorney's
fees... 2
When defendants-appellants defaulted in paying,
the mortgage was extrajudicially foreclosed, and on
27 March 1956, the house was sold at public
auction pursuant to the said contract. As highest
bidder, plaintiffs-appellees were issued the
corresponding certificate of sale.3 Thereafter, on 18
April 1956, plaintiffs-appellant commenced Civil
Case No. 43073 in the municipal court of Manila,
praying, among other things, that the house be
vacated and its possession surrendered to them,
and for defendants-appellants to pay rent of
P200.00 monthly from 27 March 1956 up to the
time the possession is surrendered.4 On 21
September 1956, the municipal court rendered its
decision —
... ordering the defendants to vacate
the premises described in the
complaint; ordering further to pay
monthly the amount of P200.00 from
March 27, 1956, until such (time
that) the premises is (sic) completely
vacated; plus attorney's fees of
P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the
municipal court and court a quo impugned the
18
legality of the chattel mortgage, claiming that they
are still the owners of the house; but they waived
the right to introduce evidence, oral or
documentary. Instead, they relied on their
memoranda in support of their motion to dismiss,
predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and
decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior
possession; and (b) failure to prove prior demand
pursuant to Section 2, Rule 72, of the Rules of
Court.6
During the pendency of the appeal to the Court of
First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first
10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January
1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees
could not be executed because the subject house
had been already demolished on 14 January 1957
pursuant to the order of the court in a separate civil
case (No. 25816) for ejectment against the present
defendants for non-payment of rentals on the land
on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal,
execution of the supersedeas bond and withdrawal
of deposited rentals was denied for the reason that
the liability therefor was disclaimed and was still
being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final
disposition of the appeal.7
On 7 October 1957, the appellate court of First
Instance rendered its decision, the dispositive
portion of which is quoted earlier. The said decision
was appealed by defendants to the Court of
Appeals which, in turn, certified the appeal to this
Court. Plaintiffs-appellees failed to file a brief and
this appeal was submitted for decision without it.
Defendants-appellants submitted numerous
assignments of error which can be condensed into
two questions, namely: .
(a) Whether the municipal court from
which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are,
under the law, legally bound to pay
rentals to the plaintiffs during the
period of one (1) year provided by
law for the redemption of the
extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the
jurisdiction of the municipal court from which the
case originated, and consequently, the appellate
jurisdiction of the Court of First Instance a quo, on
the theory that the chattel mortgage is void ab initio;
whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent
auction sale, are also void. Thus, the ownership of
the house still remained with defendants-appellants
who are entitled to possession and not plaintiffs-
appellees. Therefore, it is argued by defendants-
appellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt
is contended further that ownership being in issue,
it is the Court of First Instance which has
jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of
nullity of the chattel mortgage on two grounds,
which are: (a) that, their signatures on the chattel
mortgage were obtained through fraud, deceit, or
trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being
an immovable, it can only be the subject of a real
estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court
of First Instance found defendants-appellants'
contentions as not supported by evidence and
accordingly dismissed the charge,8 confirming the
earlier finding of the municipal court that "the
defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero
and Ayala10 that "the answer is a mere statement of
the facts which the party filing it expects to
prove, but it is not evidence;11 and further, that
when the question to be determined is one of title,
the Court is given the authority to proceed with the
hearing of the cause until this fact is clearly
established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a
successful bidder in an auction sale, it was likewise
held by this Court that in detainer cases the aim of
19
ownership "is a matter of defense and raises an
issue of fact which should be determined from the
evidence at the trial." What determines jurisdiction
are the allegations or averments in the complaint
and the relief asked for. 13
Moreover, even granting that the charge is true,
fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the
contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the
basis of a voidable contract which has not been
voided fails.
It is claimed in the alternative by defendants-
appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and
void ab initio because only personal properties can
be subject of a chattel mortgage. The rule about the
status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre
Inc.,15cited in Associated Insurance Surety Co., Inc.
vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of
the building, separate and distinct
from the land, in the enumeration of
what may constitute real properties
(art. 415, New Civil Code) could only
mean one thing — that a building is
by itself an immovable
property irrespective of whether or
not said structure and the land on
which it is adhered to belong to the
same owner.
Certain deviations, however, have been allowed for
various reasons. In the case of Manarang and
Manarang vs. Ofilada,17 this Court stated that "it is
undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter
case, the mortgagor conveyed and transferred to
the mortgagee by way of mortgage "the following
described personal property." 19 The "personal
property" consisted of leasehold rights and a
building. Again, in the case of Luna vs.
Encarnacion,20 the subject of the contract
designated as Chattel Mortgage was a house of
mixed materials, and this Court hold therein that it
was a valid Chattel mortgage because it was
so expressly designated and specifically that the
property given as security "is a house of mixed
materials, which by its very nature is considered
personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —
The view that parties to a deed of
chattel mortgage may agree to
consider a house as personal
property for the purposes of said
contract, "is good only insofar as the
contracting parties are concerned. It
is based, partly, upon the principle of
estoppel" (Evangelista vs. Alto
Surety, No. L-11139, 23 April 1958).
In a case, a mortgaged house built
on a rented land was held to be a
personal property, not only because
the deed of mortgage considered it
as such, but also because it did not
form part of the land (Evangelists vs.
Abad, [CA]; 36 O.G. 2913), for it is
now settled that an object placed on
land by one who had only a
temporary right to the same, such as
the lessee or usufructuary, does not
become immobilized by attachment
(Valdez vs. Central Altagracia, 222
U.S. 58, cited in Davao Sawmill Co.,
Inc. vs. Castillo, et al., 61 Phil. 709).
Hence, if a house belonging to a
person stands on a rented land
belonging to another person, it may
be mortgaged as a personal
property as so stipulated in the
document of mortgage. (Evangelista
vs. Abad, Supra.) It should be noted,
however that the principle is
predicated on statements by the
owner declaring his house to be a
chattel, a conduct that may
conceivably estop him from
subsequently claiming otherwise.
(Ladera vs. C.N. Hodges, [CA] 48
O.G. 5374): 22
In the contract now before Us, the house on rented
land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the
mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the
property together with its leasehold rights over the
20
lot on which it is constructed and participation
..." 24 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 defendats-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 personalty. Finally unlike in the Iya
cases, Lopez vs. Orosa, Jr. and Plaza Theatre,
Inc. 25 and Leung Yee vs. F. L. Strong Machinery
and Williamson, 26 wherein third persons assailed
the validity of the chattel mortgage,27 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
personalty.
(b) Turning to the question of possession and
rentals of the premises in question. The Court of
First Instance noted in its decision that nearly a
year after the foreclosure sale the mortgaged
house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor
of the land on which the house stood. For this
reason, the said court limited itself to sentencing
the erstwhile mortgagors to pay plaintiffs a monthly
rent of P200.00 from 27 March 1956 (when the
chattel mortgage was foreclosed and the house
sold) until 14 January 1957 (when it was torn down
by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award,
claiming that they were entitled to remain in
possession without any obligation to pay rent
during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this
issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by
the Chattel Mortgage Law, Act No. 1508.28 Section
14 of this Act allows the mortgagee to have the
property mortgaged sold at public auction through a
public officer in almost the same manner as that
allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law
relative to notice and registration are complied
with. 29 In the instant case, the parties specifically
stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of
Special Act No. 3135 ... ." 30(Emphasis supplied).
Section 6 of the Act referred to 31 provides that the
debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the
date of the auction sale, redeem the property sold
at the extra judicial foreclosure sale. Section 7 of
the same Act 32 allows the purchaser of the
property to obtain from the court the possession
during the period of redemption: but the same
provision expressly requires the filing of a petition
with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the
proper motion and the approval of the
corresponding bond that the order for a writ of
possession issues as a matter of course. No
discretion is left to the court. 33 In the absence of
such a compliance, as in the instant case, the
purchaser can not claim possession during the
period of redemption as a matter of right. In such a
case, the governing provision is Section 34, Rule
39, of the Revised Rules of Court 34 which also
applies to properties purchased in extrajudicial
foreclosure proceedings.35 Construing the said
section, this Court stated in the aforestated case
of Reyes vs. Hamada.
In other words, before the expiration
of the 1-year period within which the
judgment-debtor or mortgagor may
redeem the property, the purchaser
thereof is not entitled, as a matter of
right, to possession of the same.
Thus, while it is true that the Rules
of Court allow the purchaser to
receive the rentals if the purchased
property is occupied by tenants, he
is, nevertheless, accountable to the
judgment-debtor or mortgagor as the
case may be, for the amount so
received and the same will be duly
credited against the redemption
price when the said debtor or
mortgagor effects the
redemption. Differently stated, the
rentals receivable from tenants,
although they may be collected by
the purchaser during the redemption
21
 period, do not belong to the latter but
still pertain to the debtor of
mortgagor. The rationale for the
Rule, it seems, is to secure for the
benefit of the debtor or mortgagor,
the payment of the redemption
amount and the consequent return
to him of his properties sold at public
auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling
in Chan vs. Espe.36
Since the defendants-appellants were occupying
the house at the time of the auction sale, they are
entitled to remain in possession during the period of
redemption or within one year from and after 27
March 1956, the date of the auction sale, and to
collect the rents or profits during the said period.
It will be noted further that in the case at bar the
period of redemption had not yet expired when
action was instituted in the court of origin, and that
plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties
to govern the extrajudicial foreclosure of the chattel
mortgage. Neither was there an allegation to that
effect. Since plaintiffs-appellees' right to possess
was not yet born at the filing of the complaint, there
could be no violation or breach thereof. Wherefore,
the original complaint stated no cause of action and
was prematurely filed. For this reason, the same
should be ordered dismissed, even if there was no
assignment of error to that effect. The Supreme
Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that
their consideration is necessary in arriving at a just
decision of the cases. 37
It follows that the court below erred in requiring the
mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision
appealed from is reversed and another one
entered, dismissing the complaint. With costs
against plaintiffs-appellees.
CASE DIGEST:
Facts:
Alberta Vicencio and Emiliano Simeon received a
loan of P4, 800 from Gavino and Generosa
Tumalad. To guaranty said loan, Vicencio executed
a chattel mortgage in favor of Tumalad over their
house of strong materials which stood on a land
which was rented from the Madrigal & Company,
Inc. When Vicencio defaulted in paying, the house
was extrajudicially foreclosed, pursuant to their
contract. It was sold to Tumalad and they instituted
a Civil case in the Municipal Court of Manila to
have Vicencio vacate the house and pay rent.
The MTC decided in favor of Tumalad ordering
Vicencio to vacate the house and pay rent until they
have completely vacated the house. Vicencio is
questioning the legality of the chattel mortgage on
the ground that 1) the signature on it was obtained
thru fraud and 2) the mortgage is a house of strong
materials which is an immovable therefore can only
be the subject of a REM. On appeal, the CFI found
in favor of Tumalad, and since the Vicencio failed to
deposit the rent ordered, it issued a writ of
execution, however the house was already
demolished pursuant to an order of the court in an
ejectment suit against Vicencio for non-payment of
rentals. Thus the case at bar.
Issue:
Whether or not the chattel mortgage is void since
its subject is an immovable
Ruling:
NO.
Although a building is by itself an immovable
property, parties to a contract may treat as personal
property that which by nature would be real
property and it would be valid and good only insofar
as the contracting parties are concerned. By
principle of estoppel, the owner declaring his house
to be a chattel may no longer subsequently claim
otherwise.
When Vicencio executed the Chattel Mortgage, it
specifically provides that the mortgagor cedes, sells
and transfers by way of Chattel mortgage. They
intended to treat it as chattel therefore are now
estopped from claiming otherwise. Also the house
stood on rented land which was held in previous
jurisprudence to be personalty since it was placed
on the land by one who had only temporary right
over the property thus it does not become
immobilized by attachment.
[Vicencio though was not made to pay rent since
the action was instituted during the period of
redemption therefore Vicencio still had a right to
remain in possession of the property]
22
----------------------------------------------------------------‘ improvements now existing or which may
hereafter exist thereon, situated in . . .
G.R. No. 120098 October 2, 2001
"Annex A"
RUBY L. TSAI, petitioner,
vs. (Real and Chattel Mortgage executed by
HON. COURT OF APPEALS, EVER TEXTILE Ever Textile Mills in favor of
MILLS, INC. and MAMERTO R PBCommunications — continued)
VILLALUZ, respondents.
LIST OF MACHINERIES & EQUIPMENT
x---------------------------------------------------------x
A. Forty Eight (48) units of Vayrow Knitting
[G.R. No. 120109. October 2, 2001.] Machines-Tompkins made in Hongkong:

PHILIPPINE BANK OF Serial Numbers Size of Machines

COMMUNICATIONS, petitioner,
vs. xxx xxx xxx
HON. COURT OF APPEALS, EVER TEXTILE
MILLS and MAMERTO R B. Sixteen (16) sets of Vayrow Knitting
VILLALUZ, respondents. Machines made in Taiwan.

QUISUMBING, J.: xxx xxx xxx

These consolidated cases assail the decision1 of C. Two (2) Circular Knitting Machines made
the Court of Appeals in CA-G.R. CV No. 32986, in West Germany.
affirming the decision2 of the Regional Trial Court of
Manila, Branch 7, in Civil Case No. 89-48265. Also xxx xxx xxx
assailed is respondent court's resolution denying
petitioners' motion for reconsideration. D. Four (4) Winding Machines.
On November 26, 1975, respondent Ever Textile xxx xxx xxx
Mills, Inc. (EVERTEX) obtained a three million peso
(P3,000,000.00) loan from petitioner Philippine
SCHEDULE "A"
Bank of Communications (PBCom). As security for
the loan, EVERTEX executed in favor of PBCom, a
deed of Real and Chattel Mortgage over the lot I. TCT # 372097 - RIZAL
under TCT No. 372097, where its factory stands,
and the chattels located therein as enumerated in a xxx xxx xxx
schedule attached to the mortgage contract. The
pertinent portions of the Real and Chattel Mortgage II. Any and all buildings and improvements
are quoted below: now existing or hereafter to exist on the
above-mentioned lot.
MORTGAGE
III. MACHINERIES & EQUIPMENT situated,
(REAL AND CHATTEL) located and/or installed on the above-
mentioned lot located at . . .
xxx xxx xxx
(a) Forty eight sets (48) Vayrow Knitting
The MORTGAGOR(S) hereby transfer(s) Machines . . .
and convey(s), by way of First Mortgage, to
the MORTGAGEE, . . . certain parcel(s) of (b) Sixteen sets (16) Vayrow Knitting
land, together with all the buildings and Machines . . .

23
 (c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions,
additions, increases and accretions to
above properties.
xxx xxx xxx3
On April 23, 1979, PBCom granted a second loan
of P3,356,000.00 to EVERTEX. The loan was
secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto.
These listed properties were similar to those listed
in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the
second mortgage mentioned above, EVERTEX
purchased various machines and equipments.
On November 19, 1982, due to business reverses,
EVERTEX filed insolvency proceedings docketed
as SP Proc. No. LP-3091-P before the defunct
Court of First Instance of Pasay City, Branch
XXVIII. The CFI issued an order on November 24,
1982 declaring the corporation insolvent. All its
assets were taken into the custody of the
Insolvency Court, including the collateral, real and
personal, securing the two mortgages as
abovementioned.
In the meantime, upon EVERTEX's failure to meet
its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against
EVERTEX under Act 3135, otherwise known as
"An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real
Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was
issued on December 1, 1982.
On December 15, 1982, the first public auction was
held where petitioner PBCom emerged as the
highest bidder and a Certificate of Sale was issued
in its favor on the same date. On December 23,
1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued
a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its
ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory
premises to petitioner Ruby L. Tsai for P50,000.00
a month. On May 3, 1988, PBCom sold the factory,
lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for
annulment of sale, reconveyance, and damages
with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure
of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights
having been transmitted to PBCom over the assets
of insolvent EVERTEX, therefore Tsai acquired no
rights over such assets sold to her, and should
reconvey the assets.
Further, EVERTEX averred that PBCom, without
any legal or factual basis, appropriated the
contested properties, which were not included in
the Real and Chattel Mortgage of November 26,
1975 nor in the Chattel Mortgage of April 23, 1979,
and neither were those properties included in the
Notice of Sheriff's Sale dated December 1, 1982
and Certificate of Sale . . . dated December 15,
1982.
The disputed properties, which were valued at
P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset
Equipment.
The RTC found that the lease and sale of said
personal properties were irregular and illegal
because they were not duly foreclosed nor sold at
the December 15, 1982 auction sale since these
were not included in the schedules attached to the
mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff corporation and
against the defendants:
1. Ordering the annulment of the sale
executed by defendant Philippine Bank of
Communications in favor of defendant Ruby
L. Tsai on May 3, 1988 insofar as it affects
the personal properties listed in par. 9 of the
complaint, and their return to the plaintiff
corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the
24
 Insolvency Court, to be done within ten (10)
days from finality of this decision;
2. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P5,200,000.00 as compensation for
the use and possession of the properties in
question from November 1986 to February
1991 and P100,000.00 every month
thereafter, with interest thereon at the legal
rate per annum until full payment;
3. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P50,000.00 as and for attorney's
fees and expenses of litigation;
4. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P200,000.00 by way of exemplary
damages;
5. Ordering the dismissal of the
counterclaim of the defendants; and
6. Ordering the defendants to
proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the
Court of Appeals, which issued its decision dated
August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the deletion therefrom of
the award; for exemplary damages, and reduction
of the actual damages, from P100,000.00 to
P20,000.00 per month, from November 1986 until
subject personal properties are restored to
appellees, the judgment appealed from is hereby
AFFIRMED, in all other respects. No
pronouncement as to costs.5
Motion for reconsideration of the above decision
having been denied in the resolution of April 28,
1995, PBCom and Tsai filed their separate petitions
for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the
following errors to the respondent court:
I DECREE THE MACHINERIES LISTED UNDER
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE
PARTIES BY TREATING THE 1981
ACQUIRED MACHINERIES AS CHATTELS
INSTEAD OF REAL PROPERTIES WITHIN
THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979
DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN HOLDING
THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE
MORTGAGE — DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE
SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD
FAITH.
IV
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEY'S FEES AND
EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL
BASIS.
V
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN HOLDING
AGAINST PETITIONER'S ARGUMENTS
ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following
issues:
I.
DID THE COURT OF APPEALS VALIDLY
25
PARAGRAPH 9 OF THE COMPLAINT BELOW AS
PERSONAL PROPERTY OUTSIDE OF THE 1975
DEED OF REAL ESTATE MORTGAGE AND
EXCLUDED THEM FROM THE REAL PROPERTY
EXTRAJUDICIALLY FORECLOSED BY PBCOM
DESPITE THE PROVISION IN THE 1975 DEED
THAT ALL AFTER-ACQUIRED PROPERTIES
DURING THE LIFETIME OF THE MORTGAGE
SHALL FORM PART THEREOF, AND DESPITE
THE UNDISPUTED FACT THAT SAID
MACHINERIES ARE BIG AND HEAVY, BOLTED
OR CEMENTED ON THE REAL PROPERTY
MORTGAGED BY EVER TEXTILE MILLS TO
PBCOM, AND WERE ASSESSED FOR REAL
ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF
THE MACHINERIES IN QUESTION IN GOOD
FAITH, EXTENDED CREDIT FACILITIES TO
EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT
FOR MAINTENANCE AND SECURITY ON THE
DISPUTED MACHINERIES AND HAD TO PAY
ALL THE BACK TAXES OF EVER TEXTILE MILLS
BE LEGALLY COMPELLED TO RETURN TO
EVER THE SAID MACHINERIES OR IN LIEU
THEREOF BE ASSESSED DAMAGES. IS THAT
SITUATION TANTAMOUNT TO A CASE OF
UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not
the inclusion of the questioned properties in the
foreclosed properties is proper. The secondary
issue is whether or not the sale of these properties
to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in
effect made a contract for the parties by treating the
1981 acquired units of machinery as chattels
instead of real properties within their earlier 1975
deed of Real and Chattel Mortgage or 1979 deed of
Chattel Mortgage.8 Additionally, Tsai argues that
respondent court erred in holding that the disputed
1981 machineries are not real properties.9 Finally,
she contends that the Court of Appeals erred in
holding against petitioner's arguments on
prescription and laches10 and in assessing
petitioner actual damages, attorney's fees and
expenses of litigation, for want of valid factual and
legal basis.11
Essentially, PBCom contends that respondent court
erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute
were not duly foreclosed and could not be legally
leased nor sold to Ruby Tsai. It further argued that
the Court of Appeals' pronouncement that the
pieces of machinery in question were personal
properties have no factual and legal basis. Finally,
it asserts that the Court of Appeals erred in
assessing damages and attorney's fees against
PBCom.
In opposition, private respondents argue that the
controverted units of machinery are not "real
properties" but chattels, and, therefore, they were
not part of the foreclosed real properties, rendering
the lease and the subsequent sale thereof to Tsai a
nullity.12
Considering the assigned errors and the arguments
of the parties, we find the petitions devoid of merit
and ought to be denied.
Well settled is the rule that the jurisdiction of the
Supreme Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is
limited to reviewing only errors of law, not of fact,
unless the factual findings complained of are
devoid of support by the evidence on record or the
assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when
the findings of fact of the RTC is affirmed by the
Court of Appeals.14
The following are the facts as found by the RTC
and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted
machineries" are not covered by, or included in,
either of the two mortgages, the Real Estate and
Chattel Mortgage, and the pure Chattel Mortgage;
(2) the said machineries were not included in the
list of properties appended to the Notice of Sale,
and neither were they included in the Sheriff's
Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed
machineries, i.e., that they were heavy, bolted or
cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the
New Civil Code. This assertion, however, does not
settle the issue. Mere nuts and bolts do not
foreclose the controversy. We have to look at the
parties' intent.
26
While it is true that the controverted properties
appear to be immobile, a perusal of the contract of
Real and Chattel Mortgage executed by the parties
herein gives us a contrary indication. In the case at
bar, both the trial and the appellate courts reached
the same finding that the true intention of PBCOM
and the owner, EVERTEX, is to treat machinery
and equipment as chattels. The pertinent portion of
respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant
bank treated the machineries as chattels;
never as real properties. Indeed, the 1975
mortgage contract, which was actually real
and chattel mortgage, militates against
appellants' posture. It should be noted that
the printed form used by appellant bank was
mainly for real estate mortgages. But
reflective of the true intention of appellant
PBCOM and appellee EVERTEX was the
typing in capital letters, immediately
following the printed caption of mortgage, of
the phrase "real and chattel." So also, the
"machineries and equipment" in the printed
form of the bank had to be inserted in the
blank space of the printed contract and
connected with the word "building" by
typewritten slash marks. Now, then, if the
machineries in question were contemplated
to be included in the real estate mortgage,
there would have been no necessity to ink a
chattel mortgage specifically mentioning as
part III of Schedule A a listing of the
machineries covered thereby. It would have
sufficed to list them as immovables in the
Deed of Real Estate Mortgage of the land
and building involved.
As regards the 1979 contract, the intention
of the parties is clear and beyond question.
It refers solely to chattels. The inventory list
of the mortgaged properties is an
itemization of sixty-three (63) individually
described machineries while the schedule
listed only machines and 2,996,880.50
worth of finished cotton fabrics and natural
cotton fabrics.16
In the absence of any showing that this conclusion
is baseless, erroneous or uncorroborated by the
evidence on record, we find no compelling reason
to depart therefrom.
Too, assuming arguendo that the properties in
question are immovable by nature, nothing detracts
the parties from treating it as chattels to secure an
obligation under the principle of estoppel. As far
back as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property
if there is a stipulation as when it is used as
security in the payment of an obligation where a
chattel mortgage is executed over it, as in the case
at bar.
In the instant case, the parties herein: (1) executed
a contract styled as "Real Estate Mortgage and
Chattel Mortgage," instead of just "Real Estate
Mortgage" if indeed their intention is to treat all
properties included therein as immovable, and (2)
attached to the said contract a separate "LIST OF
MACHINERIES & EQUIPMENT". These facts,
taken together, evince the conclusion that the
parties' intention is to treat these units of machinery
as chattels. A fortiori, the contested after-acquired
properties, which are of the same description as the
units enumerated under the title "LIST OF
MACHINERIES & EQUIPMENT," must also be
treated as chattels.
Accordingly, we find no reversible error in the
respondent appellate court's ruling that inasmuch
as the subject mortgages were intended by the
parties to involve chattels, insofar as equipment
and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7
thereof that: "a chattel mortgage shall be deemed
to cover only the property described therein and not
like or substituted property thereafter acquired by
the mortgagor and placed in the same depository
as the property originally mortgaged, anything in
the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired
in 1981 and could not have been involved in the
1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to
include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to
PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a
nullity under the elementary principle of nemo dat
quod non habet, one cannot give what one does
not have.17
27
Petitioner Tsai also argued that assuming that
PBCom's title over the contested properties is a
nullity, she is nevertheless a purchaser in good
faith and for value who now has a better right than
EVERTEX.
To the contrary, however, are the factual findings
and conclusions of the trial court that she is not a
purchaser in good faith. Well-settled is the rule that
the person who asserts the status of a purchaser in
good faith and for value has the burden of proving
such assertion.18 Petitioner Tsai failed to discharge
this burden persuasively.
Moreover, a purchaser in good faith and for value is
one who buys the property of another without
notice that some other person has a right to or
interest in such property and pays a full and fair
price for the same, at the time of purchase, or
before he has notice of the claims or interest of
some other person in the property.19 Records
reveal, however, that when Tsai purchased the
controverted properties, she knew of respondent's
claim thereon. As borne out by the records, she
received the letter of respondent's counsel,
apprising her of respondent's claim, dated February
27, 1987.20 She replied thereto on March 9,
1987.21 Despite her knowledge of respondent's
claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not
err in finding that she was not a purchaser in good
faith.
Petitioner Tsai's defense of indefeasibility of
Torrens Title of the lot where the disputed
properties are located is equally unavailing. This
defense refers to sale of lands and not to sale of
properties situated therein. Likewise, the mere fact
that the lot where the factory and the disputed
properties stand is in PBCom's name does not
automatically make PBCom the owner of
everything found therein, especially in view of
EVERTEX's letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and
laches is less than convincing. We find no cogent
reason to disturb the consistent findings of both
courts below that the case for the reconveyance of
the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine
of laches does not apply. Note that upon
petitioners' adamant refusal to heed EVERTEX's
claim, respondent company immediately filed an
action to recover possession and ownership of the
disputed properties. There is no evidence showing
any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do
that which, by exercising due diligence, could or
should have been done earlier. The doctrine of
stale demands would apply only where by reason
of the lapse of time, it would be inequitable to allow
a party to enforce his legal rights. Moreover, except
for very strong reasons, this Court is not disposed
to apply the doctrine of laches to prejudice or
defeat the rights of an owner.22
As to the award of damages, the contested
damages are the actual compensation,
representing rentals for the contested units of
machinery, the exemplary damages, and attorney's
fees.
As regards said actual compensation, the RTC
awarded P100,000.00 corresponding to the unpaid
rentals of the contested properties based on the
testimony of John Chua, who testified that the
P100,000.00 was based on the accepted practice
in banking and finance, business and investments
that the rental price must take into account the cost
of money used to buy them. The Court of Appeals
did not give full credence to Chua's projection and
reduced the award to P20,000.00.
Basic is the rule that to recover actual damages,
the amount of loss must not only be capable of
proof but must actually be proven with reasonable
degree of certainty, premised upon competent
proof or best evidence obtainable of the actual
amount thereof.23 However, the allegations of
respondent company as to the amount of
unrealized rentals due them as actual damages
remain mere assertions unsupported by documents
and other competent evidence. In determining
actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork
but must depend on competent proof and on the
best evidence obtainable regarding the actual
amount of loss.24 However, we are not prepared to
disregard the following dispositions of the
respondent appellate court:
. . . In the award of actual damages under
scrutiny, there is nothing on record
warranting the said award of P5,200,000.00,
representing monthly rental income of
P100,000.00 from November 1986 to
February 1991, and the additional award of
P100,000.00 per month thereafter.
28
 As pointed out by appellants, the testimonial
evidence, consisting of the testimonies of
Jonh (sic) Chua and Mamerto Villaluz, is
shy of what is necessary to substantiate the
actual damages allegedly sustained by
appellees, by way of unrealized rental
income of subject machineries and
equipments.
The testimony of John Cua (sic) is nothing
but an opinion or projection based on what
is claimed to be a practice in business and
industry. But such a testimony cannot serve
as the sole basis for assessing the actual
damages complained of. What is more,
there is no showing that had appellant Tsai
not taken possession of the machineries
and equipments in question, somebody was
willing and ready to rent the same for
P100,000.00 a month.
xxx xxx xxx
Then, too, even assuming arguendo that the
said machineries and equipments could
have generated a rental income of
P30,000.00 a month, as projected by
witness Mamerto Villaluz, the same would
have been a gross income. Therefrom
should be deducted or removed, expenses
for maintenance and repairs . . . Therefore,
in the determination of the actual damages
or unrealized rental income sued upon,
there is a good basis to calculate that at
least four months in a year, the machineries
in dispute would have been idle due to
absence of a lessee or while being repaired.
In the light of the foregoing rationalization
and computation, We believe that a net
unrealized rental income of P20,000.00 a
month, since November 1986, is more
realistic and fair.25
As to exemplary damages, the RTC awarded
P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there
was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The
evidence, however, shows otherwise.It is a
requisite to award exemplary damages that the
wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner.27 As
previously stressed, petitioner Tsai's act of
purchasing the controverted properties despite her
knowledge of EVERTEX's claim was oppressive
and subjected the already insolvent respondent to
gross disadvantage. Petitioner PBCom also
received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987.28 Thus,
PBCom's act of taking all the properties found in
the factory of the financially handicapped
respondent, including those properties not covered
by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are
in agreement with the RTC that an award of
exemplary damages is proper.
The amount of P200,000.00 for exemplary
damages is, however, excessive. Article 2216 of
the Civil Code provides that no proof of pecuniary
loss is necessary for the adjudication of exemplary
damages, their assessment being left to the
discretion of the court in accordance with the
circumstances of each case.29 While the imposition
of exemplary damages is justified in this case,
equity calls for its reduction. In Inhelder Corporation
v. Court of Appeals, G.R. No. L-52358, 122 SCRA
576, 585, (May 30, 1983), we laid down the rule
that judicial discretion granted to the courts in the
assessment of damages must always be exercised
with balanced restraint and measured objectivity.
Thus, here the award of exemplary damages by
way of example for the public good should be
reduced to P100,000.00.
By the same token, attorney's fees and other
expenses of litigation may be recovered when
exemplary damages are awarded.30 In our view,
RTC's award of P50,000.00 as attorney's fees and
expenses of litigation is reasonable, given the
circumstances in these cases.
WHEREFORE, the petitions are DENIED. The
assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 32986 are AFFIRMED
WITH MODIFICATIONS. Petitioners Philippine
Bank of Communications and Ruby L. Tsai are
hereby ordered to pay jointly and severally Ever
Textile Mills, Inc. the following: (1) P20,000.00 per
month, as compensation for the use and
possession of the properties in question from
November 198631 until subject personal properties
are restored to respondent corporation; (2)
P100,000.00 by way of exemplary damages, and
(3) P50,000.00 as attorney's fees and litigation
expenses. Costs against petitioners.
29
SO ORDERED.
TSAI V. COURT OF APPEALS
336 SCRA 324
FACTS:
EVERTEX secured a loan from PBC, guaranteed
by a real estate and chattel mortgage over a parcel
of land where the factory stands, and the chattels
located therein, as included in a schedule attac
hed to the mortgage
contract. Another loan was obtained secured by
a chattel mortgage over
properties with similar descriptions listed in the first
schedule. During the
date of execution of the second mortgage,
EVERTEX purchased machineries and
equipment.
Due to business reverses, EVERTEX filed for i
nsolvency proceedings. It failed to pay its
obligation and thus, PBC initiated extrajudicial
foreclosure
of the mortgages. PBC was the highest bidder
in the public auctions, making it the owner of the
properties. It then leased the factory premises
to Tsai. Afterwards, EVERTEX sought the ann
ulment of the sale and conveyance of the
properties to PBC as it was allegedly a violation of
the INSOLVENCY LAW.
The RTC held that the lease and sale were irr
egular as it involved properties not included in the
schedule of the mortgage contract.
HELD:
While it is true that the controverted properties
appear to be immobile, a
perusal of the contract of REM and CM execut
ed by the parties gives a contrary indication. In
the case at bar, both the trial and appellate courts
show that the intention was to treat the machin
eries as movables or
personal property.
Assuming that the properties were considered
immovables, nothing
detracts the parties from treating it as chattels
to secure an obligation under the principle of
estoppel.
--------------------------------------------------------------------
----
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
30
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.
31
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
32
(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 termpoles, the logical question posited is
whether they constitute real properties, so that they
can be subject to a real property tax. The tax law
does not provide for a definition of real property; but
Article 415 of the Civil Code does, by stating the
following are immovable property:
(1) Land, buildings, roads, and
constructions of all kinds adhered to the
soil;
xxx xxx xxx
(3) Everything attached to an immovable in
a fixed manner, in such a way that it cannot
be separated therefrom without breaking the
material or deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which
may be carried in a building or on a piece of
land, and which tends directly to meet the
needs of the said industry or works;
xxx xxx xxx
The steel towers or supports in question, do not
come within the objects mentioned in paragraph 1,
because they do not constitute buildings or
constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to
the soil. As per description, given by the lower
court, they are removable and merely attached to a
square metal frame by means of bolts, which when
unscrewed could easily be dismantled and moved
from place to place. They can not be included
under paragraph 3, as they are not attached to an
immovable in a fixed manner, and they can be
separated without breaking the material or causing
deterioration upon the object to which they are
attached. Each of these steel towers or supports
consists of steel bars or metal strips, joined
together by means of bolts, which can be
disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel
towers or supports do not also fall under paragraph
5, for they are not machineries, receptacles,
instruments or implements, and even if they were,
they are not intended for industry or works on the
land. Petitioner is not engaged in an industry or
works in the land in which the steel supports or
towers are constructed.
It is finally contended that the CTA erred in ordering
the City Treasurer of Quezon City to refund the
sum of P11,651.86, despite the fact that Quezon
City is not a party to the case. It is argued that as
the City Treasurer is not the real party in interest,
but Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he
should not be ordered to effect the refund. This
question has not been raised in the court below,
and, therefore, it cannot be properly raised for the
first time on appeal. The herein petitioner is
33
indulging in legal technicalities and niceties which For purposes of taxation the dam is
do not help him any; for factually, it was he (City considered as real property as it
Treasurer) whom had insisted that respondent comes within the object mentioned
herein pay the real estate taxes, which respondent in paragraphs (a) and (b) of Article
paid under protest. Having acted in his official 415 of the New Civil Code. It is a
capacity as City Treasurer of Quezon City, he construction adhered to the soil
would surely know what to do, under the which cannot be separated or
circumstances. detached without breaking the
material or causing destruction on
IN VIEW HEREOF, the decision appealed from is the land upon which it is attached.
hereby affirmed, with costs against the petitioners. The immovable nature of the dam as
an improvement determines its
----------------------------------------------------------------- character as real property, hence
taxable under Section 38 of the Real
G.R. No. 106041 January 29, 1993 Property Tax Code. (P.D. 464).

BENGUET CORPORATION, petitioner, Although the dam is partly used as

vs. an anti-pollution device, this Board
CENTRAL BOARD OF ASSESSMENT APPEALS, cannot accede to the request for tax
BOARD OF ASSESSMENT APPEALS OF exemption in the absence of a law
ZAMBALES, PROVINCIAL ASSESSOR OF authorizing the same.
ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN xxx xxx xxx
MARCELINO, respondents.
We find the appraisal on the land
Romulo, Mabanta, Buenaventura, Sayoc & De los submerged as a result of the
Angeles for petitioner. construction of the tailings dam,
covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in
accordance with the Schedule of
CRUZ, J.: Market Values for Zambales which
was reviewed and allowed for use by
the Ministry (Department) of Finance
The realty tax assessment involved in this case
in the 1981-1982 general revision.
amounts to P11,319,304.00. It has been imposed
No serious attempt was made by
on the petitioner's tailings dam and the land
Petitioner-Appellant Benguet
thereunder over its protest.
Corporation to impugn its
reasonableness, i.e., that the P50.00
The controversy arose in 1985 when the Provincial per square meter applied by
Assessor of Zambales assessed the said properties Respondent-Appellee Provincial
as taxable improvements. The assessment was Assessor is indeed excessive and
appealed to the Board of Assessment Appeals of unconscionable. Hence, we find no
the Province of Zambales. On August 24, 1988, the cause to disturb the market value
appeal was dismissed mainly on the ground of the applied by Respondent Appellee
petitioner's "failure to pay the realty taxes that fell Provincial Assessor of Zambales on
due during the pendency of the appeal." the properties of Petitioner-Appellant
Benguet Corporation covered by Tax
The petitioner seasonably elevated the matter to Declaration Nos. 002-0260 and 002-
the Central Board of Assessment Appeals,1 one of 0266.
the herein respondents. In its decision dated March
22, 1990, the Board reversed the dismissal of the This petition for certiorari now seeks to reverse the
appeal but, on the merits, agreed that "the tailings above ruling.
dam and the lands submerged thereunder (were)
subject to realty tax."
34
The principal contention of the petitioner is that the (f) that the installation
tailings dam is not subject to realty tax because it is and utilization of the
not an "improvement" upon the land within the tailings dam as a
meaning of the Real Property Tax Code. More pollution control
particularly, it is claimed — device is a
requirement imposed
(1) as regards the tailings dam as an by law;
"improvement":
(2) as regards the valuation of the
(a) that the tailings tailings dam and the submerged
dam has no value lands:
separate from and
independent of the (a) that the subject
mine; hence, by itself properties have no
it cannot be market value as they
considered an cannot be sold
improvement independently of the
separately mine;
assessable;
(b) that the valuation
(b) that it is an of the tailings dam
integral part of the should be based on
mine; its incidental use by
petitioner as a water
(c) that at the end of reservoir and not on
the mining operation the alleged cost of
of the petitioner construction of the
corporation in the dam and the annual
area, the tailings dam build-up expense;
will benefit the local
community by serving (c) that the "residual
as an irrigation value formula" used
facility; by the Provincial
Assessor and
(d) that the building of adopted by
the dam has stripped respondent CBAA is
the property of any arbitrary and
commercial value as erroneous; and
the property is
submerged under (3) as regards the petitioner's liability
water wastes from the for penalties for
mine; non-declaration of the tailings dam
and the submerged lands for realty
(e) that the tailings tax purposes:
dam is an
environmental (a) that where a tax is
pollution control not paid in an honest
device for which belief that it is not
petitioner must be due, no penalty shall
commended rather be collected in
than penalized with a addition to the basic
realty tax tax;
assessment;

35
 (b) that no other
mining companies in
the Philippines
operating a tailings
dam have been made
to declare the dam for
realty tax purposes.
The petitioner does not dispute that the tailings
dam may be considered realty within the meaning
of Article 415. It insists, however, that the dam
cannot be subjected to realty tax as a separate and
independent property because it does not
constitute an "assessable improvement" on the
mine although a considerable sum may have been
spent in constructing and maintaining it.
To support its theory, the petitioner cites the
following cases:
1. Municipality of Cotabato v. Santos (105 Phil.
963), where this Court considered the dikes and
gates constructed by the taxpayer in connection
with a fishpond operation as integral parts of the
fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government
of Surigao (100 Phil. 303), involving a road
constructed by the timber concessionaire in the
area, where this Court did not impose a realty tax
on the road primarily for two reasons:
In the first place, it cannot be
disputed that the ownership of the
road that was constructed by
appellee belongs to the government
by right of accession not only
because it is inherently incorporated
or attached to the timber land . . . but
also because upon the expiration of
the concession said road would
ultimately pass to the national
government. . . . In the second
place, while the road was
constructed by appellee primarily for
its use and benefit, the privilege is
not exclusive, for . . . appellee
cannot prevent the use of portions of
the concession for homesteading
purposes. It is also duty bound to
allow the free use of forest products
within the concession for the
personal use of individuals residing
in or within the vicinity of the land. . .
. In other words, the government has
practically reserved the rights to use
the road to promote its varied
activities. Since, as above shown,
the road in question cannot be
considered as an improvement
which belongs to appellee, although
in part is for its benefit, it is clear that
the same cannot be the subject of
assessment within the meaning of
Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not
because the road was an integral part of the lumber
concession but because the government had the
right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144
Pacific 884), an American case, where it was
declared that the reservoir dam went with and
formed part of the reservoir and that the dam would
be "worthless and useless except in connection
with the outlet canal, and the water rights in the
reservoir represent and include whatever utility or
value there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific
498), also from the United States. This case
involved drain tunnels constructed by plaintiff when
it expanded its mining operations downward,
resulting in a constantly increasing flow of water in
the said mine. It was held that:
Whatever value they have is
connected with and in fact is an
integral part of the mine itself. Just
as much so as any shaft which
descends into the earth or an
underground incline, tunnel, or drift
would be which was used in
connection with the mine.
On the other hand, the Solicitor General argues
that the dam is an assessable improvement
because it enhances the value and utility of the
mine. The primary function of the dam is to receive,
retain and hold the water coming from the
operations of the mine, and it also enables the
petitioner to impound water, which is then recycled
for use in the plant.
There is also ample jurisprudence to support this
view, thus:
36
. . . 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.
37
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
38
 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.
CASE DIGEST:
FACTS:
On 1985, Provincial Assessor of Zambales
assessed the said properties in issue as
taxablei m p r o v e m e n t s . T h e a s s e s s m e n t
was appealed to the Board of
Assessment Appeals of the P r o v i n c e o f
Zambales. However, the appeal
was dismissed mainly on the
g r o u n d o f t h e petitioner's failure to pay the
realty taxes that fell due during the pendency of the
appeal.The petitioner elevated the matter to the
Central Board of Assessment Appeals, one of
theherein respondents. In its decision dated March
22, 1990, the Board reversed the dismissal of
theappeal but, agreed that the tailings dam
and the lands submerged thereunder shall
be subject torealty tax.For purposes of
taxation the dam is considered as real
property as it comes within theobject
mentioned in Article 415 of the New Civil
Code, It is a construction adhered to the
soilwhich cannot be separated or detached
without breaking the material or causing
destruction onthe land upon which it is
attached. The immovable nature of the dam
as an improvement whichdetermines its
character as real property, hence taxable under
Section 38 of the Real Property TaxCode
Issue:
Whether or not the tailings dam is subject to
realty tax?
Whether or not it be considered as
immovable property?
Held:
Yes, it is subject to realty tax and it is considered
an immovable property.The petitioner does not
dispute that the tailings dam may be considered
realty within themeaning of Article 415. It
insists, however, that the dam cannot be
subjected to realty tax as aseparate and
independent property because it does not
constitute an "assessable improvement" onthe
39
mine although a considerable sum may have been
spent in constructing and maintaining it.The Real
Property Tax Code does not carry a
definition of "real property" and simplysays
that the realty tax is imposed on "real
property, such as lands, buildings,
machinery an. 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.
By contrast, the tailings dam in question is being
used exclusively for the benefit of the petitioner.
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.
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
--------------------------------------------------------------------
-
[G.R. No. 156295. September 23, 2003.]
MARCELO R. SORIANO, Petitioner, v.
SPOUSES RICARDO and ROSALINA
GALIT, Respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil
Case No. 6643 1 for Sum of Money by the Regional
Trial Court of Balanga, Bataan, Branch 1. The writ
of possession was, however, nullified by the Court
of Appeals in CA-G.R. SP No. 65891 2 because it
included a parcel of land which was not among
those explicitly enumerated in the Certificate of
Sale issued by the Deputy Sheriff, but on which
stand the immovables covered by the said
Certificate. Petitioner contends that the sale of
these immovables necessarily encompasses the
land on which they stand.chanrob1es virtua1 1aw
1ibrary
Dissatisfied, petitioner filed the instant petition for
review on certiorari.
Respondent Ricardo Galit contracted a loan from
petitioner Marcelo Soriano, in the total sum of
P480,000.00, evidenced by four promissory notes
in the amount of P120,000.00 each dated August 2,
1996; 3 August 15, 1996; 4 September 4, 1996 5
and September 14, 1996. 6 This loan was secured
by a real estate mortgage over a parcel of land
covered by Original Certificate of Title No. 569. 7
After he failed to pay his obligation, Soriano filed a
complaint for sum of money against him with the
Regional Trial Court of Balanga City, Branch 1,
which was docketed as Civil Case No. 6643. 8
Respondents, the Spouses Ricardo and Rosalina
Galit, failed to file their answer. Hence, upon motion
of Marcelo Soriano, the trial court declared the
spouses in default and proceeded to receive
evidence for petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of
Balanga City, Branch 1 rendered judgment 9 in
favor of petitioner Soriano, the dispositive portion of
which reads:chanrob1es virtual 1aw library
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant
ordering the latter to pay:chanrob1es virtual 1aw
library
1. the plaintiff the amount of P350,000.00 plus 12%
40
interest to be computed from the dates of maturity
of the promissory notes until the same are fully
paid;
2. the plaintiff P20,000.00, as attorney’s fees; and
3. the costs of suit.
SO ORDERED. 10
The judgment became final and executory.
Accordingly, the trial court issued a writ of
execution in due course, by virtue of which, Deputy
Sheriff Renato E. Robles levied on the following
real properties of the Galit spouses:chanrob1es
virtual 1aw library
1. A parcel of land covered by Original Certificate of
Title No. T-569 (Homestead Patent No. 14692)
situated in the Bo. of Tapulac, Orani, Bataan.
Bounded on the SW, along line 1-2 by Lot No. 3,
Cad. 145; containing an area of THIRTY FIVE
THOUSAND SEVEN HUNDRED FIFTY NINE
(35,759) SQUARE METERS, more or less . . .;
2. STORE/HOUSE — CONSTRUCTED on Lot No.
1103 made of strong materials G.I. roofing situated
at Centro I, Orani, Bataan, . . . containing an area
of 30 sq. meters, more or less . . . (constructed on
TCT No. T40785);
3. BODEGA — constructed on Lot 1103, made of
strong materials, G.I. roofing, situated in Centro I,
Orani, Bataan, . . . with a floor area of 42.75 sq. m.
more or less . . . . 11
At the sale of the above-enumerated properties at
public auction held on December 23, 1998,
petitioner was the highest and only bidder with a
bid price of P483,000.00. Accordingly, on February
4, 1999, Deputy Sheriff Robles issued a Certificate
of Sale of Execution of Real Property, 12 which
reads:chanrob1es virtual 1aw library
CERTIFICATE OF SALE ON EXECUTION OF
REAL PROPERTY
TO ALL WHO MAY SEE THESE
PRESENTS:chanrob1es virtual 1aw library
GREETINGS:chanrob1es virtual 1aw library
I HEREBY that (sic) by virtue of the writ of
execution dated October 16, 1998, issued in the
above-entitled case by the HON. BENJAMIN T.
VIANZON, ordering the Provincial Sheriff of Bataan
or her authorized Deputy Sheriff to cause to be
made (sic) the sum of P350,000.00 plus 12%
interest to be computed from the date of maturity of
the promissory notes until the same are fully paid;
P20,000.00 as attorney’s fees plus legal expenses
in the implementation of the writ of execution, the
undersigned Deputy Sheriff sold at public auction
on December 23, 1998 the rights and interests of
defendants Sps. Ricardo and Rosalina Galit, to the
plaintiff Marcelo Soriano, the highest and only
bidder for the amount of FOUR HUNDRED
EIGHTY THREE THOUSAND PESOS
(P483,000.00, Philippine Currency), the following
real estate properties more particularly described
as follows:chanrob1es virtual 1aw library
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692)
situated in the Bo. of Tapulac, Orani, Bataan, . . . .
Bounded on the SW., along line 1-2 by Lot No. 3,
Cad. 145, containing an area of THIRTY FIVE
THOUSAND SEVEN HUNDRED FIFTY NINE
(35,759) SQUARE METERS, more or less . . .
TAX DEC. NO. — PROPERTY INDEX NO. 018-09-
001-02
STOREHOUSE — constructed on Lot 1103, made
of strong materials G.I. roofing situated at Centro I,
Orani, Bataan . . . containing an area of 30 sq.
meters, more or less . . . (constructed on TCT No.
40785)
TAX DEC. NO. 86 — PROPERTY INDEX No. 018-
09-001-02
BODEGA — constructed on Lot 1103, made of
strong materials G.I. roofing situated in Centro I,
Orani, Bataan, . . . with a floor area of 42.75 sq. m.
more or less . . .
IT IS FURTHER CERTIFIED, that the aforesaid
highest and lone bidder, Marcelo Soriano, being the
plaintiff did not pay to the Provincial Sheriff of
Bataan the amount of P483,000.00, the sale price
of the above described property which amount was
credited to partial/full satisfaction of the judgment
embodied in the writ of execution.
The period of redemption of the above described
real properties together with all the improvements
41
thereon will expire One (1) year from and after the
registration of this Certificate of Sale with the
Register of Deeds.
This Certificate of Sheriff’s Sale is issued to the
highest and lone bidder, Marcelo Soriano, under
guarantees prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration
of the "Certificate of Sale on Execution of Real
Property" with the Registry of Deeds.chanrob1es
virtua1 1aw 1ibrary
The said Certificate of Sale registered with the
Register of Deeds includes at the dorsal portion
thereof the following entry, not found in the
Certificate of Sale on file with Deputy Sheriff
Renato E. Robles: 13
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral
Survey of Orani), with the improvements thereon,
situated in the Municipality of Orani, Bounded on
the NE; by Calle P. Gomez; on the E. by Lot No.
1104; on the SE by Calle Washington; and on the
W. by Lot 4102, containing an area of ONE
HUNDRED THIRTY NINE (139) SQUARE
METERS, more or less. All points referred to are
indicated on the plan; bearing true; declination 0
deg. 40’E., date of survey, February 191-March
1920.
On February 23, 2001, ten months from the time
the Certificate of Sale on Execution was registered
with the Registry of Deeds, petitioner moved 14 for
the issuance of a writ of possession. He averred
that the one-year period of redemption had elapsed
without the respondents having redeemed the
properties sold at public auction; thus, the sale of
said properties had already become final. He also
argued that after the lapse of the redemption
period, the titles to the properties should be
considered, for all legal intents and purposes, in his
name and favor. 15
On June 4, 2001, the Regional Trial Court of
Balanga City, Branch 1 granted the motion for
issuance of writ of possession. 16 Subsequently,
on July 18, 2001, a writ of possession 17 was
issued in petitioner’s favor which reads:chanrob1es
virtual 1aw library
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings:chanrob1es virtual 1aw library
WHEREAS on February 3, 2001, the counsel for
plaintiff filed Motion for the Issuance of Writ of
Possession;
WHEREAS on June 4, 2001, this court issued an
order granting the issuance of the Writ of
Possession;
WHEREFORE, you are hereby commanded to
place the herein plaintiff Marcelo Soriano in
possession of the property involved in this case
situated (sic) more particularly described
as:chanrob1es virtual 1aw library
1. STORE HOUSE constructed on Lot No. 1103
situated at Centro 1, Orani, Bataan covered by TCT
No. 40785;
2. BODEGA constructed on Lot No. 1103 with an
area of 42.75 square meters under Tax Declaration
No. 86 situated at Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an
area of 134 square meters known as Lot No. 1103
of the Cadastral Survey of Orani. . .
against the mortgagor/former owners Sps. Ricardo
and Rosalinda (sic) Galit, her (sic) heirs,
successors, assigns and all persons claiming rights
and interests adverse to the petitioner and make a
return of this writ every thirty (30) days from receipt
hereof together with all the proceedings thereon
until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T.
VIANZON, Presiding Judge, this 18th day of July
2001, at Balanga City.
(Sgd) GILBERT S. ARGONZA
OIC
Respondents filed a petition for certiorari with the
42
Court of Appeals, which was docketed as CA-G.R.
SP No. 65891, assailing the inclusion of the parcel
of land covered by Transfer Certificate of Title No.
T-40785 among the list of real properties in the writ
of possession. 18 Respondents argued that said
property was not among those sold on execution by
Deputy Sheriff Renato E. Robles as reflected in the
Certificate of Sale on Execution of Real Property.
In opposition, petitioner prayed for the dismissal of
the petition because respondent spouses failed to
move for the reconsideration of the assailed order
prior to the filing of the petition. Moreover, the
proper remedy against the assailed order of the trial
court is an appeal, or a motion to quash the writ of
possession.
On May 13, 2002, the Court of Appeals rendered
judgment as follows:chanrob1es virtual 1aw library
WHEREFORE, the instant petition is hereby
GRANTED. Accordingly, the writ of possession
issued by the Regional Trial Court of Balanga City,
Branch 1, on 18 July 2001 is declared NULL and
VOID.
In the event that the questioned writ of possession
has already been implemented, the Deputy Sheriff
of the Regional Trial Court of Balanga City, Branch
1, and private respondent Marcelo Soriano are
hereby ordered to cause the redelivery of Transfer
Certificate of Title No. T-40785 to the petitioners.
SO ORDERED. 19
Aggrieved, petitioner now comes to this Court
maintaining that —
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI
UNDER RULE 65 IS NOT THE PLAIN, SPEEDY
AND ADEQUATE REMEDY OF THE
RESPONDENTS IN ASSAILING THE WRIT OF
POSSESSION ISSUED BY THE LOWER COURT
BUT THERE WERE STILL OTHER REMEDIES
AVAILABLE TO THEM AND WHICH WERE NOT
RESORTED TO LIKE THE FILING OF A MOTION
FOR RECONSIDERATION OR MOTION TO
QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN DECLARING THE
CERTIFICATE OF SALE ON EXECUTION OF
REAL PROPERTY AS NULL AND VOID AND
SUBSEQUENTLY THE WRIT OF POSSESSION
BECAUSE THE SAME IS A PUBLIC DOCUMENT
WHICH ENJOYS THE PRESUMPTION OF
REGULARITY AND IT CANNOT BE OVERCOME
BY A MERE STRANGE FEELING THAT
SOMETHING IS AMISS ON ITS SURFACE
SIMPLY BECAUSE THE TYPEWRITTEN WORDS
ON THE FRONT PAGE AND AT THE DORSAL
PORTION THEREOF IS DIFFERENT OR THAT IT
IS UNLIKELY FOR THE SHERIFF TO USE THE
DORSAL PORTION OF THE FIRST PAGE
BECAUSE THE SECOND PAGE IS MERELY
HALF FILLED AND THE NOTATION ON THE
DORSAL PORTION COULD STILL BE MADE AT
THE SECOND PAGE.
On the first ground, petitioner contends that
respondents were not without remedy before the
trial court. He points out that respondents could
have filed a motion for reconsideration of the Order
dated June 4, 1999, but they did not do so.
Respondents could also have filed an appeal but
they, likewise, did not do so. When the writ of
possession was issued, respondents could have
filed a motion to quash the writ. Again they did not.
Respondents cannot now avail of the special civil
action for certiorari as a substitute for these
remedies. They should suffer the consequences for
sleeping on their rights.chanrob1es virtua1 1aw
1ibrary
We disagree.
Concededly, those who seek to avail of the
procedural remedies provided by the rules must
adhere to the requirements thereof, failing which
the right to do so is lost. It is, however, equally
settled that the Rules of Court seek to eliminate
undue reliance on technical rules and to make
litigation as inexpensive as practicable and as
convenient as can be done. 20 This is in
accordance with the primary purpose of the 1997
Rules of Civil Procedure as provided in Rule 1,
Section 6, which reads:chanrob1es virtual 1aw
library
Section 6. Construction. — These rules shall be
liberally construed in order to promote their
objective of securing a just, speedy and
inexpensive determination of every action and
proceeding. 21
The rules of procedure are not to be applied in a
very rigid, technical sense and are used only to
help secure substantial justice. If a technical and
43
rigid enforcement of the rules is made, their aim
would be defeated. 22 They should be liberally
construed so that litigants can have ample
opportunity to prove their claims and thus prevent a
denial of justice due to technicalities. 23 Thus, in
China Banking Corporation v. Members of the
Board of Trustees of Home Development Mutual
Fund, 24 it was held:chanrob1es virtual 1aw library
. . .while certiorari as a remedy may not be used as
a substitute for an appeal, especially for a lost
appeal, this rule should not be strictly enforced if
the petition is genuinely meritorious. 25 It has been
said that where the rigid application of the rules
would frustrate substantial justice, or bar the
vindication of a legitimate grievance, the courts are
justified in exempting a particular case from the
operation of the rules. 26 (Emphasis ours)
Indeed, well-known is the rule that departures from
procedure may be forgiven where they do not
appear to have impaired the substantial rights of
the parties. 27 Apropos in this regard is Cometa v.
CA, 28 where we said that —
There is no question that petitioners were remiss in
attending with dispatch to the protection of their
interests as regards the subject lots, and for that
reason the case in the lower court was dismissed
on a technicality and no definitive pronouncement
on the inadequacy of the price paid for the levied
properties was ever made. In this regard, it bears
stressing that procedural rules are not to be
belittled or dismissed simply because their non-
observance may have resulted in prejudice to a
party’s substantive rights as in this case. Like all
rules, they are required to be followed except when
only for the most persuasive of reasons they may
be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his
thoughtlessness in not complying with the
procedure prescribed. 29 (emphasis and Italics
supplied.)
In short, since rules of procedure are mere tools
designed to facilitate the attainment of justice, their
strict and rigid application which would result in
technicalities that tend to frustrate rather than
promote substantial justice must always be
avoided. 30 Technicality should not be allowed to
stand in the way of equitably and completely
resolving the rights and obligations of the parties.
31
Eschewing, therefore, the procedural objections
raised by petitioner, it behooves us to address the
issue of whether or not the questioned writ of
possession is in fact a nullity considering that it
includes real property not expressly mentioned in
the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition
that since the certificate of sale is a public
document, it enjoys the presumption of regularity
and all entries therein are presumed to be done in
the performance of regular functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate
of Sale on Execution of Real Properties issued on
February 4, 1999 involved, namely: (a) copy which
is on file with the deputy sheriff; and (b) copy
registered with the Registry of Deeds. The object of
scrutiny, however, is not the copy of the Certificate
of Sale on Execution of Real Properties issued by
the deputy sheriff on February 4, 1999, 32 but the
copy thereof subsequently registered by petitioner
with the Registry of Deeds on April 23, 1999, 33
which included an entry on the dorsal portion of the
first page thereof describing a parcel of land
covered by OCT No. T-40785 not found in the
Certificate of Sale of Real Properties on file with the
sheriff.
True, public documents by themselves may be
adequate to establish the presumption of their
validity. However, their probative weight must be
evaluated not in isolation but in conjunction with
other evidence adduced by the parties in the
controversy, much more so in this case where the
contents of a copy thereof subsequently registered
for documentation purposes is being contested. No
reason has been offered how and why the
questioned entry was subsequently intercalated in
the copy of the certificate of sale subsequently
registered with the Registry of Deeds. Absent any
satisfactory explanation as to why said entry was
belatedly inserted, the surreptitiousness of its
inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity
of petitioner’s copy of the Certificate of Sale. Thus,
it has been held that while a public document like a
notarized deed of sale is vested with the
presumption of regularity, this is not a guarantee of
the validity of its contents. 34
It must be pointed out in this regard that the
44
issuance of a Certificate of Sale is an end result of
judicial foreclosure where statutory requirements
are strictly adhered to; where even the slightest
deviations therefrom will invalidate the proceeding
35 and the sale. 36 Among these requirements is
an explicit enumeration and correct description of
what properties are to be sold stated in the notice.
The stringence in the observance of these
requirements is such that an incorrect title number
together with a correct technical description of the
property to be sold and vice versa is deemed a
substantial and fatal error which results in the
invalidation of the sale. 37
The certificate of sale is an accurate record of what
properties were actually sold to satisfy the debt.
The strictness in the observance of accuracy and
correctness in the description of the properties
renders the enumeration in the certificate exclusive.
Thus, subsequently including properties which have
not been explicitly mentioned therein for registration
purposes under suspicious circumstances smacks
of fraud. The explanation that the land on which the
properties sold is necessarily included and, hence,
was belatedly typed on the dorsal portion of the
copy of the certificate subsequently registered is at
best a lame excuse unworthy of belief.chanrob1es
virtua1 1aw 1ibrary
The appellate court correctly observed that there
was a marked difference in the appearance of the
typewritten words appearing on the first page of the
copy of the Certificate of Sale registered with the
Registry of Deeds 38 and those appearing at the
dorsal portion thereof. Underscoring the irregularity
of the intercalation is the clearly devious attempt to
let such an insertion pass unnoticed by typing the
same at the back of the first page instead of on the
second page which was merely half-filled and could
accommodate the entry with room to spare.
The argument that the land on which the buildings
levied upon in execution is necessarily included is,
likewise, tenuous. Article 415 of the Civil Code
provides:chanrob1es virtual 1aw library
ART. 415. The following are immovable
property:chanrob1es virtual 1aw library
(1) Land, buildings, roads and constructions of all
kinds adhered to the soil:chanrob1es virtual 1aw
library
x x x court was merely the storehouse and bodega
(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;
(4) Statues, reliefs, paintings or other objects for
use or ornamentation, placed in buildings or on
lands by the owner of the immovable in such a
manner that it reveals the intention to attach them
permanently to the tenements;
(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;
(6) Animal houses, pigeon houses, beehives, fish
ponds or breeding places of similar nature, in case
their owner has placed them or preserves them
with the intention to have them permanently
attached to the land, and forming a permanent part
of it; the animals in these places are also included;
x x x
(9) Docks and structures which, though floating, are
intended by their nature and object to remain at a
fixed place on a river, lake or coast;
x x x.
The foregoing provision of the Civil Code
enumerates land and buildings separately. This can
only mean that a building is, by itself, considered
immovable. 39 Thus, it has been held that —
. . . while it is true that a mortgage of land
necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a
building by itself may be mortgaged apart from the
land on which it has been built. Such mortgage
would be still a real estate mortgage for the building
would still be considered immovable property even
if dealt with separately and apart from the land. 40
(emphasis and Italics supplied)
In this case, considering that what was sold by
virtue of the writ of execution issued by the trial
45
constructed on the parcel of land covered by
Transfer Certificate of Title No. T-40785, which by
themselves are real properties of respondents
spouses, the same should be regarded as separate
and distinct from the conveyance of the lot on
which they stand.
WHEREFORE, in view of all the foregoing, the
petition is hereby DENIED for lack of merit. The
Decision dated May 13, 2002 of the Court of
Appeals in CA-G.R. SP No. 65891, which declared
the writ of possession issued by the Regional Trial
Court of Balanga City, Branch 1, on July 18, 2001,
null and void, is AFFIRMED in toto.chanrob1es
virtua1 1aw 1ibrary
SO ORDERED.
Case digest:
MARCELO R. SORIANO V. SPOUSES RICARDO
and ROSALINA GALIT
G.R. No. 156295. September 23, 2003
FACTS
Respondent Ricardo Galit contracted a loan from
petitioner Marcelo Soriano, in the total sum of
P480,000.00, evidenced by four promissory notes.
This loan was secured by a real estate mortgage
over a parcel of land. After he failed to pay his
obligation, Soriano filed a complaint for sum of
money against him with the Regional Trial Court.
Respondents, the Spouses Ricardo and
Rosalina Galit, failed to file their answer. Hence,
upon motion of Marcelo Soriano, the trial court
declared the spouses in default and proceeded to
receive evidence for petitioner Soriano ex parte.
The RTC rendered judgment in favor of
petitioner Soriano, against the defendant ordering
the latter to pay. It became final
and executory. Accordingly, the trial court issued a
writ of execution in due course, by virtue of which,
Deputy Sheriff Renato E. Robles levied on the
following real properties of the Galit spouses:
1. A parcel of land
2. STORE/HOUSE CONSTRUCTED made of
strong materials
3. BODEGA made of strong materials
At the sale of the above-enumerated properties at
public auction, petitioner was the highest and only
bidder. Accordingly, Deputy Sheriff Robles issued a
Certificate of Sale of Execution of Real Property
Respondents filed a petition for certiorari with the
Court of Appeals, assailing the inclusion of the
parcel of land covered among the list of real
properties in the writ of possession. Respondents
argued that said property was not among those
sold on execution by Deputy Sheriff Renato E.
Robles as reflected in the Certificate of Sale on
Execution of Real Property.
Court of Appeals granted the instant petition.
ISSUE
Whether or not the Certificate of Sale on execution
of real property is null and void and subsequently
the writ of possession.
RULING
Yes. Petitioner dwells on the general proposition
that since the certificate of sale is a public
document, it enjoys the presumption of regularity
and all entries therein are presumed to be done in
the performance of regular functions.
There are actually two copies of the Certificate of
Sale on Execution of Real Properties issued
namely: (a) copy which is on file with the deputy
46
sheriff; and (b) copy registered with the Registry of
Deeds. The object of scrutiny, however, is not the
copy of the Certificate of Sale on Execution of Real
Properties issued by the deputy sheriff but the copy
thereof subsequently registered by petitioner with
the Registry of Deeds which included an entry on
the dorsal portion of the first page thereof
describing a parcel of land not found in the
Certificate of Sale of Real Properties on file with the
sheriff.
Thus, it has been held that while a public document
like a notarized deed of sale is vested with the
presumption of regularity, this is not a guarantee of
the validity of its contents. It must be pointed out in
this regard that the issuance of a Certificate of Sale
is an end result of judicial foreclosure where
statutory requirements are strictly adhered to;
where even the slightest deviations therefrom will
invalidate the proceeding and the sale. Among
these requirements is an explicit enumeration and
correct description of what properties are to be sold
stated in the notice.
The argument that the land on which the buildings
levied upon in execution is necessarily included is,
likewise, tenuous.
The foregoing provision of the Civil Code
enumerates land and buildings separately. This can
only mean that a building is, by itself, considered
immovable. Thus, it has been held that
. . . while it is true that a mortgage of land
necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a
building by itself may be mortgaged apart from
the land on which it has been built. Such
mortgage would be still a real estate mortgage
for the building would still be considered
immovable property even if dealt with
separately and apart from the land.
In this case, considering that what was sold by
virtue of the writ of execution issued by the trial
court was merely the storehouse
and bodega constructed on the parcel of land,
which by themselves are real properties of
respondents spouses, the same should be
regarded as separate and distinct from the
conveyance of the lot on which they stand.
--------------------------------------------------------
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
47
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 which the defendant was
not able to raise by reason of the
injunction, at P4 cavan. 9,439.08
From that judgment the plaintiff
appealed and in his assignments of
error contends that the lower court
erred: (1) In holding that the sugar
cane in question was personal
property and, therefore, not subject
to redemption;
(2) In holding that parcels 1 and 2 of the
complaint belonged to Valdez, as well as
parcels 7 and 8, and that the palay therein
was planted by Valdez;
48
 (3) In holding that Valdez, by reason of the
preliminary injunction failed to realized
P6,757.40 from the sugar cane and
P1,435.68 from sugar-cane shoots (puntas
de cana dulce);
(4) In holding that, for failure of plaintiff to
gather the sugar cane on time, the
defendant was unable to raise palay on the
land, which would have netted him the sum
of P600; and.
(5) In condemning the plaintiff and his
sureties to pay to the defendant the sum of
P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff
of the Province of Tarlac, by virtue of writ of
execution in civil case No. 20203 of the
Court of First Instance of Manila
(Macondray & Co., Inc. vs. Leon
Sibal),levied an attachment on eight parcels
of land belonging to said Leon Sibal,
situated in the Province of Tarlac,
designated in the second of attachment as
parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B,
Exhibit 2-A).
(2) That on July 30, 1923, Macondray &
Co., Inc., bought said eight parcels of land,
at the auction held by the sheriff of the
Province of Tarlac, for the sum to
P4,273.93, having paid for the said parcels
separately as follows (Exhibit C, and 2-A):
Parcel
1 Valdez vs. Leon Sibal 1.º — the same
..........................................
...........................
2 sugar cane now in question in the seven
..........................................
...........................
3
..........................................
...........................
4 1,000.0
..........................................
...........................
5
.......................................... 1.00
...........................
6
.......................................... 1.00
...........................
7 with the house thereon
150.00
..........................
8 1,000.0
.......................................... 0
........................... ======
====
4,273.93
(3) That within one year from the sale of
said parcel of land, and on the 24th day of
September, 1923, the judgment debtor,
Leon Sibal, paid P2,000 to Macondray &
Co., Inc., for the account of the redemption
price of said parcels of land, without
specifying the particular parcels to which
said amount was to applied. The
redemption price said eight parcels was
reduced, by virtue of said transaction, to
P2,579.97 including interest (Exhibit C and
2).
The record further shows:
(1) That on April 29, 1924, the defendant
Vitaliano Mamawal, deputy sheriff of the
Province of Tarlac, by virtue of a writ of
execution in civil case No. 1301 of the
Province of Pampanga (Emiliano J.
P1.00 parties in the present case), attached the
personal property of said Leon Sibal located
in Tarlac, among which was included the
2,000.0
parcels of land described in the complaint
0
(Exhibit A).
120.93 (2) That on May 9 and 10, 1924, said
deputy sheriff sold at public auction said
personal properties of Leon Sibal, including
the sugar cane in question to Emilio J.
0 Valdez, who paid therefor the sum of
49
 P1,550, of which P600 was for the sugar
cane (Exhibit A).
(3) That on April 29,1924, said deputy
sheriff, by virtue of said writ of execution,
also attached the real property of said Leon
Sibal in Tarlac, including all of his rights,
interest and participation therein, which real
property consisted of eleven parcels of land
and a house and camarin situated in one of
said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said
eleven parcels, including the house and the
camarin, were bought by Emilio J. Valdez at
the auction held by the sheriff for the sum of
P12,200. Said eight parcels were
designated in the certificate of sale as
parcels 1, 3, 4, 5, 6, 7, 10 and 11. The
house and camarin were situated on parcel
7 (Exhibit A).
(5) That the remaining three parcels,
indicated in the certificate of the sheriff as
parcels 2, 12, and 13, were released from
the attachment by virtue of claims presented
by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).
(6) That on the same date, June 25, 1924,
Macondray & Co. sold and conveyed to
Emilio J. Valdez for P2,579.97 all of its
rights and interest in the eight parcels of
land acquired by it at public auction held by
the deputy sheriff of Tarlac in connection
with civil case No. 20203 of the Court of
First Instance of Manila, as stated above.
Said amount represented the unpaid
balance of the redemption price of said
eight parcels, after payment by Leon Sibal
of P2,000 on September 24, 1923, fro the
account of the redemption price, as stated
above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar
cane in question, located in the seven
parcels of land described in the first cause
of action of the complaint at public auction
on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co.
became the owner of eight parcels of land
situated in the Province of Tarlac belonging
to Leon Sibal and that on September 24,
1923, Leon Sibal paid to Macondray & Co.
P2,000 for the account of the redemption
price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez
acquired from Macondray & Co. all of its
rights and interest in the said eight parcels
of land.
(4) That on June 25, 1924, Emilio J. Valdez
also acquired all of the rights and interest
which Leon Sibal had or might have had on
said eight parcels by virtue of the P2,000
paid by the latter to Macondray.
(5) That Emilio J. Valdez became the
absolute owner of said eight parcels of land.
The first question raised by the appeal is, whether
the sugar cane in question is personal or real
property. It is contended that sugar cane comes
under the classification of real property as
"ungathered products" in paragraph 2 of article 334
of the Civil Code. Said paragraph 2 of article 334
enumerates as real property the following: Trees,
plants, and ungathered products, while they are
annexed to the land or form an integral part of any
immovable property." That article, however, has
received in recent years an interpretation by
the Tribunal Supremo de España, which holds that,
under certain conditions, growing crops may be
considered as personal property. (Decision of
March 18, 1904, vol. 97, Civil Jurisprudence of
Spain.)
Manresa, the eminent commentator of the Spanish
Civil Code, in discussing section 334 of the Civil
Code, in view of the recent decisions of the
supreme Court of Spain, admits that growing crops
are sometimes considered and treated as personal
property. He says:
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,
50
 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
51
 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
52
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
53
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
54
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
323.00
plaintiff in parcels 1 and 2;
for the palay which
600.00 defendant could have
raised.
8,900.80
============
In all other respects, the judgment appealed from is
hereby affirmed, with costs. So ordered.
Case digest:
SIBAL v. VALDEZ
For the purpose of attachment and execution,
and for the purposes of the Chattel Mortgage
Law, "ungathered products" have the nature of
personal property.
FACTS:
(this case has a lot of confusing facts, just read the
original if this digest fails to compress everything)
The 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. Included also in those attached
were real properties wherein 8mout of the 11
parcels of land, house and camarin which was first
acquired by Macondray & Co and then later on
bought by Valdez in an auction. First Cause for
petitioner: 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. Second Cause for petitioner: That
Valdez was trying to harvest palay from four out of
seven parcels of land. Petitioner filed for
preliminary injunction to stop defendant from 1)
distributing the lands 2) harvesting and selling the
sugar canes, and 3) harvesting and selling the
palay. The writ was issued which prevented
55
defendant from planting and harvesting the lands.
Defendant later appealed claiming that he was the
owner of many of the alleged land thus he also
owns the crops of it. The court awarded the
defendant 9,439.08 because the petitioner unduly
denied the defendant to plant in his land thus
preventing him to profit thereto.
ISSUE:
Whether the sugar cane is personal o real
property? (The relevance of the issue is with
regards to the sugar cane of the Petitioner which
came from the land that now belongs to the
defendant)
RULING:
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.
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."
For the purpose of attachment and execution, and
for the purposes of the Chattel Mortgage Law,
"ungathered products" have the nature of personal
property. SC lowered the award for damages to the
defendant to 8,900.80 by acknowledging the fact
that some of the sugar canes were owned by the
petitioner and by reducing the calculated expected
yield or profit that defendant would have made if
petitioner did not judicially prevent him from
planting and harvesting his lands.
--------------------------------------------------------------
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE
HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for
resolution is whether or not respondent Court erred
56
in denying the Motion to Set Case for Pre-trial with
respect to respondent Remedios Vda. de
Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr.,
was the former registered owner of a parcel of land
consisting of 340 square meters situated in
Bamban, Tarlac. In 1963, petitioner mortgaged said
land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said
amount, the property was foreclosed on December
16, 1970. Respondent PNB (Tarlac Branch) was
the highest bidder in said foreclosure proceedings.
However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was
still in the alleged possession of petitioner and with
the alleged acquiescence of respondent PNB
(Tarlac Branch), and upon securing a permit from
the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared
said warehouse for tax purposes for which he was
issued Tax Declaration No. 5619. Petitioner then
leased the warehouse to one Hermogenes Sibal for
a period of 10 years starting January 1975.
On July 26, 1978, a Deed of Sale was executed
between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This
contract was amended on July 31, 1978,
particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the
property in her name (TCT No. 173744) as well as
separate tax declarations for the land and
building. 1
On November 22, 1979, petitioner commenced suit
for "Annulment of Deed of Sale with Damages"
against herein respondents PNB and Lacsamana
before respondent Court of First Instance of Rizal,
Branch XXXI, Quezon City, essentially impugning
the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection,
petitioner alleged:
xxx xxx xxx
22. That defendant, Philippine
National Bank, through its Branch
Manager ... by virtue of the request
of defendant ... executed a
document dated July 31, 1978,
entitled Amendment to Deed of
Absolute Sale ... wherein said
defendant bank as Vendor sold to
defendant Lacsamana the building
owned by the plaintiff under Tax
Declaration No. 5619,
notwithstanding the fact that said
building is not owned by the bank
either by virtue of the public auction
sale conducted by the Sheriff and
sold to the Philippine National Bank
or by virtue of the Deed of Sale
executed by the bank itself in its
favor on September 21, 1977 ...;
23. That said defendant bank
fraudulently mentioned ... that the
sale in its favor should likewise have
included the building,
notwithstanding no legal basis for
the same and despite full knowledge
that the Certificate of Sale executed
by the sheriff in its favor ... only
limited the sale to the land, hence,
by selling the building which never
became the property of defendant,
they have violated the principle
against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the
building in favor of respondent Lacsamana be
declared null and void and that damages in the total
sum of P230,000.00, more or less, be awarded to
him.2
In her Answer filed on March 4, 1980,-respondent
Lacsamana averred the affirmative defense of lack
of cause of action in that she was a purchaser for
value and invoked the principle in Civil Law that the
"accessory follows the principal".3
On March 14, 1980, respondent PNB filed a Motion
to Dismiss on the ground that venue was
improperly laid considering that the building was
real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should
apply. 4
Opposing said Motion to Dismiss, petitioner
contended that the action for annulment of deed of
sale with damages is in the nature of a personal
action, which seeks to recover not the title nor
57
possession of the property but to compel payment
of damages, which is not an action affecting title to
real property.
On April 25, 1980, respondent Court granted
respondent PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss'
of the defendant Philippine National
Bank dated March 13, 1980,
considered against the plaintiff's
opposition thereto dated April 1,
1980, including the reply therewith of
said defendant, this Court resolves
to DISMISS the plaintiff's complaint
for improper venue considering that
the plaintiff's complaint which seeks
for the declaration as null and void,
the amendment to Deed of Absolute
Sale executed by the defendant
Philippine National Bank in favor of
the defendant Remedios T. Vda. de
Lacsamana, on July 31, 1978,
involves a warehouse allegedly
owned and constructed by the
plaintiff on the land of the defendant
Philippine National Bank situated in
the Municipality of Bamban,
Province of Tarlac, which warehouse
is an immovable property pursuant
to Article 415, No. 1 of the New Civil
Code; and, as such the action of the
plaintiff is a real action affecting title
to real property which, under Section
2, Rule 4 of the New Rules of Court,
must be tried in the province where
the property or any part thereof lies.5
In his Motion for Reconsideration of the aforestated
Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title
to property but is limited to the validity of the deed
of sale and emphasized that the case should
proceed with or without respondent PNB as
respondent Lacsamana had already filed her
Answer to the Complaint and no issue on venue
had been raised by the latter.
On September 1, 1980,.respondent Court denied
reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-
trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined
with the filing of respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent
Court denied said Motion to Set Case for Pre-trial
as the case was already dismissed in the previous
Orders of April 25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave
due course.
We affirm respondent Court's Order denying the
setting for pre-trial.
The warehouse claimed to be owned by petitioner
is an immovable or real property as provided in
article 415(l) of the Civil Code. 6 Buildings are
always immovable under the Code. 7 A building
treated separately from the land on which it stood is
immovable property and the mere fact that the
parties to a contract seem to have dealt with it
separate and apart from the land on which it stood
in no wise changed its character as immovable
property. 8
While it is true that petitioner does not directly seek
the recovery of title or possession of the property in
question, his action for annulment of sale and his
claim for damages are closely intertwined with the
issue of ownership of the building which, under the
law, is considered immovable property, the
recovery of which is petitioner's primary objective.
The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property
does not operate to efface the fundamental and
prime objective and nature of the case, which is to
recover said real property. It is a real action. 9
Respondent Court, therefore, did not err in
dismissing the case on the ground of improper
venue (Section 2, Rule 4) 10, which was timely
raised (Section 1, Rule 16) 11.
Petitioner's other contention that the case should
proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer,
which did not allege improper venue and, therefore,
issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable
party as the validity of the Amended Contract of
Sale between the former and respondent
Lacsamana is in issue. It would, indeed, be futile to
proceed with the case against respondent
Lacsamana alone.
58
WHEREFORE, the petition is hereby denied
without prejudice to the refiling of the case by
petitioner Antonio Punsalan, Jr. in the proper forum.
Costs against petitioner.
SO ORDERED.
-----------------------------------------------------------
G.R. No. 168557 February 16, 2007
FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR
OF 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 Resolution2 dated June 20, 2005; the
second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision3 and
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 Agreement5 (Agreement),
was for a period of five 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 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
59
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 a Notice of Levy and Warrant
by Distraint13over 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 Order16 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
Decision17 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.
7160.19 As to the other jurisdictional issue, 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
Resolution20 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:
60
 (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 Resolution28 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.
61
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 interest in the property who is not satisfied with the
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
Resolution31 dated March 8, 2006.1awphi1.net
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
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.
62
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,34 where we ruled that under Section
226 of R.A. No 7160,35 the last action of the local
assessor on a particular assessment 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,
63
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
64
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:
65
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.
Case digest:
FELS ENERGY, INC. V THE PROVINCE OF
BATANGAS and THE OFFICE OF THE
PROVINCIAL ASSESSOR OF BATANGAS
G.R. No. 168557 February 16, 2007
FACTS
Two consolidated cases were filed by FELS
Energy, Inc. (FELS) and National Power
Corporation (NPC), respectively.
NPC entered into a lease contract with Polar
Energy, Inc. over diesel engine power barges
moored at Batangas. The contract, denominated as
an Energy Conversion Agreement, was for a period
of five years wherein, NPC shall be responsible for
the payment of:
(a) all taxes, import duties, fees, charges and other
levies imposed by the National Government
(b) all real estate taxes and assessments, rates and
other charges in respect of the Power Barges
Subsequently, Polar Energy, Inc. assigned its rights
under the Agreement to FELS. Thereafter, FELS
received an assessment of real property taxes on
the power barges. The assessed tax, which
likewise covered those due for 1994, amounted
to P56,184,088.40 per annum. FELS referred the
matter to NPC, reminding it of its obligation under
66
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.
NPC sought reconsideration of the Provincial
Assessor’s decision to assess real property taxes
on the power barges. However, the motion was
denied. The Local Board of Assessment Appeals
(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.
building or on a piece of land and which tend
directly to meet the needs of said industry or work.
The findings of the LBAA and CBAA that the owner
of the taxable properties is petitioner FELS is the
entity being taxed by the local government. As
stipulated under 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.

It follows then that FELS cannot escape liability

FELS appealed the LBAA’s ruling to the Central
Board of Assessment Appeals (CBAA). The CBAA
rendered a Decision finding the power barges
exempt from real property tax.
It was later reversed by the cbaa
reconsideration and affirmed by the CA
from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160,
…the law states that the machinery must be
actually, directly and exclusively used by the
government owned or controlled corporation;
upon

The agreement POLAR undertakes that until the

ISSUE
Whether power barges, which are floating and
movable, are personal properties and therefore, not
subject to real property tax.
end of the Lease Period, it will operate the Power
Barges to convert such Fuel into electricity.
Therefore, FELS shall be liable for the realty
taxes and not the NPC who is not actually, directly
and exclusively using the same. It is a basic rule
that obligations arising from a contract have the
force of law between the parties

RULING

No. 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
CONCLUSION
Petitions are DENIED.
-----------------------------------------------------------
G.R. No. 183416, October 05, 2016
PROVINCIAL ASSESSOR OF AGUSAN DEL
SUR, Petitioner, v. FILIPINAS PALM OIL
PLANTATION, INC., Respondent.

67
 DECISION
LEONEN, J.:
The exemption from real property taxes given to
cooperatives applies regardless of whether or not
the land owned is leased. This exemption benefits
the cooperative's lessee. The characterization of
machinery as real property is governed by the
Local Government Code and not the Civil Code.
This Petition1 for review assails the Decision2 dated
September 26, 2007 and the Resolution3 dated
May 26, 2008 of the Court of Appeals in CA-G.R.
SP No. 74060. The Court of Appeals affirmed the
Decision of the Central Board of Assessment
Appeals (CBAA) exempting Filipinas Palm Oil
Plantation Inc. from payment of real property
taxes.4chanrobleslaw
Filipinas Palm Oil Plantation Inc. (Filipinas) is a
private organization engaged in palm oil
plantation5 with a total land area of more than 7,000
hectares of National Development Company (NDC)
lands in Agusan del Sur.6 Harvested fruits from oil
palm trees are converted into oil through Filipinas'
milling plant in the middle of the plantation
area.7 Within the plantation, there are also three (3)
plantation roads and a number of residential homes
constructed by Filipinas for its
employees.8chanrobleslaw
After the Comprehensive Agrarian Reform
Law9 was passed, NDC lands were transferred to
Comprehensive Agrarian Reform Law beneficiaries
who formed themselves as the merged NDC-
Guthrie Plantations, Inc. - NDC-Guthrie Estates,
Inc. (NGPI-NGEI) Cooperatives.10 Filipinas entered
into a lease contract agreement with NGPI-
NGEI.11chanrobleslaw
The Provincial-Assessor of Agusan del Sur
(Provincial Assessor) is a government agency in
charge with the assessment of lands under the
public domain.12 It assessed Filipinas' properties
found within the plantation area,13 which Filipinas
assailed before the Local Board of Assessment
Appeals (LBAA) on the following grounds:
chanRoblesvirtualLawlibrary
(1.) The [petitioner] Provincial Assessors of Agusan
del Sur ERRED in finding that the Market Value of
a single fruit bearing oil palm tree is P207.00 when
it should only be P42.00 pesos per tree;
(2.) The [petitioner] ERRED in finding that the total
number of standing and fruit bearing oil palm tree is
PI 10 [sic] trees per hectare when it should be only
92 trees;
(3.) The [petitioner] ERRED in finding that the
Market Value[s] of the plantation roads
are:ChanRoblesVirtualawlibrary
A.) P270,000.00 per kilometer for primary roads
B.) P135,000.00 for secondary roads
C.) P67,567.00 for tertiary roads constructed by the
company.
It should only be:ChanRoblesVirtualawlibrary
A.) P105,000.00 for primary roads
B.) P52,300.00 for secondary roads
C.) P26,250.00 for tertiary roads
Likewise, bridges, culverts, canals and pipes
should not be assessed separately from plantation
roads, the same being components of the roads
thereof;
(4.) The [petitioner] ERRED in imposing real
property taxes against the petitioner for roads,
bridges, culverts, pipes and canals as these
belonged to the cooperatives;
([5].) The [petitioner] ERRED in finding that the
Market Value of NDC service area is P11,000.00
per hectare when it should only be P6,000.00 per
hectare;
([6].) The [petitioner] ERRED in imposing realty
taxes on Residential areas built by [respondent]
except for three of them;
([7].) The [petitioner] ERRED when it included
haulers and other equipments [sic] which are
unmovable as taxable real properties.14
In its Decision15 dated June 8, 1999, the LBAA
found that the P207.00 market value declared in
the assessment by the Provincial Assessor was
unreasonable.16 It found that the market value
should not have been more than P85.00 per oil
palm tree.17 The sudden increase of realty tax
assessment level from P42.00 for each oil palm
tree in 1993 to P207.00 was
confiscatory.18chanrobleslaw
The LBAA adopted Filipinas' claim that the basis for
assessment should only be 98 trees.19 Although
one (1) hectare of land can accommodate 124 oil
68
palm trees, the mountainous terrain of the
plantation should be considered.20 Because of the
terrain, not every meter of land can be fully planted
with trees.21The LBAA found that roads of any kind,
as well as all their improvements, should not be
taxed since these roads were intermittently used by
the public.22 It resolved that the market valuation
should be based on the laws of the Department of
Agrarian Reform since the area is owned by the
NDC, a quasi-governmental body of the
Philippines.23chanrobleslaw
The LBAA exempted the low-cost housing units
from taxation except those with a market value of
more than P150,000.00 under the Local
Government Code.24 Finally, the LBAA considered
the road equipment and mini haulers as movables
that are vital to Filipinas' business.
Filipinas appealed before the CBAA on July 16,
1999.26 On November 21, 2001, the CBAA
rendered a decision, the dispositive portion of
which reads:
chanRoblesvirtualLawlibrary
WHEREFORE, this Board has decided to set aside,
as it does hereby set aside, the decision rendered
by the Local Board of Assessment Appeals of the
Province of Agusan del Sur on June 8, 1999 in an
unnumbered case entitled "[F]ilipinas Palm Oil Co.,
Inc. Petitioner, versus the Provincial Assessors
Office of Agusan del Sur, Respondent" and hereby
orders as follows:
chanRoblesvirtualLawlibraryA. The market value for
each oil palm tree should be FIFTY- SEVEN &
55/100 PESOS (57.55), effective January 1, 1991.
The assessment for each municipality shall be
based on the corresponding number of trees as
listed in Petitioner-Appellee's "Hectarage
Statement" discussed hereinabove;
B. Petitioner-Appellee should not be made to pay
for the real property taxes due on the roads starting
from January 1, 1991;
C. Petitioner-Appellee is not liable to the
Government for real property taxes on the lands
owned by the Multi-purpose Cooperative;
D. The housing units with a market value of
PI75,000.00 or less each shall be subjected to 0%
assessment level, starting 1994;
E. Road Equipment and haulers are not real
properties and, accordingly, Petitioner-Appellee is
not liable for real property tax thereon;
F. Any real property taxes already paid by
Petitioner-Appellee which, by virtue "of this
decision, were not due, shall be applied to future
taxes rightfully due from Petitioner-Appellee.
SO ORDERED.27 (Emphasis supplied)
The CBAA denied the Motion for Reconsideration
filed by the Provincial Assessor.28 The Provincial
Assessor filed a Petition for Review before the
Court of Appeals, which, in turn, sustained the
CBAA's Decision.29chanrobleslaw
The Court of Appeals held that the land owned by
NGPI-NGEI, which Filipinas has been leasing,
cannot be subjected to real property tax since these
are owned by cooperatives that are tax-
exempt.30 Section 133(n) of the Local Government
Code provides:
chanRoblesvirtualLawlibrary
SECTION 133. Common Limitations on the Taxing
Powers of Local Government Units. — Unless
otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the
following:
....
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic
Act Numbered Sixty-nine hundred thirty-eight (R.A.
No. 6938) otherwise known as the "Cooperative
Code of the Philippines." (Emphasis supplied)
Section 234(d) of the Local Government Code
exempts duly registered cooperatives, like NGPI-
NGEI, from payment of real property taxes:
chanRoblesvirtualLawlibrary
SECTION 234. Exemptions from Real Property
Tax. — The following are exempted from payment
of the real property tax:
....
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938[.]
(Emphasis supplied)
69

The Court of Appeals held that the pertinent
provisions "neither distinguishes nor specifies" that
the exemption only applies to real properties used
by the cooperatives.31 It ruled that "[t]he clear
absence of any restriction or limitation in the
provision could only mean that the exemption
applies to wherever the properties are situated and
to whoever uses them."32 Therefore, the exemption
privilege extends to Filipinas as the cooperatives'
lessee.33chanrobleslaw
On the roads constructed by Filipinas, the Court of
Appeals held that although it is undisputed that the
roads were built primarily for Filipinas' benefit, the
roads should be tax-exempt since these roads were
also being used by the cooperatives and the
public.34 It applied, by analogy, Bislig Bay Lumber
Company, Inc. v. Provincial Government of
Surigao:35chanrobleslaw
We are inclined to uphold the theory of appellee. In
the first place, it cannot be disputed that the
ownership of the road that was constructed by
appellee belongs to the government by right
accession not only because it is inherently
incorporated or attached to the timber land leased
to appellee 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, under the lease contract entered into by the
appellee and the government and by public in by
the general. Thus, under said lease contract,
appellee cannot prevent the use of portions, of the
concession for homesteading purposes. It is also in
duty bound to allow the free use of forest products
within the concession for the personal use of
individuals residing in or within the vicinity of the
land. . . . In other words, the government has
practically reserved the rights to use the road to
promote its varied activities. Since, as above
shown, the road in question cannot be considered
as an improvement which belongs to appellee,
although in part is for its benefit, it is clear that the
same cannot be the subject of assessment within
the meaning of section 2 of Commonwealth Act No.
470.36 (Citations omitted)
Furthermore, the Court of Appeals agreed with the
CBAA that the roads constructed by Filipinas had
become permanent improvements on the land
owned by NGPI-NGEI.37 Articles 440 and 445 of
the Civil Code provide that these improvements
redound to the benefit of the land owner under the
right of accession:38chanrobleslaw
Article 440. The ownership of property gives the
right by accession to everything which is produced
thereby, or which is incorporated or attached
thereto, either naturally or artificially.
....
Article 445. Whatever is built, planted or sown on
the land of another and the improvements or
repairs made thereon, belong to the owner of the
land, subject to the provisions of the following
articles.
On the road equipment and mini haulers as real
properties subject to tax, the Court of Appeals
affirmed the CBAA's Decision that these are only
movables.39 Section 199(o) of the Local
Government Code provides a definition of
machinery subject to real property taxation:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used
in this Title, the term:
....
(o) "Machinery" embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production, the
installations and appurtenant service facilities,
those which are mobile, self-powered or self-
propelled, and those not permanently attached to
the real property which are actually, directly, and
exclusively used to meet the needs of the particular
industry, business or activity and which by their
very nature and purpose are designed for, or
necessary to its manufacturing, mining.
The Court of Appeals held that Section 19^(o) of
the Local Government Code should be construed to
include machineries covered by the meaning of real
properties provided for under Article 415(5) of the
Civil Code:40chanrobleslaw
Article 415. The following are immovable property:
....
(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
70
directly to meet the needs of the said industry or
works[.]
The Court of Appeals cited Davao Sawmill
Company v. Castillo,41 where it has been held that
machinery that is movable by nature becomes
immobilized only when placed by the owner of the
tenement, but not so when placed by a tenant or
any other person having a temporary right unless
this person acts as an agent of the owner.42 Thus,
the mini haulers and other road equipment retain
their nature as movables.43chanrobleslaw
The Provincial Assessor filed before this Court a
Petition for Review raising the following issues:
chanRoblesvirtualLawlibraryFirst, whether the
exemption privilege of NGPI-NGEI from payment of
real property tax extends to respondent Filipinas
Palm Oil Plantation Inc. as lessee of the parcel of
land owned by cooperatives; and cralawlawlibrary
Second, whether respondent's road equipment and
mini haulers are movable properties and have not
been immobilized by destination for real property
taxation.
Petitioner argues that based on Mactan Cebu
International Airport Authority v. Ferdinand J.
Marcos,44cooperatives cannot extend its exemption
from real property tax to taxable persons.45 It
argues that Sections 198, 199, 205, and 217 of the
Local Government Code provide that real property
taxes are assessed based on actual
use.46 Moreover, the exemption of cooperatives
applies only when it is the cooperative that actually,
directly, and exclusively uses and possesses the
properties.47 Sections 198, 199, 205, and 217 of the
Local Government Code provide:
chanRoblesvirtualLawlibrary
SECTION 198. Fundamental Principles. — The
appraisal, assessment, levy and collection of real
property tax shall be guided by the following
fundamental principles:
....
(b) Real property shall be classified for assessment
purposes on the basis of its actual use[.]
....
SECTION 199. Definition of Terms. — When used
in this Title, the term:
....
(b) "Actual Use" refers to the purpose for which the
property is principally or predominantly utilized by
the person in possession thereof[.]
....
SECTION 205. Listing of Real Property in the
Assessment Rolls. —
....
(d) Real property owned by the Republic of the
Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been
granted, for consideration or otherwise, to a taxable
person, shall be listed, valued and assessed in the
name of the possessor, grantee or of the public
entity if such property has been acquired or held for
resale or lease.
....
SECTION 217. Actual Use of Real Property as
Basis for Assessment. — Real property shall be
classified, valued and assessed on the basis of its
actual use regardless of where located, whoever
owns it, and whoever uses it. (Emphasis supplied)
Petitioner claims that Section 199(o) of the Local
Government Code specifically covers respondent's
road equipment and mini haulers since these are
directly and exclusively used to meet the needs of
respondent's industry, business, or activity.48 Article
415(5) of the Civil Code, which defines real
property, should not be made to control the Local
Government Code,49 a subsequent legislation that
specifically defines "machinery" for taxation
purposes.50chanrobleslaw
In the Resolution51 dated October 13, 2008, this
Court denied the Petition for Review due to
procedural missteps, which included the failure to
attach legible duplicate original or certified true
copies of the assailed decision and failure to pay
proper fees. On November 25, 2008, petitioner
moved for reconsideration,52 praying for the
reversal of the Petition's denial due to mere
technicalities.
On January 26, 2009, this Court granted
Petitioner's Motion for Reconsideration.53 It directed
the reinstatement of the Petition and required
respondent to comment.54chanrobleslaw
On November 20, 2009, respondent filed its
Comment.55chanrobleslaw
Respondent reiterates the rulings of the CBAA and
the Court of Appeals that the exemption of
cooperatives from real property taxes extends to it
as the lessee.56 It asserts that under its lease
71
agreement with NGPI-NGEI, it pays an Annual
Fixed Rental, which includes the payment of
taxes.57 It claims that in case NGPI-NGEI is liable
to the local government for real property tax on the
land, the tax should be taken from the Annual Fixed
Rental.58 To make respondent pay real property
taxes on the leased land would be equivalent to
assessing it twice for the same
property.59chanrobleslaw
On the road equipment and mini haulers being
subjected to real property taxation, respondent
maintains that it should be spared from real
property tax since the equipment and mini haulers
are movables.60chanrobleslaw
The Petition is granted to modify the Court of
Appeals Decision, but only with respect to the
nature of respondent's road equipment and mini
haulers.
Under Section 133(n) of the Local Government
Code, the taxing power of local government units
shall not extend to the levy of taxes, fees, or
charges on duly registered cooperatives under the
Cooperative Code.61 Section 234(d) of the Local
Government Code specifically provides for real
property tax exemption to cooperatives:
chanRoblesvirtualLawlibrary
SECTION 234. Exemptions from Real Property
Tax. — The following are exempted from payment
of the real property tax:
....
(d) All real property owned by duly registered
cooperatives as provided for under [Republic
Act] No. 6938[.] (Emphasis supplied)
NGPI-NGEI, as the owner of the land being leased
by respondent, falls within the purview of the law.
Section 234 of the Local Government Code
exempts all real property owned by cooperatives
without distinction. Nothing in the law suggests that
the real property tax exemption only applies when
the property is used by the cooperative itself.
Similarly, the instance that the real property is
leased to either an individual or corporation is not a
ground for withdrawal of tax
exemption.62chanrobleslaw
In arguing the first issue, petitioner hinges its claim
on a misplaced reliance in Mactan, which refers to
the revocation of tax exemption due to the
effectivity of the Local Government Code. However,
Mactan does not refer to the tax exemption
extended to cooperatives. The portion that
petitioner cited specifically mentions that the
exemption granted to cooperatives has not been
withdrawn by the effectivity of the Local
Government Code:
chanRoblesvirtualLawlibrary
[S]ection 232 must be deemed to qualify Section
133.
Thus, reading together Sections 133, 232, and 234
of the L[ocal] G[overnment] C[ode], we conclude
that as a general rule, as laid down in Section 133,
the taxing powers of local government units cannot
extend to the levy of, inter alia, "taxes, fees and
charges of any kind on the National Government,
its agencies and instrumentalities, and local
government units"; however, pursuant to Section
232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property
owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial
use thereof has been granted, for consideration or
otherwise, to a taxable person," as provided in item
(a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons,
including government-owned and controlled
corporations, Section 193 of the L[ocal]
G[overnment] C[ode] prescribes the general
rule, viz., they are withdrawn upon the effectivity of
the L[ocal] G[overnment] C[ode], except those
granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions,
and unless otherwise provided in the L[ocal]
Gfovernment] C[ode]. The latter proviso could refer
to Section 234 which enumerates the properties
exempt from real property tax. But the last
paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property
taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in
the enumeration lost the privilege upon the
effectivity of the L[ocal] G[overnment]
C[ode]. Moreover, even as to real property owned
by the Republic of the Philippines or any of its
political subdivisions covered by item (a) of the first
paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has
72
been granted to a taxable person for consideration
or otherwise.
Since the last paragraph of Section 234
unequivocally withdrew, upon the effectivity of the
L[ocal] G[overnment] C[ode], exemptions from
payment of real property taxes granted to natural or
juridical persons, including government-owned or
controlled corporations, except as provided in the
said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily
follows that its exemption from such tax granted it
in Section 14 of its Charter, R.A. No. 6958, has
been withdrawn. Any claim to the contrary can only
be justified if the petitioner can seek refuge under
any of the exceptions provided in Section 234, but
not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by
Sections 232 and 234.
In short, the petitioner can no longer invoke the
general rule in Section 133 that the taxing powers
of the local government units cannot extend to the
levy of:
chanRoblesvirtualLawlibrary
(o) taxes, fees or charges of any kind on the
National Government, its agencies or
instrumentalities, and local government units.
It must show that the parcels of land in question,
which are real property, are any one of those
enumerated in Section 234, either by virtue of
ownership, character, or use of the
property.63 (Emphasis supplied)
The roads that respondent constructed within the
leased area should not be assessed with real
property taxes. Bislig Bay finds application here.
Bislig Bay Lumber Company, Inc. (Bislig Bay) was
a timber concessionaire of a portion of public forest
in the provinces of Agusan and Surigao.64 To aid in
developing its concession, Bislig Bay built a road at
its expense from a barrio leading towards its
area.65 The Provincial Assessor of Surigao
assessed Bislig Bay with real property tax on the
constructed road, which was paid by the company
under protest.66 It claimed that even if the road was
constructed on public land, it should be subjected
to real property tax because it was built by the
company for its own benefit.67 On the other hand,
Bislig Bay asserted that the road should be
exempted from real property tax because it
belonged to national government by right of
accession.68 Moreover, the road constructed
already became an inseparable part of the
land.69 The records also showed that the road was
not only built for the benefit of Bislig Bay, but also
of the public.70 This Court ruled for Bislig Bay, thus:
chanRoblesvirtualLawlibrary
We are inclined to uphold the theory of appellee. In
the first place, it cannot be disputed that the
ownership of the road that was constructed by
appellee belongs to the government by right
accession not only because it is inherently
incorporated or attached to the timber land leased
to appellee 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, under the lease contract entered into
by the appellee and the government and by public
in by the general. Thus, under said lease contract,
appellee cannot prevent the use of portions, of the
concession for homesteading purposes. ... It is also
in duty bound to allow the free use of forest
products within the concession for the personal use
of individuals residing in or within the vicinity of the
land. ... In other words, the government has
practically reserved the rights to use the road to
promote its varied activities. Since, as above
shown, the road in question cannot be considered
as an improvement which belongs to appellee,
although in part is for its benefit, it is clear that the
same cannot be the subject of assessment within
the meaning of section 2 of Commonwealth Act No.
470.71
This was reiterated in Board of Assessment
Appeals ofZamboanga del Sur v. Samar Mining
Company, Inc.72 Samar Mining Company, Inc.
(Samar Mining) was a domestic corporation
engaged in the mining industry.73 Since Samar
Mining's mining site and mill were in an inland
location entailing long distance from its area to the
loading point, Samar Mining was constrained to
construct a road for its convenience.74 Initially,
Samar Mining filed miscellaneous lease
applications for a road right of way covering lands
under the jurisdiction of the Bureau of Lands and
the Bureau of Forestry where the proposed road
would pass through.75 Samar Mining was given a
"temporary permit to occupy and use the lands
applied for by it";76 hence, it was able to build what
was eventually known as the Samico Road. Samar
Mining was assessed by the Provincial Assessor of
73
Zamboanga del Sur with real property taxes on the
road, which prompted it to appeal before the Board
of Assessment Appeals.77 Invoking Bislig
Bay,Samar Mining claimed that it should not be
assessed with real property tax since the road was
constructed on public land. This Court ruled for
Samar Mining, thus:
chanRoblesvirtualLawlibrary
There is no question that the road constructed by
respondent Saimar on the public lands leased to it
by the government is an improvement. But as to
whether the same is taxable under the aforequoted
provision of the Assessment Law, this question has
already been answered in the negaitive by this
Court. In the case of Bislig Bay Lumber Co., Inc. vs.
Provincial Government of Surigao, where a similar
issue was raised. . ..
....
. . . What is emphasized in the Bislig case is that
the improvement is exempt from taxation because it
is an integral part of the public land on which it is
constructed and the improvement is the property of
the government by right of accession. Under
Section 3(a) of the Assessment Law, all properties
owned by the government, without any distinction,
are exempt from taxation.79 (Emphasis supplied,
citations omitted)
The roads that respondent constructed became
permanent improvements on the land owned by the
NGPI-NGEI by right of accession under the Civil
Code, thus:
chanRoblesvirtualLawlibrary
Article 440. The ownership of property gives the
right by accession to everything which is produced
thereby, or which is incorporated or attached
thereto, either naturally or artificially.
....
Article 445. Whatever is built, planted or sown on
the land of another and the improvements or
repairs made thereon, belong to the owner of the
land[.]
Despite the land being leased by respondent when
the roads were constructed, the ownership of the
improvement still belongs to NGPI-NGEI. As
provided under Article 440 and 445 of the Civil
Code, the land is owned by the cooperatives at the
time respondent built the roads. Hence, whatever is
incorporated in the land, either naturally or
artificially, belongs to the NGPI-NGEI as the
landowner.
Although the roads were primarily built for
respondent's benefit, the roads were also being
used by the members of NGPI and the
public.80 Furthermore, the roads inured to the
benefit of NGPI-NGEI as owners of the land not
only by right of accession but through the express
provision in the lease agreement:
chanRoblesvirtualLawlibrary
On March 7, 1990 NGPI Multi-Purpose
Cooperative, Inc., as Lessor, and NDC-Guthrie
Plantations, Inc., as Lessee, entered into a "Lease
Agreement" . . . covering the agricultural lands
transferred by NDC to the DAR, which lands the
DAR ultimately distributed undivided to qualified
workers-beneficiaries. . . .
....
Clause No. 6.3 of the same lease agreement
provides that "All taxes due on the improvements
on the Leased Property except those improvements
on the Area that the LESSOR shall have utilized
under Clause 1.2 hereof, shall be for the account of
the LESSEE."
Clause No. 9.4 of the same lease agreement
provides that ". . . All fixed and permanent
improvements, such as roads and palm trees
introduced on the Leased Property, shall
automatically accrue to the LESSOR upon
termination of this Lease Agreement without need
of reimbursement."
All the above-cited stipulations in the lease
agreement between NGPI Multi-Purpose
Cooperative and NDC-Guthrie Plantations,
Inc. were reconfirmed and reaffirmed in the
Addendum to Lease Agreement entered into by
and between NGPI Multi-Purpose Cooperative and
Filipinas Palmoil Plantations, Inc. on January 30,
1998. . . . The main subject of the said Addendum
was the extension of the term of the lease
agreement up to December 31, 2032, along with
economic benefits to the lessor other than rentals.
There is no dispute that the roads are on the land
owned by NGPI Multi-Purpose Cooperative which
leased the same to Petitioner-Appellee. These
roads belong to the Multi-Purpose Cooperative, not
only by right of accession but also by express
provisions of the Contract of Lease[.]81
74
Respondent claims that under its lease agreement
with NGPI-NGEI, it pays an Annual Fixed Rental,
which includes the payment of taxes.82 If NGPI-
NGEI were liable to the local government for real
property tax on the land, the tax should be taken
from the Annual Fixed Rental:
chanRoblesvirtualLawlibrary
"2.1. In consideration of this Lease Agreement, the
LESSEE shall pay the LESSOR the following
annual rentals:ChanRoblesVirtualawlibrary
"1) An annual fixed rental, in the following amount
— "SIX HUNDRED THIRTY FIVE PESOS"
(P635.00) PER HECTARE PER ANNUM which
would cover the following:
chanRoblesvirtualLawlibrary"(1) All Taxes on the
Land
"(2) Administration Charges
"(3) Amortization charges
"It is understood that, if the annual fixed rental of
"SIX HUNDRED THIRTY FIVE PESOS" (p 635.00)
is insufficient to pay any increase on the land taxes,
the Lessee shall pay the difference, provided such
increase does not exceed ten percent (10%) of the
immediately preceding tax imposed on the land;
provided further, that any increase beyond these
percentage shall be borne equally by the LESSOR
and LESSEE.
"The foregoing notwithstanding, it is understood
and agreed that at all times, liability for realty taxes
on the Leased Property Primarily and principally
lies with the LESSOR and any reference herein to
payment by LESSEE of said taxes is only for
purposes of earmarking the proceeds of the rentals
herein agreed upon."
Clause No. 6.3 of the same lease agreement
provides that "All taxes due on the improvements
on the Leased Property except those improvements
on the Area that the LESSOR shall have utilized
under Clause 1.2 hereof, shall be for the account of
the LESSEE."83 (Emphasis supplied)
Therefore, NGPI-NGEI, as owner of the roads that
permanently became part of the land being leased
by respondent, shall be liable for real property
taxes, if any. However, by express provision of the
Local Government Code, NGPI-NGEI is exempted
from payment of real property tax.84chanrobleslaw
II
The road equipment and mini haulers shall be
considered as real property, subject to real property
tax.
Section 199(o) of the Local Government Code
defines "machinery" as real property subject to real
property tax,85 thus:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used
in this Title, the term:
....
(o) "Machinery" embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production, the
installations and appurtenant service facilities,
those which are mobile, self-powered or self-
propelled, and those not permanently attached to
the real property which are actually, directly, and
exclusively used to meet the needs of the particular
industry, business or activity and which by their
very nature and purpose are designed for, or
necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes[.]
Article 415(5) of the New Civil Code defines
"machinery" as that which constitutes an
immovable property:
chanRoblesvirtualLawlibrary
Article 415. The following are immovable property:
....
(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 supplied)
Petitioner contends that the second sentence of
Section 199(o) includes the road equipment and
mini haulers since these are directly and
exclusively used by respondent to meet the needs
of its operations.86It further claims that Article
415(5) of the New Civil Code should not control the
Local Government Code, a subsequent
legislation.87chanrobleslaw
On the other hand, respondent claims that the road
equipment and mini haulers are movables by
75
nature. It asserts that although there may be a
difference between the meaning of "machinery"
under the Local Government Code arid that of
immovable property under Article 415(5) of the Civil
Code, "the controlling interpretation of Section
199(o) of [the Local Government Code] is the
interpretation of Article 415(5) of the Civil
Code."88chanrobleslaw
In Manila Electric Company v. City Assessor,89 a
similar issue of which definition of "machinery"
prevails to warrant the assessment of real property
tax on it was raised.
Manila Electric Company (MERALCO) insisted on
harmonizing the provisions of the Civil Code and
the Local Government Code and asserted that
"machinery" contemplated under Section 199(o) of
the Local Government must still be within the
contemplation of immovable property under Article
415 of the Civil Code.90 However, this Court ruled
that harmonizing such laws "would necessarily
mean imposing additional requirements for
classifying machinery as real property for real
property tax purposes not provided for, or even in
direct conflict with, the provisions of the Local
Government Code."91 Thus:
chanRoblesvirtualLawlibrary
While the Local Government Code still does not
provide for a specific definition of "real property,"
Sections 199(o) and 232 of the said Code,
respectively, gives an extensive definition of what
constitutes "machinery" and unequivocally subjects
such machinery to real property tax. The Court
reiterates that the machinery subject to real
property tax under the Local Government Code
"may or may not be attached, permanently or
temporarily to the real property"; and the physical
facilities for production, installations, and
appurtenant service facilities, those which are
mobile, self-powered or self-propelled, or are not
permanently attached must (a) be actually, directly,
and exclusively used to meet the needs of the
particular industry, business, or activity; and (b) by
their very nature and purpose, be designed for, or
necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.
....
Article 415, paragraph (5) of the Civil Code
considers as immovables or real properties
"[m]achinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried on in
a building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works." The Civil Code, however, does not define
"machinery."
The properties under Article 415, paragraph (5) of
the Civil Code are immovables by destination, or
"those which are essentially movables, but by the
purpose for which they have been placed in an
immovable, partake of the nature of the latter
because of the added utility derived therefrom."
These properties, including machinery, become
immobilized if the following requisites concur: (a)
they are placed in the tenement by the owner of
such tenement; (b) they are destined for use in the
industry or work in the tenement; and (c) they tend
to directly meet the needs of said industry or
works. The first two requisites are not found
anywhere in the Local Government
Code.92 (Emphasis supplied, citations omitted)
Section 199(o) of the Local Government prevails
over Article 415(5) of the Civil Code. In Manila
Electric Company:
chanRoblesvirtualLawlibrary
As between the Civil Code, a general law governing
property and property relations, and the Local
Government Code, a special law granting local
government units the power to impose real property
tax, then the latter shall prevail. As the Court
pronounced in Disomangcop v. The Secretary of
the Department of Public Works and Highways
Simeon A.
Datumanong:ChanRoblesVirtualawlibrary
It is a finely-imbedded principle in statutory
construction that a special provision or law prevails
over a general one. Lex specialis derogant
generali. As this Court expressed in the case
of Leveriza v. Intermediate Appellate
Court, "another basic principle of statutory
construction mandates that general legislation must
give way to special legislation on the same subject,
and generally be so interpreted as to embrace only
cases in which the special provisions are not
applicable, that specific statute prevails over a
general statute and that where two statutes are of
equal theoretical application to a particular case,
the one designed therefor specially should prevail."
The Court also very clearly explicated in Vinzons-
Chato v. Fortune Tobacco Corporationthat:
76

chanRoblesvirtualLawlibrary
A general law and a special law on the same
subject are statutes in pari materia and should,
accordingly, be read together and harmonized, if
possible, with a view to giving effect to both. The
rule is that where there are two acts, one of which
is special and particular and the other general
which, if standing alone, would include the same
matter and thus conflict with the special act, the
special law must prevail since it evinces the
legislative intent more clearly than that of a general
statute and must not be taken as intended to affect
the more particular and specific provisions of the
earlier act, unless it is absolutely necessary so to
construe it in order to give its words any meaning at
all.
The circumstance that the special law is passed
before or after the general act does not change the
principle. Where the special law is later, it will be
regarded as an exception to, or a qualification of,
the prior general act; and where the general act is
later, the special statute will be construed as
remaining an exception to its terms, unless
repealed expressly or by necessary implication.
Furthermore, in Caltex (Philippines), Inc. v. Central
Board of Assessment Appeals, the Court
acknowledged that "[i]t is a familiar phenomenon to
see things classed as real property for purposes of
taxation which on general principle might be
considered personal property[.]"
Therefore, for determining whether machinery is
real property subject to real property tax, the
definition and requirements under the Local
Government Code are controlling.93(Emphasis
supplied, citations omitted)
Respondent is engaged in palm oil
plantation.94 Thus, it harvests fruits from palm trees
for oil conversion through its milling plant.95 By the
nature of respondent's business, transportation is
indispensable for its operations.
Under the definition provided in Section 199(o) of
the Local Government Code, the road equipment
and the mini haulers are classified as machinery,
thus:
chanRoblesvirtualLawlibrary
SECTION 199. Definition of Terms. — When used
in this Title, the terra:
....
(o) "Machinery" . . . includes the physical facilities
for production, the installations and appurtenant
service facilities, those which are mobile, self-
powered or self-propelled, and those not
permanently attached to the real property which
are actually, directly, and exclusively used to
meet the needs of the particular industry,
business or activity and which by their very
nature and purpose are designed for, or necessary
to its manufacturing, mining, logging, commercial,
industrial or agricultural purposes [.] (Emphasis
supplied)
Petitioner is correct in claiming that the phrase
pertaining to physical facilities for production is
comprehensive enough to include the road
equipment and mini haulers as actually, directly,
and exclusively used by respondent to meet the
needs of its operations in palm oil
production.96 Moreover, "mini-haulers are farm
tractors pulling attached trailers used in the hauling
of seedlings during planting season and in
transferring fresh palm fruits from the farm [or] field
to the processing plant within the plantation
area."97 The indispensability of the road equipment
and mini haulers in transportation makes it actually,
directly, and exclusively used in the operation of
respondent's business.
In its Comment, respondent claims that the
equipment is no longer vital to its operation
because it is currently employing equipment
outside the company to do the task.98 However,
respondent never raised this contention before the
lower courts. Hence, this is a factual issue of which
this Court cannot take cognizance. This Court is not
a trier of facts.99 Only questions of law are
entertained in a petition for review assailing a Court
of Appeals decision.100chanrobleslaw
WHEREFORE, the Petition is PARTLY GRANTED.
The Decision of the Court of Appeals dated
September 26, 2007 and the Resolution dated May
26, 2008 in CA-G.R. SP No. 74060 are AFFIRMED
with MODIFICATION, in that the road equipment
and the mini haulers should be assessed with real
property taxes.
SO ORDERED.
Case digest:
Prov. Assessor of Agusan del Sur vs. Filipinas
Palm Oil Plantation October 5, 2016
77
FACTS:

The exemption from real property taxes given to RULING:

cooperatives applies regardless of whether or not
the land owned is leased. This exemption benefits
the cooperative's lessee. The characterization of
machinery as real property is governed by the 1. Under Section 133(n) of the Local Government
Local Government Code and not the Civil Code. Code, the taxing power of local government units
shall not extend to the levy of taxes, fees, or
charges on duly registered cooperatives under the
Cooperative Code. Section 234(d) of the Local
(Filipinas) is a private organization engaged in palm Government Code specifically provides for real
oil plantation with a total land area of more than property tax exemption to cooperatives:
7,000 hectares of National Development Company
(NDC) lands in Agusan del Sur. Harvested fruits
from oil palm trees are converted into oil through
Filipinas' milling plant in the middle of the plantation SECTION 234. Exemptions from Real Property
area. Within the plantation, there are also three (3) Tax. - The following are exempted from payment o f
plantation roads and a number of residential homes the real property tax:
constructed by Filipinas for its employees.

(d) All real property owned by duly registered

NDC lands were transferred to Comprehensive cooperatives as provided for under {Republic Act}
Agrarian Reform Law beneficiaries who formed No. 6938
themselves as the merged NDC-Guthrie
Plantations, Inc. - NDC-Guthrie Estates, Inc.
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(NGPI-NGEI) Cooperatives. Filipinas entered
into a lease contract agreement with NGPI-NGEI. NGPI-NGEI, as the owner of the land being leased
by respondent, falls within the purview of the law.
Section 234 of the Local Government Code
exempts all real property owned by cooperatives
without distinction. Nothing in the law suggests that
(Provincial Assessor) assessed Filipinas' properties the real property tax exemption only applies when
found within the plantation area the property is used by the cooperative itself.
Similarly, the instance that the real property is
leased to either an individual or corporation is not a
ground for withdrawal of tax exemption
ISSUE:

1. Whether the exemption privilege of NGPI-

NGEI from payment of real property tax 2. The roads that respondent constructed within
extends to Filipinas Palm Oil Plantation Inc. the leased area should not be assessed with real
as lessee of the parcel of land owned by property taxes.
cooperatives.
2. Whether Filipinas Palm Oil Plantation Inc.
roads equipment and mini haulers are
movable properties and have not been
The roads that respondent constructed became
immobilized by destination for real property
permanent improvements on the land owned by the
taxation.
NGPI-NGEI by right of accession under the Civil
Code, thus:

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Article 440. The ownership of property gives the
right by accession to everything which is produced
thereby, or which is incorporated or attached
thereto, either naturally or artificially.
Article445. Whatever is built, planted or sown on
the land of another and the improvements or
repairs made thereon, belong to the owner of the
land[.]
Despite the land being leased by respondent when
the roads were constructed, the ownership of the
improvement still belongs to NGPI-NGEI. As
provided under Article 440 and 445 of the Civil
Code, the land is owned by the cooperatives at the
time respondent built the roads. Hence, whatever is
incorporated in the land, either naturally or
artificially, belongs to the
NGPI-NGEI as the landowner.
Although the roads were primarily built for
respondent's benefit, the roads were also being
80
used by the members of NGPI and the public.
Furthermore, the roads inured to the benefit of
NGPI-NGEI as owners of the land not only by right
of accession but through the express provision in
the lease agreement:
2b. The road equipment and mini haulers shall
be considered as real property, subject to real
property tax.
Respondent is engaged in palm oil plantation.
Thus, it harvests fruits from palm trees for oil
conversion through its milling plant. By the nature
of respondent's business, transportation is
indispensable for its operations
Section 199(o) of the Local Government Code
defines "machinery" as real property subject to real
property tax, (road equipment and mini haulers are
classified as machinery)
(o) "Machinery" embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production,
the installations and appurtenant service facilities,
those which are mobile, self-powered or self-
propelled, and those not permanently attached to
the real property which are actually, directly, and
exclusively used to meet the needs of the
particular industry, business or activity and
which by their very nature and purpose are
designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or
agricultural purposes
Article 415(5) of the New Civil Code defines
"machinery" as that which constitutes an
immovable property:
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 o f land, and which tend
directly to meet the needs o f the said industry or
works[.]
The properties under Article 415, paragraph (5) of
the Civil Code are immovables by destination, or
"those which are essentially movables, but by the
purpose for which they have been placed in an
immovable, partake of the of the latter because of
the added utility derived therefrom." These
properties, including machinery, become
immobilized If the following requisites concur (a)
they are placed in the tenement by the owner of
such tenement; (b) they are destined for use in the
industry or work in the tenement; and (c) they tend
to directly meet the needs of said industry or works.
The first two requisites are not found anywhere in
the Local Government Code.
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As between the Civil Code, a general law governing
property and property relations, and the Local
Government Code, a special law granting local
government units the power to impose real property
tax, then the latter shall prevail

Therefore, for determining whether machinery is

real property subject to real property tax, the
·definition and requirements under the Local
Government Code are controlling.

Petitioner is correct in claiming that the phrase

pertaining to physical facilities for production is
comprehensive enough to include the road
equipment and mini haulers as actually, directly,
and exclusively used by respondent to meet the
needs of its operations in palm oil production.
Moreover, "mini-haulers are farm tractors pulling
attached trailers used in the hauling of seedlings
during planting season and in transferring fresh
palm fruits from the farm [or] field to the processing
plant within the plantation area."

The indispensability of the road equipment and mini

haulers in transportation makes it actually, directly,
and exclusively used in the operation of
respondent's business.

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