G.R. No.
L-11658 February 15, 1918 be found to exist in the machinery company's title to the building under
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-
cleaning machinery company from the defendant machinery company,
and executed a chattel mortgage thereon to secure payment of the
purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this instrument
not having been paid when it fell due, the mortgaged property was sold
by the sheriff, in pursuance of the terms of the mortgage instrument, and
was bought in by the machinery company. The mortgage was registered
in the chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was annotated in the
same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compañia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of sale,
although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear
to have been executed for the purpose of curing any defects which might
the sheriff's certificate of sale. The machinery company went into
possession of the building at or about the time when this sale took place,
that is to say, the month of December, 1913, and it has continued in
possession ever since.
At or about the time when the chattel mortgage was executed in favor of
the machinery company, the mortgagor, the "Compañia Agricola Filipina"
executed another mortgage to the plaintiff upon the building, separate
and apart from the land on which it stood, to secure payment of the
balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage, the plaintiff
secured judgment for that amount, levied execution upon the building,
bought it in at the sheriff's sale on or about the 18th of December, 1914,
and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with the
sheriff a sworn statement setting up its claim of title and demanding the
release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in
the sum of P12,000, in reliance upon which the sheriff sold the property
at public auction to the plaintiff, who was the highest bidder at the sheriff's
sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that
the company had its title to the building registered prior to the date of
registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first
taken possession thereof in good faith, if it should be personal
property.
Should it be real property, it shall belong to the person acquiring it
who first recorded it in the registry.
Should there be no entry, the property shall belong to the person
who first took possession of it in good faith, and, in the absence
thereof, to the person who presents the oldest title, provided there
is good faith.
The registry her referred to is of course the registry of real property, and
it must be apparent that the annotation or inscription of a deed of sale of
real property in a chattel mortgage registry cannot be given the legal
effect of an inscription in the registry of real property. By its express terms,
the Chattel Mortgage Law contemplates and makes provision for
mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel
mortgages," that is to say, mortgages of personal property executed in
the manner and form prescribed in the statute. The building of strong
materials in which the rice-cleaning machinery was installed by the
"Compañia Agricola Filipina" was real property, and the mere fact that
the parties seem to have dealt with it separate and apart from the land
on which it stood in no wise changed its character as real property. It
follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that
registry of the sale of the mortgaged property, had any effect whatever
so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses that neither the
purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the
machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that
the company first took possession of the property; and further, that the
building and the land were sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil
Code require "good faith," in express terms, in relation to "possession"
and "title," but contain no express requirement as to "good faith" in
relation to the "inscription" of the property on the registry, it must be
presumed that good faith is not an essential requisite of registration in
order that it may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention of the
legislator to base the preferential right secured under this article of the
code upon an inscription of title in bad faith. Such an interpretation placed
upon the language of this section would open wide the door to fraud and
collusion. The public records cannot be converted into instruments of
fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights
created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme
court of Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found
that the second purchasers who record their purchase had
knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ.
Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the
title of conveyance of ownership of the real property that is first
recorded in the registry shall have preference, this provision must
always be understood on the basis of the good faith mentioned in
the first paragraph; the legislator could not have wished to strike it
out and to sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he
bought the building at the sheriff's sale and inscribed his title in the land
registry, was duly notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an indemnity bond
by the plaintiff in favor of the sheriff, after the machinery company had
filed its sworn claim of ownership, leaves no room for doubt in this regard.
Having bought in the building at the sheriff's sale with full knowledge that
at the time of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff cannot be said
to have been a purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the
sheriff's certificate of sale to the plaintiff was not made in good faith, we
should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common
debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are
strongly inclined to believe that in procuring the levy of execution upon
the factory building and in buying it at the sheriff's sale, he considered
that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he
thought at that time that he would be able to maintain his position in a
contest with the machinery company. There was no collusion on his part
with the common debtor, and no thought of the perpetration of a fraud
upon the rights of another, in the ordinary sense of the word. He may
have hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and if
later developments had confirmed his unfounded hopes, no one could
question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's in which the courts always indulge in the absence of proof to the contrary.
claim of ownership when he executed the indemnity bond and bought in "Good faith, or the want of it, is not a visible, tangible fact that can be
the property at the sheriff's sale, and it appearing further that the seen or touched, but rather a state or condition of mind which can only
machinery company's claim of ownership was well founded, he cannot be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55
be said to have been an innocent purchaser for value. He took the risk Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
and must stand by the consequences; and it is in this sense that we find 2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
that he was not a purchaser in good faith.
We conclude that upon the grounds herein set forth the disposing part of
One who purchases real estate with knowledge of a defect or lack of title the decision and judgment entered in the court below should be affirmed
in his vendor cannot claim that he has acquired title thereto in good faith with costs of this instance against the appellant. So ordered.
as against the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts which Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
should have put him upon such inquiry and investigation as might be Torres, Avanceña and Fisher, JJ., took no part.
necessary to acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His mere refusal
to believe that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title, will not make
him an innocent purchaser for value, if afterwards develops that the title
was in fact defective, and it appears that he had such notice of the defects
as would have led to its discovery had he acted with that measure of
precaution which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question of intention;
but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct
and outward acts by which alone the inward motive may, with safety, be
determined. So it is that "the honesty of intention," "the honest lawful G.R. No. L-20329 March 16, 1923
intent," which constitutes good faith implies a "freedom from knowledge
and circumstances which ought to put a person on inquiry," and so it is THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
that proof of such knowledge overcomes the presumption of good faith 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.
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.
After said document had been duly acknowledge 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 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.
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven
for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the
decision in the trial court and as set forth by counsel for the parties on appeal,
involves the determination of the nature of the properties described in the
complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint,
with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in the sitio of
Maa, barrio of Tigatu, municipality of Davao, Province of Davao. However,
the land upon which the business was conducted belonged to another
person. On the land the sawmill company erected a building which housed
the machinery used by it. Some of the implements thus used were clearly
personal property, the conflict concerning machines which were placed and
mounted on foundations of cement. In the contract of lease between the
sawmill company and the owner of the land there appeared the following
provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the party of
the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for
said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass
to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and
accessories are not included in the improvements which will pass to
the party of the first part on the expiration or abandonment of the land
leased.
In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the
sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao
Saw Mill Co., Inc., has on a number of occasions treated the machinery as
personal property by executing chattel mortgages in favor of third persons.
One of such persons is the appellee by assignment from the original
mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to
the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to
the soil;
 xxx xxx xxx
knowledge of the Civil Law is well known, it was in part said:
5. Machinery, liquid containers, instruments or implements intended
by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right
in their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must
further be pointed out that while not conclusive, the characterization of the
property as chattels by the appellant is indicative of intention and impresses
upon the property the character determined by the parties. In this connection
the decision of this court in the case of Standard Oil Co. of New York vs.
Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the
key to such a situation.
It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building erected
on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant, but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted as
the agent of the owner. In the opinion written by Chief Justice White, whose
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 Finding no reversible error in the record, the judgment appealed from will be
fact that one only having a temporary right to the possession or affirmed, the costs of this instance to be paid by the appellant.
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 Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
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. G.R. No. L-41643 July 31, 1935

xxx xxx xxx B.H. BERKENKOTTER, plaintiff-appellant,

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.)
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE
INSURANCE COMPANY, MABALACAT SUGAR COMPANY and
THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said
plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage deed executed
in favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar
Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on two parcels and land "with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus,
utensils and whatever forms part or is necessary complement of said
sugar-cane mill, steel railway, telephone line, now existing or that may in
the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted,
the Mabalacat Sugar Co., Inc., decided to increase the capacity of its
sugar central by buying additional machinery and equipment, so that
instead of milling 150 tons daily, it could produce 250. The estimated cost
of said additional machinery and equipment was approximately
P100,000. In order to carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the
necessary amount for the purchase of said machinery and equipment,
promising to reimburse him as soon as he could obtain an additional loan
from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having
agreed to said proposition made in a letter dated October 5, 1926 (Exhibit
E), B.H. Berkenkotter, on October 9th of the same year, delivered the
sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc.,
the total amount supplied by him to said B.A. Green having been P25,750.
Furthermore, B.H. Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said credit of
P22,000, the Mabalacat Sugar Co., Inc., purchased the additional
machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co.,
Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000
offering as security the additional machinery and equipment acquired by
said B.A. Green and installed in the sugar central after the execution of
the original mortgage deed, on April 27, 1927, together with whatever
additional equipment acquired with said loan. B.A. Green failed to obtain
said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged property or by virtue of
the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the
estate continues in the possession of the person who mortgaged it
or whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12
Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES
IMPROVEMENTS AND FIXTURES. — It is a rule, established by
the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in a
mortgage of real estate, the improvements on the same are
included; therefore, all objects permanently attached to a
mortgaged building or land, although they may have been placed
there after the mortgage was constituted, are also included. (Arts.
110 and 111 of the Mortgage Law, and 1877 of the Civil Code;
decision of U.S. Supreme Court in the matter of Royal Insurance
Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199
U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC.
— In order that it may be understood that the machinery and other
objects placed upon and used in connection with a mortgaged
estate are excluded from the mortgage, when it was stated in the
mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that
the exclusion thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and
equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A. Green,
in proposing to him to advance the money for the purchase thereof, made
it appear in the letter, Exhibit E, that in case B.A. Green should fail to
obtain an additional loan from the defendants Cu Unjieng e Hijos, said
machinery and equipment would become security therefor, said B.A.
Green binding himself not to mortgage nor encumber them to anybody
until said plaintiff be fully reimbursed for the corporation's indebtedness
to him.
Upon acquiring the machinery and equipment in question with money
obtained as loan from the plaintiff-appellant by B.A. Green, as president
of the Mabalacat Sugar Co., Inc., the latter became owner of said
machinery and equipment, otherwise B.A. Green, as such president,
could not have offered them to the plaintiff as security for the payment of
his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with
any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar industry, converted them into real
property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been
established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. the purchase money, as a loan, to the person who supplied the money,
Berkenkotter to hold said machinery and equipment as security for the after the incorporation thereof with the mortgaged sugar central, does not
payment of the latter's credit and to refrain from mortgaging or otherwise vest the creditor with ownership of said machinery and equipment but
encumbering them until Berkenkotter has been fully reimbursed therefor, simply with the right of redemption.
is not incompatible with the permanent character of the incorporation of
said machinery and equipment with the sugar central of the Mabalacat Wherefore, finding no error in the appealed judgment, it is affirmed in all
Sugar Co., Inc., as nothing could prevent B.A. Green from giving them its parts, with costs to the appellant. So ordered.
as security at least under a second mortgage.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
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 [G.R. No. L-8133. May 18, 1956.]
defendants Cu Unjieng e Hijos under the first mortgage. MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-
Appellants, vs. MACARIO M. OFILADA, Sheriff of the City of Manila
For the foregoing considerations, we are of the opinion and so hold: (1)
and ERNESTO ESTEBAN, Respondents-Appellees.
That the installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing production, constitutes DECISION
a permanent improvement on said sugar central and subjects said
machinery and equipment to the mortgage constituted thereon (article LABRADOR, J.:
1877, Civil Code); (2) that the fact that the purchaser of the new On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan of
machinery and equipment has bound himself to the person supplying him P200 from Ernesto Esteban, and to secure its payment she executed a
the purchase money to hold them as security for the payment of the chattel mortgage over a house of mixed materials erected on a lot on
latter's credit, and to refrain from mortgaging or otherwise encumbering Alvarado Street, Manila. As Manarang did not pay the loan as agreed
them does not alter the permanent character of the incorporation of said upon, Esteban brought an action against her in the municipal court of
machinery and equipment with the central; and (3) that the sale of the Manila for its recovery, alleging that the loan was secured by a chattel
machinery and equipment in question by the purchaser who was supplied
mortgage on her property. Judgment having been entered in Plaintiff’s
favor, execution was issued against the same property mortgaged.
Before the property could be sold Manarang offered to pay the sum of
P277, which represented the amount of the judgment of P250, the
interest thereon, the costs, and the sheriff’s fees, but the sheriff refused
the tender unless the additional amount of P260 representing the
publication of the notice of sale in two newspapers be paid also.
So Defendants therein brought this suit to compel the sheriff to accept
the amount of P277 as full payment of the judgment and to annul the
published notice of sale.
It is to be noted that in the complaint filed in the municipal court, a copy
of the chattel mortgage is attached and mention made of its registration,
and in the prayer request is made that the house mortgaged be sold at
public auction to satisfy the debt. It is also important to note that the
house mortgaged was levied upon at Plaintiff’s request (Exhibit “E”).
On the basis of the above facts counsel for Manarang contended in the
court below that the house in question should be considered as personal
property and the publication of the notice of its sale at public auction in
execution considered unnecessary. The Court of First Instance held that
although real property may sometimes be considered as personal
property, the sheriff was in duty bound to cause the publication of the
notice of its sale in order to make the sale valid or to prevent its being
declared void or voidable, and he did not, therefore, err in causing such
publication of the notice. So it denied the petition.
There cannot be any question that a building of mixed materials may be
the subject of a chattel mortgage, in which case it is considered as
between the parties as personal property. We held so expressly in the
cases of Luna vs. Encarnacion, et al., * 48 Off. Gaz., No. 7, p.
2664; Standard Oil Co. of New York vs. Jaranillo, 44 Phil., 630; and De
Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter depends on the
circumstances and the intention of the parties.
“ The general principle of law is that a building permanently fixed to the
freehold becomes a part of it, that prima facie a house is real estate,
belonging to the owner of the land on which it stands, even though it was
erected against the will of the landowner, or without his consent. The
general rule is otherwise, however, where the improvement is made with
the consent of the landowner, and pursuant to an understanding either
expressed or implied that it shall remain personal property. Nor does the
general rule apply to a building which is wrongfully removed from the land
and placed on the land of the person removing it.” (42 Am. Jur. 199-200.)
“ Among the principal criteria for determining whether property remains
personally or becomes realty are annexation to the soil, either actual or
construction, and the intention of the parties’
“Personal property may retain its character as such where it is so agreed
by the parties interested even though annexed to the realty, or where it
is affixed in the soil to be used for a particular purpose for a short period
and then removed as soon as it has served its purpose.” (Ibid., 209-210.)
The question now before us, however, is: Does the fact that the parties
entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in
advertising the property’s sale at public auction as personal property? It
is to be remembered that in the case at bar the action was to collect a
loan secured by a chattel mortgage on the house. It is also to be
remembered that in practice it is the judgment creditor who points out to
the sheriff the properties that the sheriff is to levy upon in execution, and
the judgment creditor in the case at bar is the party in whose favor the
owner of the house and conveyed it by way of chattel mortgage and,
therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on The judgment appealed from is hereby affirmed, with costs. SO
execution do not allow, and we should not interpret them in such a way ORDERED.
as to allow, the special consideration that parties to a contract may have Paras, C.J., Bengzon, Padilla., Montemayor, Reyes, A., Jugo,
desired to impart to real estate, for example, as personal property, when Bautista Angelo, Concepcion, Reyes, J.B.L. and Endencia, JJ.,
they are not ordinarily so. Sales on execution affect the public and third concur.
persons. The regulation governing sales on execution are for public
officials to follow. The form of proceedings prescribed for each kind of
property is suited to its character, not to the character which the parties
have given to it or desire to give it. When the rules speak of personal
property, property which is ordinarily so considered is meant; and when
real property is spoken of, it means property which is generally known as
real property. The regulations were never intended to suit the
consideration that parties, may have privately given to the property levied
upon. Enforcement of regulations would be difficult were the convenience
or agreement of private parties to determine or govern the nature of the G.R. No. L-19867 May 29, 1968
proceedings. We, therefore, hold that the mere fact that a house was the
subject of a chattel mortgage and was considered as personal property GOVERNMENT SERVICE INSURANCE SYSTEM, plaintiff-appellee,
by the parties does not make said house personal property for purposes vs.
of the notice to be given for its sale at public auction. This ruling is CALSONS, INC., CESARIO P. CALANOC, and NENITA
demanded by the need for a definite, orderly and well- defined regulation GODINEZ, defendants-appellants.
for official and public guidance and which would prevent confusion and
The Government Corporate Counsel for plaintiff-appellee.
misunderstanding.
Juan T. David and Clemente M. Soriano for defendants-appellants.
We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between MAKALINTAL., J.:
the owner and a third person, is real property within the purview of Rule
39, section 16, of the Rules of Court as it has become a permanent fixture Appeal from the decision of the Court of First Instance of Manila..
on the land, which is real property. (42 Am. Jur. 199-200; Leung Yee vs.
Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., On April 11, 1957 appellant CALSONS, INC. applied for a loan of
544; Ladera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.). P2,000,000.00 to appellee to pay the balance of the purchase price of
certain parcels of land situated at the corner of Globo de Oro and Elizondo
Streets, Quiapo, Manila, and to finance the construction of a two-storey
textile market building on said land. The application was approved by
appellee's Board of Trustees on August 26, 1957. In connection with said
loan appellants executed on October 31, 1957 a promissory note binding
themselves jointly and severally to pay appellee the sum of P2,000,000.00,
with interest at the rate of 7% per annum compounded monthly, in 120 equal
monthly installments of P23,221.69 each. Under said note "the first
installment shall be due and payable beginning the month following the last
release and/or the month following the expiration of the period for the
construction of the textile market building, whichever is earlier, and the rest
on the 7th day of every month thereafter until the principal of TWO MILLION
PESOS (P2,000,000.00) and the interest shall have been fully paid." To
secure payment of the note "and/or the interest thereon and/or other
obligations arising thereunder", appellants executed on the same date a first
mortgage in favor of appellee on five (5) parcels of land particularly
described in the mortgage contract, "together with all the buildings and
improvements now existing thereon or which may hereafter be constructed
on the mortgaged property (ies) of which MORTGAGOR is the absolute
owner, free from all liens and encumbrances." The aforementioned five (5)
parcels of land were among the properties acquired by appellant CALSONS,
INC., from Tuason & Sampedro, Inc., for and in consideration of the sum of
ONE MILLION ONE HUNDRED THOUSAND PESOS (P1,100,000.00)
under a Deed of Assignment dated October 29, 1957.1ªvvphi1.nêt
The conditions of the mortgage contract which are relevant to this case are
the following:
2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any
manner encumber the mortgaged property (ies) without the prior
written consent of the MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of
the amortizations on the indebtedness, or the interest when due, or
whatever other obligation herein agreed, then all the amortizations
and other obligations of the MORTGAGOR of any nature, shall
become due, payable and defaulted and the MORTGAGEE may
immediately foreclose this mortgage judicially or extrajudicially under
Act 3135, as amended and/or under C.A. 186, as amended, and/or
Act No. 1508, as amended....
14. This mortgage shall furthermore be subject to the following
ADDITIONAL CONDITIONS:
1) That the applicant shall pay to the system P23,221.70
monthly, including principal and interest.
2) That the first release of P819,000.00 on this loan shall be
made only after:
xxx xxx xxx
b. The submission of evidence showing payment on
realty taxes up to and including that of the current year; .
c. The submission of evidence showing the reduction of
applicant's account on the lot to at least P819,000.00; .
d. The submission of the certificates of title in the name
of the applicant to the property offered as collateral for
this loan; provided, that if the said certificates of title
could not be secured without paying the balance of the
purchase price, said balance shall be paid first from the
first release of this loan;
 3) That the check covering the obligation of applicant on the
lots offered as collateral shall be drawn in favor of the vendor
of said lots;
4) That subsequent releases on this loan shall be controlled in
such manner that the amount to be released shall depend on
the progress of the work done on the proposed building but in
no case shall the amount to be released and the amounts
already released exceed 60% of the appraised value of the lots
and the existing improvements thereon as of every release;
xxx xxx xxx
6) That the proposed building shall be completed within twelve
(12) months from the date the first release of this loan is made;
The first release in the amount of P819,000.00 was made on November 7,
1957, while the second (and last) release in the amount of P30,000.00 was
made on May 15, 1958. The checks covering both releases were drawn in
favor of the vendor of the mortgaged properties.
In accordance with the agreement between the parties, the old building
standing on the mortgaged properties was insured for P300,000.00 on
December 1, 1959. Appellee advanced the sum of P5,628.00 for the annual
premium, but appellants failed to reimburse the same.
Appellee filed a complaint for the foreclosure of the mortgage with the Court
of First Instance of Manila on August 11, 1958, alleging a number of
violations of the mortgage contract, to wit: (1) that the mortgaged properties
had not been freed by the mortgagor from certain liens and encumbrances
other than the mortgage itself; (2) that without the prior written consent of
plaintiff defendants removed and disposed of the complete band sawmill
and filing machine which formed part of the properties mortgaged; (3) that
defendant Calsons, Inc., failed to submit to appellee evidence showing the
reduction of defendant's account on the lot to at least P819,000.00; (4) and
that Calsons, Inc., failed to begin, much less complete, the construction of
the supermarket building on the mortgaged properties. On August 11, 1959,
plaintiff filed supplemental complaint, which was admitted without opposition.
Two additional grounds for the foreclosure of the mortgage were alleged,
namely: (1) that defendants failed, despite demands therefor, to pay the
amortizations due and payable, including accrued interest and surcharges,
on the portion of the loan released to them; and (2) that defendants failed to
complete the construction of the textile market building on the mortgaged
properties within 12 months from November 7, 1957, the date of the first
release of P819,000.00.
Judgment was rendered on March 3, 1962 in favor of plaintiff, and
defendants brought this appeal directly to this Court in view of the amount
involved.
In their brief, appellants make the following assignment of errors:
1. The Trial Court erred in holding that it is not true that defendants
have not defaulted in any of their obligations under the mortgage
contract.
2. The Trial Court erred in ruling that with respect to the liens and
encumbrances, the defendants' failure to pay the balance of the
purchase price of the mortgaged properties from their original owners
subjected the said properties to a vendor's lien.
3. The Trial Court erred in holding that the machineries on the
mortgaged properties are part of the mortgage and that the removal
 and subsequent disposal of the same therefrom by the defendants
violated the said mortgage contract.
4. The Trial Court erred in holding that defendant Calsons, Inc., has
failed to reduce its account on the loan to at least P819,000.00 and
that such failure is a clear violation of a contract of mortgage.
5. The Trial Court erred in holding that the defendants failed despite
demand therefor, to pay the amortization due and payable, including
interests and surcharges on the portion of the loan released to them.
6. The Trial Court erred in rendering judgment for plaintiff and against
the defendants ordering the latter to pay jointly and severally the
plaintiff of the sum of (1) P819,000.00 with interests at the rate of 7%
per annum compounded monthly from November 8, 1957 until the
same is fully paid; (2) P30,000.00 with interests at the rate of 7% per
annum compounded monthly, from May 16, 1958 until the same is
fully paid; (3) P5,628.00 yearly insurance premium with interests of
7% per annum compounded monthly, from December, 1959 until the
same is fully paid; (4) the sum equivalent to 10% of the foregoing
sums as expenses of collection and attorney's fees, plus the costs of
this action.
7. The Trial Court erred in failing and/or neglecting to act and pass
upon the counterclaim of the defendants-appellants notwithstanding
the fact that said counterclaim is fully established by the evidence on
records.
The second and fourth errors assigned are interrelated and will first be taken
up. The two certificates of title covering the mortgaged properties do not
show any lien or encumbrance thereon other than the mortgage itself. This
is admitted by both parties. Appellee refers, however, to the vendor's lien in
favor of the former owners, representing the unpaid balance of P280,000.00
on the purchase price of the lots mortgaged. The lien, appellee point out, is
a legal encumbrance and therefore effective, although not recorded. On the
other hand, appellants contend that appellee is estopped from invoking its
right to have the mortgaged properties free from the vendor's lien on two
grounds, namely: (1) that appellant had previous knowledge of said lien as
evidenced by the two releases of P819,000 and P30,000 directly to the
vendor of the mortgaged properties, and (2) that appellant committed itself
to pay to the said vendor the amount of P280,000.00, balance on the
purchase price, within a period of six (6) months from October 28, 1957.
The contention cannot be sustained on the first ground. One of the reasons
why appellant Calsons, Inc., applied for the P2,000,000.00 loan was
precisely to use part thereof to pay the balance of the purchase price of five
(5) parcels of land it mortgaged to appellee. And to assure itself that no
vendor's lien attached to the said properties appellee caused the following
conditions to be added to the original terms of the mortgage contract:
2) That the first release of P819,000.00 on this loan shall be made
only after:
e. The submission of evidence showing the reduction of
applicant's account on the lot to at least P819,000.00;
d. The submission of the certificates of title in the name of the
applicant to the property offered as collateral for this loan;
provided, that if the said certificates of title could not be
secured without paying the balance of the purchase price, said
balance shall be paid first from the first release of this loan;
3) That the check covering the obligation of applicant on the lots
offered as collateral shall be drawn in favor of the vendor of said lots;
Pursuant to the foregoing conditions the check covering the first release of
P819,000.00 was drawn in favor of the vendor of the properties, and the
release was made upon submission of the two transfer certificates of title
already in the name of appellant Calsons, Inc., as vendee, without any
annotation thereon of any lien or encumbrance except the mortgage itself in
favor of appellee. It turned out, however, that appellants had failed to reduce
their account on the lot to P819,000.00, as stipulated in the mortgage
contract, since there was still a balance of P280,000 on the purchase price.
With respect to the second release of P30,000.00, the check was also drawn
in favor of the vendor with the understanding that it would be used to pay
the real estate taxes due on said properties and thus remove the
corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it agreed to waive its
right to have the properties "free from all liens and encumbrances," as
provided in the mortgage contract.
Estoppel is invoked by appellants on the basis of a letter dated October 28,
1957, sent by the Manager of appellee's Real Estate Department to the
vendor of the properties, to the effect that the balance of the purchase price
in the amount of P280,000.00 would be released within six (6) months from
the date of the said letter. The commitment of said Manager was not
recognized by the Board of Trustees of the appellee as shown by the fact
that it was not incorporated in the mortgage contract, which was executed
on a later date — October 31, 1957. While the schedule of subsequent
releases was clearly defined in the mortgage contract, no mention was
made about the said commitment. Thus, Paragraph 14 (4) of the mortgage
contract states:
(4) .That subsequent releases on this loan shall be controlled in such
manner that the amount to be released shall depend in the progress
of the work done on the proposed building but in no case shall the
amount to be released and the amounts already released exceed 60%
of the appraised value of the lots and the existing improvements
thereon as of every release;
Regarding the third error assigned, appellants do not deny the fact that they
removed and disposed of the machineries installed in the building which
were standing on the mortgaged properties. However, they contend that the
said machineries were not included in the mortgage. The contention is
groundless.
The mortgage was on the lands "together with all the buildings and
improvements now existing or which may hereafter be constructed" thereon.
And the machineries, as found by the trial court, were permanently attached
to the property, and installed there by the former owner to meet the needs
of certain works or industry therein. They were therefore part of the
immovable pursuant to Article 415 of the Civil Code, and need not be the
subject of a separate chattel mortgage in order to be deemed duly
encumbered in favor of appellee.
Under the fifth assignment of error, appellants point out that there is no time
specified in the mortgage contract within which the amortizations on the loan
should begin to be paid, and conclude that they should begin only from the
time the proposed building started earning rentals. The provision of
Paragraph 14 (13) of the mortgage contract is invoked, to wit:
That rentals from the proposed building equivalent to the monthly
amortization on this loan shall be assigned in favor of and made
payable to the System.
As a corollary argument, appellants add that since the present action was
instituted three (3) months before the expiration of the twelve-month period
(from November 7, 1957) within which the construction of the supermarket
building should be completed the premature institution of the suit rendered
the construction of said building impossible, and hence no default in
payment was incurred.
Again this contention of appellants is without merit. The promissory note
executed by them clearly provides when the first installment, as well as
subsequent ones, would become due, thus:
The first installment shall be due and payable beginning the month
following the last release and/or the month following the expiration of
the period for the construction of the textile market building,
whichever is earlier, and the rest on the 7th day of every month
thereafter until the principal of TWO MILLION PESOS
(P2,000,000.00) and the interest shall have been fully paid.
As previously mentioned, the mortgage contract provides that the proposed
building should be completed within twelve (12) months from the date of the
first release. Said release having been made on November 7, 1957, the
construction period of 12 months expired on November 7, 1958; hence, the
first installment became due one month thereafter or on December 7, 1958,
and the rest on the 7th day of every month thereafter. Appellants' failure to
pay the amortizations, interest and surcharges demanded of them by
appellee, therefore, constitutes a violation of the mortgage contract and is
sufficient ground for the foreclosure of the mortgage.
IN VIEW OF THE FOREGOING, the sixth and seventh assignments of error
are without merit.
The judgment appealed from is hereby affirmed, with costs against
appellants.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro and
Angeles, JJ., concur.
Fernando, J., is on leave.
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX
APPEALS of Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals
in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus
Company is liable to the payment of the realty tax on its maintenance and
repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of the City sustained
the city assessor, so petitioner herein filed with the Court of Tax Appeals
a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation
of facts:
Petitioner and respondents, thru their respective counsels agreed
to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines
in the Island of Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro
City. It maintains Branch Offices and/or stations at Iligan City,
Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the respondent
as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the
attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached
photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached
photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached
photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached
photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in
the attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden
platforms as may be seen in the attached photographs which form
part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and
operates a garage for its TPU motor trucks; a repair shop;
blacksmith and carpentry shops, and with these machineries which
are placed therein, its TPU trucks are made; body constructed; and
same are repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as
industrial equipments to produce finished products for sale, nor to
repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following errors:
 1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments are valid;
and that said tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article
415 of the New Civil Code, and holding that pursuant thereto the
movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's
contention that the respondent City Assessor's power to assess
and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article 415
of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that the equipment are placed
on wooden or cement platforms. They can be moved around and about
in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu
Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives
the character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the
requirements of such trade or industry."
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar and industry, converted them
into real property by reason of their purpose, it cannot be said that
their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch
as the central is permanent in character, the necessary machinery
and equipment installed for carrying on the sugar industry for which
it has been established must necessarily be permanent.
(Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the
law must first be "essential and principal elements" of an industry or
works without which such industry or works would be "unable to function
or carry on the industrial purpose for which it was established." We may
here distinguish, therefore, those movable which become immobilized by
destination because they are essential and principal elements in the
industry for those which may not be so considered immobilized because
they are merely incidental, not essential and principal. Thus, cash
registers, typewriters, etc., usually found and used in hotels, restaurants,
theaters, etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments.
Airline companies use forklifts, jeep-wagons, pressure pumps, IBM
machines, etc. which are incidentals, not essentials, and thus retain their
movable nature. On the other hand, machineries of breweries used in the
manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the
delivery trucks and adding machines which they usually own and use and
are found within their industrial compounds are merely incidental and
retain their movable nature.
Similarly, the tools and equipments in question in this instant case are,
by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used
only for expediency to facilitate and/or improve its service. Even without
such tools and equipments, its business may be carried on, as petitioner
has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair or service
shop if its rolling equipment is repaired or serviced in another shop
belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works; (Civil Code
of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found
in a building constructed on the land. A sawmill would also be installed in
a building on land more or less permanently, and the sawing is conducted
in the land or building.
But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on in a
building or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation
business, and petitioner's business is not carried on in a building,
tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil
Code.
WHEREFORE, the decision subject of the petition for review is hereby
set aside and the equipment in question declared not subject to
assessment as real estate for the purposes of the real estate tax. Without
costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon

and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.

G.R. No. L-17898 October 31, 1962

PASTOR D. AGO, petitioner, vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of
the Court of First Instance of Agusan, THE PROVINCIAL SHERIFF OF
SURIGAO and GRACE PARK ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.

Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.-- The
Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in

CA-G.R. No. 26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of
Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it

appears from the records that the respondent Judge of the Court of First
Instance of Agusan rendered judgment (Annex "A") in open court on
January 28, 1959, basing said judgment on a compromise agreement
between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a
writ of execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges
that he, or his counsel, did not receive a formal and valid notice of said
decision, which motion for reconsideration was denied by the court
below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge exceeded in his
jurisdiction in rendering the execution without valid and formal notice of
the decision.
A compromise agreement is binding between the parties and becomes
the law between them. (Gonzales vs. Gonzales G.R. No. L-1254, May
21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-12439, May 22,
1959) .
It is a general rule in this jurisdiction that a judgment based on a
compromise agreement is not appealable and is immediately executory,
unless a motion is filed on the ground fraud, mistake or duress. (De los
Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-10089,
July 31, 1957)
Petitioner's claim that he was not notified or served notice of the decision
is untenable. The judgment on the compromise agreement rendered by
the court below dated January 28, 1959, was given in open court. This
alone is a substantial compliance as to notice. (De los Reyes vs.
Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor
abuse its jurisdiction in ordering the execution of the judgment. The
petition for certiorari is hereby dismissed and the writ of preliminary
injunction heretofore dissolved, with costs against the petitioner. IT IS
SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor
D. Ago bought sawmill machineries and equipments from respondent Grace
Park Engineer domineering, Inc., executing a chattel mortgage over said
machineries and equipments to secure the payment of balance of the price
remaining unpaid of P32,000.00, which petitioner agreed to pay on installment
basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park
Engineering, Inc. instituted extra-judicial foreclosure proceedings of the
mortgage. To enjoin said foreclosure, petitioner herein instituted Special Civil
Case No. 53 in the Court of First Instance of Agusan. The parties to the case
arrived at a compromise agreement and submitted the same in court in writing,
signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon.
Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then presiding,
dictated a decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in the judgment by
compromise, so Grace Park Engineering, Inc. filed with the lower court a motion
for execution, which was granted by the court on August 15, 1959. A writ of
execution, dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of
execution issued by the lower court, levied upon and ordered the sale of the
sawmill machineries and equipments in question. These machineries and
equipments had been taken to and installed in a sawmill building located in
Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to
whom, petitioner alleges, he had sold them on February 16, 1959 (a date after
the decision of the lower court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for
December 4, 1959, petitioner, on December 1, 1959, filed the petition
for certiorari and prohibition with preliminary injunction with respondent Court
of Appeals, alleging that a copy of the aforementioned judgment given in open
court on January 28, 1959 was served upon counsel for petitioner only on
September 25, 1959 (writ of execution is dated September 23, 1959); that the
order and writ of execution having been issued by the lower court before
counsel for petitioner received a copy of the judgment, its resultant last order
that the "sheriff may now proceed with the sale of the properties levied
constituted a grave abuse of discretion and was in excess of its jurisdiction;
and that the respondent Provincial Sheriff of Surigao was acting illegally upon
the allegedly void writ of execution by levying the same upon the sawmill
machineries and equipments which have become real properties of the Golden
Pacific sawmill, Inc., and is about to proceed in selling the same without prior
publication of the notice of sale thereof in some newspaper of general
circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary
injunction against the sheriff but it turned out that the latter had already sold at
public auction the machineries in question, on December 4, 1959, as scheduled.
The respondent Grace Park Engineering, Inc. was the only bidder for
P15,000.00, although the certificate sale was not yet executed. The Court of
Appeals constructed the sheriff to suspend the issuance of a certificate of sale
of the said sawmill machineries and equipment sold by him on December 4,
1959 until the final decision of the case. On November 9, 1960 the Court of
Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in
holding that the rendition of judgment on compromise in open court on January
1959 was a sufficient notice; and (2) in not resolving the other issues raised
before it, namely, (a) the legality of the public auction sale made by the sheriff,
and (b) the nature of the machineries in question, whether they are movables
or immovables.
The Court of Appeals held that as a judgment was entered by the court below
in open court upon the submission of the compromise agreement, the parties
may be considered as having been notified of said judgment and this fact
constitutes due notice of said judgment. This raises the following legal question:
Is the order dictated in open court of the judgment of the court, and is the fact
the petitioner herein was present in open court was the judgment was dictated,
sufficient notice thereof? The provisions of the Rules of Court decree otherwise.
Section 1 of Rule 35 describes the manner in which judgment shall be rendered,
thus:
SECTION 1. How judgment rendered. — All judgments determining the
merits of cases shall be in writing personally and directly prepared by
the judge, and signed by him, stating clearly and distinctly the facts and
the law on which it is based, filed with the clerk of the court.
The court of first instance being a court of record, in order that a judgment may
be considered as rendered, must not only be in writing, signed by the judge,
but it must also be filed with the clerk of court. The mere pronouncement of the
judgment in open court with the stenographer taking note thereof does not,
therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be
presumed that the judgment that was dictated in open court will be the
judgment of the court, the court may still modify said order as the same is being
put into writing. And even if the order or judgment has already been put into
writing and signed, while it has not yet been delivered to the clerk for filing it is
still subject to amendment or change by the judge. It is only when the judgment
signed by the judge is actually filed with the clerk of court that it becomes a
valid and binding judgment. Prior thereto, it could still be subject to amendment
and change and may not, therefore, constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge
dictating the judgment in open court, is not a valid notice of said judgment. If
rendition thereof is constituted by the filing with the clerk of court of a signed
copy (of the judgment), it is evident that the fact that a party or an attorney
heard the order or judgment being dictated in court cannot be considered as
notice of the real judgment. No judgment can be notified to the parties unless
it has previously been rendered. The notice, therefore, that a party has of a
judgment that was being dictated is of no effect because at the time no
judgment has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served
personally or by registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. — Final orders or
judgments shall be served either personally or by registered mail.
In accordance with this provision, a party is not considered as having been
served with the judgment merely because he heard the judgment dictating the
said judgment in open court; it is necessary that he be served with a copy of
the signed judgment that has been filed with the clerk in order that he may
legally be considered as having been served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge
dictating the judgment in open court, is not sufficient to constitute the service
of judgement as required by the above-quoted section 7 of Rule 2 the signed
judgment not having been served upon the petitioner, said judgment could not
be effective upon him (petitioner) who had not received it. It follows as a
consequence that the issuance of the writ of execution null and void, having
been issued before petitioner her was served, personally or by registered mail,
a copy of the decision.
The second question raised in this appeal, which has been passed upon by the
Court of Appeals, concerns the validity of the proceedings of the sheriff in
selling the sawmill machineries and equipments at public auction with a notice
of the sale having been previously published.
The record shows that after petitioner herein Pastor D. Ago had purchased the
sawmill machineries and equipments he assigned the same to the Golden
Pacific Sawmill, Inc. in payment of his subscription to the shares of stock of
said corporation. Thereafter the sawmill machinery and equipments were
installed in a building and permanently attached to the ground. By reason of
such installment in a building, the said sawmill machineries and equipment
became real estate properties in accordance with the provision of Art. 415 (5)
of the Civil Code, thus:
ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements tended 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;
This Court in interpreting a similar question raised before it in the case
of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683, held that the installation
of the machine and equipment in the central of the Mabalacat Sugar Co., Inc.
for use in connection with the industry carried by the company, converted the
said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the
sawmill machineries in the building of the Gold Pacific Sawmill, Inc., for use in
the sawing of logs carried on in said building, the same became a necessary
and permanent part of the building or real estate on which the same was
constructed, converting the said machineries and equipments into real estate
within the meaning of Article 415(5) above-quoted of the Civil Code of the
Philippines.
Considering that the machineries and equipments in question valued at more
than P15,000.00 appear to have been sold without the necessary
advertisement of sale by publication in a newspaper, as required in Sec. 16 of
Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of

property on execution, notice thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice particularly

describing the property for twenty days in three public places in the
municipality or city where the property is situated, and also where the
property is to be sold, and, if the assessed value of the property exceeds
four hundred pesos, by publishing a copy of the notice once a week, for G.R. No. 137705 August 22, 2000
the same period, in some newspaper published or having general
circulation in the province, if there be one. If there are newspapers SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,
published in the province in both the English and Spanish languages, vs.
then a like publication for a like period shall be made in one newspaper PCI LEASING AND FINANCE, INC., respondent.
published in the English language, and in one published in the Spanish
language. DECISION

the sale made by the sheriff must be declared null and void. PANGANIBAN, J.:

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is
hereby set aside and We declare that the issuance of the writ of execution in
this case against the sawmill machineries and equipments purchased by
petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as well as the
sale of the same by the Sheriff of Surigao, are null and void. Costs shall be
against the respondent Grace Park Engineering, Inc.
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

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Dizon, Regala and Makalintal, JJ., concur. Decision1 of the Court of Appeals (CA)2in CA-GR SP No. 47332 and its
Padilla, J., took no part. 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 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."
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.
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 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.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
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 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 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 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
26
Williamson, 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 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.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo, Villamor and Makasiar, JJ., concur.
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana
Gonzales (married to Gregorio Pineda), borrowed from plaintiff Conrado P.
Navarro, the sum of P2,500.00, payable 6 months after said date or on June
14, 1959. To secure the indebtedness, Rufino executed a document captioned
"DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land,
belonging to her, registered with the Register of Deeds of Tarlac, under
Transfer Certificate of Title No. 25776, and Rufino G. Pineda, by way of Chattel
Mortgage, mortgaged his two-story residential house, having a floor area of 912
square meters, erected on a lot belonging to Atty. Vicente Castro, located at
Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name,
under Motor Vehicle Registration Certificate No. A-171806. Both mortgages
were contained in one instrument, which was registered in both the Office of
the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were granted
extension up to June 30, 1960, within which to pay. Came June 30, defendants
again failed to pay and, for the second time, asked for another extension, which
was given, up to July 30, 1960. In the second extension, defendant Pineda in
a document entitled "Promise", categorically stated that in the remote event he
should fail to make good the obligation on such date (July 30, 1960), the
defendant would no longer ask for further extension and there would be no
need for any formal demand, and plaintiff could proceed to take whatever action
he might desire to enforce his rights, under the said mortgage contract. In spite
of said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage
and for damages, which consisted of liquidated damages in the sum of P500.00
and 12% per annum interest on the principal, effective on the date of maturity,
until fully paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation to the
plaintiff the truth being the defendants are hard up these days and
pleaded to the plaintiff to grant them more time within which to pay their
obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that
this Honorable Court render judgment granting the defendants until
January 31, 1961, within which to pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is not clear what ruling the lower
court made on the said motion. On November 11, 1960, however, the parties
submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and
Chattel Mortgages; that the indebtedness has been due and unpaid since June
14, 1960; that a liability of 12% per annum as interest was agreed, upon failure
to pay the principal when due and P500.00 as liquidated damages; that the
instrument had been registered in the Registry of Property and Motor Vehicles
Office, both of the province of Tarlac; that the only issue in the case is whether
or not the residential house, subject of the mortgage therein, can be considered
a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino
Pineda and Ramon Reyes, to pay jointly and severally and within ninety
(90) days from the receipt of the copy of this decision to the plaintiff
Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal
sum and interests are fully paid, plus P500.00 as liquidated damages
and the costs of this suit, with the warning that in default of said payment
of the properties mentioned in the deed of real estate mortgage and
chattel mortgage (Annex "A" to the complaint) be sold to realize said
mortgage debt, interests, liquidated damages and costs, in accordance
with the pertinent provisions of Act 3135, as amended by Act 4118, and
Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to
deliver immediately to the Provincial Sheriff of Tarlac the personal
properties mentioned in said Annex "A", immediately after the lapse of
the ninety (90) days above-mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants therein
assigning only a single error, allegedly committed by the lower court, to wit —
In holding that the deed of real estate and chattel mortgages appended
to the complaint is valid, notwithstanding the fact that the house of the
 defendant Rufino G. Pineda was made the subject of the chattel
mortgage, for the reason that it is erected on a land that belongs to a
third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house
as immovable property, makes no distinction whether the owner of the land is
or not the owner of the building; the fact that the land belongs to another is
immaterial, it is enough that the house adheres to the land; that in case of
immovables by incorporation, such as houses, trees, plants, etc; the Code does
not require that the attachment or incorporation be made by the owner of the
land, the only criterion being the union or incorporation with the soil. In other
words, it is claimed that "a building is an immovable property, irrespective of
whether or not said structure and the land on which it is adhered to, belong to
the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See
also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants
argue that since only movables can be the subject of a chattel mortgage (sec.
1, Act No. 3952) then the mortgage in question which is the basis of the present
action, cannot give rise to an action for foreclosure, because it is nullity. (Citing
Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838, May
30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected on
the land which belonged to a third person, but also and principally on the
doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed
materials of sawali and wood". In construing arts. 334 and 335 of the Spanish
Civil Code (corresponding to arts. 415 and 416, N.C.C.), for purposes of the
application of the Chattel Mortgage Law, it was held that under certain
conditions, "a property may have a character different from that imputed to it in
said articles. It is undeniable that the parties to a contract may by agreement,
treat as personal property that which by nature would be real property"
(Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any
question that a building of mixed materials may be the subject of a chattel
mortgage, in which case, it is considered as between the parties as personal
property. ... The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is so
agreed by the parties interested even though annexed to the realty ...". (42 Am.
Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May
18, 1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel
mortgagee may agree to consider a house as personal property for the
purposes of said contract, "is good only insofar as the contracting parties are
concerned. It is based partly, upon the principles of estoppel ..." (Evangelista v.
Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on
a rented land, was held to be a personal property, not only because the deed
of mortgage considered it as such, but also because it did not form part of the
land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled that an
object placed on land by one who has only a temporary right to the same, such
as a lessee or usufructuary, does not become immobilized by attachment
(Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v.
Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands
on a rented land belonging to another person, it may be mortgaged as a
personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on
statements by the owner declaring his house to be a chattel, a conduct that
may conceivably estop him from subsequently claiming otherwise (Ladera, et
al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore,
gathered from these cases is that although in some instances, a house of mixed
materials has been considered as a chattel between them, has been
recognized, it has been a constant criterion nevertheless that, with respect to
third persons, who are not parties to the contract, and specially in execution
proceedings, the house is considered as an immovable property (Art. 1431,
New Civil Code).
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage"
"my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was
small and made of light construction materials: G.I. sheets roofing, sawali and
wooden walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya
cases (L-10837-38, supra), refer to a building or a house of strong materials,
permanently adhered to the land, belonging to the owner of the house himself.
In the case of Lopez v. Orosa, (L-10817-18), the subject building was a theatre,
built of materials worth more than P62,000, attached permanently to the soil.
In these cases and in the Leung Yee case, supra, third persons assailed the
validity of the deed of chattel mortgages; in the present case, it was one of the
parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from,
should be, as it is hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala, and
Makalintal, JJ., concur.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals
(now Intermediate Appellate Court) promulgated on August 27, 1981 in
CA-G.R. No. SP-12731, setting aside certain Orders later specified
herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court
of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as
wen as the resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials
inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However, the
Deputy Sheriff assigned to implement the foreclosure failed to gain entry
into private respondent's premises and was not able to effect the seizure
of the aforedescribed machinery. Petitioner thereafter filed a complaint
for judicial foreclosure with the Court of First Instance of Rizal, Branch VI,
docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ
of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for reconsideration.
After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ
of seizure and an order to break open the premises of private respondent
to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders of
the lower court and ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the machinery in suit
cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code,
the same being attached to the ground by means of bolts and the only
way to remove it from respondent's plant would be to drill out or destroy
the concrete floor, the reason why all that the sheriff could do to enfore
the writ was to take the main drive motor of said machinery. The appellate
court rejected petitioner's argument that private respondent is estopped
from claiming that the machine is real property by constituting a chattel
mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for
review by writ of certiorari. It is contended by private respondent,
however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that
said action was without prejudice to a motion for reconsideration of the
Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved
its right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by
such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point
of view of the parties, with petitioner arguing that it is a personality, while
the respondent claiming the contrary, and was sustained by the appellate
court, which accordingly held that the chattel mortgage constituted
thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
SCRA 143 where this Court, speaking through Justice J.B.L. Reyes,
ruled:
Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the
 house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendants-
appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of
the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the
chattel mortgage, it is the defendants-appellants themselves,
as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel
therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification
to exclude the rule out, as the appellate court did, the present case from
the application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated
as such. This is really because one who has so agreed is estopped from
denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery
as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties. As
stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property, as long as
no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit
be considered as personal property but was merely required and dictated
on by herein petitioner to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the
respondent, the status of the subject machinery as movable or
immovable was never placed in issue before the lower court and the
Court of Appeals except in a supplemental memorandum in support of
the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio,
but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper
action in court. There is nothing on record to show that the mortgage has
been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not
refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of
another. Private respondent could not now therefore, be allowed to
impugn the efficacy of the chattel mortgage after it has benefited
therefrom,
From what has been said above, the error of the appellate court in ruling
that the questioned machinery is real, not personal property, becomes
very apparent. Moreover, the case of Machinery and Engineering
Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not
applicable to the case at bar, the nature of the machinery and equipment
involved therein as real properties never having been disputed nor in
issue, and they were not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity with the instant case
to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED. Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero
and Escolin JJ., concur. Abad Santos, J., concurs in the result.
G.R. No. 106041 January 29, 1993
BENGUET CORPORATION, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR
OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF
SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
CRUZ, J.:
The realty tax assessment involved in this case amounts to P11,319,304.00.
It has been imposed on the petitioner's tailings dam and the land thereunder
over its protest.
The controversy arose in 1985 when the Provincial Assessor of Zambales
assessed the said properties as taxable improvements. The assessment
was appealed to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was dismissed mainly on the
ground of the petitioner's "failure to pay the realty taxes that fell due during
the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of
Assessment Appeals,1 one of the herein respondents. In its decision dated
March 22, 1990, the Board reversed the dismissal of the appeal but, on the
merits, agreed that "the tailings dam and the lands submerged thereunder
(were) subject to realty tax."
For purposes of taxation the dam is considered as real
property as it comes within the object mentioned in paragraphs
(a) and (b) of Article 415 of the New Civil Code. It is a
construction adhered to the soil which cannot be separated or
detached without breaking the material or causing destruction
on the land upon which it is attached. The immovable nature
of the dam as an improvement determines its character as real
property, hence taxable under Section 38 of the Real Property
Tax Code. (P.D. 464).
 Although the dam is partly used as an anti-pollution device, this
Board cannot accede to the request for tax exemption in the
absence of a law authorizing the same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of the
construction of the tailings dam, covered by Tax Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the
Schedule of Market Values for Zambales which was reviewed
and allowed for use by the Ministry (Department) of Finance in
the 1981-1982 general revision. No serious attempt was made
by Petitioner-Appellant Benguet Corporation to impugn its
reasonableness, i.e., that the P50.00 per square meter applied
by Respondent-Appellee Provincial Assessor is indeed
excessive and unconscionable. Hence, we find no cause to
disturb the market value applied by Respondent Appellee
Provincial Assessor of Zambales on the properties of
Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land within
the meaning of the Real Property Tax Code. More particularly, it is claimed
—
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate
from and independent of the mine; hence, by
itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the
petitioner corporation in the area, the tailings dam
will benefit the local community by serving as an
irrigation facility;
(d) that the building of the dam has stripped the
property of any commercial value as the property
is submerged under water wastes from the mine;
(e) that the tailings dam is an environmental
pollution control device for which petitioner must
be commended rather than penalized with a
realty tax assessment;
(f) that the installation and utilization of the tailings
dam as a pollution control device is a requirement
imposed by law;
(2) as regards the valuation of the tailings dam and the
submerged lands:
(a) that the subject properties have no market
value as they cannot be sold independently of the
mine;
 (b) that the valuation of the tailings dam should
be based on its incidental use by petitioner as a
water reservoir and not on the alleged cost of
construction of the dam and the annual build-up
expense;
(c) that the "residual value formula" used by the
Provincial Assessor and adopted by respondent
CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands
for realty tax purposes:
(a) that where a tax is not paid in an honest belief
that it is not due, no penalty shall be collected in
addition to the basic tax;
(b) that no other mining companies in the
Philippines operating a tailings dam have been
made to declare the dam for realty tax purposes.
The petitioner does not dispute that the tailings dam may be considered
realty within the meaning of Article 415. It insists, however, that the dam
cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and
maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court
considered the dikes and gates constructed by the taxpayer in connection
with a fishpond operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil.
303), involving a road constructed by the timber concessionaire in the area,
where this Court did not impose a realty tax on the road primarily for two
reasons:
In the first place, it cannot be disputed that the ownership of
the road that was constructed by appellee belongs to the
government by right of accession not only because it is
inherently incorporated or attached to the timber land . . . but
also because upon the expiration of the concession said road
would ultimately pass to the national government. . . . In the
second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive,
for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound
to allow the free use of forest products within the concession
for the personal use of individuals residing in or within the
vicinity of the land. . . . In other words, the government has
practically reserved the rights to use the road to promote its
varied activities. Since, as above shown, the road in question
cannot be considered as an improvement which belongs to
appellee, although in part is for its benefit, it is clear that the
same cannot be the subject of assessment within the meaning
of Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was an
integral part of the lumber concession but because the government had the
right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American
case, where it was declared that the reservoir dam went with and formed
part of the reservoir and that the dam would be "worthless and useless
except in connection with the outlet canal, and the water rights in the
reservoir represent and include whatever utility or value there is in the dam
and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United
States. This case involved drain tunnels constructed by plaintiff when it
expanded its mining operations downward, resulting in a constantly
increasing flow of water in the said mine. It was held that:
Whatever value they have is connected with and in fact is an
integral part of the mine itself. Just as much so as any shaft
which descends into the earth or an underground incline,
tunnel, or drift would be which was used in connection with the
mine.
On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of the
mine. The primary function of the dam is to receive, retain and hold the water
coming from the operations of the mine, and it also enables the petitioner to
impound water, which is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to
the gas station building or shed owned by Caltex (as to which
it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas
station would be useless and which have been attached or
affixed permanently to the gas station site or embedded therein,
are taxable improvements and machinery within the meaning
of the Assessment Law and the Real Property Tax Code.
(Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded in
the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering
it useful to the oil industry. It is undeniable that the two tanks
have been installed with some degree of permanence as
receptacles for the considerable quantities of oil needed by
MERALCO for its operations. (Manila Electric Co. v. CBAA,
114 SCRA 273).
The pipeline system in question is indubitably a construction
adhering to the soil. It is attached to the land in such a way that
it cannot be separated therefrom without dismantling the steel
pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as
a tax upon real estate. (Flax-Pond Water Co. v. City of Lynn,
16 N.E. 742).
The oil tanks are structures within the statute, that they are
designed and used by the owner as permanent improvement
of the free hold, and that for such reasons they were properly
assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property"
and simply says that the realty tax is imposed on "real property, such as
lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, we apply Article 415 of
the Civil Code, the pertinent portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to
the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in
such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law,
provides that the realty tax is due "on the real property, including land,
buildings, machinery and other improvements" not specifically exempted in
Section 3 thereof. A reading of that section shows that the tailings dam of
the petitioner does not fall under any of the classes of exempt real properties
therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real
Property Tax Code defines improvement as follows:
(k) Improvements — is a valuable addition made to property or
an amelioration in its condition, amounting to more than mere
repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adopt it for
new or further purposes.
The term has also been interpreted as "artificial alterations of the physical
condition of the ground that are reasonably permanent in character."2
The Court notes that in the Ontario case the plaintiff admitted that the mine
involved therein could not be operated without the aid of the drain tunnels,
which were indispensable to the successful development and extraction of
the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be
carried out because the primary function of the dam is merely to receive and
retain the wastes and water coming from the mine. There is no allegation
that the water coming from the dam is the sole source of water for the mining
operation so as to make the dam an integral part of the mine. In fact, as a
result of the construction of the dam, the petitioner can now impound and
recycle water without having to spend for the building of a water reservoir.
And as the petitioner itself points out, even if the petitioner's mine is shut
down or ceases operation, the dam may still be used for irrigation of the
surrounding areas, again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not applicable
because it involved water reservoir dams used for different purposes and
for the benefit of the surrounding areas. By contrast, the tailings dam in
question is being used exclusively for the benefit of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has
no separate existence, just as vigorously contends that at the end of the
mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the mine.
From the definitions and the cases cited above, it would appear that whether
a structure constitutes an improvement so as to partake of the status of
realty would depend upon the degree of permanence intended in its
construction and use. The expression "permanent" as applied to an
improvement does not imply that the improvement must be used perpetually
but only until the purpose to which the principal realty is devoted has been
accomplished. It is sufficient that the improvement is intended to remain as
long as the land to which it is annexed is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both
the value and utility of petitioner's mine. Moreover, the immovable nature of
the dam defines its character as real property under Article 415 of the Civil
Code and thus makes it taxable under Section 38 of the Real Property Tax
Code.
The Court will also reject the contention that the appraisal at P50.00 per
square meter made by the Provincial Assessor is excessive and that his use
of the "residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual value
formula" as follows:
A 50% residual value is applied in the computation because,
while it is true that when slime fills the dike, it will then be
covered by another dike or stage, the stage covered is still
there and still exists and since only one face of the dike is filled,
50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the
construction of the tailings dam, covered by Tax Declaration
Nos.
002-0260 and 002-0266, to be in accordance with the
Schedule of Market Values for San Marcelino, Zambales,
which is fifty (50.00) pesos per square meter for third class
industrial land (TSN, page 17, July 5, 1989) and Schedule of
Market Values for Zambales which was reviewed and allowed
for use by the Ministry (Department) of Finance in the 1981-
1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its
reasonableness, i.e, that the P50.00 per square meter applied
by Respondent-Appellee Provincial Assessor is indeed
excessive and unconscionable. Hence, we find no cause to
disturb the market value applied by Respondent-Appellee
Provincial Assessor of Zambales on the properties of
Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the conclusions
of quasi-judicial agencies like the CBAA, which, because of the nature of its
functions and its frequent exercise thereof, has developed expertise in the
resolution of assessment problems. The only exception to this rule is where
it is clearly shown that the administrative body has committed grave abuse
of discretion calling for the intervention of this Court in the exercise of its
own powers of review. There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot
take cognizance of the issue of the propriety of the penalties imposed upon
it, which was raised by the petitioner for the first time only on appeal. The
CBAA held that this "is an entirely new matter that petitioner can take up
with the Provincial Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the local sanggunian . . ., and
in case of an adverse decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this Board for appropriate
action."
There is no need for this time-wasting procedure. The Court may resolve
the issue in this petition instead of referring it back to the local authorities.
We have studied the facts and circumstances of this case as above
discussed and find that the petitioner has acted in good faith in questioning
the assessment on the tailings dam and the land submerged thereunder. It
is clear that it has not done so for the purpose of evading or delaying the
payment of the questioned tax. Hence, we hold that the petitioner is not
subject to penalty for
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.
Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Griño-Aquino, Regalado,
Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur
[G.R. No. L-47943. May 31, 1982.]
MANILA ELECTRIC COMPANY, Petitioner, v. CENTRAL BOARD OF
ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, Respondents.
Quiason, De Guzman, Makalintal, Veneracion and Barot for Petitioner.
Acting Solicitor General Vicente V . Mendoza, Assistant Solicitor
General Nathanael P. de Pano, Jr. and Solicitor Jesus P. Mapuno
for Respondents.
SYNOPSIS
Petitioner installed two storage tanks on a lot it leased from Caltex (Phil.) for
storing fuel oil for its power plants. The tanks are made of steel plates welded
and assembled on the spot and pipelines installed on the sides of each tank.
They are not attached to the land but merely sit on concrete foundations. On
assessment made by the Provincial Assessor in 1970, the Municipal
its
Treasurer of Bauan, Batangas required petitioner to pay realty taxes on the
two tanks. Payment of the realty taxes was upheld by the Batangas Board of
Assessment Appeals and subsequently by the Central Board of Assessment
Appeals. A motion for reconsideration was filed with the Board but the same
was denied Hence, the present petition. Petitioner claims that said oil storage
tanks do not fall within any of the kinds of real property enumerated in Article
415 of the Civil Code.
On review, the Supreme Court held that while the two storage tanks are not
embedded in the land, they may be considered as improvements on the land,
enhancing its utility and rendering it useful to the oil industry, which are
taxable under the provisions of the Real Property Tax Code.
SYLLABUS
1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; PROPERTIES
SUBJECT THERETO. — Section 2 of the Assessment Law provides
that the realty tax is due on "real property, including land, buildings,
machinery, and other improvements" not specifically exempted in
Section 3 thereof. This provision is reproduced with some modification
in the Real Property Tax Code which provides in Section 38 thereof
that "There shall be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem tax on real property
 such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted."
2. ID.; ID.; ID.; ID.; STORAGE TANKS NOT EMBEDDED IN THE LAND
CONSIDERED TAXABLE IMPROVEMENTS UNDER SECTION 3(k) OF
THE REAL PROPERTY TAX CODE. — While the two storage tanks are
not embedded in the land, they may, nevertheless, be considered as
taxable improvements on the land, enhancing its utility and rendering it
useful to the oil industry as defined under Section 3 (k) of the Real
Property Tax Code. It is undeniable that the two tanks have been installed
with some degree of permanence at receptacles for the considerable
qualities of oil needed by Meralco for its operations. Oil storage tanks
were held to be taxable realty in Standard Oil Co. of New Jersy versus
Atlantic City, 15 Atl. 2nd 271.
3. ID.; ID.; REAL PROPERTY FOR PURPOSES OF TAXATION MAY
INCLUDE THINGS GENERALLY REGARDED AS PERSONAL
PROPERTY. — For purposes of taxation, the term "real property" may
include things which generally should be regarded as personal property
(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed
as real property for purposes of taxation which on general principle might
be considered personal property (Standard Oil Co. of New York v.
Jaramillo. 44 Phil. 630, 633).
DECISION
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks
installed in 1969 by Manila Electric Company on a lot in San Pascual,
Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within
the Caltex refinery compound. They have a total capacity of 566,000 barrels.
They are used for storing fuel oil for Meralco’s power plants.
According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of
compacted earth as the outermost layer, a sand pad as the intermediate layer
and a two-inch thick bituminous asphalt stratum as the top layer. The bottom
of each tank is in contact with the asphalt layer.
The steel sides of the tank are directly supported underneath by a circular
wall made of concrete, eighteen inches thick, to prevent the tank from sliding.
Hence, according to Meralco, the tank is not attached to its foundation. It is
not anchored or welded to the concrete circular wall. Its bottom plate is not
attached to any part of the foundation by bolts, screws or similar devices. The
tank merely sits on its foundation. Each empty tank can be floated by flooding
its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central
Board of Assessment Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles on top thereof and is
divided into two parts as the site of each tank. The foundation of the tanks is
elevated from the remaining area. On both sides of the earthen dikes are two
separate concrete steps leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about
an inch thick. Pipelines were installed on the sides of each tank and are
connected to the pipelines of the Manila Enterprises Industrial Corporation
whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the
foundation itself and the walls, dikes and steps, which are integral parts of the
tanks, are affixed to the land while the pipelines are attached to the tanks.
(pp. 60-61, Rollo.)
In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required Meralco to pay realty
taxes on the two tanks. For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required
Meralco to pay the tax and penalties as a condition for entertaining its appeal
from the adverse decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of
Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente
Abad Santos and Secretary of Local Government and Community
Development Jose Roño as members) in its decision dated November 5,
1976 ruled that the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the
fifteenth day, it filed a motion for reconsideration which the Board denied in its
resolution of November 25, 1977, a copy of which was received by Meralco
on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul
the Board’s decision and resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in holding that its storage
tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the
kinds of real property enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that the tanks are not
attached to the land and that they were placed on leased land, not on the land
owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on
the classification of property where strong divergent opinions are inevitable.
The issue raised by Meralco has to be resolved in the light of the provisions of
the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax
Code, Presidential Decree No. 464 which took effect on June 1,
1974.chanrobles lawlibrary : rednad
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with
some modification in the Real Property Tax Code which provides:
"Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed
and collected in all provinces, cities and municipalities an annual ad valorem
tax on real property, such as land, buildings, machinery and other
improvements affixed or attached to real property not hereinafter specifically
exempted." The Code contains the following definition in its section
"k) Improvements — is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes."
We hold that while the two storage tanks are not embedded in the land, they
may, nevertheless, be considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It is undeniable that the two
tanks have been installed with some degree of permanence as receptacles
for the considerable quantities of oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New
Jersey v. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which
should generally be regarded as personal property (84 C.J.S. 171, Note 8). It
is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property
(Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals v. Manila Electric Company, 119

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

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

WHEREFORE, the petition is dismissed. The Board’s questioned decision

and resolution are affirmed. No costs. SO ORDERED.

Barredo, Guerrero, De Castro and Escolin, JJ., concur. Concepcion, Jr., J., is
on leave.
Abad Santos, J., took no part.