G.R. No.

L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-
appellees.

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning

machinery company from the defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It included in the mortgage
deed the building of strong materials in which the machinery was installed, without any
reference to the land on which it stood. The indebtedness secured by this instrument
not having been paid when it fell due, the mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in the chattel mortgage registry, and
the sale of the property to the machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although executed in a public document, was
not registered. This deed makes no reference to the building erected on the land and
would appear to have been executed for the purpose of curing any defects which might
be found to exist in the machinery company's title to the building under the sheriff's
certificate of sale. The machinery company went into possession of the building at or
about the time when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compañia Agricola Filipina" executed another mortgage
to the plaintiff upon the building, separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to pay the amount of
the indebtedness secured by the mortgage, the plaintiff secured judgment for that
amount, levied execution upon the building, bought it in at the sheriff's sale on or about
the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered
in the land registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up
its claim of title and demanding the release of the property from the levy. Thereafter,
upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of the
sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at
public auction to the plaintiff, who was the highest bidder at the sheriff's sale.

This action was instituted by the plaintiff to recover possession of the building from the
machinery company.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment
in favor of the machinery company, on the ground that the company had its title to the
building registered prior to the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be
transfer to the person who may have the first taken possession thereof in good faith, if it
should be personal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it
in the registry.

Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.

The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to
say, mortgages of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning machinery was
installed by the "Compañia Agricola Filipina" was real property, and the mere fact that
the parties seem to have dealt with it separate and apart from the land on which it stood
in no wise changed its character as real property. It follows that neither the original
registry in the chattel mortgage of the building and the machinery installed therein, not
the annotation in that registry of the sale of the mortgaged property, had any effect
whatever so far as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on
the ground assigned by the trial judge. We are of opinion, however, that the judgment
must be sustained on the ground that the agreed statement of facts in the court below
discloses that neither the purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and that the
machinery company must be held to be the owner of the property under the third
paragraph of the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were sold to the
machinery company long prior to the date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require
"good faith," in express terms, in relation to "possession" and "title," but contain no
express requirement as to "good faith" in relation to the "inscription" of the property on
the registry, it must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention of the legislator to base
the preferential right secured under this article of the code upon an inscription of title in
bad faith. Such an interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public record presupposes
the good faith of him who enters such inscription; and rights created by statute, which
are predicated upon an inscription in a public registry, do not and cannot accrue under
an inscription "in bad faith," to the benefit of the person who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain
held in its sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference,
this provision must always be understood on the basis of the good faith mentioned in
the first paragraph; the legislator could not have wished to strike it out and to sanction
bad faith, just to comply with a mere formality which, in given cases, does not obtain
even in real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by
the publishers of the La Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the
building at the sheriff's sale and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from plaintiff's judgment debtor;
that it had gone into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had
filed its sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the time of the levy
and sale the building had already been sold to the machinery company by the judgment
debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of title must be held to have
been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and genuineness of the plaintiff's
claim against the "Compañia Agricola Filipina." The truth is that both the plaintiff and the
defendant company appear to have had just and righteous claims against their common
debtor. No criticism can properly be made of the exercise of the utmost diligence by the
plaintiff in asserting and exercising his right to recover the amount of his claim from the
estate of the common debtor. We are strongly inclined to believe that in procuring the
levy of execution upon the factory building and in buying it at the sheriff's sale, he
considered that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he thought at that time
that he would be able to maintain his position in a contest with the machinery company.
There was no collusion on his part with the common debtor, and no thought of the
perpetration of a fraud upon the rights of another, in the ordinary sense of the word. He
may have hoped, and doubtless he did hope, that the title of the machinery company
would not stand the test of an action in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question the legality of the propriety of
the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of ownership
was well founded, he cannot be said to have been an innocent purchaser for value. He
took the risk and must stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of
the land or of an interest therein; and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a reasonable man upon his
guard, and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in his vendor's
title, will not make him an innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such notice of the defects as would
have led to its discovery had he acted with that measure of precaution which may
reasonably be acquired of a prudent man in a like situation. Good faith, or lack of it, is in
its analysis a question of intention; but in ascertaining the intention by which one is
actuated on a given occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be
determined. So it is that "the honesty of intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from knowledge and circumstances which
ought to put a person on inquiry," and so it is that proof of such knowledge overcomes
the presumption of good faith in which the courts always indulge in the absence of proof
to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which can only be judged of by
actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas
Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119
Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision
and judgment entered in the court below should be affirmed with costs of this instance
against the appellant. So ordered.
G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-
appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for
appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial
court and as set forth by counsel for the parties on appeal, involves the determination of the
nature of the properties described in the complaint. The trial judge found that those
properties were personal in nature, and as a consequence absolved the defendants from
the complaint, with costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of
the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill company erected a building
which housed the machinery used by it. Some of the implements thus used were clearly
personal property, the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill company and the
owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any amount
for said improvements and buildings; also, in the event the party of the second part should
leave or abandon the land leased before the time herein stipulated, the improvements and
buildings shall likewise pass to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries and accessories are
not included in the improvements which will pass to the party of the first part on the
expiration or abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant in that action; a writ of execution issued thereon,
and the properties now in question were levied upon as personalty by the sheriff. No third
party claim was filed for such properties at the time of the sales thereof as is borne out by
the record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that
action, and the defendant herein having consummated the sale, proceeded to take
possession of the machinery and other properties described in the corresponding
certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co.,
Inc., has on a number of occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of such persons is the appellee
by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any

building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the
legal doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard Oil Co. of New
York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to
such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on
side issues. It is machinery which is involved; moreover, machinery not intended by the
owner of any building or land for use in connection therewith, but intended by a lessee for
use in a building erected on the land by the latter to be returned to the lessee on the
expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless
such person acted as the agent of the owner. In the opinion written by Chief Justice White,
whose knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights
derived by them from the execution levied on the machinery placed by the corporation in the
plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real)
property, not only land and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of the destination to which
it is applied. "Things," says section 334 of the Porto Rican Code, "may be immovable either
by their own nature or by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of section 335, which is as follows:
"Machinery, vessels, instruments or implements intended by the owner of the tenements for
the industrial or works that they may carry on in any building or upon any land and which
tend directly to meet the needs of the said industry or works." (See also Code Nap., articles
516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized.) So far as the subject-matter with which we are
dealing — machinery placed in the plant — it is plain, both under the provisions of the Porto
Rican Law and of the Code Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property or plant. Such
result would not be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9,
No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law to have applied
movable property belonging to him so as to deprive him of it by causing it by an act of
immobilization to become the property of another. It follows that abstractly speaking the
machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its
character of movable property and become immovable by destination. But in the concrete
immobilization took place because of the express provisions of the lease under which the
Altagracia held, since the lease in substance required the putting in of improved machinery,
deprived the tenant of any right to charge against the lessor the cost such machinery, and it
was expressly stipulated that the machinery so put in should become a part of the plant
belonging to the owner without compensation to the lessee. Under such conditions the
tenant in putting in the machinery was acting but as the agent of the owner in compliance
with the obligations resting upon him, and the immobilization of the machinery which
resulted arose in legal effect from the act of the owner in giving by contract a permanent
destination to the machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty which, as the result of his obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the
costs of this instance to be paid by the appellant.
G.R. No. L-7057 October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF
THE COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and
ANTONIO VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc.,
from a decision of the Court of Appeals denying an original petition for certiorari filed by said
petitioner against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama,
the respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we
quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan
to seize and take immediate possession of the properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and
a crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the
court's order into effect. Leonardo Contreras, Manager of the respondent Company, and
Pedro Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a
letter addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed
by Atty. Adolfo Garcia of the defendants therein, protesting against the seizure of the
properties in question, on the ground that they are not personal properties. Contending that
the Sheriff's duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and Torres, went to the factory. Roco's attention was
called to the fact that the equipment could not possibly be dismantled without causing
damages or injuries to the wooden frames attached to them. As Roco insisted in
dismantling the equipment on his own responsibility, alleging that the bond was posted for
such eventuality, the deputy sheriffs directed that some of the supports thereof be cut
(Appendix 2). On March 20, 1953, the defendant Company filed an urgent motion, with a
counter-bond in the amount of P15,769, for the return of the properties seized by the deputy
sheriffs. On the same day, the trial court issued an order, directing the Provincial Sheriff of
Bulacan to return the machinery and equipment to the place where they were installed at
the time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs returned the
properties seized, by depositing them along the road, near the quarry, of the defendant
Company, at Bigti, without the benefit of inventory and without re-installing hem in their
former position and replacing the destroyed posts, which rendered their use impracticable.
On March 23, 1953, the defendants' counsel asked the provincial Sheriff if the machinery
and equipment, dumped on the road would be re-installed tom their former position and
condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an urgent
motion in court, manifesting that Roco had been asked to furnish the Sheriff's office with the
expenses, laborers, technical men and equipment, to carry into effect the court's order, to
return the seized properties in the same way said Roco found them on the day of seizure,
but said Roco absolutely refused to do so, and asking the court that the Plaintiff therein be
ordered to provide the required aid or relieve the said Sheriff of the duty of complying with
the said order dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court
ordered the Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment
removed by them in their original condition in which they were found before their removal at
the expense of the Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated
April 15, 1953, praying for an extension of 20 days within which to comply with the order of
the Court (appendix 10) was denied; and on May 4, 1953, the trial court ordered the Plaintiff
therein to furnish the Provincial Sheriff within 5 days with the necessary funds, technical
men, laborers, equipment and materials to effect the repeatedly mentioned re-installation
(Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial
Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein
filed, it was alleged that, in ordering the petitioner to furnish the provincial sheriff of Bulacan
"with necessary funds, technical men, laborers, equipment and materials, to effect the
installation of the machinery and equipment" in question, the Court of Firs Instance of
Bulacan had committed a grave abuse if discretion and acted in excess of its jurisdiction, for
which reason it was prayed that its order to this effect be nullified, and that, meanwhile, a
writ of preliminary injunction be issued to restrain the enforcement o said order of may 4,
1953. Although the aforementioned writ was issued by the Court of Appeals, the same
subsequently dismissed by the case for lack of merit, with costs against the petitioner, upon
the following grounds:

While the seizure of the equipment and personal properties was ordered by the respondent
Court, it is, however, logical to presume that said court did not authorize the petitioner or its
agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting
the same from their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those parts removed, cut
and sawed be replaced, which the petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent
proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of
the respondent Judge to give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue.
The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have
known what is inherently right and inherently wrong, more so when, as in this particular
case, the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms
of the order. While it may be conceded that this was a question of law too technical to
decide on the spot, it would not have costs the Sheriff much time and difficulty to bring the
letter to the court's attention and have the equipment and machinery guarded, so as not to
frustrate the order of seizure issued by the trial court. But acting upon the directives of the
president of the Petitioner, to seize the properties at any costs, in issuing the order sought
to be annulled, had not committed abuse of discretion at all or acted in an arbitrary or
despotic manner, by reason of passion or personal hostility; on the contrary, it issued said
order, guided by the well known principle that of the property has to be returned, it should
be returned in as good a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44
Phil., 378). If any one had gone beyond the scope of his authority, it is the respondent
Provincial Sheriff. But considering that fact that he acted under the pressure of Ramon S.
Roco, and that the order impugned was issued not by him, but by the respondent Judge,
We simply declare that said Sheriff' act was most unusual and the result of a poor
judgment. Moreover, the Sheriff not being an officer exercising judicial functions, the writ
may not reach him, for certiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of
the only issue involved in this case. It is a matter of evidence which should be decided in
the hearing of the case on the merits. The question as to whether the machinery or
equipment in litigation are immovable or not is likewise immaterial, because the only issue
raised before the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's
instance, was justified in destroying the machinery and in refusing to restore them to their
original form , at the expense of the Petitioner. Whatever might be the legal character of the
machinery and equipment, would not be in any way justify their justify their destruction by
the Sheriff's and the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied ,
petitioner has brought the case to Us for review by writ of certiorari. Upon examination of
the record, We are satisfied, however that the Court of Appeals was justified in dismissing
the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only
to "personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully
taken or detained from the owner thereof, provided such property is capable of identification
and delivery; but replevin will not lie for the recovery of real property or incorporeal personal
property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc.,
machinery and equipment in question appeared to be attached to the land, particularly to
the concrete foundation of said premises, in a fixed manner, in such a way that the former
could not be separated from the latter "without breaking the material or deterioration of the
object." Hence, in order to remove said outfit, it became necessary, not only to unbolt the
same, but , also, to cut some of its wooden supports. Moreover, said machinery and
equipment were "intended by the owner of the tenement for an industry" carried on said
immovable and tended." For these reasons, they were already immovable property
pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which are
substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As
such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the

realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to
be part thereof, as, for example, a house or a turbine pump constituting part of a building's
cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's
agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own
responsibility," stating that., precisely, "that is the reason why plaintiff posted a bond ." In
this manner, petitioner clearly assumed the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to
Section 5 of Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled
to the return of the property in dispute upon the filing of a counterbond, as provided therein.
In other words, petitioner knew that the restitution of said property to respondent company
might be ordered under said provision of the Rules of Court, and that, consequently, it may
become necessary for petitioner to meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely
in point — obviously real property are not subject to replevin — it is well settled that, when
the restitution of what has been ordered, the goods in question shall be returned in
substantially the same condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as
the machinery and equipment involved in this case were duly installed and affixed in the
premises of respondent company when petitioner's representative caused said property to
be dismantled and then removed, it follows that petitioner must also do everything
necessary to the reinstallation of said property in conformity with its original condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.
[G.R. Nos. L-10837-38. May 30, 1958.]

ASSOCIATED INSURANCE & SURETY COMPANY, INC., Plaintiff, v. ISABEL IYA,

ADRIANO VALINO and LUCIA VALINO, Defendants.

ISABEL IYA, Plaintiff, v. ADRIANO VALINO, LUCIA VALINO and ASSOCIATED

INSURANCE & SURETY COMPANY. INC., Defendants.

Jovita L. de Dios for defendant Isabel Iya.

M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance & Surety Co.,
Inc.

SYLLABUS

1. IMMOVABLE PROPERTY; BUILDINGS; IMMOVABLE STATUS OF BUILDING

UNAFFECTED BY CHANGE OF OWNERSHIP OF LAND. — 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, supra, p. 98). It cannot be divested of its
character of a realty by the fact that the land on which it is constructed belongs to another. If
the status of the building were to depend on the ownership of the land, a situation would be
created where a permanent fixture changes its nature or character as the ownership of the
land changes hands.

2. CHATTEL MORTGAGE; SUBJECT OF; EFFECT WHERE THE INTEREST CONVEYED

IS IMMOVABLE. — As personal properties could only be the subject of a chattel mortgage,
the execution of a chattel mortgage on a building is invalid and a nullity, the registration of
the chattel notwithstanding. The registration of the chattel in the Chattel Mortgage Registry
produced no effect whatsoever for where the interest conveyed is in

the nature of a real property, the registration of the document in the registry of chattels is
merely a futile act. Thus the registration of the chattel mortgage of a building of strong
materials produce no effect as far as the building is concerned (Leung Yee v. Strong
Machinery Co., 37 Phil. 644).

3. ID.; ID.; RIGHT ACQUIRED BY PURCHASER AT AN EXTRA-JUDICIAL

FORECLOSURE SALE. — A mortgage creditor who purchases real properties at an extra-
judicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor,
which mortgage has been declared null and void with respect to said real properties,
acquires no right thereto by virtue of said sale (De la Riva v. Ah Kee, 60 Phil. 899).

DECISION

FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of
a house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park
Subdivision in Caloocan, Rizal, which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit
rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond
No. 971) subscribed by the Associated Insurance & Surety Co., Inc., and as counter-
guaranty therefor, the spouses Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company, which encumbrance was duly
registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted
that at the time said undertaking took place, the parcel of land on which the house is
erected was still registered in the name of the Philippine Realty Corporation. Having
completed payment on the purchase price of the lot, the Valinos were able to secure on
October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently,
however, or on October 24, 1952, the Valinos, to secure payment of an indebtedness in the
amount of P12,000.00, executed a real estate mortgage over the lot and the house in favor
of Isabel Iya, which was duly registered and annotated at the back of the certificate of title.

On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the
surety company was compelled to pay the same pursuant to the undertaking of the bond. In
turn, the surety company demanded reimbursement from the spouses Valino, and as the
latter likewise failed to do so, the company foreclosed the chattel mortgage over the house.
As a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal on
December 26, 1952, wherein the property was awarded to the surety company for
P8,000.00, the highest bid received therefor. The surety company then caused the said
house to be declared in its name for tax purposes (Tax Declaration No. 25128).

Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements
thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First
Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as
defendants. The complaint prayed for the exclusion of the residential house from the real
estate mortgage in favor of defendant Iya and the declaration and recognition of plaintiff’s
right to ownership over the same in virtue of the award given by the Provincial Sheriff of
Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the
Court to sentence the spouses Valino to pay said surety moral and exemplary damages,
attorney’s fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging
among other things, that in virtue of the real estate mortgage executed by her co-
defendants, she acquired a real right over the lot and the house constructed thereon; that
the auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the
foreclosure of the chattel mortgage on the house was null and void for non-compliance with
the form required by law. She, therefore, prayed for the dismissal of the complaint and
annulment of the sale made by the Provincial Sheriff. She also demanded the amount of
P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as
crossclaim, for attorney’s fees and costs.

Defendants spouses in their answer admitted some of the averments of the complaint and
denied the others. They, however, prayed for the dismissal of the action for lack of cause of
action, it being alleged that plaintiff was already the owner of the house in question, and as
said defendants admitted this fact, the claim of the former was already satisfied.

On October 29,1953, Isabel Iya filed another civil action against the Valinos and the surety
company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant
to the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter
undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month,
which indebtedness was payable in 4 years, extendible for only one year; that to secure
payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No.
27884 located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the
Associated Insurance & Surety Co., Inc., was included as a party defendant because it
claimed to have an interest on the residential house also covered by said mortgage; that it
was stipulated in the aforesaid real estate mortgage that default in the payment of the
interest agreed upon would entitle the mortgagee to foreclose the same even before the
lapse of the 4-year period; and as defendant spouses had allegedly failed to pay the interest
for more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum
of P12,000.00 with interest thereon at 12% per annum from March 25, 1953, until fully paid;
for an additional sum equivalent to 20% of the total obligation as damages, and for costs.
As an alternative in case such demand may not be met and satisfied plaintiff prayed for a
decree of foreclosure of the land, building and other improvements thereon to be sold at
public auction and the proceeds thereof, applied to satisfy the demands of plaintiff; that the
Valinos, the surety company and any other person claiming interest on the mortgaged
properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged
property would be insufficient to satisfy the claim of plaintiff.

Defendant surety company, in answer to this complaint insisted on its right over the
building, arguing that as the lot on which the house was constructed did not belong to the
spouses at the time the chattel mortgage was executed, the house might be considered
only as a personal property and that the encumbrance thereof and the subsequent
foreclosure proceedings made pursuant to the provisions of the Chattel Mortgage Law were
proper and legal. Defendant therefore prayed that said building be excluded from the real
estate mortgage and its right over the same be declared superior to that of plaintiff, for
damages, attorney’s fees and costs.

Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon, it
being contended that it was already encumbered in favor of the surety company before the
real estate mortgage was executed, a fact made known to plaintiff during the preparation of
said contract and to which the latter offered no objection. As a special defense, it was
asserted that the action was premature because the contract was for a period of 4 years,
which had not yet elapsed.

The two cases were jointly heard upon agreement of the parties, who submitted the same
on a stipulation of facts, after which the Court rendered judgment dated March 8, 1956,
holding that the chattel mortgage in favor of the Associated Insurance & Surety Co., Inc.,
was preferred and superior over the real estate mortgage subsequently executed in favor of
Isabel Iya. It was ruled that as the Valinos were not yet the registered owner of the land on
which the building in question was constructed at the time the first encumbrance was made,
the building then was still a personalty and a chattel mortgage over the same was proper.
However, as the mortgagors were already the owners of the lot at the time the contract with
Isabel Iya was entered into, the building was transformed into a real property and the real
estate mortgage created thereon was likewise adjudged as proper. It is to be noted in this
connection that there is no evidence on record to sustain the allegation of the spouses
Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or
knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to
the surety company.

The residential building was, therefore, ordered excluded from the foreclosure prayed for by
Isabel Iya, although the latter could exercise the right of a junior encumbrancer. So the
spouses Valino were ordered to pay the amount demanded by said mortgagee or in their
default to have the parcel of land subject of the mortgage sold at public auction for the
satisfaction of Iya’s claim.

There is no question as to appellant’s right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of 2
mortgages; controversy arise as to which of these encumbrances should receive preference
over the other. The decisive factor in resolving the issue presented by this appeal is the
determination of the nature of the structure litigated upon, for where it be considered a
personalty, the foreclosure of the chattel mortgage and the subsequent sale thereof at
public auction, made in accordance with the Chattel Mortgage Law would be valid and the
right acquired by the surety company therefrom would certainly deserve prior recognition;
otherwise, appellant’s claim for preference must be granted. The lower Court, deciding in
favor of the surety company, based its ruling on the premise that as the mortgagors were
not the owners of the land on which the building is erected at the time the first encumbrance
was made, said structure partook of the nature of a personal property and could properly be
the subject of a chattel mortgage. We find reason to hold otherwise, for as this Court,
defining the nature or character of a building, has said:jgc:chanrobles.com.ph

". . . while it is true that generally, real estate connotes the land and the building constructed
thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in
the enumeration of what may constitute real properties (Art. 415, new Civil Code) could only
mean one thing — that a building is by itself an immovable property . . . Moreover, and in
view of the absence of any specific provision to the contrary, a building is an immovable
property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner." (Lopez v. Orosa, G. R. Nos. supra, p. 98).

A building certainly cannot be divested of its character of a realty by the fact that the land on
which it is constructed belongs to another. To hold it the other way, the possibility is not
remote that it would result in confusion, for to cloak the building with an uncertain status
made dependent on the ownership of the land, would create a situation where a permanent
fixture changes its nature or character as the ownership of the land changes hands. In the
case at bar, as personal properties could only be the subject of a chattel mortgage (Section
1, Act 3952) and as obviously the structure in question is not one, the execution of the
chattel mortgage covering said building is clearly invalid and a nullity. While it is true that
said document was correspondingly registered in the Chattel Mortgage Register of Rizal,
this act produced no effect whatsoever for where the interest conveyed is in the nature of a
real property, the registration of the document in the registry of chattels is merely a futile
act. Thus, the registration of the chattel mortgage of a building of strong materials produce
no effect as far as the building is concerned (Leung Yee v. Strong Machinery Co., 37 Phil.,
644). Nor can we give any consideration to the contention of the surety that it has acquired
ownership over the property in question by reason of the sale conducted by the Provincial
Sheriff of Rizal, for as this Court has aptly pronounced:jgc:chanrobles.com.ph

"A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by virtue
of said sale" (De la Riva v. Ah Keo, 60 Phil., 899).

Wherefore, the portion of the decision of the lower Court in these two cases appealed from
holding the rights of the surety company over the building superior to that of Isabel Iya and
excluding the building from the foreclosure prayed for by the latter is reversed and appellant
Isabel Iya’s right to foreclose not only the land but also the building erected thereon is
hereby recognized, and the proceeds of the sale thereof at public auction (if the land has
not yet been sold), shall be applied to the unsatisfied judgment in favor of Isabel Iya. This
decision however is without prejudice to any right that the Associated Insurance & Surety
Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the
mortgage of said building they executed in favor of said surety company. Without
pronouncement as to costs. It is so ordered.
G.R. No. L-17870 September 29, 1962

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan
de Oro City, respondents.

Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case
No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the
realty tax on its maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a
petition for the review of the assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following stipulation
of facts:

1. That petitioner is a public utility solely engaged in transporting passengers and cargoes
by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real properties are the
following:

(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex
"A";

(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";

(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";

(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";

(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked
Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".

4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;

5. That petitioner is the owner of the land where it maintains and operates a garage for its
TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these
machineries which are placed therein, its TPU trucks are made; body constructed; and
same are repaired in a condition to be serviceable in the TPU land transportation business it
operates;

6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to
the general public indiscriminately for business or commercial purposes for which petitioner
has never engaged in, to date.1awphîl.nèt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and
having denied a motion for reconsideration, petitioner brought the case to this Court
assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are
immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent
City Assessor's power to assess and levy real estate taxes on machineries is further
restricted by section 31, paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. — The following are immovable properties:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or
cement platforms. They can be moved around and about in petitioner's repair shop. In the
case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade or
industry."

If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and
industry, converted them into real property by reason of their purpose, it cannot be said that
their incorporation therewith was not permanent in character because, as essential and
principle elements of a sugar central, without them the sugar central would be unable to
function or carry on the industrial purpose for which it was established. Inasmuch as the
central is permanent in character, the necessary machinery and equipment installed for
carrying on the sugar industry for which it has been established must necessarily be
permanent. (Emphasis ours.)

So that movable equipments to be immobilized in contemplation of the law must first be

"essential and principal elements" of an industry or works without which such industry or
works would be "unable to function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable which become
immobilized by destination because they are essential and principal elements in the industry
for those which may not be so considered immobilized because they are merely incidental,
not essential and principal. Thus, cash registers, typewriters, etc., usually found and used in
hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use forklifts, jeep-wagons,
pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus retain
their movable nature. On the other hand, machineries of breweries used in the manufacture
of liquor and soft drinks, though movable in nature, are immobilized because they are
essential to said industries; but the delivery trucks and adding machines which they usually
own and use and are found within their industrial compounds are merely incidental and
retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting
passengers and cargoes by motor trucks. They are merely incidentals — acquired as
movables and used only for expediency to facilitate and/or improve its service. Even without
such tools and equipments, its business may be carried on, as petitioner has carried on,
without such equipments, before the war. The transportation business could be carried on
without the repair or service shop if its rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code of
the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the
industry or works be carried on in a building or on a piece of land. Thus in the case of
Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and instruments or
implements" are found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the sawing is conducted in the
land or building.

But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of
land, as demanded by the law. Said equipments may not, therefore, be deemed real
property.

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

WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the purposes of
the real estate tax. Without costs.

So ordered.
G.R. No. L-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.,15 cited 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 Williamson, 26 wherein third persons
assailed the validity of the chattel mortgage,27 it is the defendants-appellants themselves,
as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case.
The doctrine of estoppel therefore applies to the herein defendants-appellants, having
treated the subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question. The Court
of First Instance noted in its decision that nearly a year after the foreclosure sale the
mortgaged house had been demolished on 14 and 15 January 1957 by virtue of a decision
obtained by the lessor of the land on which the house stood. For this reason, the said court
limited itself to sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of
P200.00 from 27 March 1956 (when the chattel mortgage was foreclosed and the house
sold) until 14 January 1957 (when it was torn down by the Sheriff), plus P300.00 attorney's
fees.

Appellants mortgagors question this award, claiming that they were entitled to remain in
possession without any obligation to pay rent during the one year redemption period after
the foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the
appellants.

Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508.28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at
public auction through a public officer in almost the same manner as that allowed by Act No.
3135, as amended by Act No. 4118, provided that the requirements of the law relative to
notice and registration are complied with. 29 In the instant case, the parties specifically
stipulated that "the chattel mortgage will be enforceable in accordance with the provisions of
Special Act No. 3135 ... ." 30 (Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-

appellants herein) may, at any time within one year from and after the date of the auction
sale, redeem the property sold at the extra judicial foreclosure sale. Section 7 of the same
Act 32 allows the purchaser of the property to obtain from the court the possession during
the period of redemption: but the same provision expressly requires the filing of a petition
with the proper Court of First Instance and the furnishing of a bond. It is only upon filing of
the proper motion and the approval of the corresponding bond that the order for a writ of
possession issues as a matter of course. No discretion is left to the court. 33 In the absence
of such a compliance, as in the instant case, the purchaser can not claim possession during
the period of redemption as a matter of right. In such a case, the governing provision is
Section 34, Rule 39, of the Revised Rules of Court 34 which also applies to properties
purchased in extrajudicial foreclosure proceedings.35 Construing the said section, this
Court stated in the aforestated case of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-debtor
or mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of
right, to possession of the same. Thus, while it is true that the Rules of Court allow the
purchaser to receive the rentals if the purchased property is occupied by tenants, he is,
nevertheless, accountable to the judgment-debtor or mortgagor as the case may be, for the
amount so received and the same will be duly credited against the redemption price when
the said debtor or mortgagor effects the redemption. Differently stated, the rentals
receivable from tenants, although they may be collected by the purchaser during the
redemption 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.
G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner,

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent Court
erred in denying the Motion to Set Case for Pre-trial with respect to respondent Remedios
Vda. de Lacsamana as the case had been dismissed on the ground of improper venue
upon motion of co-respondent Philippine National Bank (PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel
of land consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner
mortgaged said land to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but
for failure to pay said amount, the property was foreclosed on December 16, 1970.
Respondent PNB (Tarlac Branch) was the highest bidder in said foreclosure proceedings.
However, the bank secured title thereto only on December 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner
and with the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing
a permit from the Municipal Mayor, petitioner constructed a warehouse on said property.
Petitioner declared said warehouse for tax purposes for which he was issued Tax
Declaration No. 5619. Petitioner then leased the warehouse to one Hermogenes Sibal for a
period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch)
and respondent Lacsamana over the property. This contract was amended on July 31,
1978, particularly to include in the sale, the building and improvement thereon. By virtue of
said instruments, respondent - Lacsamana secured title over the property in her name (TCT
No. 173744) as well as separate tax declarations for the land and building. 1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with
Damages" against herein respondents PNB and Lacsamana before respondent Court of
First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the validity of the
sale of the building as embodied in the Amended Deed of Sale. In this connection, petitioner
alleged:

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the
request of defendant ... executed a document dated July 31, 1978, entitled Amendment to
Deed of Absolute Sale ... wherein said defendant bank as Vendor sold to defendant
Lacsamana the building owned by the plaintiff under Tax Declaration No. 5619,
notwithstanding the fact that said building is not owned by the bank either by virtue of the
public auction sale conducted by the Sheriff and sold to the Philippine National Bank or by
virtue of the Deed of Sale executed by the bank itself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favor should
likewise have included the building, notwithstanding no legal basis for the same and despite
full knowledge that the Certificate of Sale executed by the sheriff in its favor ... only limited
the sale to the land, hence, by selling the building which never became the property of
defendant, they have violated the principle against 'pactum commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be
declared null and void and that damages in the total sum of P230,000.00, more or less, be
awarded to him.2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative

defense of lack of cause of action in that she was a purchaser for value and invoked the
principle in Civil Law that the "accessory follows the principal".3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue
was improperly laid considering that the building was real property under article 415 (1) of
the New Civil Code and therefore section 2(a) of Rule 4 should apply. 4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of
deed of sale with damages is in the nature of a personal action, which seeks to recover not
the title nor possession of the property but to compel payment of damages, which is not an
action affecting title to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as
follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March
13, 1980, considered against the plaintiff's opposition thereto dated April 1, 1980, including
the reply therewith of said defendant, this Court resolves to DISMISS the plaintiff's
complaint for improper venue considering that the plaintiff's complaint which seeks for the
declaration as null and void, the amendment to Deed of Absolute Sale executed by the
defendant Philippine National Bank in favor of the defendant Remedios T. Vda. de
Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and constructed by
the plaintiff on the land of the defendant Philippine National Bank situated in the Municipality
of Bamban, Province of Tarlac, which warehouse is an immovable property pursuant to
Article 415, No. 1 of the New Civil Code; and, as such the action of the plaintiff is a real
action affecting title to real property which, under Section 2, Rule 4 of the New Rules of
Court, must be tried in the province where the property or any part thereof lies.5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the
argument that the action to annul does not involve ownership or title to property but is
limited to the validity of the deed of sale and emphasized that the case should proceed with
or without respondent PNB as respondent Lacsamana had already filed her Answer to the
Complaint and no issue on venue had been raised by the latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana
was concerned, as the issues had already been joined with the filing of respondent
Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for
Pre-trial as the case was already dismissed in the previous Orders of April 25, 1980 and
September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as

provided in article 415(l) of the Civil Code. 6 Buildings are always immovable under the
Code. 7 A building treated separately from the land on which it stood is immovable property
and the mere fact that the parties to a contract seem to have dealt with it separate and apart
from the land on which it stood in no wise changed its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the
property in question, his action for annulment of sale and his claim for damages are closely
intertwined with the issue of ownership of the building which, under the law, is considered
immovable property, the recovery of which is petitioner's primary objective. The prevalent
doctrine is that an action for the annulment or rescission of a sale of real property does not
operate to efface the fundamental and prime objective and nature of the case, which is to
recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper
venue (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent
Lacsamana is concerned as she had already filed an Answer, which did not allege improper
venue and, therefore, issues had already been joined, is likewise untenable. Respondent
PNB is an indispensable party as the validity of the Amended Contract of Sale between the
former and respondent Lacsamana is in issue. It would, indeed, be futile to proceed with the
case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by
petitioner Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.
G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS,
respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate
Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside
certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of
the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion
for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc.,
discounted and assigned several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private respondent
executed a Chattel Mortgage over certain raw materials inventory as well as a machinery
described as an Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of
the properties mortgage to it. However, the Deputy Sheriff assigned to implement the
foreclosure failed to gain entry into private respondent's premises and was not able to effect
the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for
judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil
Case No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing
of a motion for reconsideration. After several incidents, the lower court finally issued on
February 11, 1981, an order lifting the restraining order for the enforcement of the writ of
seizure and an order to break open the premises of private respondent to enforce said writ.
The lower court reaffirmed its stand upon private respondent's filing of a further motion for
reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein
private respondent, set aside the Orders of the lower court and ordered the return of the
drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in
suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real
property pursuant to Article 415 of the new Civil Code, the same being attached to the
ground by means of bolts and the only way to remove it from respondent's plant would be to
drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore
the writ was to take the main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that the machine is
real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied,
petitioner has brought the case to this Court for review by writ of certiorari. It is contended
by private respondent, however, that the instant petition was rendered moot and academic
by petitioner's act of returning the subject motor drive of respondent's machinery after the
Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the subject
motor drive, it made itself unequivocably clear that said action was without prejudice to a
motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly
signed by respondent's representative. 1 Considering that petitioner has reserved its right to
question the propriety of the Court of Appeals' decision, the contention of private
respondent that this petition has been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties, with
petitioner arguing that it is a personality, while the respondent claiming the contrary, and
was sustained by the appellate court, which accordingly held that the chattel mortgage
constituted thereon is null and void, as contended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal property,
yet by ceding, selling or transferring a property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which
defendants-appellants merely had a temporary right as lessee, and although this can not in
itself alone determine the status of the property, it does so when combined with other
factors to sustain the interpretation that the parties, particularly the mortgagors, intended to
treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons
assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The
doctrine of estoppel therefore applies to the herein defendants-appellants, having treated
the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule
out, as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no innocent third party
will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable
in its nature and becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped from denying
the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of
Appeals lays stress on the fact that the house involved therein was built on a land that did
not belong to the owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down distinctions
not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the
private respondent is indicative of intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil.
630, it is undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property, as long as no interest of third parties
would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but
was merely required and dictated on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the
status of the subject machinery as movable or immovable was never placed in issue before
the lower court and the Court of Appeals except in a supplemental memorandum in support
of the petition filed in the appellate court. Moreover, even granting that the charge is true,
such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that the mortgage has
been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other
hand, as pointed out by petitioner and again not refuted by respondent, the latter has
indubitably benefited from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent. Moreover, the
case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by
said court is not applicable to the case at bar, the nature of the machinery and equipment
involved therein as real properties never having been disputed nor in issue, and they were
not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly
perfect parity with the instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs
against the private respondent.

SO ORDERED.
G.R. No. L-46245 May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS
OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

AQUINO, J.:

In this special civil action of certiorari, Meralco Securities Industrial Corporation assails the
decision of the Central Board of Assessment Appeals (composed of the Secretary of
Finance as chairman and the Secretaries of Justice and Local Government and Community
Development as members) dated May 6, 1976, holding that Meralco Securities' oil pipeline
is subject to realty tax.

The record reveals that pursuant to a pipeline concession issued under the Petroleum Act
of 1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila a
pipeline system consisting of cylindrical steel pipes joined together and buried not less than
one meter below the surface along the shoulder of the public highway. The portion passing
through Laguna is about thirty kilometers long.

The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a
maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil measure sixteen
inches by forty-eight feet with a maximum capacity of 100,000 barrels daily.

The pipes are embedded in the soil and are firmly and solidly welded together so as to
preclude breakage or damage thereto and prevent leakage or seepage of the oil. The
valves are welded to the pipes so as to make the pipeline system one single piece of
property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be
cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating them out of
the ground where they are buried. In points where the pipeline traversed rivers or creeks,
the pipes were laid beneath the bed thereof. Hence, the pipes are permanently attached to
the land.

However, Meralco Securities notes that segments of the pipeline can be moved from one
place to another as shown in the permit issued by the Secretary of Public Works and
Communications which permit provides that the government reserves the right to require
the removal or transfer of the pipes by and at the concessionaire's expense should they be
affected by any road repair or improvement.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of
Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-6537,
San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Biñan and 15806-
15810, Calamba, containing the assessed values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals of
Laguna composed of the register of deeds as chairman and the provincial auditor as
member. That board in its decision of June 18, 1975 upheld the assessments (pp. 47-49,
Rollo).

Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, 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, ruled that the pipeline
is subject to realty tax (p. 40, Rollo).

A copy of that decision was served on Meralco Securities' counsel on August 27, 1976.
Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which took effect
on June 1, 1974, provides that the Board's decision becomes final and executory after the
lapse of fifteen days from the date of receipt of a copy of the decision by the appellant.

Under Rule III of the amended rules of procedure of the Central Board of Assessment
Appeals (70 O.G. 10085), a party may ask for the reconsideration of the Board's decision
within fifteen days after receipt. On September 7, 1976 (the eleventh day), Meralco
Securities filed its motion for reconsideration.

Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos abstained)
denied the motion in a resolution dated December 2, 1976, a copy of which was received by
appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977, Meralco Securities filed
the instant petition for certiorari.

The Solicitor General contends that certiorari is not proper in this case because the Board
acted within its jurisdiction and did not gravely abuse its discretion and Meralco Securities
was not denied due process of law.

Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to
review the decision of the Central Board of Assessment Appeals and because no judicial
review of the Board's decision is provided for in the Real Property Tax Code, Meralco
Securities' recourse is to file a petition for certiorari.

We hold that certiorari was properly availed of in this case. It is a writ issued by a superior
court to an inferior court, board or officer exercising judicial or quasi-judicial functions
whereby the record of a particular case is ordered to be elevated for review and correction
in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

The rule is that as to administrative agencies exercising quasi-judicial power there is an

underlying power in the courts to scrutinize the acts of such agencies on questions of law
and jurisdiction even though no right of review is given by the statute (73 C.J.S. 506, note
56).

"The purpose of judicial review is to keep the administrative agency within its jurisdiction
and protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See. 165).
The review is a part of the system of checks and balances which is a limitation on the
separation of powers and which forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising quasi-
judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary or
capricious (Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA 139,
158; San Miguel Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56,
60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).

The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities' pipeline
is subject to realty tax, reasoned out that the pipes are machinery or improvements, as
contemplated in the Assessment Law and the Real Property Tax Code; that they do not fall
within the category of property exempt from realty tax under those laws; that articles 415
and 416 of the Civil Code, defining real and personal property, have no application to this
case; that even under article 415, the steel pipes can be regarded as realty because they
are constructions adhered to the soil and things attached to the land in a fixed manner and
that Meralco Securities is not exempt from realty tax under the Petroleum Law (pp. 36-40).

Meralco Securities insists that its pipeline is not subject to realty tax because it is not real
property within the meaning of article 415. This contention is not sustainable under the
provisions of the Assessment Law, the Real Property Tax Code and the Civil Code.

Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted in
section 3 thereof. This provision is reproduced with some modification in the Real Property
Tax Code which provides:

SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and collected
in all provinces, cities and municipalities an annual ad valorem tax on real property, such as
land, buildings, machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted. *

It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for conveying
liquids, gases or finely divided solids. It is a line of pipe running upon or in the earth,
carrying with it the right to the use of the soil in which it is placed (Note 21[10],54 C.J.S.
561).

Article 415[l] and [3] provides that real property may consist of constructions of all kinds
adhered to the soil and 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.

The pipeline system in question is indubitably a construction adhering to the soil (Exh. B, p.
39, Rollo). 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.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil, it
is in a sense machinery within the meaning of the Real Property Tax Code.

It should be borne in mind that what are being characterized as real property are not the
steel pipes but the pipeline system as a whole. Meralco Securities has apparently two
pipeline systems.

A pipeline for conveying petroleum has been regarded as real property for tax purposes
(Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of
Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed. 2nd
430; 50 C. J. 750, note 86).

The other contention of Meralco Securities is that the Petroleum Law exempts it from the
payment of realty taxes. The alleged exemption is predicated on the following provisions of
that law which exempt Meralco Securities from local taxes and make it liable for taxes of
general application:

ART. 102. Work obligations, taxes, royalties not to be changed.— Work obligations, special
taxes and royalties which are fixed by the provisions of this Act or by the concession for any
of the kinds of concessions to which this Act relates, are considered as inherent on such
concessions after they are granted, and shall not be increased or decreased during the life
of the concession to which they apply; nor shall any other special taxes or levies be applied
to such concessions, nor shall 0concessionaires under this Act be subject to any provincial,
municipal or other local taxes or levies; nor shall any sales tax be charged on any petroleum
produced from the concession or portion thereof, manufactured by the concessionaire and
used in the working of his concession. All such concessionaires, however, shall be subject
to such taxes as are of general application in addition to taxes and other levies specifically
provided in this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general
application. This argument is untenable because the realty tax has always been imposed by
the lawmaking body and later by the President of the Philippines in the exercise of his
lawmaking powers, as shown in section 342 et seq. of the Revised Administrative Code, Act
No. 3995, Commonwealth Act No. 470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city, municipality and
barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax is
imposed by the municipal or city council by virtue of the Local Tax Code, Presidential
Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).

We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining the
holding of the provincial assessor and the local board of assessment appeals that Meralco
Securities' pipeline system in Laguna is subject to realty tax.

WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs. SO ORDERED.
G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS

OF BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.

AQUINO, J.:

This case is about the imposition of the realty tax on two oil storage tanks installed in 1969
by Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from
Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total
capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on
the spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost
layer, a sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum
as the top layer. The bottom of each tank is in contact with the asphalt layer,

The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to
Meralco, the tank is not attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of the foundation by bolts,
screws or similar devices. The tank merely sits on its foundation. Each empty tank can be
floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with earthen
dikes with electric steel poles on top thereof and is divided into two parts as the site of each
tank. The foundation of the tanks is elevated from the remaining area. On both sides of the
earthen dikes are two separate concrete steps leading to the foundation of each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick.
Pipelines were installed on the sides of each tank and are connected to the pipelines of the
Manila Enterprises Industrial Corporation whose buildings and pumping station are near
Tank No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself
and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land
while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal
treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial
assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period
from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The
Board required Meralco to pay the tax and penalties as a condition for entertaining its
appeal from the adverse decision of the Batangas board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance

Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development Jose Roño as members) in
its decision dated November 5, 1976 ruled that the tanks together with the foundation, walls,
dikes, steps, pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed
a motion for reconsideration which the Board denied in its resolution of November 25, 1977,
a copy of which was received by Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's
decision and resolution. It contends that the Board acted without jurisdiction and committed
a grave error of law in holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by destination nor by analogy. Stress is
laid on the fact that the tanks are not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.

This is one of those highly controversial, borderline or penumbral cases on the classification
of property where strong divergent opinions are inevitable. The issue raised by Meralco has
to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No.
470, and the Real Property Tax Code, Presidential Decree No. 464 which took effect on
June 1, 1974.

Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted in
section 3 thereof. This provision is reproduced with some modification in the Real Property
Tax Code which provides:

Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed and collected in
all provinces, cities and municipalities an annual ad valorem tax on real property, such as
land, buildings, machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted.

The Code contains the following definition in its section 3:

k) Improvements — is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing labor or
capital and intended to enhance its value, beauty or utility or to adapt it for new or further
purposes.
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for the considerable quantities of oil
needed by Meralco for its operations.

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

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

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

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

WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution
are affirmed. No costs.

SO ORDERED.