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G.R. No.

L-50008 August 31, 1987


PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First
Instance of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA
BALUYUT-MAGCALE, respondents.

PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of the
then Court of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0
entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon
Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage
executed by respondent spouses in favor of petitioner bank are null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and
Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from
the defendant Prudential Bank. To secure payment of this loan, plaintiffs
executed in favor of defendant on the aforesaid date a deed of Real
Estate Mortgage over the following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse
spaces containing a total floor area of 263 sq. meters, more or less,
generally constructed of mixed hard wood and concrete materials, under a
roofing of cor. g. i. sheets; declared and assessed in the name of
FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the
Assessor of Olongapo City with an assessed value of P35,290.00. This
building is the only improvement of the lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the
right of occupancy on the lot where the above property is erected, and
more particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-
308, Olongapo Townsite Subdivision) Ardoin Street, East
Bajac-Bajac, Olongapo City, containing an area of 465 sq. m.
more or less, declared and assessed in the name of
FERNANDO MAGCALE under Tax Duration No. 19595
issued by the Assessor of Olongapo City with an assessed
value of P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
All corners of the lot marked by conc.
cylindrical monuments of the Bureau of Lands
as visible limits. ( Exhibit "A, " also Exhibit "1"
for defendant).
Apart from the stipulations in the printed portion of the
aforestated deed of mortgage, there appears a rider typed at
the bottom of the reverse side of the document under the
lists of the properties mortgaged which reads, as follows:

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AND IT IS FURTHER AGREED that in the
event the Sales Patent on the lot applied for by
the Mortgagors as herein stated is released or
issued by the Bureau of Lands, the Mortgagors
hereby authorize the Register of Deeds to hold
the Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on
the Title upon authority from the Secretary of
Agriculture and Natural Resources, which title
with annotation, shall be released in favor of
the herein Mortgage.
From the aforequoted stipulation, it is obvious that the
mortgagee (defendant Prudential Bank) was at the outset
aware of the fact that the mortgagors (plaintiffs) have already
filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the
Provisions of Act 3344 with the Registry of Deeds of
Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from
defendant Prudential Bank in the sum of P20,000.00. To
secure payment of this additional loan, plaintiffs executed in
favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged in
Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This
second deed of Real Estate Mortgage was likewise
registered with the Registry of Deeds, this time in Olongapo
City, on May 2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous
Sales Patent No. 4776 over the parcel of land, possessory rights over
which were mortgaged to defendant Prudential Bank, in favor of plaintiffs.
On the basis of the aforesaid Patent, and upon its transcription in the
Registration Book of the Province of Zambales, Original Certificate of Title
No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the
Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant Bank after it
became due, and upon application of said defendant, the deeds of Real
Estate Mortgage (Exhibits "A" and "B") were extrajudicially foreclosed.
Consequent to the foreclosure was the sale of the properties therein
mortgaged to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E").
The auction sale aforesaid was held despite written request from plaintiffs
through counsel dated March 29, 1978, for the defendant City Sheriff to
desist from going with the scheduled public auction sale (Exhibit "D")."
(Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real
Estate Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53),
opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order
dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for
lack of merit. Hence, the instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require
the respondents to comment (Ibid., p. 65), which order was complied with the
Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979
(Ibid., pp. 101-112).

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Thereafter, in the Resolution dated June 13, 1979, the petition was given due course
and the parties were required to submit simultaneously their respective memoranda.
(Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision
(Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID;
AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE
RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24,
1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF
TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines,
this Court ruled that, "it is obvious that the inclusion of "building" separate and distinct
from the land, in said provision of law can only mean that a building is by itself an
immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be
still a real estate mortgage for the building would still be considered immovable property
even if dealt with separately and apart from the land (Leung Yee vs. Strong Machinery
Co., 37 Phil. 644). In the same manner, this Court has also established that possessory
rights over said properties before title is vested on the grantee, may be validly
transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3
SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse and
on the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register of
Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on
the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued
in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore
without question that the original mortgage was executed before the issuance of the
final patent and before the government was divested of its title to the land, an event
which takes effect only on the issuance of the sales patent and its subsequent
registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil.
515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702,
May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing
considerations, it is evident that the mortgage executed by private respondent on his
own building which was erected on the land belonging to the government is to all intents
and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it
will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land
already acquired under the Public Land Act, or any improvement thereon and therefore
have no application to the assailed mortgage in the case at bar which was executed
before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction

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appearing on the face of private respondent's title has likewise no application in the
instant case, despite its reference to encumbrance or alienation before the patent is
issued because it refers specifically to encumbrance or alienation on the land itself and
does not mention anything regarding the improvements existing thereon.
But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered
with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is
evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121,
122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore
null and void.
Petitioner points out that private respondents, after physically possessing the title for
five years, voluntarily surrendered the same to the bank in 1977 in order that the
mortgaged may be annotated, without requiring the bank to get the prior approval of the
Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank
to cause the annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which refers to
Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held:
... Nonetheless, we apply our earlier rulings because we believe that as in
pari delicto may not be invoked to defeat the policy of the State neither
may the doctrine of estoppel give a validating effect to a void contract.
Indeed, it is generally considered that as between parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy (19 Am. Jur. 802). It is not within the competence of
any citizen to barter away what public policy by law was to preserve
(Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ...
(Arsenal vs. IAC, 143 SCRA 54 [1986]).
This pronouncement covers only the previous transaction already alluded to and does
not pass upon any new contract between the parties (Ibid), as in the case at bar. It
should not preclude new contracts that may be entered into between petitioner bank
and private respondents that are in accordance with the requirements of the law. After
all, private respondents themselves declare that they are not denying the legitimacy of
their debts and appear to be open to new negotiations under the law (Comment; Rollo,
pp. 95-96). Any new transaction, however, would be subject to whatever steps the
Government may take for the reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales &
Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage
for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an
additional loan of P20,000.00 is null and void, without prejudice to any appropriate
action the Government may take against private respondents.
SO ORDERED.

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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 "Compaia 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 "Compaia 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 "Compaia 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

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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 "Compaia 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

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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 "Compaia 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

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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. 84526 January 28, 1991


PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES, petitioners,
vs.
THE HON. COURT OF APPEALS and MARINDUQUE MINING AND INDUSTRIAL

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CORPORATION, respondents.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for petitioners.
Rexes V. Alejano for private respondent.
SARMIENTO, J.:
This is a petition for review on certiorari which assails both the resolution 1 dated June
27, 1988 of the Court of Appeals 2 which reconsidered and set aside its earlier
decisions 3 dated February 26, 1988 reversing the decision4 of the trial court and the
subsequent resolution 5 dated August 3, 1988 which denied the petitioners' motion for
reconsideration. The dispositive portion of the resolution in question dated June 27,
1988 reads as follows:
xxx xxx xxx
For the reasons above adduced, We are constrained to reconsider Our aforesaid
decision and to set it aside and in lieu thereof hereby enter another decision
AFFIRMING the decision dated January 15, 1985 of the Regional Trial Court of
Manila, Branch 11, in Civil Case No. 103100 entitled "Marinduque Mining and
Industrial Corporation (MMIC) vs. Philippine Commercial and Industrial Bank, et
al." 6
The undisputed facts 7 as gathered from the findings of the trial court are as follows:
The instant case originated from an action8 filed with the National Labor Relations
Commission (NLRC) by a group of laborers who obtained therefrom a favorable
judgment for the payment of backwages amounting to P205,853.00 against the private
respondent.
On April 26, 1976, the said Commission issued a writ of execution directing the Deputy
Sheriff of Negros Occidental, one Damian Rojas, to enforce the aforementioned
judgment. The pertinent portion of the said writ reads as follows:
xxx xxx xxx
Further, you are to collect from same respondent the total amount of
P205,853.00 as their backwage (sic) for twelve (12) months and then turn over
said amount to this commission for further disposition. In case you fail to collect
said amount in cash, you are to cause the satisfaction of the same on the
movable or immovable properties of the respondent not exempt from execution.
(Exhs. G, G-1 and G-3, also Exh. 3; Emphasis supplied). 9
Accordingly, on April 28, 1976, the aforenamed deputy sheriff went to the mining site of
the private respondent and served the writ of execution on the persons concerned, but
nothing seemed to have happened thereat.
Thereafter, the Sheriff prepared on his own a Notice of Garnishment dated April 29,
1976 addressed to six (6) banks, all located in Bacolod City, one of which being the
petitioner herein, directing the bank concerned to immediately issue a check in the
name of the Deputy Provincial Sheriff of Negros Occidental in an amount equivalent to
the amount of the garnishment and that proper receipt would be issued therefor.
Incidentally, the house lawyer of the private respondent, Atty. Rexes V. Alejano, acting
on a tip regarding the existence of the said notice of garnishment, communicated with
the bank manager, the petitioner Jose Henares, verbally at first at around 2:00 o'clock in
the afternoon of that day, April 29, 1976, and later confirmed in a formal letter received
by the petitioner Henares at about 5:00 o'clock of that same day, requesting the
withholding of any release of the deposit of the private respondent with the petitioner
bank.
Meanwhile, at about 9:30 in the morning of April 29, 1976, the deputy sheriff presented
the Notice of Garnishment and the Writ of Execution attached therewith to the petitioner
Henares and later in the afternoon, demanded from the latter, under pain of contempt,
the release of the deposit of the private respondent.
The petitioner Henares, upon knowing from the Acting Provincial Sheriff that there was
no restraining order from the National Labor Relations Commission and on the

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favorable advice of the bank's legal counsel, issued a debit memo for the full balance of
the private respondent's account with the petitioner bank. Thereafter, he issued a
manager's check in the name of the Deputy Provincial Sheriff of Negros Occidental for
the amount of P37,466.18, which was the exact balance of the private respondent's
account as of that day.
On the following day, April 30, 1976, at about 1:00 o'clock in the afternoon, the deputy
sheriff returned to the bank in order to encash the check but before the actual
encashment, the petitioner Henares once again inquired about any existing restraining
order from the NLRC and upon being told that there was none, the latter allowed the
said encashment.
On July 6, 1976, the private respondent, then plaintiff, filed a complaint before the
Regional Trial Court of Manila, Branch II, against the petitioners and Damian Rojas, the
Deputy Provincial Sheriff of Negros Occidental, then defendants, alleging that the
former's current deposit with the petitioner bank was levied upon, garnished, and with
undue haste unlawfully allowed to be withdrawn, and notwithstanding the alleged
unauthorized disclosure of the said current deposit and unlawful release thereof, the
latter have failed and refused to restore the amount of P37,466.18 to the former's
account despite repeated demands.
Both the petitioners and the Deputy Sheriff filed their respective answers denying the
material averments of the said complaint and alleged that their actuations were all in
accordance with law and likewise filed counterclaims for damages, including a cross-
claim of the former against the latter. The third-party complaint of the petitioners against
the forty-nine (49) laborers in the NLRC case was, however, dismissed for failure of the
sheriff to serve summons upon the latter.
On January 23, 1982, after several postponements, the pre-trial was finally conducted
and terminated with only the petitioners and the private respondent participating,
through their respective counsel.
On January 15, 1985, the trial court rendered its judgment in favor of the private
respondent, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the three (3) defendants by ordering the latter to pay, jointly and severally, the
plaintiff the following amounts, to wit:
(a) the sum of P37,466.18, with interest thereon at the rate of 12% per annum
from date of first demand on April 29, 1976 until the amount shall have been fully
and completely restored and paid;
(b) the sum of P10,000.00 as attorney's fees.
Defendants are ordered to pay, jointly and severally, double costs. 10
xxx xxx xxx
On appeal, the respondent court in a decision dated February 26, 1988, first reversed
the said judgment of the lower court, but however, on the motion for reconsideration
filed by the private respondent, subsequently annulled and set aside its said decision in
the resolution dated June 27, 1988. On August 3, 1988, the respondent court denied the
petitioner's own motion for reconsideration.
Hence, this petition.
The petitioners raise two issues, 11 to wit:
1. Whether or not petitioners had legal basis in releasing the garnished deposit of
private respondent to the sheriff.
2. Whether or not petitioners violated Republic Act No. 1405, otherwise known as
the Secrecy of Bank Deposits Act, when they allowed the sheriff to garnish the
deposit of private respondent.
The petition is impressed with merit.
The crux of the instant controversy boils down to the question of whether or not a bank

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is liable for releasing its depositor's funds on the strength of the notice of garnishment
made by the deputy sheriff pursuant to a writ of execution issued by the National Labor
Relations Commission (NLRC).
The respondent court in its questioned resolution dated June 27, 1988, held that the
petitioners were liable, in this wise:
In the case at bar, defendant-appellant PCIB, despite vigorous objections from
plaintiff-appellee, with indecent haste disclosed and released the deposit of
plaintiff-appellee on the strength of a mere notice of garnishment which the
Honorable Supreme Court ruled upon is no authority for the release of the
deposit, thus:
In the second place, the mere garnishment of funds belonging to a party
upon order of the court does not have the effect of delivering the money
garnished to the sheriff or to the party in whose favor the attachment is
issued. The fund is retained by the garnishee or the person holding the
money for the defendant.
The garnishee, or one in whose hands property is attached or garnished,
is universally regarded as charged with its legal custody pending outcome
of the attachment or garnishment unless, by local statute and practice, he
is permitted to surrender or pay the garnished property or funds into court,
to the attaching officer, or to a receiver or trustee appointed to receive
them. (5 Am. Jur. 14)
The effect of the garnishment, therefore, was to require the Philippine
Trust Company, holder of the funds of the Luzon Surety Co., to set aside
said amount from the funds of the Luzon Surety Co., and keep the same
subject to the final orders of the Court. In the case at bar there was never
an order to deliver the full amount garnished to the plaintiff-appellee; all
that was ordered to be delivered after the judgment had become final was
the amount found by the Court of Appeals to be due. The balance of the
amount garnished, therefore, remained all the time in the possession of
the bank as part of the funds of the Luzon Surety Co. although the same
could not be disposed of by the owner. (De la Rama vs. Villarosa, et al., L-
17927, June 29, 1963, 8 SCRA 413, 418-419; Emphasis supplied). 12
The above-mentioned contention citing De la Rama is not exactly on all fours with the
facts of the case at bar. In De la Rama, the amount garnished was not actually taken
possession of by the sheriff, even from the time of garnishment, because the judgment
debtor was able to appeal to the Court of Appeals and obtain from the Court an
injunction prohibiting execution of the judgment.
On the other hand, nowhere in the record of the present case is there any evidence of
an appeal by the private respondent from the decision of the NLRC or the existence of
any restraining order to prevent the release of the private respondent's deposit to the
deputy sheriff at the time of the service of the notice of garnishment and writ of
execution to the petitioners.
On the contrary, the uncontroverted statements in the deposition of the petitioner
Henares that he had previously sought the advice of the bank's counsel and that he had
checked twice with the Acting Provincial Sheriff who had informed him of the absence of
any restraining order, belie any allegation of undue and indecent haste in the release of
the said deposit in question.
The cases more in point to the present controversy are the recent decisions in
Engineering Construction Inc. v. National Power Corporation 13 and Rizal Commercial
Banking Corporation (RCBC) vs. De Castro 14 where the Court absolved both
garnishees, MERALCO and RCBC, respectively, from any liability for their prompt
compliance in the release of garnished funds,
The rationale behind Engineering Construction, Inc. and which was quoted in Rizal
Commercial Banking Corporation is persuasive

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xxx xxx xxx
But while partial restitution is warranted in favor of NPC, we find that the
Appellate Court erred in not absolving MERALCO, the garnishee, from its
obligations to NPC with respect to the payment to ECI of P1,114,543.23, thus in
effect subjecting MERALCO to double liability. MERALCO should not have been
faulted for its prompt obedience to a writ of garnishment. Unless there are
compelling reasons such as: a defect on the face of the writ or actual knowledge
on the part of the garnishee of lack of entitlement on the part of the garnisher, it is
not incumbent upon the garnishee to inquire or to judge for itself whether or not
the order for the advance execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits. All persons having in their
possession or under their control any credits or other similar personal
property belonging to the party against whom attachment is issued, or
owing any debts to the same, at the time of service upon them of a copy of
the order of attachment and notice as provided in the last preceding
section, shall be liable to the applicant of the amount of such credits, debts
or other property, until the attachment be discharged, or any judgment
recovered by him be satisfied, unless such property be delivered or
transferred, or such debts be paid, to the clerk, sheriff or other proper
officer of the court issuing the attachment.1wphi1
Garnishment is considered as a specie of attachment for reaching credits
belonging to the judgment debtor and owing to him from a stranger to the
litigation. Under the above-cited rule, the garnishee [the third person] is obliged
to deliver the credits, etc. to the proper officer issuing the writ and "the law
exempts from liability the person having in his possession or under his control
any credits or other personal property belonging to the defendant, . . . if such
property be delivered or transferred, . . . to the clerk, sheriff, or other officer of the
court in which the action is pending."
Applying the foregoing to the case at bar, MERALCO, as garnishee, after having
been judicially compelled to pay the amount of the judgment represented by
funds in its possession belonging to the judgment debtor or NPC, should be
released from all responsibilities over such amount after delivery thereof to the
sheriff. The reason for the rule is self evident. To expose garnishees to risks for
obeying court orders and processes would only undermine the administration of
justice. (Emphasis ours.)15
xxx xxx xxx
Moreover, there is no issue concerning the indebtedness of the petitioner bank to the
private respondent since the latter has never denied the existence of its deposit with the
former, the said deposit being considered a credit in favor of the depositor against the
bank.16 We therefore see no application for Sec. 39, Rule 39 of the Rules of Court
invoked by the private respondent as to necessitate the "examination of the debtor of
the judgment debtor." 17
Rather, we find the immediate release of the funds by the petitioners on the strength of
the notice of garnishment and writ of execution, whose issuance, absent any patent
defect, enjoys the presumption of regularity, sufficiently supported by Sec. 41, Rule 39
of the Rules of Court which reads:
xxx xxx xxx
After an execution against property has issued, a person indebted to the
judgment debtor, may pay to the officer holding the execution the amount of his
debt or so much thereof as may be necessary to satisfy the execution, and the
officer's receipt shall be a sufficient discharge for the amount so paid or directed
to be credited by the judgment creditor on the execution.
xxx xxx xxx

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Finally, we likewise take cognizance of the subject of the judgment sought to be
enforced in the writ of execution in question, namely, laborers' backwages. We believe
that the petitioners should rather be commended for having acted with urgent dispatch
despite attempts by the private respondent, as with so many scheming employers, to
frustrate or unjustifiably delay the prompt satisfaction of final judgments which often
result in undue prejudice to the legitimate claims of labor.
With regard to the second issue, we find no violation whatsoever by the petitioners of
Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act. The
Court in China Banking Corporation vs. Ortega 18 had the occasion to dispose of this
issue when it stated, thus:
It is clear from the discussion of the conference committee report on Senate Bill
No. 351 and House Bill No. 3977, which later became Republic Act 1405, that
the prohibition against examination of or inquiry into a bank deposit under
Republic Act 1405 does not preclude its being garnished to insure satisfaction of
a judgment. Indeed there is no real inquiry in such a case, and if existence of the
deposit is disclosed the disclosure is purely incidental to the execution process. It
is hard to conceive that it was ever within the intention of Congress to enable
debtors to evade payment of their just debts, even if ordered by the Court,
through the expedient of converting their assets into cash and depositing the
same in a bank.
Since there is no evidence that the petitioners themselves divulged the information that
the private respondent had an account with the petitioner bank and it is undisputed that
the said account was properly the object of the notice of garnishment and writ of
execution carried out by the deputy sheriff, a duly authorized officer of the court, we can
not therefore hold the petitioners liable under R.A. 1405.
While the general rule is that the findings of fact of the appellate court are binding on
this Court, the said rule however admits of exceptions, such as when the Court of
Appeals clearly misconstrued and misapplied the law, drawn from the incorrect
conclusions of fact established by evidence and otherwise at certain conclusions which
are based on misapprehension of facts,19 as in the case at bar.
The petitioners are therefore absolved from any liability for the disclosure and release of
the private respondent's deposit to the custody of the deputy sheriff in satisfaction of the
final judgment for the laborers' backwages.
WHEREFORE, the petition is GRANTED and the challenged Resolutions dated June
27, 1988 and August 13, 1988 of the Court of Appeals are hereby ANNULLED and SET
ASIDE and its Decision dated February 26, 1988 dismissing the complaint is hereby
REINSTATED. With costs against the private respondent.
SO ORDERED.
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales
(married to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of
P2,500.00, payable 6 months after said date or on June 14, 1959. To secure the
indebtedness, Rufino executed a document captioned "DEED OF REAL ESTATE and
CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real Estate Mortgage
hypothecated a parcel of land, belonging to her, registered with the Register of Deeds of
Tarlac, under Transfer Certificate of Title No. 25776, and Rufino G. Pineda, by way of
Chattel Mortgage, mortgaged his two-story residential house, having a floor area of 912
square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo. San

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Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one
instrument, which was registered in both the Office of the Register of Deeds and the
Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands
made on them, failed to pay. They, however, asked and were granted extension up to
June 30, 1960, within which to pay. Came June 30, defendants again failed to pay and,
for the second time, asked for another extension, which was given, up to July 30, 1960.
In the second extension, defendant Pineda in a document entitled "Promise",
categorically stated that in the remote event he should fail to make good the obligation
on such date (July 30, 1960), the defendant would no longer ask for further extension
and there would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage contract.
In spite of said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for
damages, which consisted of liquidated damages in the sum of P500.00 and 12% per
annum interest on the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of
the First Cause of Action which states that the defendants unreasonably failed
and refuse to pay their obligation to the plaintiff the truth being the defendants
are hard up these days and pleaded to the plaintiff to grant them more time within
which to pay their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable Court render judgment granting the defendants until January 31,
1961, within which to pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming
that the Answer failed to tender any genuine and material issue. The motion was set for
hearing, but the record is not clear what ruling the lower court made on the said motion.
On November 11, 1960, however, the parties submitted a Stipulation of Facts, wherein
the defendants admitted the indebtedness, the authenticity and due execution of the
Real Estate and Chattel Mortgages; that the indebtedness has been due and unpaid
since June 14, 1960; that a liability of 12% per annum as interest was agreed, upon
failure to pay the principal when due and P500.00 as liquidated damages; that the
instrument had been registered in the Registry of Property and Motor Vehicles Office,
both of the province of Tarlac; that the only issue in the case is whether or not the
residential house, subject of the mortgage therein, can be considered a Chattel and the
propriety of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and
Ramon Reyes, to pay jointly and severally and within ninety (90) days from the
receipt of the copy of this decision to the plaintiff Conrado P. Navarro the principal
sum of P2,550.00 with 12% compounded interest per annum from June 14,
1960, until said principal sum and interests are fully paid, plus P500.00 as
liquidated damages and the costs of this suit, with the warning that in default of
said payment of the properties mentioned in the deed of real estate mortgage
and chattel mortgage (Annex "A" to the complaint) be sold to realize said
mortgage debt, interests, liquidated damages and costs, in accordance with the
pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14 of the
Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties mentioned

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in said Annex "A", immediately after the lapse of the ninety (90) days above-
mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants therein
assigning only a single error, allegedly committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant Rufino
G. Pineda was made the subject of the chattel mortgage, for the reason that it is
erected on a land that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as
immovable property, makes no distinction whether the owner of the land is or not the
owner of the building; the fact that the land belongs to another is immaterial, it is enough
that the house adheres to the land; that in case of immovables by incorporation, such as
houses, trees, plants, etc; the Code does not require that the attachment or
incorporation be made by the owner of the land, the only criterion being the union or
incorporation with the soil. In other words, it is claimed that "a building is an immovable
property, irrespective of whether or not said structure and the land on which it is
adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28,
1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644).
Appellants argue that since only movables can be the subject of a chattel mortgage
(sec. 1, Act No. 3952) then the mortgage in question which is the basis of the present
action, cannot give rise to an action for foreclosure, because it is nullity. (Citing
Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel mortgage valid
solely on the ground that the house mortgaged was erected on the land which belonged
to a third person, but also and principally on the doctrine of estoppel, in that "the parties
have so expressly agreed" in the mortgage to consider the house as chattel "for its
smallness and mixed materials of sawali and wood". In construing arts. 334 and 335 of
the Spanish Civil Code (corresponding to arts. 415 and 416, N.C.C.), for purposes of
the application of the Chattel Mortgage Law, it was held that under certain conditions, "a
property may have a character different from that imputed to it in said articles. It is
undeniable that the parties to a contract may by agreement, treat as personal property
that which by nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44
Phil. 632-633)."There can not be any question that a building of mixed materials may be
the subject of a chattel mortgage, in which case, it is considered as between the parties
as personal property. ... The matter depends on the circumstances and the intention of
the parties". "Personal property may retain its character as such where it is so agreed
by the parties interested even though annexed to the realty ...". (42 Am. Jur. 209-210,
cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No.
8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to consider
a house as personal property for the purposes of said contract, "is good only insofar as
the contracting parties are concerned. It is based partly, upon the principles of estoppel
..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage
house built on a rented land, was held to be a personal property, not only because the
deed of mortgage considered it as such, but also because it did not form part of the land
(Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled that an object placed
on land by one who has only a temporary right to the same, such as a lessee or
usufructuary, does not become immobilized by attachment (Valdez v. Central Altagracia,
222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another person, it
may be mortgaged as a personal property is so stipulated in the document of mortgage.
(Evangelista v. Abad, supra.) It should be noted, however, that the principle is
predicated on statements by the owner declaring his house to be a chattel, a conduct
that may conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v.
C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these
cases is that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been a constant
criterion nevertheless that, with respect to third persons, who are not parties to the

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contract, and specially in execution proceedings, the house is considered as an
immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property,
by the parties to the contract themselves. In the deed of chattel mortgage, appellant
Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my personal properties", a
residential house and a truck. The mortgagor himself grouped the house with the truck,
which is, inherently a movable property. The house which was not even declared for
taxation purposes was small and made of light construction materials: G.I. sheets
roofing, sawali and wooden walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya cases (L-
10837-38, supra), refer to a building or a house of strong materials, permanently
adhered to the land, belonging to the owner of the house himself. In the case of Lopez
v. Orosa, (L-10817-18), the subject building was a theatre, built of materials worth more
than P62,000, attached permanently to the soil. In these cases and in the Leung Yee
case, supra, third persons assailed the validity of the deed of chattel mortgages; in the
present case, it was one of the parties to the contract of mortgages who assailed its
validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be,
as it is hereby affirmed, with costs against appellants.

G.R. No. L-4637 June 30, 1952


JOSE A. LUNA, petitioner,
vs.
DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES
and THE PROVINCIAL SHERIFF OF RIZAL, respondents.
Jose S. Fineza for petitioner.
BAUTISTA ANGELO, J.:
On September 25, 1948, a deed designated as chattel mortgage was executed by Jose
A. Luna in favor of Trinidad Reyes whereby the former conveyed by way of first
mortgage to the latter a certain house of mixed materials stated in barrio San Nicolas,
municipality of Pasig, Province of Rizal, to secure the payment of a promissory note in
the amount of P1,500, with interest at 12 per cent per annum. The document was
registered in the office of the register of deeds for the Province of Rizal. The mortgagor
having filed to pay the promissory note when it fell due, the mortgage requested the
sheriff of said province to sell the house at public auction so that with its proceeds the
amount indebted may be paid notifying the mortgagor in writing of the time and place of
the sale as required by law. The sheriff acceded to the request and sold the property to
the mortgagee for the amount covering the whole indebtedness with interest and costs.
The certificate of sale was issued by the sheriff on May 28, 1949. After the period for the
redemption of the property had expired without the mortgagor having exercised his right
to repurchase, the mortgagee demanded from the mortgagor the surrender of the
possession of the property, but the later refused and so on October 13, 1950, she filed a
petition in the Court of First Instance of Rizal praying that the provincial sheriff be
authorized to place her in possession of the property invoking in her favor the provisions

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of Act No. 3135, as amended by Act No. 4118.
When the petition came up for hearing before the court on October 25, 1950, Jose A.
Luna, the mortgagor, opposed the petition on the following grounds: (1) that Act No.
3135 as amended by Act No. 4118 is applicable only to a real estate mortgage; (2) that
the mortgage involved herein is a chattel mortgage; and (3) that even if the mortgage
executed by the parties herein be considered as real estate mortgage, the extra-judicial
sale made by the sheriff of the property in question was valid because the mortgage
does not contain an express stipulation authorizing the extra-judicial sale of the
property. After hearing, at which both parties have expressed their views in support of
their respective contentions, respondent judge, then presiding the court, overruled the
opposition and granted the petition ordering the provincial sheriff of Rizal, or any of this
disputives, to immediately place petitioner in possession of the property in question
while at the same time directing the mortgagor Jose A. Luna to vacate it and relinquish
it in favor of petitioner. It is from this order that Jose A. Luna desires now to obtain relief
by filing this petition for certiorari contending that the respondent judge has acted in
excess of his jurisdiction.
The first question which petitioner poses in his petition for certiorari is that which relates
to the validity of the extra-judicial sale made by the provincial sheriff of Rizal of the
property in question in line with the request of the mortgagee Trinidad Reyes. It is
contended that said extra-judicial sale having been conducted under the provisions of
Act No. 3135, as amended by Act No. 4118, is invalid because the mortgage in question
is not a real estate mortgage and, besides, it does not contain an express stipulation
authorizing the mortgagee to foreclose the mortgage extra-judicially.
There is merit in this claim. As may be gleaned from a perusal of the deed signed by the
parties (Annex "C"), the understanding executed by them is a chattel mortgage, as the
parties have so expressly designated, and not a real estate mortgage, specially when it
is considered that the property given as security is a house of mixed materials which by
its very nature is considered as personal property. Such being the case, it is indeed a
mistake for the mortgagee to consider this transaction in the light of Act No. 3135, as
amended by Act No. 4118, as was so considered by her when she requested to
provincial sheriff to sell it extra-judicially in order to secure full satisfaction of the
indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended,
only covers real estate mortgages and is intended merely to regulate the extra-judicial
sale of the property mortgaged if and when the mortgagee is given a special power or
express authority to do so in the deed itself, or in a document annexed thereto. These
conditions do not here obtain. The mortgage before us is not a real estate mortgage nor
does it contain an express authority or power to sell the property extra-judicially.
But regardless of what we have heretofore stated, we find that the validity of the sale in
question may be maintained, it appearing that the mortgage in question is a chattel
mortgage and as such it is covered and regulated by the Chattel Mortgage Law, Act No.
1508. Section 14 of this Act allows the mortgagee 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. We
are not prepared to state if these requirements of the law had been complied with in the
case for the record before us is not complete and there is no showing to that effect. At
any rate, this issue is not how important because the same can be treshed out when the
opportunity comes for its determination, nor is it necessary for us to consider it in
reaching a decision in the present case. Suffice it to state that for the present we are not
expressing any opinion on this matter which concerns the validity of the sale in question
for the reason that this opinion will only be limited to a matter of procedure relative to
the step taken by the mortgagee in securing the possession of the property involved.
In the supposition that the sale of the property made by the sheriff has been made in
accordance with law, and the question he is confronted is how to deliver the possession
of the property to the purchaser in case of refusal to surrender its possession on the
part of the debtor or mortgagor, the remedy of the purchaser according to the
authorities, is to bring an ordinary action for recovery of possession (Continental Gin
Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14 C.J.S., pp. 1027, 1028). The purchaser

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cannot take possession of the property by force either directly or through the sheriff.
And the reason for this is "that the creditor's right of possession is conditioned upon the
fact of default, and the existence of this fact may naturally be the subject of controversy"
(Bachrah Motor Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a
petition for a writ of possession as was done by Trinidad Reyes in this case. Her remedy
is to file an ordinary action for recovery of possession in ordered that the debtor may be
given an opportunity to be heard not only in regarding possession but also regarding the
obligation covered by the mortgage. The petition she has filed in the lower court, which
was not even docketed, is therefore improper and should be regarded.
Wherefore, the order subject of the present petition for certiorari is hereby set aside,
with costs against respondent Trinidad Reyes.

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

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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 Roo 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.

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Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted
in section 3 thereof. This provision is reproduced with some modification in the Real
Property Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings, machinery
and other improvements affixed or attached to real property not
hereinafter specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs.
Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which should
generally be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached
to any land or building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and
blacksmith shops of a transportation company were held not subject to realty tax
because they were personal property.
WHEREFORE, the petition is dismissed. The Board's questioned decision and
resolution are affirmed. No costs.
SO ORDERED.

G.R. No. L-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

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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

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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.

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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-17898 October 31, 1962


PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of
First Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE
PARK ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R.
No. 26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which
in part reads:
In this case for certiorari and prohibition with preliminary injunction, it appears
from the records that the respondent Judge of the Court of First Instance of

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Agusan rendered judgment (Annex "A") in open court on January 28, 1959,
basing said judgment on a compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a writ of
execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or
his counsel, did not receive a formal and valid notice of said decision, which
motion for reconsideration was denied by the court below in the order of
November 14, 1959.
Petitioner now contends that the respondent Judge exceeded in his jurisdiction in
rendering the execution without valid and formal notice of the decision.
A compromise agreement is binding between the parties and becomes the law
between them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil.
38; Martin vs. Martin, G.R. No. L-12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment based on a compromise
agreement is not appealable and is immediately executory, unless a motion is
filed on the ground fraud, mistake or duress. (De los Reyes vs. Ugarte, 75 Phil.
505; Lapena vs. Morfe, G.R. No. L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served notice of the decision is
untenable. The judgment on the compromise agreement rendered by the court
below dated January 28, 1959, was given in open court. This alone is a
substantial compliance as to notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its
jurisdiction in ordering the execution of the judgment. The petition for certiorari is
hereby dismissed and the writ of preliminary injunction heretofore dissolved, with
costs against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago
bought sawmill machineries and equipments from respondent Grace Park Engineer
domineering, Inc., executing a chattel mortgage over said machineries and equipments
to secure the payment of balance of the price remaining unpaid of P32,000.00, which
petitioner agreed to pay on installment basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park
Engineering, Inc. instituted extra-judicial foreclosure proceedings of the mortgage. To
enjoin said foreclosure, petitioner herein instituted Special Civil Case No. 53 in the
Court of First Instance of Agusan. The parties to the case arrived at a compromise
agreement and submitted the same in court in writing, signed by Pastor D. Ago and the
Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of the Court of First
Instance of Agusan, then presiding, dictated a decision in open court on January 28,
1959.
Petitioner continued to default in his payments as provided in the judgment by
compromise, so Grace Park Engineering, Inc. filed with the lower court a motion for
execution, which was granted by the court on August 15, 1959. A writ of execution,
dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution
issued by the lower court, levied upon and ordered the sale of the sawmill machineries
and equipments in question. These machineries and equipments had been taken to and
installed in a sawmill building located in Lianga, Surigao del Sur, and owned by the
Golden Pacific Sawmill, Inc., to whom, petitioner alleges, he had sold them on February
16, 1959 (a date after the decision of the lower court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for December 4,
1959, petitioner, on December 1, 1959, filed the petition for certiorari and prohibition
with preliminary injunction with respondent Court of Appeals, alleging that a copy of the
aforementioned judgment given in open court on January 28, 1959 was served upon
counsel for petitioner only on September 25, 1959 (writ of execution is dated September

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23, 1959); that the order and writ of execution having been issued by the lower court
before counsel for petitioner received a copy of the judgment, its resultant last order that
the "sheriff may now proceed with the sale of the properties levied constituted a grave
abuse of discretion and was in excess of its jurisdiction; and that the respondent
Provincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution
by levying the same upon the sawmill machineries and equipments which have become
real properties of the Golden Pacific sawmill, Inc., and is about to proceed in selling the
same without prior publication of the notice of sale thereof in some newspaper of
general circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction
against the sheriff but it turned out that the latter had already sold at public auction the
machineries in question, on December 4, 1959, as scheduled. The respondent Grace
Park Engineering, Inc. was the only bidder for P15,000.00, although the certificate sale
was not yet executed. The Court of Appeals constructed the sheriff to suspend the
issuance of a certificate of sale of the said sawmill machineries and equipment sold by
him on December 4, 1959 until the final decision of the case. On November 9, 1960 the
Court of Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that
the rendition of judgment on compromise in open court on January 1959 was a
sufficient notice; and (2) in not resolving the other issues raised before it, namely, (a) the
legality of the public auction sale made by the sheriff, and (b) the nature of the
machineries in question, whether they are movables or immovables.
The Court of Appeals held that as a judgment was entered by the court below in open
court upon the submission of the compromise agreement, the parties may be
considered as having been notified of said judgment and this fact constitutes due notice
of said judgment. This raises the following legal question: Is the order dictated in open
court of the judgment of the court, and is the fact the petitioner herein was present in
open court was the judgment was dictated, sufficient notice thereof? The provisions of
the Rules of Court decree otherwise. Section 1 of Rule 35 describes the manner in
which judgment shall be rendered, thus:
SECTION 1. How judgment rendered. All judgments determining the merits of
cases shall be in writing personally and directly prepared by the judge, and
signed by him, stating clearly and distinctly the facts and the law on which it is
based, filed with the clerk of the court.
The court of first instance being a court of record, in order that a judgment may be
considered as rendered, must not only be in writing, signed by the judge, but it must
also be filed with the clerk of court. The mere pronouncement of the judgment in open
court with the stenographer taking note thereof does not, therefore, constitute a
rendition of the judgment. It is the filing of the signed decision with the clerk of court that
constitutes rendition. While it is to be presumed that the judgment that was dictated in
open court will be the judgment of the court, the court may still modify said order as the
same is being put into writing. And even if the order or judgment has already been put
into writing and signed, while it has not yet been delivered to the clerk for filing it is still
subject to amendment or change by the judge. It is only when the judgment signed by
the judge is actually filed with the clerk of court that it becomes a valid and binding
judgment. Prior thereto, it could still be subject to amendment and change and may not,
therefore, constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge dictating
the judgment in open court, is not a valid notice of said judgment. If rendition thereof is
constituted by the filing with the clerk of court of a signed copy (of the judgment), it is
evident that the fact that a party or an attorney heard the order or judgment being
dictated in court cannot be considered as notice of the real judgment. No judgment can
be notified to the parties unless it has previously been rendered. The notice, therefore,
that a party has of a judgment that was being dictated is of no effect because at the time
no judgment has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served personally

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or by registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. Final orders or judgments shall
be served either personally or by registered mail.
In accordance with this provision, a party is not considered as having been served with
the judgment merely because he heard the judgment dictating the said judgment in
open court; it is necessary that he be served with a copy of the signed judgment that
has been filed with the clerk in order that he may legally be considered as having been
served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the
judgment in open court, is not sufficient to constitute the service of judgement as
required by the above-quoted section 7 of Rule 2 the signed judgment not having been
served upon the petitioner, said judgment could not be effective upon him (petitioner)
who had not received it. It follows as a consequence that the issuance of the writ of
execution null and void, having been issued before petitioner her was served,
personally or by registered mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by the Court of
Appeals, concerns the validity of the proceedings of the sheriff in selling the sawmill
machineries and equipments at public auction with a notice of the sale having been
previously published.
The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill
machineries and equipments he assigned the same to the Golden Pacific Sawmill, Inc.
in payment of his subscription to the shares of stock of said corporation. Thereafter the
sawmill machinery and equipments were installed in a building and permanently
attached to the ground. By reason of such installment in a building, the said sawmill
machineries and equipment became real estate properties in accordance with the
provision of Art. 415 (5) of the Civil Code, thus:
ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements tended by the owner of
the tenement for an industry or works which may be carried on in a building or on
a piece of land, and which tend directly to meet the needs of the said industry or
works;
This Court in interpreting a similar question raised before it in the case of Berkenkotter
vs. Cu Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and
equipment in the central of the Mabalacat Sugar Co., Inc. for use in connection with the
industry carried by the company, converted the said machinery and equipment into real
estate by reason of their purpose. Paraphrasing language of said decision we hold that
by the installment of the sawmill machineries in the building of the Gold Pacific Sawmill,
Inc., for use in the sawing of logs carried on in said building, the same became a
necessary and permanent part of the building or real estate on which the same was
constructed, converting the said machineries and equipments into real estate within the
meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.
Considering that the machineries and equipments in question valued at more than
P15,000.00 appear to have been sold without the necessary advertisement of sale by
publication in a newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court,
which is as follows:
SEC. 16. Notice of sale of property on execution. Before the sale of property
on execution, notice thereof must be given as follows:
xxx xxx xxx
(c) In case of real property, by posting a similar notice particularly describing the
property for twenty days in three public places in the municipality or city where
the property is situated, and also where the property is to be sold, and, if the
assessed value of the property exceeds four hundred pesos, by publishing a
copy of the notice once a week, for the same period, in some newspaper

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published or having general circulation in the province, if there be one. If there
are newspapers published in the province in both the English and Spanish
languages, then a like publication for a like period shall be made in one
newspaper published in the English language, and in one published in the
Spanish language.
the sale made by the sheriff must be declared null and void.
WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set
aside and We declare that the issuance of the writ of execution in this case against the
sawmill machineries and equipments purchased by petitioner Pastor D. Ago from the
Grace Park Engineering, Inc., as well as the sale of the same by the Sheriff of Surigao,
are null and void. Costs shall be against the respondent Grace Park Engineering, Inc.

G.R. No. L-15334 January 31, 1964


BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF
QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following
appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized
the Municipal Board of Manila to grant a franchise to construct, maintain and operate an
electric street railway and electric light, heat and power system in the City of Manila and
its suburbs to the person or persons making the most favorable bid. Charles M. Swift
was awarded the said franchise on March 1903, the terms and conditions of which were
embodied in Ordinance No. 44 approved on March 24, 1903. Respondent Manila
Electric Co. (Meralco for short), became the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan
Falls, Laguna and is transmitted to the City of Manila by means of electric transmission
wires, running from the province of Laguna to the said City. These electric transmission
wires which carry high voltage current, are fastened to insulators attached on steel
towers constructed by respondent at intervals, from its hydro-electric plant in the
province of Laguna to the City of Manila. The respondent Meralco has constructed 40 of
these steel towers within Quezon City, on land belonging to it. A photograph of one of
these steel towers is attached to the petition for review, marked Annex A. Three steel
towers were inspected by the lower court and parties and the following were the
descriptions given there of by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City.
The findings were as follows: the ground around one of the four posts was
excavated to a depth of about eight (8) feet, with an opening of about one (1)
meter in diameter, decreased to about a quarter of a meter as it we deeper until it
reached the bottom of the post; at the bottom of the post were two parallel steel
bars attached to the leg means of bolts; the tower proper was attached to the leg
three bolts; with two cross metals to prevent mobility; there was no concrete
foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be
determined with certainty to whether said adobe stone was placed purposely or
not, as the place abounds with this kind of stone; and the tower carried five high
voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City,
on land owned by the petitioner approximate more than one kilometer from the
first tower. As in the first tower, the ground around one of the four legs was

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excavate from seven to eight (8) feet deep and one and a half (1-) meters wide.
There being very little water at the bottom, it was seen that there was no
concrete foundation, but there soft adobe beneath. The leg was likewise provided
with two parallel steel bars bolted to a square metal frame also bolted to each
corner. Like the first one, the second tower is made up of metal rods joined
together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the
first two towers given above, the ground around the two legs of the third tower
was excavated to a depth about two or three inches beyond the outside level of
the steel bar foundation. It was found that there was no concrete foundation. Like
the two previous ones, the bottom arrangement of the legs thereof were found to
be resting on soft adobe, which, probably due to high humidity, looks like mud or
clay. It was also found that the square metal frame supporting the legs were not
attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid
steel towers for real property tax under Tax declaration Nos. 31992 and 15549. After
denying respondent's petition to cancel these declarations, an appeal was taken by
respondent to the Board of Assessment Appeals of Quezon City, which required
respondent to pay the amount of P11,651.86 as real property tax on the said steel
towers for the years 1952 to 1956. Respondent paid the amount under protest, and filed
a petition for review in the Court of Tax Appeals (CTA for short) which rendered a
decision on December 29, 1958, ordering the cancellation of the said tax declarations
and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come
within the term "poles" which are declared exempt from taxes under part II paragraph 9
of respondent's franchise; (2) the steel towers are personal properties and are not
subject to real property tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are assigned as errors by the
petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate,
buildings, plant (not including poles, wires, transformers, and insulators),
machinery and personal property as other persons are or may be hereafter
required by law to pay ... Said percentage shall be due and payable at the time
stated in paragraph nineteen of Part One hereof, ... and shall be in lieu of all
taxes and assessments of whatsoever nature and by whatsoever authority upon
the privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee from which taxes and assessments the grantee is
hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood
or timber, as typically the stem of a small tree stripped of its branches; also by
extension, a similar typically cylindrical piece or object of metal or the like". The term
also refers to "an upright standard to the top of which something is affixed or by which
something is supported; as a dovecote set on a pole; telegraph poles; a tent pole;
sometimes, specifically a vessel's master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel
bars joined together by an interlacing metal rod. They are called "poles" notwithstanding
the fact that they are no made of wood. It must be noted from paragraph 9, above
quoted, that the concept of the "poles" for which exemption is granted, is not determined
by their place or location, nor by the character of the electric current it carries, nor the
material or form of which it is made, but the use to which they are dedicated. In

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accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by
which something is supported. As heretofore described, respondent's steel supports
consists of a framework of four steel bars or strips which are bound by steel cross-arms
atop of which are cross-arms supporting five high voltage transmission wires (See
Annex A) and their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term
"poles" is not a novelty. Several courts of last resort in the United States have called
these steel supports "steel towers", and they denominated these supports or towers, as
electric poles. In their decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that jurisdiction that a transmission tower or
pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law
provided that wires shall be constructed upon suitable poles, this term was construed to
mean either wood or metal poles and in view of the land being subject to overflow, and
the necessary carrying of numerous wires and the distance between poles, the statute
was interpreted to include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212
S.W. 222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires
alongside public highways. The steel supports or towers were made of iron or other
metals consisting of two pieces running from the ground up some thirty feet high, being
wider at the bottom than at the top, the said two metal pieces being connected with
criss-cross iron running from the bottom to the top, constructed like ladders and loaded
with high voltage electricity. In form and structure, they are like the steel towers in
question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged
in the generation of hydro-electric power generated from its plant to the Tower of Oxford
and City of Waterbury. These steel towers are about 15 feet square at the base and
extended to a height of about 35 feet to a point, and are embedded in the cement
foundations sunk in the earth, the top of which extends above the surface of the soil in
the tower of Oxford, and to the towers are attached insulators, arms, and other
equipment capable of carrying wires for the transmission of electric power (Connecticut
Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his
death was built for the purpose of supporting a transmission wire used for carrying high-
tension electric power, but claimed that the steel towers on which it is carried were so
large that their wire took their structure out of the definition of a pole line. It was held
that in defining the word pole, one should not be governed by the wire or material of the
support used, but was considering the danger from any elevated wire carrying electric
current, and that regardless of the size or material wire of its individual members, any
continuous series of structures intended and used solely or primarily for the purpose of
supporting wires carrying electric currents is a pole line (Inspiration Consolidation
Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in
the petitioner's franchise, should not be given a restrictive and narrow interpretation, as
to defeat the very object for which the franchise was granted. The poles as
contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the
source thereof to its consumers. If the respondent would be required to employ "wooden
poles", or "rounded poles" as it used to do fifty years back, then one should admit that
the Philippines is one century behind the age of space. It should also be conceded by
now that steel towers, like the ones in question, for obvious reasons, can better
effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are

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not embraced within the term poles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law
does not provide for a definition of real property; but Article 415 of the Civil Code does,
by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried in a building or on a
piece of land, and which tends directly to meet the needs of the said industry or
works;
xxx xxx xxx
The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the
soil. They are not construction analogous to buildings nor adhering to the soil. As per
description, given by the lower court, they are removable and merely attached to a
square metal frame by means of bolts, which when unscrewed could easily be
dismantled and moved from place to place. They can not be included under paragraph
3, as they are not attached to an immovable in a fixed manner, and they can be
separated without breaking the material or causing deterioration upon the object to
which they are attached. Each of these steel towers or supports consists of steel bars or
metal strips, joined together by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing the same. These steel towers or
supports do not also fall under paragraph 5, for they are not machineries, receptacles,
instruments or implements, and even if they were, they are not intended for industry or
works on the land. Petitioner is not engaged in an industry or works in the land in which
the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to
refund the sum of P11,651.86, despite the fact that Quezon City is not a party to the
case. It is argued that as the City Treasurer is not the real party in interest, but Quezon
City, which was not a party to the suit, notwithstanding its capacity to sue and be sued,
he should not be ordered to effect the refund. This question has not been raised in the
court below, and, therefore, it cannot be properly raised for the first time on appeal. The
herein petitioner is indulging in legal technicalities and niceties which do not help him
any; for factually, it was he (City Treasurer) whom had insisted that respondent herein
pay the real estate taxes, which respondent paid under protest. Having acted in his
official capacity as City Treasurer of Quezon City, he would surely know what to do,
under the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against
the petitioners.
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.:

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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
1
the receipt duly signed by respondent's representative. 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.

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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,

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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.

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