Leung Yee v. Strong Machinery Co. 37 Phil.
644 FACTS: Philippine Long Distance Telephone Company (PLDT) filed
FACTS: The “Compania Agricola Filipina” purchased from “Strong
Machinery Co.” rice-cleaning machines which the former installed in
one of its buildings. As security for the purchase price, the buyer
executed a CHATTEL MORTGAGE on the machines and the
building on which they had been installed. Upon buyer’s failure to
pay, the registered mortgage was foreclosed, and the building was
purchased by the seller, the “Strong Machinery Co.” This sale was
annotated in the Chattel Mortgage Registry. Later, the “Agricola” also
sold to “Strong Machinery” the lot on which the building had been
constructed. This sale was not registered in the Registry of Property
BUT the Machinery Co. took possession of the building and the lot.
Previously however, the same building had been purchased at a
sheriff’s sale by Leung Yee, a creditor of “Agricola,” although Leung
Yee knew all the time of the prior sale in favor of “Strong Machinery.”
This sale in favor of Leung Yee was recorded in the Registry. Leung
Yee now sues to recover the property from “Strong Machinery.”
Issue: who has a better right to the property?
HELD: The building is real property, therefore, its sale as annotated
in the Chattel Mortgage Registry can- not be given the legal effect of
registration in the Registry of Real Property. The mere fact that the
parties decided to deal with the building as personal property does
not change its character as real property. Thus, neither the original
registry in the chattel mortgage registry, nor the annotation in said
registry of the sale of the mortgaged property had any effect on the
building. However, since the land and the building had first been
purchased by “Strong Machinery” (ahead of Leung Yee), and this
fact was known to Leung Yee, it follows that Leung Yee was not a
purchaser in good faith, and should therefore not be entitled to the
property. “Strong Machinery” thus has a better right to the property.
Laurel v. Abrogar
a complaint for theft under Article 308 of the Revised Penal Code
against Baynet Co., Ltd. (Baynet) for stealing its business. PLDT
alleged that Baynet offered phone cards to people in Japan to call
their friends and relatives in the Philippines using PLDT's facilities
and equipment.
Issue: Whether or not the PLDT's business of providing
telecommunication services is a personal property under Article 308
of the Revised Penal Code.
HELD: No, PLDT's business of providing telecommunication
services is not a personal property under Article 308 of the Revised
Penal Code.
Personal property under the Revised Penal Code covers both
tangible and intangible properties but must be considered with the
word "take" in the law. There is "taking" of personal property, and
theft is consummated when the offender unlawfully acquires
possession of personal property even if for a short time; or if such
property is under the dominion and control of the thief. The statutory
definition of "taking" clearly indicates that not all personal properties
may be the proper subjects of theft. The general rule is that only
movable properties, which have physical or material existence and
susceptible of occupation by another are proper subjects of theft.
Movable properties under Article 308 of the Revised Penal Code
should be distinguished from the rights or interest to which they
relate to. While the rights or interests are properties, they are not
considered personal properties under Article 308 of the Revised
Penal Code.
PLDT's business is intangible and cannot be taken by another and
not the proper subjects of theft because they are without form or
substance.
Davao Sawmill Co. vs Castillo
he issue in this case, as announced in the opening sentence of the
decision in the trial court and as set forth by counsel for the parties
on appeal, involves the determination of the nature of the properties
described in the complaint. The trial judge found that those
properties were personal in nature, and as a consequence absolved
the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession
from the Government of the Philippine Islands. It has operated a
sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill
company erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal property,
the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following
provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the party of
the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for
said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass
to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will
pass to the party of the first part on the expiration or abandonment of
the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was
the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a
judgment was rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution issued thereon, and
the properties now in question were levied upon as personalty by the
sheriff. No third party claim was filed for such properties at the time
of the sales thereof as is borne out by the record made by the
plaintiff herein. Indeed the bidder, which was the plaintiff in that
action, and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its
favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that
the Davao Saw Mill Co., Inc., has on a number of occasions treated
the machinery as personal property by executing chattel mortgages
in favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point.
According to the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to
the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended
by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain no doubt that the trial judge and
appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant
should have registered its protest before or at the time of the sale of
this property. It must further be pointed out that while not conclusive,
the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this
court in the case of Standard Oil Co. of New York vs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to
such a situation.
It is, however not necessary to spend overly must time in the
resolution of this appeal on side issues. It is machinery which is
involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a
lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the
lease.
A similar question arose in Puerto Rico, and on appeal being taken
to the United States Supreme Court, it was held that machinery
which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when
so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner.
In the opinion written by Chief Justice White, whose knowledge of
the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of
the property from the point of view of the rights of Valdes and its
nature and character from the point of view of Nevers & Callaghan
as a judgment creditor of the Altagracia Company and the rights
derived by them from the execution levied on the machinery placed
by the corporation in the plant. Following the Code Napoleon, the
Porto Rican Code treats as immovable (real) property, not only land
and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of
the destination to which it is applied. "Things," says section 334 of
the Porto Rican Code, "may be immovable either by their own nature
or by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of section
335, which is as follows: "Machinery, vessels, instruments or
implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with
which we are dealing — machinery placed in the plant — it is plain,
both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore,
by the placing of machinery in a plant by a tenant or a usufructuary
or any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447;
and decisions quoted in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law
to have applied movable property belonging to him so as to deprive
him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery
put by the Altagracia Company in the plant belonging to Sanchez did
not lose its character of movable property and become immovable by Tan v Director of Forestry
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 FACTS:
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
Sometime in April 1961, the Bureau of Forestry issued notice
to the owner without compensation to the lessee. Under such
advertising for public bidding a certain tract of public forest land
conditions the tenant in putting in the machinery was acting but as
situated in Olongapo, Zambales consisting of 6,420 hectares, within
the agent of the owner in compliance with the obligations resting
the former U.S. Naval Reservation comprising 7,252 hectares of
upon him, and the immobilization of the machinery which resulted
timberland, which was turned over by the US Government to the
arose in legal effect from the act of the owner in giving by contract a
Philippine Government. Wenceslao Tan with nine others submitted
permanent destination to the machinery.
their application in due form.

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.
The area was granted to the petitioner. On May 30, 1963,
Secretary Gozon of Agriculture and Natural Resources issued a
general memorandum order authorizing Dir. Of Forestry to grant new
Ordinary Timber Licenses (OTL) subject to some conditions stated
therein (not exceeding 3000 hectares for new OTL and not
exceeding 5000 hectares for extension)
Thereafter, Acting Secretary of Agriculture and Natural Resources
Feliciano (replacing Gozon) promulgated on December 19, 1963 a
memorandum revoking the authority delegated to the Director of
Forestry to grant ordinary timber licenses. On the same date, OTL in
the name of Tan, was signed by then Acting Director of Forestry,
without the approval of the Secretary of Agriculture and Natural
Resources. On January 6, 1964, the license was released by the
Director of Forestry .

Ravago Commercial Company wrote a letter to the Secretary of

ANR praying that the OTL of Tan be revoked. On March 9, 1964,
The Secretary of ANR declared Tan’s OTL null and void (but the
same was not granted to Ravago). Petitioner-appellant moved for a
reconsideration of the order, but the Secretary of Agriculture and
Natural Resources denied the motion.
ISSUES:
I. Whether or not petitioner’s timber license is valid (No)
II. Whether or not petitioner had exhausted administrative remedies
available (No)
RULING:
I
Petitioner’s timber license was signed and released without authority
and is therefore void ab initio. In the first place, in the general
memorandum dated May 30, 1963, the Director of Forestry was
authorized to grant a new ordinary timber license only where the
area covered thereby was not more than 3,000 hectares; the tract of
public forest awarded to the petitioner contained 6,420 hectares In
the second place, at the time it was released to the petitioner, the
Acting Director of Forestry had no more authority to grant any
license. (The license was released to the petitioner on January 6,
1964 while on the other hand, the authority of the Director of Forestry
to issue license was revoked on December 19, 1963). In view
thereof, the Director of Forestry had no longer any authority to
release the license on January 6, 1964, and said license is therefore
void ab initio. What is of greatest importance is the date of the
release or issuance. Before its release, no right is acquired by the
licensee.
Granting arguendo, that petitioner-appellant's timber license is valid,
still respondents-appellees can validly revoke his timber license. "A
license is merely a permit or privilege to do what otherwise would be
unlawful, and is not a contract between the authority, federal, state,
or municipal, granting it and the person to whom it is granted; neither
is it property or a property right, nor does it create a vested right; nor
is it taxation
The welfare of the people is the supreme law. Thus, no franchise or
right can be availed of to defeat the proper exercise of police power.
II
Petitioner did not exhaust administrative remedy in this case. He did
not appeal the order of the respondent Secretary of Agriculture and
Natural Resources to the President of the Philippines. Considering
that the President has the power to review on appeal the orders or
acts of the respondents, the failure of the petitioner-appellant to take
that appeal is failure on his part to exhaust his administrative
remedies.
China Banking Corp. vs. CA, Valley Golf and Country Club Inc.
Through a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, petitioner China Banking Corporation seeks
the reversal of the decision of the Court of Appeals dated 15 August
1994 nullifying the Securities and Exchange Commission's order and
resolution dated 4 June 1993 and 7 December 1993, respectively,
for lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion
for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a
stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI, for brevity), pledged his Stock Certificate No. 1219 to
petitioner China Banking Corporation (CBC, for brevity).1
On 16 September 1974, petitioner wrote VGCCI requesting that the
aforementioned pledge agreement be recorded in its books.2
In a letter dated 27 September 1974, VGCCI replied that the deed of
pledge executed by Calapatia in petitioner's favor was duly noted in
its corporate books.3
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from
petitioner, payment of which was secured by the aforestated pledge
agreement still existing between Calapatia and petitioner.4
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April
1985, filed a petition for extrajudicial foreclosure before Notary Public
Antonio T. de Vera of Manila, requesting the latter to conduct a
public auction sale of the pledged stock.5
On 14 May 1985, petitioner informed VGCCI of the above-mentioned
foreclosure proceedings and requested that the pledged stock be
transferred to its (petitioner's) name and the same be recorded in the
corporate books. However, on 15 July 1985, VGCCI wrote petitioner
expressing its inability to accede to petitioner's request in view of
Calapatia's unsettled accounts with the club.6
Despite the foregoing, Notary Public de Vera held a public auction on
17 September 1985 and petitioner emerged as the highest bidder at
P20,000.00 for the pledged stock. Consequently, petitioner was
issued the corresponding certificate of sale.7
On 21 November 1985, VGCCI sent Calapatia a notice demanding
full payment of his overdue account in the amount of P18,783.24. 8
Said notice was followed by a demand letter dated 12 December
1985 for the same amount9 and another notice dated 22 November
1986 for P23,483.24. 10
On 4 December 1986, VGCCI caused to be published in the
newspaper Daily Express a notice of auction sale of a number of its
stock certificates, to be held on 10 December 1986 at 10:00 a.m.
Included therein was Calapatia's own share of stock (Stock
Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI informed
Calapatia of the termination of his membership due to the sale of his
share of stock in the 10 December 1986 auction. 11
On 5 May 1989, petitioner advised VGCCI that it is the new owner of
Calapatia's Stock Certificate No. 1219 by virtue of being the highest
bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name. 12
On 2 March 1990, VGCCI replied that "for reason of delinquency"
Calapatia's stock was sold at the public auction held on 10
December 1986 for P25,000.00. 13
On 9 March 1990, petitioner protested the sale by VGCCI of the
subject share of stock and thereafter filed a case with the Regional
Trial Court of Makati for the nullification of the 10 December 1986
auction and for the issuance of a new stock certificate in its name. 14
On 18 June 1990, the Regional Trial Court of Makati dismissed the
complaint for lack of jurisdiction over the subject matter on the theory
that it involves an intra-corporate dispute and on 27 August 1990
denied petitioner's motion for reconsideration.
On 20 September 1990, petitioner filed a complaint with the
Securities and Exchange Commission (SEC) for the nullification of
the sale of Calapatia's stock by VGCCI; the cancellation of any new
stock certificate issued pursuant thereto; for the issuance of a new
certificate in petitioner's name; and for damages, attorney's fees and
costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered
a decision in favor of VGCCI, stating in the main that "(c)onsidering
that the said share is delinquent, (VGCCI) had valid reason not to
transfer the share in the name of the petitioner in the books of
(VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
On 14 April 1992, Hearing Officer Perea denied petitioner's motion
for reconsideration. 17
Petitioner appealed to the SEC en banc and on 4 June 1993, the
Commission issued an order reversing the decision of its hearing
officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a
prior right over the pledged share and because of pledgor's failure to
pay the principal debt upon maturity, appellant-petitioner can
proceed with the foreclosure of the pledged share.
WHEREFORE, premises considered, the Orders of January 3, 1992
and April 14, 1992 are hereby SET ASIDE. The auction sale
conducted by appellee-respondent Club on December 10, 1986 is
declared NULL and VOID. Finally, appellee-respondent Club is
ordered to issue another membership certificate in the name of
appellant-petitioner bank.
SO ORDERED. 18
VGCCI sought reconsideration of the abovecited order. However, the
SEC denied the same in its resolution dated 7 December 1993. 19
The sudden turn of events sent VGCCI to seek redress from the
Court of Appeals. On 15 August 1994, the Court of Appeals rendered
its decision nullifying and setting aside the orders of the SEC and its
hearing officer on ground of lack of jurisdiction over the subject
matter and, consequently, dismissed petitioner's original complaint.
The Court of Appeals declared that the controversy between CBC
and VGCCI is not intra-corporate. It ruled as follows:
In order that the respondent Commission can take cognizance of a
case, the controversy must pertain to any of the following
relationships: (a) between the corporation, partnership or association
and the public; (b) between the corporation, partnership or
association and its stockholders, partners, members, or officers; (c)
between the corporation, partnership or association and the state in
so far as its franchise, permit or license to operate is concerned, and
(d) among the stockholders, partners or associates themselves
(Union Glass and Container Corporation vs. SEC, November 28,
1983, 126 SCRA 31). The establishment of any of the relationship
mentioned will not necessarily always confer jurisdiction over the
dispute on the Securities and Exchange Commission to the
exclusion of the regular courts. The statement made in Philex Mining
Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no
exceptions or distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the
nature of the question that is the subject of their controversy (Viray
vs. Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323).
Indeed, the controversy between petitioner and respondent bank
which involves ownership of the stock that used to belong to
Calapatia, Jr. is not within the competence of respondent
Commission to decide. It is not any of those mentioned in the
aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order dated
December 7, 1993 of respondent Securities and Exchange
Commission (Annexes Y and BB, petition) and of its hearing officer
dated January 3, 1992 and April 14, 1992 (Annexes S and W,
petition) are all nullified and set aside for lack of jurisdiction over the
subject matter of the case. Accordingly, the complaint of respondent
China Banking Corporation (Annex Q, petition) is DISMISSED. No
pronouncement as to costs in this instance.
SO ORDERED. 20
Petitioner moved for reconsideration but the same was denied by the
Court of Appeals in its resolution dated 5 October 1994. 21
Hence, this petition wherein the following issues were raised:
II
ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS
(Former Eighth Division) GRAVELY ERRED WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION DATED
JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF
THE SECURITIES AND EXCHANGE COMMISSION EN BANC,
AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER
AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE
SECURITIES AND EXCHANGE COMMISSION EN BANC DATED
JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING
THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP
CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT
VALLEY GOLF.
The petition is granted.
The basic issue we must first hurdle is which body has jurisdiction
over the controversy, the regular courts or the SEC.
P. D. No. 902-A conferred upon the SEC the following pertinent
powers:
Sec. 3. The Commission shall have absolute jurisdiction, supervision
and control over all corporations, partnerships or associations, who
are the grantees of primary franchises and/or a license or permit
issued by the government to operate in the Philippines, and in the
exercise of its authority, it shall have the power to enlist the aid and
support of and to deputize any and all enforcement agencies of the
government, civil or military as well as any private institution,
corporation, firm, association or person.
xxx xxx xxx
Sec. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
a) Devices or schemes employed by or any acts of the board of
directors, business associates, its officers or partners, amounting to
fraud and misrepresentation which may be detrimental to the interest
of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission.
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their
individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors,
trustees, officers, or managers of such corporations, partnerships or
associations.
d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses property to cover
all of its debts but foresees the impossibility of meeting them when
they respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its
liabilities, but is under the Management Committee created pursuant
to this Decree.
The aforecited law was expounded upon in Viray v. CA 22 and in the
recent cases of Mainland Construction Co., Inc. v. Movilla 23 and
Bernardo v. CA, 24 thus:
. . . .The better policy in determining which body has jurisdiction over
a case would be to consider not only the status or relationship of the
parties but also the nature of the question that is the subject of their
controversy.
Applying the foregoing principles in the case at bar, to ascertain
which tribunal has jurisdiction we have to determine therefore
whether or not petitioner is a stockholder of VGCCI and whether or
not the nature of the controversy between petitioner and private
respondent corporation is intra-corporate.
As to the first query, there is no question that the purchase of the
subject share or membership certificate at public auction by
petitioner (and the issuance to it of the corresponding Certificate of
Sale) transferred ownership of the same to the latter and thus
entitled petitioner to have the said share registered in its name as a
member of VGCCI. It is readily observed that VGCCI did not assail
the transfer directly and has in fact, in its letter of 27 September
1974, expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even noted
said agreement in its corporate books. 25 In addition, Calapatia, the
original owner of the subject share, has not contested the said
transfer.
By virtue of the afore-mentioned sale, petitioner became a bona fide
stockholder of VGCCI and, therefore, the conflict that arose between
petitioner and VGCCI aptly exemplies an intra-corporate controversy
between a corporation and its stockholder under Sec. 5(b) of P.D.
902-A.
An important consideration, moreover, is the nature of the
controversy between petitioner and private respondent corporation.
VGCCI claims a prior right over the subject share anchored mainly
on Sec. 3, Art VIII of its by-laws which provides that "after a member
shall have been posted as delinquent, the Board may order
his/her/its share sold to satisfy the claims of the Club. . ." 26 It is
pursuant to this provision that VGCCI also sold the subject share at
public auction, of which it was the highest bidder. VGCCI caps its
argument by asserting that its corporate by-laws should prevail. The
bone of contention, thus, is the proper interpretation and application
of VGCCI's aforequoted by-laws, a subject which irrefutably calls for
the special competence of the SEC.
We reiterate herein the sound policy enunciated by the Court in
Abejo v. De la Cruz 27:
6. In the fifties, the Court taking cognizance of the move to vest
jurisdiction in administrative commissions and boards the power to
resolve specialized disputes in the field of labor (as in corporations,
public transportation and public utilities) ruled that Congress in
requiring the Industrial Court's intervention in the resolution of labor-
management controversies likely to cause strikes or lockouts meant
such jurisdiction to be exclusive, although it did not so expressly
state in the law. The Court held that under the "sense-making and
expeditious doctrine of primary jurisdiction . . . the courts cannot or
will not determine a controversy involving a question which is within
the jurisdiction of an administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring
the special knowledge, experience, and services of the
administrative tribunal to determine technical and intricate matters of
fact, and a uniformity of ruling is essential to comply with the
purposes of the regulatory statute administered.
In this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special knowledge,
experience and capability to hear and determine promptly disputes
on technical matters or essentially factual matters, subject to judicial
review in case of grave abuse of discretion, has become well nigh
indispensable. Thus, in 1984, the Court noted that "between the
power lodged in an administrative body and a court, the
unmistakable trend has been to refer it to the former. 'Increasingly,
this Court has been committed to the view that unless the law
speaks clearly and unequivocably, the choice should fall on [an
administrative agency.]'" The Court in the earlier case of Ebon v. De
Guzman, noted that the lawmaking authority, in restoring to the labor
arbiters and the NLRC their jurisdiction to award all kinds of
damages in labor cases, as against the previous P.D. amendment
splitting their jurisdiction with the regular courts, "evidently, . . . had
second thoughts about depriving the Labor Arbiters and the NLRC of
the jurisdiction to award damages in labor cases because that setup
would mean duplicity of suits, splitting the cause of action and
possible conflicting findings and conclusions by two tribunals on one
and the same claim."
In this case, the need for the SEC's technical expertise cannot be
over-emphasized involving as it does the meticulous analysis and
correct interpretation of a corporation's by-laws as well as the
applicable provisions of the Corporation Code in order to determine
the validity of VGCCI's claims. The SEC, therefore, took proper
cognizance of the instant case.
VGCCI further contends that petitioner is estopped from denying its
earlier position, in the first complaint it filed with the RTC of Makati
(Civil Case No. 90-1112) that there is no intra-corporate relations
between itself and VGCCI.
VGCCI's contention lacks merit.
In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice
Isagani A. Cruz, declared that:
It follows that as a rule the filing of a complaint with one court which
has no jurisdiction over it does not prevent the plaintiff from filing the
same complaint later with the competent court. The plaintiff is not
estopped from doing so simply because it made a mistake before in
the choice of the proper forum. . . .
We remind VGCCI that in the same proceedings before the RTC of
Makati, it categorically stated (in its motion to dismiss) that the case
between itself and petitioner is intra-corporate and insisted that it is
the SEC and not the regular courts which has jurisdiction. This is
precisely the reason why the said court dismissed petitioner's
complaint and led to petitioner's recourse to the SEC.
Having resolved the issue on jurisdiction, instead of remanding the
whole case to the Court of Appeals, this Court likewise deems it
procedurally sound to proceed and rule on its merits in the same
proceedings.
It must be underscored that petitioner did not confine the instant
petition for review on certiorari on the issue of jurisdiction. In its
assignment of errors, petitioner specifically raised questions on the
merits of the case. In turn, in its responsive pleadings, private
respondent duly answered and countered all the issues raised by
petitioner.
Applicable to this case is the principle succinctly enunciated in the
case of Heirs of Crisanta Y. Gabriel-Almoradie v. Court of Appeals,
29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop
of Manila v. Court of Appeals. 31

In the interest of the public and for the expeditious administration of
justice the issue on infringement shall be resolved by the court
considering that this case has dragged on for years and has gone
from one forum to another.
It is a rule of procedure for the Supreme Court to strive to settle the
entire controversy in a single proceeding leaving no root or branch to
bear the seeds of future litigation. No useful purpose will be served if
a case or the determination of an issue in a case is remanded to the
trial court only to have its decision raised again to the Court of
Appeals and from there to the Supreme Court.
We have laid down the rule that the remand of the case or of an
issue to the lower court for further reception of evidence is not
necessary where the Court is in position to resolve the dispute based
on the records before it and particularly where the ends of justice
would not be subserved by the remand thereof. Moreover, the
Supreme Court is clothed with ample authority to review matters,
even those not raised on appeal if it finds that their consideration is
necessary in arriving at a just disposition of the case.
In the recent case of China Banking Corp., et al. v. Court of Appeals,
et al., 32 this Court, through Mr. Justice Ricardo J. Francisco, ruled
in this wise:
At the outset, the Court's attention is drawn to the fact that since the
filing of this suit before the trial court, none of the substantial issues
have been resolved. To avoid and gloss over the issues raised by
the parties, as what the trial court and respondent Court of Appeals
did, would unduly prolong this litigation involving a rather simple case
of foreclosure of mortgage. Undoubtedly, this will run counter to the
avowed purpose of the rules, i.e., to assist the parties in obtaining
just, speedy and inexpensive determination of every action or
proceeding. The Court, therefore, feels that the central issues of the
case, albeit unresolved by the courts below, should now be settled
specially as they involved pure questions of law. Furthermore, the
pleadings of the respective parties on file have amply ventilated their
various positions and arguments on the matter necessitating prompt
adjudication.
In the case at bar, since we already have the records of the case
(from the proceedings before the SEC) sufficient to enable us to
render a sound judgment and since only questions of law were
raised (the proper jurisdiction for Supreme Court review), we can,
therefore, unerringly take cognizance of and rule on the merits of the
case.
The procedural niceties settled, we proceed to the merits.
VGCCI assails the validity of the pledge agreement executed by
Calapatia in petitioner's favor. It contends that the same was null and
void for lack of consideration because the pledge agreement was
entered into on 21 August
1974 33 but the loan or promissory note which it secured was
obtained by Calapatia much later or only on 3 August 1983. 34
VGCCI's contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the
contracting parties explicitly stipulated therein that the said pledge
will also stand as security for any future advancements (or renewals
thereof) that Calapatia (the pledgor) may procure from petitioner:
xxx xxx xxx
This pledge is given as security for the prompt payment when due of
all loans, overdrafts, promissory notes, drafts, bills or exchange,
discounts, and all other obligations of every kind which have
heretofore been contracted, or which may hereafter be contracted,
by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor
of the PLEDGEE, including discounts of Chinese drafts, bills of
exchange, promissory notes, etc., without any further endorsement
by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY
THOUSAND (P20,000.00) PESOS, together with the accrued
interest thereon, as hereinafter provided, plus the costs, losses,
damages and expenses (including attorney's fees) which PLEDGEE
may incur in connection with the collection thereof. 35 (Emphasis
ours.)
The validity of the pledge agreement between petitioner and
Calapatia cannot thus be held suspect by VGCCI. As candidly
explained by petitioner, the promissory note of 3 August 1983 in the
amount of P20,000.00 was but a renewal of the first promissory note
covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to settle his
delinquent accounts, it had the right to sell the share in question in
accordance with the express provision found in its by-laws.
Private respondent's insistence comes to naught. It is significant to
note that VGCCI began sending notices of delinquency to Calapatia
after it was informed by petitioner (through its letter dated 14 May
1985) of the foreclosure proceedings initiated against Calapatia's
pledged share, although Calapatia has been delinquent in paying his
monthly dues to the club since 1975. Stranger still, petitioner, whom
VGCCI had officially recognized as the pledgee of Calapatia's share,
was neither informed nor furnished copies of these letters of overdue
accounts until VGCCI itself sold the pledged share at another public
auction. By doing so, VGCCI completely disregarded petitioner's
rights as pledgee. It even failed to give petitioner notice of said
auction sale. Such actuations of VGCCI thus belie its claim of good
faith.
In defending its actions, VGCCI likewise maintains that petitioner is
bound by its by-laws. It argues in this wise:
The general rule really is that third persons are not bound by the by-
laws of a corporation since they are not privy thereto (Fleischer v.
Botica Nolasco, 47 Phil. 584). The exception to this is when third
persons have actual or constructive knowledge of the same. In the
case at bar, petitioner had actual knowledge of the by-laws of private
respondent when petitioner foreclosed the pledge made by Calapatia
and when petitioner purchased the share foreclosed on September
17, 1985. This is proven by the fact that prior thereto, i.e., on May 14,
1985 petitioner even quoted a portion of private respondent's by-laws
which is material to the issue herein in a letter it wrote to private
respondent. Because of this actual knowledge of such by-laws then
the same bound the petitioner as of the time when petitioner
purchased the share. Since the by-laws was already binding upon
petitioner when the latter purchased the share of Calapatia on
September 17, 1985 then the petitioner purchased the said share
subject to the right of the private respondent to sell the said share for
reasons of delinquency and the right of private respondent to have a
first lien on said shares as these rights are provided for in the by-
laws very very clearly. 36
VGCCI misunderstood the import of our ruling in Fleischer v. Botica
Nolasco Co.: 37
And moreover, the by-law now in question cannot have any effect on
the appellee. He had no knowledge of such by-law when the shares
were assigned to him. He obtained them in good faith and for a
valuable consideration. He was not a privy to the contract created by
said by-law between the shareholder Manuel Gonzales and the
Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights
as a purchaser.
An unauthorized by-law forbidding a shareholder to sell his shares
without first offering them to the corporation for a period of thirty days
is not binding upon an assignee of the stock as a personal contract,
although his assignor knew of the by-law and took part in its
adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)
When no restriction is placed by public law on the transfer of
corporate stock, a purchaser is not affected by any contractual
restriction of which he had no notice. (Brinkerhoff-Farris Trust &
Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

The assignment of shares of stock in a corporation by one who has
assented to an unauthorized by-law has only the effect of a contract
by, and enforceable against, the assignor; the assignee is not bound
by such by-law by virtue of the assignment alone. (Ireland vs. Globe
Milling Co., 21 R.I., 9.)
A by-law of a corporation which provides that transfers of stock shall
not be valid unless approved by the board of directors, while it may
be enforced as a reasonable regulation for the protection of the
corporation against worthless stockholders, cannot be made
available to defeat the rights of third persons. (Farmers' and
Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis
ours.)
In order to be bound, the third party must have acquired knowledge
of the pertinent by-laws at the time the transaction or agreement
between said third party and the shareholder was entered into, in this
case, at the time the pledge agreement was executed. VGCCI could
have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares
registered in Calapatia's name. Petitioner's belated notice of said by-
laws at the time of foreclosure will not suffice. The ruling of the SEC
en banc is particularly instructive:
By-laws signifies the rules and regulations or private laws enacted by
the corporation to regulate, govern and control its own actions,
affairs and concerns and its stockholders or members and directors
and officers with relation thereto and among themselves in their
relation to it. In other words, by-laws are the relatively permanent
and continuing rules of action adopted by the corporation for its own
government and that of the individuals composing it and having the
direction, management and control of its affairs, in whole or in part, in
the management and control of its affairs and activities. (9 Fletcher
4166, 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define the
duties of the members towards the corporation and among
themselves. They are self-imposed and, although adopted pursuant
to statutory authority, have no status as public law. (Ibid.)
Therefore, it is the generally accepted rule that third persons are not
bound by by-laws, except when they have knowledge of the
provisions either actually or constructively. In the case of Fleisher v.
Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-law
restricting the transfer of shares cannot have any effect on the
transferee of the shares in question as he "had no knowledge of
such by-law when the shares were assigned to him. He obtained
them in good faith and for a valuable consideration. He was not a
privy to the contract created by the by-law between the shareholder .
. . and the Botica Nolasco, Inc. Said by-law cannot operate to defeat
his right as a purchaser. (Emphasis supplied.)
By analogy of the above-cited case, the Commission en banc is of
the opinion that said case is applicable to the present controversy.
Appellant-petitioner bank as a third party can not be bound by
appellee-respondent's by-laws. It must be recalled that when
appellee-respondent communicated to appellant-petitioner bank that
the pledge agreement was duly noted in the club's books there was
no mention of the shareholder-pledgor's unpaid accounts. The
transcript of stenographic notes of the June 25, 1991 Hearing
reveals that the pledgor became delinquent only in 1975. Thus,
appellant-petitioner was in good faith when the pledge agreement
was contracted.
The Commission en banc also believes that for the exception to the
general accepted rule that third persons are not bound by by-laws to
be applicable and binding upon the pledgee, knowledge of the
provisions of the VGCI By-laws must be acquired at the time the
pledge agreement was contracted. Knowledge of said provisions,
either actual or constructive, at the time of foreclosure will not affect
pledgee's right over the pledged share. Art. 2087 of the Civil Code
provides that it is also of the essence of these contracts that when
the principal obligation becomes due, the things in which the pledge
or mortgage consists maybe alienated for the payment to the
creditor.
In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc.,
the Commission issued an opinion to the effect that:
According to the weight of authority, the pledgee's right is entitled to
full protection without surrender of the certificate, their cancellation,
and the issuance to him of new ones, and when done, the pledgee
will be fully protected against a subsequent purchaser who would be
charged with constructive notice that the certificate is covered by the
pledge. (12-A Fletcher 502)
The pledgee is entitled to retain possession of the stock until the
pledgor pays or tenders to him the amount due on the debt secured.
In other words, the pledgee has the right to resort to its collateral for
the payment of the debts. (Ibid, 502)
To cancel the pledged certificate outright and the issuance of new
certificate to a third person who purchased the same certificate
covered by the pledge, will certainly defeat the right of the pledgee to
resort to its collateral for the payment of the debt. The pledgor or his
representative or registered stockholders has no right to require a
return of the pledged stock until the debt for which it was given as
security is paid and satisfied, regardless of the length of time which
have elapsed since debt was created. (12-A Fletcher 409)
A bona fide pledgee takes free from any latent or secret equities or
liens in favor either of the corporation or of third persons, if he has no
notice thereof, but not otherwise. He also takes it free of liens or
claims that may subsequently arise in favor of the corporation if it
has notice of the pledge, although no demand for a transfer of the
stock to the pledgee on the corporate books has been made. (12-A
Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739)
38
Similarly, VGCCI's contention that petitioner is duty-bound to know
its by-laws because of Art. 2099 of the Civil Code which stipulates
that the creditor must take care of the thing pledged with the
diligence of a good father of a family, fails to convince. The case of
Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable:
In applying this provision to the situation before us it must be borne
in mind that the ordinary pawn ticket is a document by virtue of which
the property in the thing pledged passes from hand to hand by mere
delivery of the ticket; and the contract of the pledge is, therefore,
absolvable to bearer. It results that one who takes a pawn ticket in
pledge acquires domination over the pledge; and it is the holder who
must renew the pledge, if it is to be kept alive.
It is quite obvious from the aforequoted case that a membership
share is quite different in character from a pawn ticket and to
reiterate, petitioner was never informed of Calapatia's unpaid
accounts and the restrictive provisions in VGCCI's by-laws.
Finally, Sec. 63 of the Corporation Code which provides that "no
shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation" cannot be
utilized by VGCCI. The term "unpaid claim" refers to "any unpaid
claim arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising
from any other transaction." 40 In the case at bar, the subscription
for the share in question has been fully paid as evidenced by the
issuance of Membership Certificate No. 1219. 41 What Calapatia
owed the corporation were merely the monthly dues. Hence, the
aforequoted provision does not apply.
WHEREFORE, premises considered, the assailed decision of the
Court of Appeals is REVERSED and the order of the SEC en banc
dated 4 June 1993 is hereby AFFIRMED.
SO ORDERED.
SALVADOR ADORABLE and LIGAYA ADORABLE, petitioners,
vs. COURT OF APPEALS, HON. JOSE O. RAMOS, FRANCISCO
BARENG and SATURNINO BARENG, respondents
This is a petition for review under Rule 45 of the decision[1] of the
Court of Appeals, dated January 6, 1995, sustaining the dismissal by
Branch 24 of the Regional Trial Court, Echague, Isabela, of the
complaint filed by petitioners, spouses Salvador and Ligaya
Adorable, for lack of cause of action.
The facts are as follows:
Private respondent Saturnino Bareng was the registered owner of
two parcels of land, one identified as Lot No. 661-D-5-A, with an area
of 20,000 sq. m., covered by TCT No. T-162837, and the other
known as Lot No. 661-E, with an area of 4.0628 hectares, covered
by TCT No. T-60814, both of which are in San Fabian, Echague,
Isabela. Petitioners were lessees of a 200 sq.m. portion of Lot No.
661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent
Francisco Bareng, obtained a loan from petitioners amounting to
twenty six thousand pesos (P26,000), in consideration of which they
promised to transfer the possession and enjoyment of the fruits of
Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m.
of Lot No. 661-D-5-A. The conveyance was annotated on the back of
TCT No. T-162873. In turn, Francisco sold on August 27, 1986 to
private respondent Jose Ramos 3,000 sq.m. of the lot. The portion of
land being rented to petitioners was included in the portion sold to
Jose Ramos. The deeds of sale evidencing the conveyances were
not registered in the office of the register of deeds.
As the Barengs failed to pay their loan, petitioners complained to
Police Captain Rodolfo Saet of the Integrated National Police (INP)
of Echague through whose mediation a Compromise Agreement was
executed between Francisco Bareng and the Adorables whereby the
former acknowledged his indebtedness of P56,385.00 which he
promised to pay on or before July 15, 1987. When the maturity date
arrived, however, Francisco Bareng failed to pay. A demand letter
was sent to Francisco Bareng, but he refused to pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose
Ramos, then filed a complaint with the Regional Trial Court, Branch
24, Echague, Isabela for the annulment or rescission of the sale on
the ground that the sale was fraudulently prepared and executed.
During trial, petitioners presented as witness Jose Ramos. After his
testimony, the next hearing was set on August 4 and 5, 1990. On
said hearing dates, however, petitioners were absent. The trial court
therefore ordered the presentation of evidence for petitioners
terminated and allowed private respondents to present their
evidence ex parte. On February 15, 1991, the trial court rendered
judgment dismissing the complaint for lack of cause of action,
declaring the contract of sale between Francisco Bareng and Jose
Ramos valid and ordering Francisco Bareng to pay the amount he
owed petitioners.
On appeal, the Court of Appeals affirmed the decision of the
Regional Trial Court, with modification as to the amount of Francisco
Barengs debt to petitioners.
Hence, this petition for review, raising the following issues: (1)
whether the Court of Appeals erred in dismissing the complaint for
lack of cause of action; (2) whether petitioners enjoyed legal
preference to purchase the lots they lease; and (3) whether the Court
of Appeals erred in sustaining the lower courts order terminating
petitioners presentation of evidence and allowing private
respondents to present their evidence ex parte.
In sustaining the decision of the trial court dismissing the complaint
for lack of cause of action, the Court of Appeals premised its
decision on Rule 3, 2 of the former Rules of Court which provided:
Parties in interest. — Every action must be prosecuted and defended
in the name of the real party in interest. All persons having an
interest in the subject of the action and in obtaining the relief
demanded shall be joined as plaintiffs. All persons who claim an
interest in the controversy or who are necessary to a complete
determination or settlement of the questions involved therein shall be
joined as defendants.
A real party in interest is one who would be benefited or injured by
the judgment, or who is entitled to the avails of the suit. Interest,
within the meaning of this rule, should be material, directly in issue
and to be affected by the decree, as distinguished from a mere
incidental interest or in the question involved.[2] Otherwise put, an
action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced.[3]
Petitioners anchor their interest on their right as creditors of
Francisco Bareng, as well as on their claim of preference over the
sale of the contested lot.[4] They contend that the sale between
Francisco Bareng and Jose Ramos prejudiced their interests over
the property as creditors of Francisco Bareng. Moreover, they claim
that, under Commonwealth Act No. 539, they have a preferential
right, as tenants or lessees, to purchase the land in question.
The petition has no merit.
First. We hold that, as creditors, petitioners do not have such
material interest as to allow them to sue for rescission of the contract
of sale. At the outset, petitioners right against private respondents is
only a personal right to receive payment for the loan; it is not a real
right over the lot subject of the deed of sale.
A personal right is the power of one person to demand of another, as
a definite passive subject, the fulfillment of a prestation to give, to do,
or not to do. On the other hand, a real right is the power belonging to
a person over a specific thing, without a passive subject individually
determined, against whom such right may be personally
exercised.[5] In this case, while petitioners have an interest in
securing payment of the loan they extended, their right to seek
payment does not in any manner attach to a particular portion of the
patrimony of their debtor, Francisco Bareng.
Nor can we sustain petitioners claim that the sale was made in fraud
of creditors. Art. 1177 of the Civil Code provides:
The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the actions which the
debtor may have done to defraud them. (Emphasis added)
Thus, the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2)
exercise all the rights and actions of the debtor, save those personal
to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana).
Without availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco
Barengs transmissible rights and actions, petitioners simply
undertook the third measure and filed an action for annulment of the
sale. This cannot be done.
Indeed, an action for rescission is a subsidiary remedy; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.[6] Thus, Art. 1380 of the
Civil Code provides:

The following contracts are rescissible:
....
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
Petitioners have not shown that they have no other means of
enforcing their credit. As the Court of Appeals pointed out in its
decision:
In this case, plaintiffs-appellants had not even commenced an action
against defendants-appellees Bareng for the collection of the alleged
indebtedness. Plaintiffs-appellants had not even tried to exhaust the
property of defendants-appellees Bareng. Plaintiffs-appellants, in
seeking for the rescission of the contracts of sale entered into
between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which they
could have collected this (sic) debts.
Second. Nor do petitioners enjoy any preference to buy the
questioned property. In Aldecoa v. Hongkong and Shanghai Banking
Corporation,[7] it was held that in order that one who is not obligated
in a contract either principally or subsidiarily may maintain an action
for nullifying the same, his complaint must show the injury that would
positively result to him from the contract in which he has not
intervened, with regard at least to one of the contracting parties.
Petitioners attempt to establish such legal injury through a claim of
preference created under C.A. No. 539, the pertinent provision of
which provides:
SEC. 1. The President of the Philippines is authorized to acquire
private lands or any interest therein, through purchase or
expropriation, and to subdivide the same into home lots or small
farms for resale at reasonable prices and under such conditions as
he may fix to their bona fide tenants or occupants or to private
individuals who will work the lands themselves and who are qualified
to acquire and own lands in the Philippines.
This statute was passed to implement Art. XIII, 4 of the 1935
Constitution which provided that The Congress may authorize, upon
payment of just compensation, the expropriation of lands to be
subdivided into small lots and conveyed at cost to individuals. It is
obvious that neither under this provision of the former Constitution
nor that of C.A. No. 539 can petitioners claim any right since the
grant of preference therein applies only to bona fide tenants, after
the expropriation or purchase by the government of the land they are
occupying.[8] Petitioners are not tenants of the land in question in
this case. Nor has the land been acquired by the government for
their benefit.
Third. Finally, we hold that no error was committed by the Court of
Appeals in affirming the order of the trial court terminating the
presentation of petitioners evidence and allowing private
respondents to proceed with theirs because of petitioners failure to
present further evidence at the scheduled dates of trial.
Petitioners contend that since their counsel holds office in Makati,
the latters failure to appear at the trial in Isabela at the scheduled
date of hearing should have been treated by the court with a sense
of fairness.[9]
This is more a plea for compassion rather than explanation based on
reason. We cannot find grave abuse of discretion simply because a
court decides to proceed with the trial of a case rather than postpone
the hearing to another day, because of the absence of a party. That
the absence of a party during trial constitutes waiver of his right to
present evidence and cross-examine the opponents witnesses is
firmly supported by jurisprudence.[10] To constitute grave abuse of
discretion amounting to lack or excess of jurisdiction, the refusal of
the court to postpone the hearing must be characterized by
arbitrariness or capriciousness. Here, as correctly noted by the Court
of Appeals, petitioners counsel was duly notified through registered
mail of the scheduled trials.[11] His only excuse for his failure to
appear at the scheduled hearings is that he comes from Makati. This
excuse might hold water if counsel was simply late in arriving in the
courtroom. But this was not the case. He did not appear at all.
WHEREFORE, the petition for review is DENIED, and the decision of
the Court of Appeals is AFFIRMED.
SO ORDERED.
FELS ENERGY, INC. V THE PROVINCE OF BATANGAS and THE
OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS
FACTS
Two consolidated cases were filed by FELS Energy, Inc. (FELS) and
National Power Corporation (NPC), respectively.
NPC entered into a lease contract with Polar Energy, Inc. over diesel
engine power barges moored at Batangas. The contract,
denominated as an Energy Conversion Agreement, was for a period
of five years wherein, NPC shall be responsible for the payment of:
(a) all taxes, import duties, fees, charges and other levies imposed
by the National Government
(b) all real estate taxes and assessments, rates and other charges in
respect of the Power Barges
Subsequently, Polar Energy, Inc. assigned its rights under the
Agreement to FELS. Thereafter, FELS received an assessment of
real property taxes on the power barges. The assessed tax, which
likewise covered those due for 1994, amounted to P56,184,088.40
per annum. FELS referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real estate taxes. It then
gave NPC the full power and authority to represent it in any
conference regarding the real property assessment of the Provincial
Assessor.
NPC sought reconsideration of the Provincial Assessor’s decision to
assess real property taxes on the power barges. However, the
motion was denied. The Local Board of Assessment Appeals (LBAA)
ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real
property for taxation purposes because they are installed at a
specific location with a character of permanency.
FELS appealed the LBAA’s ruling to the Central Board of
Assessment Appeals (CBAA). The CBAA rendered a Decision
finding the power barges exempt from real property tax.
It was later reversed by the cbaa upon reconsideration and affirmed
by the CA
ISSUE
Whether power barges, which are floating and movable, are personal
properties and therefore, not subject to real property tax.
RULING
No. Article 415 (9) of the New Civil Code provides that "[d]ocks and
structures which, though floating, are intended by their nature and
object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of
machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece
of land and which tend directly to meet the needs of said industry or
work.
The findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS is the entity being taxed by the local
government. As stipulated under the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power
Barges and all the fixtures, fittings, machinery and equipment on the
Site used in connection with the Power Barges which have been
supplied by it at its own cost. POLAR shall operate, manage and
maintain the Power Barges for the purpose of converting Fuel of
NAPOCOR into electricity.
It follows then that FELS cannot escape liability from the payment of
realty taxes by invoking its exemption in Section 234 (c) of R.A. No.
7160,
…the law states that the machinery must be actually, directly and
exclusively used by the government owned or controlled corporation;
The agreement POLAR undertakes that until the end of the Lease
Period, it will operate the Power Barges to convert such Fuel into
electricity. Therefore, FELS shall be liable for the realty taxes and
not the NPC who is not actually, directly and exclusively using the
same. It is a basic rule that obligations arising from a contract have
the force of law between the parties
CONCLUSION
Petitions are DENIED.
Mindanao Bus Co. vs. City Assessor and Treasurer and the
Board of Tax Appeals of CDO
This is a petition for the review of the decision of the Court of Tax
Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao
Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at
P4,400 petitioner's above-mentioned equipment. Petitioner appealed
the assessment to the respondent Board of Tax Appeals on the
ground that the same are not realty. The Board of Tax Appeals of the
City sustained the city assessor, so petitioner herein filed with the
Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following
stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to
the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in
the Island of Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro
City. It maintains Branch Offices and/or stations at Iligan City, Lanao;
Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon
Province;
3. That the machineries sought to be assessed by the respondent as
real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached
photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph,
marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph,
marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the
attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms
as may be seen in the attached photographs which form part of this
agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and
operates a garage for its TPU motor trucks; a repair shop; blacksmith
and carpentry shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed; and same are
repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as
industrial equipments to produce finished products for sale, nor to
repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following
errors:
1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments are valid;
and that said tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article
415 of the New Civil Code, and holding that pursuant thereto the
movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention
that the respondent City Assessor's power to assess and levy real
estate taxes on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are
placed on wooden or cement platforms. They can be moved around
and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of
such trade or industry."
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar and industry, converted them
into real property by reason of their purpose, it cannot be said that
their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as
the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has
been established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of
the law must first be "essential and principal elements" of an industry
or works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable
which become immobilized by destination because they are essential
and principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not
essential and principal. Thus, cash registers, typewriters, etc.,
usually found and used in hotels, restaurants, theaters, etc. are
merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or
carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM
machines, etc. which are incidentals, not essentials, and thus retain
their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in
nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they
usually own and use and are found within their industrial compounds
are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case
are, by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals — acquired as movables
and used only for expediency to facilitate and/or improve its service.
Even without such tools and equipments, its business may be carried
on, as petitioner has carried on, without such equipments, before the
war. The transportation business could be carried on without the
repair or service shop if its rolling equipment is repaired or serviced
in another shop belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works; (Civil Code of the
Phil.)
Aside from the element of essentiality the above-quoted provision
also requires that the industry or works be carried on in a building or
on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng,
supra, the "machinery, liquid containers, and instruments or
implements" are found in a building constructed on the land. A
sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only
to repair or service the transportation business, which is not carried
on in a building or permanently on a piece of land, as demanded by
the law. Said equipments may not, therefore, be deemed real
property.
Resuming what we have set forth above, we hold that the
equipments in question are not absolutely essential to the petitioner's
transportation business, and petitioner's business is not carried on in
a building, tenement or on a specified land, so said equipment may
not be considered real estate within the meaning of Article 415 (c) of
the Civil Code.
WHEREFORE, the decision subject of the petition for review is
hereby set aside and the equipment in question declared not subject
to assessment as real estate for the purposes of the real estate tax.
Without costs.
So ordered.
Chavez vs. PEA and AMARI
Fact:
In 1973, the Comissioner on Public Highways entered into a contract
to reclaim areas of Manila Bay with the Construction and
Development Corportion of the Philippines (CDCP).
PEA (Public Estates Authority) was created by President Marcos
under P.D. 1084, tasked with developing and leasing reclaimed
lands. These lands were transferred to the care of PEA under P.D.
1085 as part of the Manila Cavite Road and Reclamation Project
(MCRRP). CDCP and PEA entered into an agreement that all future
projects under the MCRRP would be funded and owned by PEA.
By 1988, President Aquino issued Special Patent No. 3517
transferring lands to PEA. It was followed by the transfer of three
Titles (7309, 7311 and 7312) by the Register of Deeds of Paranaque
to PEA covering the three reclaimed islands known as the
FREEDOM ISLANDS.
Subsquently, PEA entered into a joint venture agreement (JVA) with
AMARI, a Thai-Philippine corporation to develop the Freedom
Islands. Along with another 250 hectares, PEA and AMARI entered
the JVA which would later transfer said lands to AMARI. This caused
a stir especially when Sen. Maceda assailed the agreement, claiming
that such lands were part of public domain (famously known as the
“mother of all scams”).
Peitioner Frank J. Chavez filed case as a taxpayer praying for
mandamus, a writ of preliminary injunction and a TRO against the
sale of reclaimed lands by PEA to AMARI and from implementing the
JVA. Following these events, under President Estrada’s admin, PEA
and AMARI entered into an Amended JVA and Mr. Chaves claim
that the contract is null and void.
Issue:
w/n: the transfer to AMARI lands reclaimed or to be reclaimed as
part of the stipulations in the (Amended) JVA between AMARI and
PEA violate Sec. 3 Art. XII of the 1987 Constitution
w/n: the court is the proper forum for raising the issue of whether the
amended joint venture agreement is grossly disadvantageous to the
government.
Held:
On the issue of Amended JVA as violating the constitution:
1. The 157.84 hectares of reclaimed lands comprising the Freedom
Islands, now covered by certificates of title in the name of PEA, are
alienable lands of the public domain. PEA may lease these lands to
private corporations but may not sell or transfer ownership of these
lands to private corporations. PEA may only sell these lands to
Philippine citizens, subject to the ownership limitations in the 1987
Constitution and existing laws.
2. The 592.15 hectares of submerged areas of Manila Bay remain
inalienable natural resources of the public domain until classified as
alienable or disposable lands open to disposition and declared no
longer needed for public service. The government can make such
classification and declaration only after PEA has reclaimed these
submerged areas. Only then can these lands qualify as agricultural
lands of the public domain, which are the only natural resources the
government can alienate. In their present state, the 592.15 hectares
of submerged areas are inalienable and outside the commerce of
man.
3. Since the Amended JVA seeks to transfer to AMARI, a private
corporation, ownership of 77.34 hectares110 of the Freedom Islands,
such transfer is void for being contrary to Section 3, Article XII of the
1987 Constitution which prohibits private corporations from acquiring
any kind of alienable land of the public domain.

4. Since the Amended JVA also seeks to transfer to AMARI

ownership of 290.156 hectares111 of still submerged areas of Manila
Bay, such transfer is void for being contrary to Section 2, Article XII
of the 1987 Constitution which prohibits the alienation of natural
resources other than agricultural lands of the public domain.

PEA may reclaim these submerged areas. Thereafter, the

government can classify the reclaimed lands as alienable or
disposable, and further declare them no longer needed for public
service. Still, the transfer of such reclaimed alienable lands of the
public domain to AMARI will be void in view of Section 3, Article XII
of the 1987Constitution which prohibits private corporations from
acquiring any kind of alienable land of the public domain.