Republic of the Philippines month of December, 1913, and it has continued in Should there be no entry, the property shall
e be no entry, the property shall belong to the
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of
strong materials in which the machinery was installed,
without any reference to the land on which it stood. The
indebtedness secured by this instrument not having
been paid when it fell due, the mortgaged property was
sold by the sheriff, in pursuance of the terms of the
mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to
the machinery company in satisfaction of the mortgage
was annotated in the same registry on December 29,
1913.
A few weeks thereafter, on or about the 14th of January,
1914, the "Compañia Agricola Filipina" executed a deed
of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although
executed in a public document, was not registered. This
deed makes no reference to the building erected on the
land and would appear to have been executed for the
purpose of curing any defects which might be found to
exist in the machinery company's title to the building
under the sheriff's certificate of sale. The machinery
company went into possession of the building at or about
the time when this sale took place, that is to say, the
possession ever since.
At or about the time when the chattel mortgage was
executed in favor of the machinery company, the
mortgagor, the "Compañia Agricola Filipina" executed
another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the
plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the
sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the
building, the defendant machinery company, which was
in possession, filed with the sheriff a sworn statement
setting up its claim of title and demanding the release of
the property from the levy. Thereafter, upon demand of
the sheriff, the plaintiff executed an indemnity bond in
favor of the sheriff in the sum of P12,000, in reliance
upon which the sheriff sold the property at public
auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of
the Civil Code, gave judgment in favor of the machinery
company, on the ground that the company had its title to
the building registered prior to the date of registry of the
plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the person
who may have the first taken possession thereof in good
faith, if it should be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
person who first took possession of it in good faith, and,
in the absence thereof, to the person who presents the
oldest title, provided there is good faith.
The registry her referred to is of course the registry of
real property, and it must be apparent that the
annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given
the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage Law
contemplates and makes provision for mortgages of
personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal
property executed in the manner and form prescribed in
the statute. The building of strong materials in which the
rice-cleaning machinery was installed by the "Compañia
Agricola Filipina" was real property, and the mere fact
that the parties seem to have dealt with it separate and
apart from the land on which it stood in no wise changed
its character as real property. It follows that neither the
original registry in the chattel mortgage of the building
and the machinery installed therein, not the annotation
in that registry of the sale of the mortgaged property, had
any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery
company cannot be sustained on the ground assigned by
the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses
that neither the purchase of the building by the plaintiff
nor his inscription of the sheriff's certificate of sale in his
favor was made in good faith, and that the machinery
company must be held to be the owner of the property
under the third paragraph of the above cited article of the
code, it appearing that the company first took possession
of the property; and further, that the building and the
land were sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article
1473 of the Civil Code require "good faith," in express
terms, in relation to "possession" and "title," but contain
no express requirement as to "good faith" in relation to
the "inscription" of the property on the registry, it must
be presumed that good faith is not an essential requisite
of registration in order that it may have the effect
contemplated in this article. We cannot agree with this
1
contention. It could not have been the intention of the
legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad
faith. Such an interpretation placed upon the language of
this section would open wide the door to fraud and
collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures
an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record
presupposes the good faith of him who enters such
inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not
and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the
code, the supreme court of Spain held in its sentencia of
the 13th of May, 1908, that:
This rule is always to be understood on the basis of
the good faith mentioned in the first paragraph;
therefore, it having been found that the second
purchasers who record their purchase had
knowledge of the previous sale, the question is to be
decided in accordance with the following paragraph.
(Note 2, art. 1473, Civ. Code, Medina and Maranon
[1911] edition.)
Although article 1473, in its second paragraph,
provides that the title of conveyance of ownership of
the real property that is first recorded in the registry
shall have preference, this provision must always be
understood on the basis of the good faith mentioned
in the first paragraph; the legislator could not have
wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given
cases, does not obtain even in real disputes between
third persons. (Note 2, art. 1473, Civ. Code, issued by
the publishers of the La Revista de los Tribunales,
13th edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale
and inscribed his title in the land registry, was duly
notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's sale; and
that it was in possession at the time when the sheriff
executed his levy. The execution of an indemnity bond by
the plaintiff in favor of the sheriff, after the machinery
company had filed its sworn claim of ownership, leaves
no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at
the time of the levy and sale the building had already
been sold to the machinery company by the judgment
debtor, the plaintiff cannot be said to have been a
purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held
to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the
plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the
"Compañia Agricola Filipina." The truth is that both the
plaintiff and the defendant company appear to have had
just and righteous claims against their common debtor.
No criticism can properly be made of the exercise of the
utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim
from the estate of the common debtor. We are strongly
inclined to believe that in procuring the levy of execution
upon the factory building and in buying it at the sheriff's
sale, he considered that he was doing no more than he
had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that
time that he would be able to maintain his position in a
contest with the machinery company. There was no
collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action
in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question
the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the
machinery company's claim of ownership when he
executed the indemnity bond and bought in the property
at the sheriff's sale, and it appearing further that the
machinery company's claim of ownership was well
founded, he cannot be said to have been an innocent
purchaser for value. He took the risk and must stand by
the consequences; and it is in this sense that we find that
he was not a purchaser in good faith.
One who purchases real estate with knowledge of a
defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true
owner of the land or of an interest therein; and the same
rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with
the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable man
upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility
of the existence of a defect in his vendor's title, will not
make him an innocent purchaser for value, if afterwards
develops that the title was in fact defective, and it
appears that he had such notice of the defects as would
have led to its discovery had he acted with that measure
of precaution which may reasonably be acquired of a
prudent man in a like situation. Good faith, or lack of it, is
in its analysis a question of intention; but in ascertaining
the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence
as to the conduct and outward acts by which alone the
inward motive may, with safety, be determined. So it is
that "the honesty of intention," "the honest lawful
intent," which constitutes good faith implies a "freedom
from knowledge and circumstances which ought to put a
person on inquiry," and so it is that proof of such
knowledge overcomes the presumption of good faith in
which the courts always indulge in the absence of proof
to the contrary. "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched, but
rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros.
Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the
disposing part of the decision and judgment entered in
the court below should be affirmed with costs of this
instance against the appellant. So ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm,
JJ., concur.
Torres, Avanceña and Fisher, JJ., took no part.
2
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT &
POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo
and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening
sentence of the decision in the trial court and as set forth
by counsel for the parties on appeal, involves the
determination of the nature of the properties described
in the complaint. The trial judge found that those
properties were personal in nature, and as a
consequence absolved the defendants from the
complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber
concession from the Government of the Philippine
Islands. It has operated a sawmill in the sitio of Maa,
barrio of Tigatu, municipality of Davao, Province of
Davao. However, the land upon which the business was
conducted belonged to another person. On the land the
sawmill company erected a building which housed the
machinery used by it. Some of the implements thus used
were clearly personal property, the conflict concerning
machines which were placed and mounted on
foundations of cement. In the contract of lease between
the sawmill company and the owner of the land there
appeared the following provision:
That on the expiration of the period agreed upon, all
the improvements and buildings introduced and
erected by the party of the second part shall pass to
the exclusive ownership of the party of the first part
without any obligation on its part to pay any amount
for said improvements and buildings; also, in the
event the party of the second part should leave or
abandon the land leased before the time herein
stipulated, the improvements and buildings shall
likewise pass to the ownership of the party of the
first part as though the time agreed upon had
expired: Provided, however, That the machineries
and accessories are not included in the
improvements which will pass to the party of the
first part on the expiration or abandonment of the
land leased.
In another action, wherein the Davao Light & Power Co.,
Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc.,
was the defendant, a judgment was rendered in favor of
the plaintiff in that action against the defendant in that
action; a writ of execution issued thereon, and the
properties now in question were levied upon as
personalty by the sheriff. No third party claim was filed
for such properties at the time of the sales thereof as is
borne out by the record made by the plaintiff herein.
Indeed the bidder, which was the plaintiff in that action,
and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other
properties described in the corresponding certificates of
sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be
explained that the Davao Saw Mill Co., Inc., has on a
number of occasions treated the machinery as personal
property by executing chattel mortgages in favor of third
persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in
point. According to the Code, real property consists of —
1. Land, buildings, roads and constructions of all
kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or
implements intended by the owner of any building
or land for use in connection with any industry or
trade being carried on therein and which are
expressly adapted to meet the requirements of such
trade of industry.
Appellant emphasizes the first paragraph, and appellees
the last mentioned paragraph. We entertain no doubt
that the trial judge and appellees are right in their
appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the
appellant should have registered its protest before or at
the time of the sale of this property. It must further be
pointed out that while not conclusive, the
characterization of the property as chattels by the
appellant is indicative of intention and impresses upon
the property the character determined by the parties. In
this connection the decision of this court in the case of
Standard Oil Co. of New York vs. Jaramillo ( [1923], 44
Phil., 630), whether obiter dicta or not, furnishes the key
to such a situation.
It is, however not necessary to spend overly must time in
the resolution of this appeal on side issues. It is
machinery which is involved; moreover, machinery not
intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in
a building erected on the land by the latter to be returned
to the lessee on the expiration or abandonment of the
lease.
A similar question arose in Puerto Rico, and on appeal
being taken to the United States Supreme Court, it was
held that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the
owner of the property or plant, but not when so placed
by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of
the owner. In the opinion written by Chief Justice White,
whose knowledge of the Civil Law is well known, it was
in part said:
To determine this question involves fixing the nature
and character of the property from the point of view
of the rights of Valdes and its nature and character
from the point of view of Nevers & Callaghan as a
judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on
the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property, not only land
and buildings, but also attributes immovability in
some cases to property of a movable nature, that is,
personal property, because of the destination to
3
which it is applied. "Things," says section 334 of the in giving by contract a permanent destination to the
Porto Rican Code, "may be immovable either by their machinery.
own nature or by their destination or the object to
which they are applicable." Numerous illustrations xxx xxx xxx
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 The machinery levied upon by Nevers & Callaghan,
for the industrial or works that they may carry on in that is, that which was placed in the plant by the
any building or upon any land and which tend Altagracia Company, being, as regards Nevers &
directly to meet the needs of the said industry or Callaghan, movable property, it follows that they had
works." (See also Code Nap., articles 516, 518 et seq. the right to levy on it under the execution upon the
to and inclusive of article 534, recapitulating the judgment in their favor, and the exercise of that right
things which, though in themselves movable, may be did not in a legal sense conflict with the claim of
immobilized.) So far as the subject-matter with which Valdes, since as to him the property was a part of the
we are dealing — machinery placed in the plant — it realty which, as the result of his obligations under the
is plain, both under the provisions of the Porto Rican lease, he could not, for the purpose of collecting his
Law and of the Code Napoleon, that machinery which debt, proceed separately against. (Valdes vs. Central
is movable in its nature only becomes immobilized Altagracia [192], 225 U.S., 58.)
when placed in a plant by the owner of the property
or plant. Such result would not be accomplished, Finding no reversible error in the record, the judgment
therefore, by the placing of machinery in a plant by a appealed from will be affirmed, the costs of this instance
tenant or a usufructuary or any person having only a to be paid by the appellant.
temporary right. (Demolombe, Tit. 9, No. 203; Aubry
et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. Villa-Real, Imperial, Butte, and Goddard, JJ., concur
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

4
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7057 October 29, 1954
MACHINERY & ENGINEERING SUPPLIES, INC.,
petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON.
POTENCIANO PECSON, JUDGE OF THE COURT OF
FIRST INSTANCE OF MANILA, IPO LIMESTONE CO.,
INC., and ANTONIO VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner
Machinery and Engineering Supplies Inc., from a decision
of the Court of Appeals denying an original petition
for certiorari filed by said petitioner against Hon.
Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio
Villarama, the respondents herein.
The pertinent facts are set forth in the decision of the
Court of Appeals, from which we quote:
On March 13, 1953, the herein petitioner filed
a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067,
entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and
Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment
sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan.
Upon application ex-parte of the petitioner
company, and upon approval of petitioner's
bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order,
commanding the Provincial Sheriff of Bulacan
to seize and take immediate possession of the
properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy
sheriffs of Bulacan, the said Ramon S. Roco,
and a crew of technical men and laborers
proceeded to Bigti, for the purpose of carrying
the court's order into effect. Leonardo
Contreras, Manager of the respondent
Company, and Pedro Torres, in charge thereof,
met the deputy sheriffs, and Contreras handed
to them a letter addressed to Atty. Leopoldo C.
Palad, ex-oficio Provincial Sheriff of Bulacan,
signed by Atty. Adolfo Garcia of the defendants
therein, protesting against the seizure of the
properties in question, on the ground that
they are not personal properties. Contending
that the Sheriff's duty is merely ministerial,
the deputy sheriffs, Roco, the latter's crew of
technicians and laborers, Contreras and
Torres, went to the factory. Roco's attention
was called to the fact that the equipment could
not possibly be dismantled without causing
damages or injuries to the wooden frames
attached to them. As Roco insisted in
dismantling the equipment on his own
responsibility, alleging that the bond was
posted for such eventuality, the deputy
sheriffs directed that some of the supports
thereof be cut (Appendix 2). On March 20,
1953, the defendant Company filed an urgent
motion, with a counter-bond in the amount of
P15,769, for the return of the properties
seized by the deputy sheriffs. On the same day,
the trial court issued an order, directing the
Provincial Sheriff of Bulacan to return the
machinery and equipment to the place where
they were installed at the time of the seizure
(Appendix 3). On March 21, 1953, the deputy
sheriffs returned the properties seized, by
depositing them along the road, near the
quarry, of the defendant Company, at Bigti,
without the benefit of inventory and without
re-installing hem in their former position and
replacing the destroyed posts, which rendered
their use impracticable. On March 23, 1953,
the defendants' counsel asked the provincial
Sheriff if the machinery and equipment,
dumped on the road would be re-installed tom
their former position and condition (letter,
Appendix 4). On March 24, 1953, the
Provincial Sheriff filed an urgent motion in
court, manifesting that Roco had been asked
to furnish the Sheriff's office with the
expenses, laborers, technical men and
equipment, to carry into effect the court's
order, to return the seized properties in the
same way said Roco found them on the day of
seizure, but said Roco absolutely refused to do
so, and asking the court that the Plaintiff
therein be ordered to provide the required aid
or relieve the said Sheriff of the duty of
complying with the said order dated March 20,
1953 (Appendix 5). On March 30, 1953, the
trial court ordered the Provincial Sheriff and
the Plaintiff to reinstate the machinery and
equipment removed by them in their original
condition in which they were found before
their removal at the expense of the Plaintiff
(Appendix 7). An urgent motion of the
Provincial Sheriff dated April 15, 1953,
praying for an extension of 20 days within
which to comply with the order of the Court
(appendix 10) was denied; and on May 4,
1953, the trial court ordered the Plaintiff
therein to furnish the Provincial Sheriff within
5 days with the necessary funds, technical
men, laborers, equipment and materials to
effect the repeatedly mentioned re-
installation (Appendix 13). (Petitioner's brief,
Appendix A, pp. I-IV.)
Thereupon petitioner instituted in the Court of Appeals
civil case G.R. No. 11248-R, entitled "Machinery and
Engineering Supplies, Inc. vs. Honorable Potenciano
Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co.,
Inc., and Antonio Villarama." In the petition therein filed,
it was alleged that, in ordering the petitioner to furnish
the provincial sheriff of Bulacan "with necessary funds,
technical men, laborers, equipment and materials, to
effect the installation of the machinery and equipment"
in question, the Court of Firs Instance of Bulacan had
committed a grave abuse if discretion and acted in excess
of its jurisdiction, for which reason it was prayed that its
order to this effect be nullified, and that, meanwhile, a
writ of preliminary injunction be issued to restrain the
enforcement o said order of may 4, 1953. Although the
aforementioned writ was issued by the Court of Appeals,
the same subsequently dismissed by the case for lack of
merit, with costs against the petitioner, upon the
following grounds:
While the seizure of the equipment and
personal properties was ordered by the
respondent Court, it is, however, logical to
5
presume that said court did not authorize the
petitioner or its agents to destroy, as they did,
said machinery and equipment, by dismantling
and unbolting the same from their concrete
basements, and cutting and sawing their
wooden supports, thereby rendering them
unserviceable and beyond repair, unless those
parts removed, cut and sawed be replaced,
which the petitioner, not withstanding the
respondent Court's order, adamantly refused to
do. The Provincial Sheriff' s tortious act, in
obedience to the insistent proddings of the
president of the Petitioner, Ramon S. Roco, had
no justification in law, notwithstanding the
Sheriffs' claim that his duty was ministerial. It
was the bounden duty of the respondent Judge
to give redress to the respondent Company, for
the unlawful and wrongful acts committed by
the petitioner and its agents. And as this was
the true object of the order of March 30, 1953,
we cannot hold that same was within its
jurisdiction to issue. The ministerial duty of the
Sheriff should have its limitations. The Sheriff
knew or must have known what is inherently
right and inherently wrong, more so when, as in
this particular case, the deputy sheriffs were
shown a letter of respondent Company's
attorney, that the machinery were not personal
properties and, therefore, not subject to seizure
by the terms of the order. While it may be
conceded that this was a question of law too
technical to decide on the spot, it would not
have costs the Sheriff much time and difficulty
to bring the letter to the court's attention and
have the equipment and machinery guarded, so
as not to frustrate the order of seizure issued by
the trial court. But acting upon the directives of
the president of the Petitioner, to seize the
properties at any costs, in issuing the order
sought to be annulled, had not committed
abuse of discretion at all or acted in an arbitrary
or despotic manner, by reason of passion or
personal hostility; on the contrary, it issued
said order, guided by the well known principle
that of the property has to be returned, it
should be returned in as good a condition as
when taken (Bachrach Motor Co., Inc., vs. Bona,
44 Phil., 378). If any one had gone beyond the
scope of his authority, it is the respondent
Provincial Sheriff. But considering that fact that
he acted under the pressure of Ramon S. Roco,
and that the order impugned was issued not by
him, but by the respondent Judge, We simply
declare that said Sheriff' act was most unusual
and the result of a poor judgment. Moreover,
the Sheriff not being an officer exercising
judicial functions, the writ may not reach him,
for certiorari lies only to review judicial
actions.
The Petitioner complains that the respondent
Judge had completely disregarded his
manifestation that the machinery and
equipment seized were and still are the
Petitioner's property until fully paid for and
such never became immovable. The question of
ownership and the applicability of Art. 415 of
the new Civil Code are immaterial in the
determination of the only issue involved in this
case. It is a matter of evidence which should be
decided in the hearing of the case on the merits.
The question as to whether the machinery or
equipment in litigation are immovable or not is
likewise immaterial, because the only issue
raised before the trial court was whether the
Provincial Sheriff of Bulacan, at the Petitioner's
instance, was justified in destroying the
machinery and in refusing to restore them to
their original form , at the expense of the
Petitioner. Whatever might be the legal
character of the machinery and equipment,
would not be in any way justify their justify
their destruction by the Sheriff's and the said
Petitioner's. (Petitioner's brief, Appendix A, pp.
IV-VII.)
A motion for reconsideration of this decision of the Court
of Appeals having been denied , petitioner has brought
the case to Us for review by writ of certiorari. Upon
examination of the record, We are satisfied, however that
the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by
Rule 62 of Court, is applicable only to "personal
property".
Ordinarily replevin may be brought to recover any
specific personal property unlawfully taken or
detained from the owner thereof, provided such
property is capable of identification and
delivery; but replevin will not lie for the recovery of
real property or incorporeal personal property. (77
C. J. S. 17) (Emphasis supplied.)
When the sheriff repaired to the premises of respondent,
Ipo Limestone Co., Inc., machinery and equipment in
question appeared to be attached to the land, particularly
to the concrete foundation of said premises, in a fixed
manner, in such a way that the former could not be
separated from the latter "without breaking the material
or deterioration of the object." Hence, in order to remove
said outfit, it became necessary, not only to unbolt the
same, but , also, to cut some of its wooden supports.
Moreover, said machinery and equipment were
"intended by the owner of the tenement for an industry"
carried on said immovable and tended." For these
reasons, they were already immovable property
pursuant to paragraphs 3 and 5 of Article 415 of Civil
Code of the Philippines, which are substantially identical
to paragraphs 3 and 5 of Article 334 of the Civil Code of
Spain. As such immovable property, they were not
subject to replevin.
In so far as an article, including a fixture annexed
by a tenant, is regarded as part of the realty, it is
not the subject for personality; . . . .
. . . the action of replevin does not lie for articles
so annexed to the realty as to be part as to be
part thereof, as, for example, a house or a turbine
pump constituting part of a building's cooling
system; . . . (36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove
the property in question, petitioner's agent and
president, Mr. Ramon Roco, insisted "on the dismantling
at his own responsibility," stating that., precisely, "that is
the reason why plaintiff posted a bond ." In this manner,
petitioner clearly assumed the corresponding risks.
Such assumption of risk becomes more apparent when
we consider that, pursuant to Section 5 of Rule 62 of the
Rules of Court, the defendant in an action for replevin is
entitled to the return of the property in dispute upon the
filing of a counterbond, as provided therein. In other
words, petitioner knew that the restitution of said
property to respondent company might be ordered
under said provision of the Rules of Court, and that,
6
consequently, it may become necessary for petitioner to
meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have

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

Wherefore, the decision of the Court of Appeals is hereby

affirmed, with costs against the petitioner. So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo,

Bautista Angelo and Reyes, J.B.L., JJ., concur.
Paras, C.J., concurs in the result.

7
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY,
INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED
INSURANCE and SURETY COMPANY. INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant
Associated Insurance and Surety Co., Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife,
were the owners and possessors of a house of strong
materials constructed on Lot No. 3, Block No. 80 of the
Grace Park Subdivision in Caloocan, Rizal, which they
purchased on installment basis from the Philippine
Realty Corporation. On November 6, 1951, to enable her
to purchase on credit rice from the NARIC, Lucia A. Valino
filed a bond in the sum of P11,000.00 (AISCO Bond No. G-
971) subscribed by the Associated Insurance and Surety
Co., Inc., and as counter-guaranty therefor, the spouses
Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company,
which encumbrance was duly registered with the Chattel
Mortgage Register of Rizal on December 6, 1951. It is
admitted that at the time said undertaking took place, the
parcel of land on which the house is erected was still
registered in the name of the Philippine Realty
Corporation. Having completed payment on the
purchase price of the lot, the Valinos were able to secure
on October 18, 1958, a certificate of title in their name
(T.C.T. No. 27884). Subsequently, however, or on October
24, 1952, the Valinos, to secure payment of an
indebtedness in the amount of P12,000.00, executed
a real estate mortgage over the lot and the house in favor
of Isabel Iya, which was duly registered and annotated at
the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her
obligation to the NARIC, the surety company was
compelled to pay the same pursuant to the undertaking
of the bond. In turn, the surety company demanded
reimbursement from the spouses Valino, and as the latter
likewise failed to do so, the company foreclosed the
chattel mortgage over the house. As a result thereof, a
public sale was conducted by the Provincial Sheriff of
Rizal on December 26, 1952, wherein the property was
awarded to the surety company for P8,000.00, the
highest bid received therefor. The surety company then
caused the said house to be declared in its name for tax
purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of
the existence of the real estate mortgage over the lot
covered by T.C.T. No. 26884 together with the
improvements thereon; thus, said surety company
instituted Civil Case No. 2162 of the Court of First
Instance of Manila naming Adriano and Lucia Valino and
Isabel Iya, the mortgagee, as defendants. The complaint
prayed for the exclusion of the residential house from the
real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to
ownership over the same in virtue of the award given by
the Provincial Sheriff of Rizal during the public auction
held on December 26, 1952. Plaintiff likewise asked the
Court to sentence the spouses Valino to pay said surety
moral and exemplary damages, attorney's fees and costs.
Defendant Isabel Iya filed her answer to the complaint
alleging among other things, that in virtue of the real
estate mortgage executed by her co-defendants, she
acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly
conducted by the Provincial Sheriff of Rizal as a result of
the foreclosure of the chattel mortgage on the house was
null and void for non-compliance with the form required
by law. She, therefore, prayed for the dismissal of the
complaint and anullment of the sale made by the
Provincial Sheriff. She also demanded the amount of
P5,000.00 from plaintiff as counterclaim, the sum of
P5,000.00 from her co-defendants as crossclaim, for
attorney's fees and costs.
Defendants spouses in their answer admitted some of the
averments of the complaint and denied the others. They,
however, prayed for the dismissal of the action for lack
of cause of action, it being alleged that plaintiff was
already the owner of the house in question, and as said
defendants admitted this fact, the claim of the former
was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action
against the Valinos and the surety company (Civil Case
No. 2504 of the Court of First Instance of Manila) stating
that pursuant to the contract of mortgage executed by
the spouses Valino on October 24, 1952, the latter
undertook to pay a loan of P12,000.00 with interest at
12% per annum or P120.00 a month, which
indebtedness was payable in 4 years, extendible for only
one year; that to secure payment thereof, said
defendants mortgaged the house and lot covered by
T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a party
defendant because it claimed to have an interest on the
residential house also covered by said mortgage; that it
was stipulated in the aforesaid real estate mortgage that
default in the payment of the interest agreed upon would
entitle the mortgagee to foreclose the same even before
the lapse of the 4-year period; and as defendant spouses
had allegedly failed to pay the interest for more than 6
months, plaintiff prayed the Court to order said
defendants to pay the sum of P12,000.00 with interest
thereon at 12% per annum from March 25, 1953, until
fully paid; for an additional sum equivalent to 20% of the
total obligation as damages, and for costs. As an
alternative in case such demand may not be met and
satisfied plaintiff prayed for a decree of foreclosure of the
land, building and other improvements thereon to be
sold at public auction and the proceeds thereof applied
to satisfy the demands of plaintiff; that the Valinos, the
surety company and any other person claiming interest
on the mortgaged properties be barred and foreclosed of
all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the
proceeds of the sale of the mortgaged property would be
insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint
insisted on its right over the building, arguing that as the
lot on which the house was constructed did not belong to
the spouses at the time the chattel mortgage was
executed, the house might be considered only as a
personal property and that the encumbrance thereof and
the subsequent foreclosure proceedings made pursuant
8
to the provisions of the Chattel Mortgage Law were
proper and legal. Defendant therefore prayed that said
building be excluded from the real estate mortgage and
its right over the same be declared superior to that of
plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses
admitted the due execution of the mortgage upon the
land but assailed the allegation that the building was
included thereon, it being contended that it was already
encumbered in favor of the surety company before the
real estate mortgage was executed, a fact made known to
plaintiff during the preparation of said contract and to
which the latter offered no objection. As a special
defense, it was asserted that the action was premature
because the contract was for a period of 4 years, which
had not yet elapsed.
The two cases were jointly heard upon agreement of the
parties, who submitted the same on a stipulation of facts,
after which the Court rendered judgment dated March 8,
1956, holding that the chattel mortgage in favor of the
Associated Insurance and Surety Co., Inc., was preferred
and superior over the real estate mortgage subsequently
executed in favor of Isabel Iya. It was ruled that as the
Valinos were not yet the registered owner of the land on
which the building in question was constructed at the
time the first encumbrance was made, the building then
was still a personality and a chattel mortgage over the
same was proper. However, as the mortgagors were
already the owner of the land at the time the contract
with Isabel Iya was entered into, the building was
transformed into a real property and the real estate
mortgage created thereon was likewise adjudged as
proper. It is to be noted in this connection that there is no
evidence on record to sustain the allegation of the
spouses Valino that at the time they mortgaged
their house and lot to Isabel Iya, the latter was told or
knew that part of the mortgaged property, i.e., the house,
had previously been mortgaged to the surety company.
The residential building was, therefore, ordered
excluded from the foreclosure prayed for by Isabel Iya,
although the latter could exercise the right of a junior
encumbrance. So the spouses Valino were ordered to pay
the amount demanded by said mortgagee or in their
default to have the parcel of land subject of the mortgage
sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land
covered by the real estate mortgage; however, as the
building constructed thereon has been the subject of 2
mortgages; controversy arise as to which of these
encumbrances should receive preference over the other.
The decisive factor in resolving the issue presented by
this appeal is the determination of the nature of the
structure litigated upon, for where it be considered a
personality, the foreclosure of the chattel mortgage and
the subsequent sale thereof at public auction, made in
accordance with the Chattel Mortgage Law would be
valid and the right acquired by the surety company
therefrom would certainly deserve prior recognition;
otherwise, appellant's claim for preference must be
granted. The lower Court, deciding in favor of the surety
company, based its ruling on the premise that as the
mortgagors were not the owners of the land on which the
building is erected at the time the first encumbrance was
made, said structure partook of the nature of a personal
property and could properly be the subject of a chattel
mortgage. We find reason to hold otherwise, for as this
Court, defining the nature or character of a building, has
said:
. . . while it is true that generally, real estate connotes
the land and the building constructed thereon, it is
obvious that the inclusion of the building, separate
and distinct from the land, in the enumeration of
what may constitute real properties (Art. 415, new
Civil Code) could only mean one thing — that
a building is by itself an immovable property . . .
Moreover, and in view of the absence of any specific
provision to the contrary, a building is an immovable
property irrespective of whether or not said structure
and the land on which it is adhered to belong to the
same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of
a realty by the fact that the land on which it is constructed
belongs to another. To hold it the other way, the
possibility is not remote that it would result in confusion,
for to cloak the building with an uncertain status made
dependent on the ownership of the land, would create a
situation where a permanent fixture changes its nature
or character as the ownership of the land changes hands.
In the case at bar, as personal properties could only be
the subject of a chattel mortgage (Section 1, Act 3952)
and as obviously the structure in question is not one, the
execution of the chattel mortgage covering said building
is clearly invalid and a nullity. While it is true that said
document was correspondingly registered in the Chattel
Mortgage Register of Rizal, this act produced no effect
whatsoever for where the interest conveyed is in the
nature of a real property, the registration of the
document in the registry of chattels is merely a futile act.
Thus, the registration of the chattel mortgage of a
building of strong materials produce no effect as far as
the building is concerned (Leung Yee vs. Strong
Machinery Co., 37 Phil., 644). Nor can we give any
consideration to the contention of the surety that it has
acquired ownership over the property in question by
reason of the sale conducted by the Provincial Sheriff of
Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties
at an extrajudicial foreclosure sale thereof by virtue
of a chattel mortgage constituted in his favor, which
mortgage has been declared null and void with
respect to said real properties, acquires no right
thereto by virtue of said sale (De la Riva vs. Ah Keo,
60 Phil., 899).
Wherefore the portion of the decision of the lower Court
in these two cases appealed from holding the rights of the
surety company, over the building superior to that of
Isabel Iya and excluding the building from the
foreclosure prayed for by the latter is reversed and
appellant Isabel Iya's right to foreclose not only the land
but also the building erected thereon is hereby
recognized, and the proceeds of the sale thereof at public
auction (if the land has not yet been sold), shall be
applied to the unsatisfied judgment in favor of Isabel Iya.
This decision however is without prejudice to any right
that the Associated Insurance and Surety Co., Inc., may
have against the spouses Adriano and Lucia Valino on
account of the mortgage of said building they executed in
favor of said surety company. Without pronouncement
as to costs. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista
Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia,
JJ., concur.
9
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD
OF TAX APPEALS of Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the
Court of Tax Appeals in C.T.A. Case No. 710 holding that
the petitioner Mindanao Bus Company is liable to the
payment of the realty tax on its maintenance and repair
equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City
assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that the
same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed
with the Court of Tax Appeals a petition for the review of
the assessment.
In the Court of Tax Appeals the parties submitted the
following stipulation of facts:
Petitioner and respondents, thru their respective
counsels agreed to the following stipulation of facts:
1. That petitioner is a public utility solely engaged in
transporting passengers and cargoes by motor
trucks, over its authorized lines in the Island of
Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at
Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the
respondent as real properties are the following:
(a) Hobart Electric Welder Machine, appearing
in the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the
attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the
attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the
attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph, marked
Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in
the attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed
stipulation of facts;
5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed;
and same are repaired in a condition to be
serviceable in the TPU land transportation business
it operates;
6. That these machineries have never been or were
never used as industrial equipments to produce
finished products for sale, nor to repair machineries,
parts and the like offered to the general public
indiscriminately for business or commercial
purposes for which petitioner has never engaged in,
to date.1awphîl.nèt
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the case
to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the
questioned assessments are valid; and that said
tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil Code, and
holding that pursuant thereto the movable
equipments are taxable realties, by reason of their
being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's
motion for reconsideration.
Respondents contend that said equipments, tho movable,
are immobilized by destination, in accordance with
paragraph 5 of Article 415 of the New Civil Code which
provides:
Art. 415. — The following are immovable
properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried on in
a building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works. (Emphasis ours.)
10
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 permanently on a piece of land, as demanded by the law.
manufacture of liquor and soft drinks, though movable in Said equipments may not, therefore, be deemed real
nature, are immobilized because they are essential to property.
said industries; but the delivery trucks and adding
machines which they usually own and use and are found Resuming what we have set forth above, we hold that the
within their industrial compounds are merely incidental equipments in question are not absolutely essential to
and retain their movable nature. the petitioner's transportation business, and petitioner's
business is not carried on in a building, tenement or on a
Similarly, the tools and equipments in question in this specified land, so said equipment may not be considered
instant case are, by their nature, not essential and real estate within the meaning of Article 415 (c) of the
principle municipal elements of petitioner's business of Civil Code.
transporting passengers and cargoes by motor trucks.
They are merely incidentals — acquired as movables and WHEREFORE, the decision subject of the petition for
used only for expediency to facilitate and/or improve its review is hereby set aside and the equipment in question
service. Even without such tools and equipments, its declared not subject to assessment as real estate for the
business may be carried on, as petitioner has carried on, purposes of the real estate tax. Without costs.
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 So ordered.
or serviced in another shop belonging to another.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L.,
The law that governs the determination of the question Paredes, Dizon and Makalintal, JJ., concur.
at issue is as follows: Regala, Concepcion and Barrera JJ., took no part.
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
11
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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,
España Extension, Quezon City. The findings were as
follows: the ground around one of the four posts was
excavated to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we
deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars
attached to the leg means of bolts; the tower proper
was attached to the leg three bolts; with two cross
metals to prevent mobility; there was no concrete
foundation but there was adobe stone underneath; as
the bottom of the excavation was covered with water
about three inches high, it could not be determined
with certainty to whether said adobe stone was
placed purposely or not, as the place abounds with
this kind of stone; and the tower carried five high
voltage wires without cover or any insulating
materials.
The second tower inspected was located in Kamuning
Road, K-F, Quezon City, on land owned by the
petitioner approximate more than one kilometer
from the first tower. As in the first tower, the ground
around one of the four legs was excavate from seven
to eight (8) feet deep and one and a half (1-½) meters
wide. There being very little water at the bottom, it
was seen that there was no concrete foundation, but
there soft adobe beneath. The leg was likewise
provided with two parallel steel bars bolted to a
square metal frame also bolted to each corner. Like
the first one, the second tower is made up of metal
rods joined together by means of bolts, so that by
unscrewing the bolts, the tower could be dismantled
and reassembled.
The third tower examined is located along Kamias
Road, Quezon City. As in the first two towers given
above, the ground around the two legs of the third
tower was excavated to a depth about two or three
inches beyond the outside level of the steel bar
foundation. It was found that there was no concrete
foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be
resting on soft adobe, which, probably due to high
humidity, looks like mud or clay. It was also found
that the square metal frame supporting the legs were
not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of
Quezon City declared the aforesaid steel towers for real
property tax under Tax declaration Nos. 31992 and
15549. After denying respondent's petition to cancel
these declarations, an appeal was taken by respondent to
the Board of Assessment Appeals of Quezon City, which
required respondent to pay the amount of P11,651.86 as
real property tax on the said steel towers for the years
1952 to 1956. Respondent paid the amount under
protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on
December 29, 1958, ordering the cancellation of the said
tax declarations and the petitioner City Treasurer of
Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been
denied, on April 22, 1959, the instant petition for review
was filed.
In upholding the cause of respondents, the CTA held that:
(1) the steel towers come within the term "poles" which
are declared exempt from taxes under part II paragraph
9 of respondent's franchise; (2) the steel towers are
personal properties and are not subject to real property
tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are
assigned as errors by the petitioner in the brief.
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.)
12
The word "pole" means "a long, comparatively slender
usually cylindrical piece of wood or timber, as typically
the stem of a small tree stripped of its branches; also by
extension, a similar typically cylindrical piece or object of
metal or the like". The term also refers to "an upright
standard to the top of which something is affixed or by
which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a
vessel's master (Webster's New International Dictionary
2nd Ed., p. 1907.) Along the streets, in the City of Manila,
may be seen cylindrical metal poles, cubical concrete
poles, and poles of the PLDT Co. which are made of two
steel bars joined together by an interlacing metal rod.
They are called "poles" notwithstanding the fact that they
are no made of wood. It must be noted from paragraph 9,
above quoted, that the concept of the "poles" for which
exemption is granted, is not determined by their place or
location, nor by the character of the electric current it
carries, nor the material or form of which it is made, but
the use to which they are dedicated. In accordance with
the definitions, pole is not restricted to a long cylindrical
piece of wood or metal, but includes "upright standards
to the top of which something is affixed or by which
something is supported. As heretofore described,
respondent's steel supports consists of a framework of
four steel bars or strips which are bound by steel cross-
arms atop of which are cross-arms supporting five high
voltage transmission wires (See Annex A) and their sole
function is to support or carry such wires.
The conclusion of the CTA that the steel supports in
question are embraced in the term "poles" is not a
novelty. Several courts of last resort in the United States
have called these steel supports "steel towers", and they
denominated these supports or towers, as electric poles.
In their decisions the words "towers" and "poles" were
used interchangeably, and it is well understood in that
jurisdiction that a transmission tower or pole means the
same thing.
In a proceeding to condemn land for the use of electric
power wires, in which the law provided that wires shall
be constructed upon suitable poles, this term was
construed to mean either wood or metal poles and in
view of the land being subject to overflow, and the
necessary carrying of numerous wires and the distance
between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co.
(Tex) 212 S.W. 222, 224; 32-A Words and Phrases, p.
365.)
The term "poles" was also used to denominate the steel
supports or towers used by an association used to convey
its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and
dangerous electric wires alongside public highways. The
steel supports or towers were made of iron or other
metals consisting of two pieces running from the ground
up some thirty feet high, being wider at the bottom than
at the top, the said two metal pieces being connected
with criss-cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage
electricity. In form and structure, they are like the steel
towers in question. (Salt River Valley Users' Ass'n v.
Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of
an electric company engaged in the generation of hydro-
electric power generated from its plant to the Tower of
Oxford and City of Waterbury. These steel towers are
about 15 feet square at the base and extended to a height
of about 35 feet to a point, and are embedded in the
cement foundations sunk in the earth, the top of which
extends above the surface of the soil in the tower of
Oxford, and to the towers are attached insulators, arms,
and other equipment capable of carrying wires for the
transmission of electric power (Connecticut Light and
Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on
which a certain person met his death was built for the
purpose of supporting a transmission wire used for
carrying high-tension electric power, but claimed that
the steel towers on which it is carried were so large that
their wire took their structure out of the definition of a
pole line. It was held that in defining the word pole, one
should not be governed by the wire or material of the
support used, but was considering the danger from any
elevated wire carrying electric current, and that
regardless of the size or material wire of its individual
members, any continuous series of structures intended
and used solely or primarily for the purpose of
supporting wires carrying electric currents is a pole line
(Inspiration Consolidation Cooper Co. v. Bryan 252 P.
1016).
It is evident, therefore, that the word "poles", as used in
Act No. 484 and incorporated in the petitioner's
franchise, should not be given a restrictive and narrow
interpretation, as to defeat the very object for which the
franchise was granted. The poles as contemplated
thereon, should be understood and taken as a part of the
electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to
its consumers. If the respondent would be required to
employ "wooden poles", or "rounded poles" as it used to
do fifty years back, then one should admit that the
Philippines is one century behind the age of space. It
should also be conceded by now that steel towers, like
the ones in question, for obvious reasons, can better
effectuate the purpose for which the respondent's
franchise was granted.
Granting for the purpose of argument that the steel
supports or towers in question are not embraced within
the termpoles, the logical question posited is whether
they constitute real properties, so that they can be
subject to a real property tax. The tax law does not
provide for a definition of real property; but Article 415
of the Civil Code does, by stating the following are
immovable property:
(1) Land, buildings, roads, and constructions of all
kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or
deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried in a
building or on a piece of land, and which tends
directly to meet the needs of the said industry or
works;
xxx xxx xxx
13
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.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador,

Concepcion, Reyes, J.B.L., Barrera and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.

14
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO
SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-
G.R. No. 27824-R) for the reason that only questions of
law are involved.
This case was originally commenced by defendants-
appellants in the municipal court of Manila in Civil Case
No. 43073, for ejectment. Having lost therein,
defendants-appellants appealed to the court a quo (Civil
Case No. 30993) which also rendered a decision against
them, the dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment in
favor of the plaintiffs and against the defendants,
ordering the latter to pay jointly and severally the
former a monthly rent of P200.00 on the house,
subject-matter of this action, from March 27, 1956,
to January 14, 1967, with interest at the legal rate
from April 18, 1956, the filing of the complaint, until
fully paid, plus attorney's fees in the sum of P300.00
and to pay the costs.
It appears on the records that on 1 September 1955
defendants-appellants executed a chattel mortgage in
favor of plaintiffs-appellees over their house of strong
materials located at No. 550 Int. 3, Quezon Boulevard,
Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No.
2554, which were being rented from Madrigal &
Company, Inc. The mortgage was registered in the
Registry of Deeds of Manila on 2 September 1955. The
herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable
within one year at 12% per annum. The mode of payment
was P150.00 monthly, starting September, 1955, up to
July 1956, and the lump sum of P3,150 was payable on or
before August, 1956. It was also agreed that default in the
payment of any of the amortizations, would cause the
remaining unpaid balance to becomeimmediately due
and Payable and —
the Chattel Mortgage will be enforceable in
accordance with the provisions of Special Act No.
3135, and for this purpose, the Sheriff of the City of
Manila or any of his deputies is hereby empowered
and authorized to sell all the Mortgagor's property
after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly
interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the
mortgage was extrajudicially foreclosed, and on 27
March 1956, the house was sold at public auction
pursuant to the said contract. As highest bidder,
plaintiffs-appellees were issued the corresponding
certificate of sale.3 Thereafter, on 18 April 1956,
plaintiffs-appellant commenced Civil Case No. 43073 in
the municipal court of Manila, praying, among other
things, that the house be vacated and its possession
surrendered to them, and for defendants-appellants to
pay rent of P200.00 monthly from 27 March 1956 up to
the time the possession is surrendered.4 On 21
September 1956, the municipal court rendered its
decision —
... ordering the defendants to vacate the premises
described in the complaint; ordering further to pay
monthly the amount of P200.00 from March 27,
1956, until such (time that) the premises is (sic)
completely vacated; plus attorney's fees of P100.00
and the costs of the suit.5
Defendants-appellants, in their answers in both the
municipal court and court a quo impugned the legality of
the chattel mortgage, claiming that they are still the
owners of the house; but they waived the right to
introduce evidence, oral or documentary. Instead, they
relied on their memoranda in support of their motion to
dismiss, predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and
decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior
possession; and (b) failure to prove prior demand
pursuant to Section 2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First
Instance, defendants-appellants failed to deposit the rent
for November, 1956 within the first 10 days of December,
1956 as ordered in the decision of the municipal court.
As a result, the court granted plaintiffs-appellees' motion
for execution, and it was actually issued on 24 January
1957. However, the judgment regarding the surrender of
possession to plaintiffs-appellees could not be executed
because the subject house had been already demolished
on 14 January 1957 pursuant to the order of the court in
a separate civil case (No. 25816) for ejectment against
the present defendants for non-payment of rentals on the
land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal,
execution of the supersedeas bond and withdrawal of
deposited rentals was denied for the reason that the
liability therefor was disclaimed and was still being
litigated, and under Section 8, Rule 72, rentals deposited
had to be held until final disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance
rendered its decision, the dispositive portion of which is
quoted earlier. The said decision was appealed by
defendants to the Court of Appeals which, in turn,
certified the appeal to this Court. Plaintiffs-appellees
failed to file a brief and this appeal was submitted for
decision without it.
Defendants-appellants submitted numerous
assignments of error which can be condensed into two
questions, namely: .
(a) Whether the municipal court from which the
case originated had jurisdiction to adjudicate the
same;
(b) Whether the defendants are, under the law,
legally bound to pay rentals to the plaintiffs during
15
 the period of one (1) year provided by law for the
redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the
jurisdiction of the municipal court from which the case
originated, and consequently, the appellate jurisdiction
of the Court of First Instance a quo, on the theory that the
chattel mortgage is void ab initio; whence it would follow
that the extrajudicial foreclosure, and necessarily the
consequent auction sale, are also void. Thus, the
ownership of the house still remained with defendants-
appellants who are entitled to possession and not
plaintiffs-appellees. Therefore, it is argued by
defendants-appellants, the issue of ownership will have
to be adjudicated first in order to determine possession.
lt is contended further that ownership being in issue, it is
the Court of First Instance which has jurisdiction and not
the municipal court.
Defendants-appellants predicate their theory of nullity of
the chattel mortgage on two grounds, which are: (a) that,
their signatures on the chattel mortgage were obtained
through fraud, deceit, or trickery; and (b) that the subject
matter of the mortgage is a house of strong materials,
and, being an immovable, it can only be the subject of a
real estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of
First Instance found defendants-appellants' contentions
as not supported by evidence and accordingly dismissed
the charge,8 confirming the earlier finding of the
municipal court that "the defense of ownership as well as
the allegations of fraud and deceit ... are mere
allegations."9
It has been held in Supia and Batiaco vs. Quintero and
Ayala10 that "the answer is a mere statement of the facts
which the party filing it expects to prove, but it is not
evidence;11 and further, that when the question to be
determined is one of title, the Court is given the authority
to proceed with the hearing of the cause until this fact is
clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful
bidder in an auction sale, it was likewise held by this
Court that in detainer cases the aim of ownership "is a
matter of defense and raises an issue of fact which should
be determined from the evidence at the trial." What
determines jurisdiction are the allegations or averments
in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or
deceit does not render a contract void ab initio, and can
only be a ground for rendering the contract voidable or
annullable pursuant to Article 1390 of the New Civil
Code, by a proper action in court. 14 There is nothing on
record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the
same. Hence, defendants-appellants' claim of ownership
on the basis of a voidable contract which has not been
voided fails.
It is claimed in the alternative by defendants-appellants
that even if there was no fraud, deceit or trickery, the
chattel mortgage was still null and void ab initio because
only personal properties can be subject of a chattel
mortgage. The rule about the status of buildings as
immovable property is stated in Lopez vs. Orosa, Jr. and
Plaza Theatre Inc.,15cited in Associated Insurance Surety
Co., Inc. vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of the building,
separate and distinct from the land, in the
enumeration of what may constitute real properties
(art. 415, New Civil Code) could only mean one thing
— that a building is by itself an immovable
property irrespective of whether or not said
structure and the land on which it is adhered to
belong to the same owner.
Certain deviations, however, have been allowed for
various reasons. In the case of Manarang and Manarang
vs. Ofilada,17 this Court stated that "it is undeniable that
the parties to a contract may by agreement treat as
personal property that which by nature would be real
property", citing Standard Oil Company of New York vs.
Jaramillo. 18 In the latter case, the mortgagor conveyed
and transferred to the mortgagee by way of mortgage
"the following described personal property." 19 The
"personal property" consisted of leasehold rights and a
building. Again, in the case of Luna vs. Encarnacion,20 the
subject of the contract designated as Chattel Mortgage
was a house of mixed materials, and this Court hold
therein that it was a valid Chattel mortgage because it
was so expressly designated and specifically that the
property given as security "is a house of mixed materials,
which by its very nature is considered personal
property." In the later case of Navarro vs. Pineda,21 this
Court stated that —
The view that parties to a deed of chattel mortgage
may agree to consider a house as personal property
for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is
based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April
1958). In a case, a mortgaged house built on a rented
land was held to be a personal property, not only
because the deed of mortgage considered it as such,
but also because it did not form part of the land
(Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is
now settled that an object placed on land by one who
had only a temporary right to the same, such as the
lessee or usufructuary, does not become
immobilized by attachment (Valdez vs. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co.,
Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house
belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as
a personal property as so stipulated in the document
of mortgage. (Evangelista vs. Abad, Supra.) It should
be noted, however that the principle is predicated on
statements by the owner declaring his house to be a
chattel, a conduct that may conceivably estop him
from subsequently claiming otherwise. (Ladera vs.
C.N. Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land
is not only expressly designated as Chattel Mortgage; it
specifically provides that "the mortgagor ... voluntarily
CEDES, SELLS and TRANSFERS by way of Chattel
Mortgage23 the property together with its leasehold
rights over the lot on which it is constructed and
participation ..." 24 Although there is no specific
statement referring to the subject house as personal
property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so
that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendats-
appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status
of the property, it does so when combined with other
factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house
16
as personalty. Finally unlike in the Iya cases, Lopez vs.
Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L.
Strong Machinery and Williamson, 26 wherein third
persons assailed the validity of the chattel mortgage,27 it
is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having
treated the subject house as personalty.
(b) Turning to the question of possession and rentals of
the premises in question. The Court of First Instance
noted in its decision that nearly a year after the
foreclosure sale the mortgaged house had been
demolished on 14 and 15 January 1957 by virtue of a
decision obtained by the lessor of the land on which the
house stood. For this reason, the said court limited itself
to sentencing the erstwhile mortgagors to pay plaintiffs
a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold)
until 14 January 1957 (when it was torn down by the
Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming
that they were entitled to remain in possession without
any obligation to pay rent during the one year
redemption period after the foreclosure sale, i.e., until 27
March 1957. On this issue, We must rule for the
appellants.
Chattel mortgages are covered and regulated by the
Chattel Mortgage Law, Act No. 1508.28 Section 14 of this
Act allows the mortgagee to have the property
mortgaged sold at public auction through a public officer
in almost the same manner as that allowed by Act No.
3135, as amended by Act No. 4118, provided that the
requirements of the law relative to notice and
registration are complied with. 29 In the instant case, the
parties specifically stipulated that "the chattel mortgage
will be enforceable in accordance with the provisions of
Special Act No. 3135 ... ." 30(Emphasis supplied).
Section 6 of the Act referred to 31 provides that the
debtor-mortgagor (defendants-appellants herein) may,
at any time within one year from and after the date of the
auction sale, redeem the property sold at the extra
judicial foreclosure sale. Section 7 of the same
Act 32 allows the purchaser of the property to obtain
from the court the possession during the period of
redemption: but the same provision expressly requires
the filing of a petition with the proper Court of First
Instance and the furnishing of a bond. It is only upon
filing of the proper motion and the approval of the
corresponding bond that the order for a writ of
possession issues as a matter of course. No discretion is
left to the court. 33 In the absence of such a compliance,
as in the instant case, the purchaser can not claim
possession during the period of redemption as a matter
of right. In such a case, the governing provision is Section
34, Rule 39, of the Revised Rules of Court 34 which also
applies to properties purchased in extrajudicial
foreclosure proceedings.35 Construing the said section,
this Court stated in the aforestated case of Reyes vs.
Hamada.
In other words, before the expiration of the 1-year
period within which the judgment-debtor or
mortgagor may redeem the property, the purchaser
thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the
Rules of Court allow the purchaser to receive the
rentals if the purchased property is occupied by
tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be,
for the amount so received and the same will be duly
credited against the redemption price when the said
debtor or mortgagor effects the
redemption. Differently stated, the rentals receivable
from tenants, although they may be collected by the
purchaser during the redemption period, do not
belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to
secure for the benefit of the debtor or mortgagor,
the payment of the redemption amount and the
consequent return to him of his properties sold at
public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan
vs. Espe.36
Since the defendants-appellants were occupying the
house at the time of the auction sale, they are entitled to
remain in possession during the period of redemption or
within one year from and after 27 March 1956, the date
of the auction sale, and to collect the rents or profits
during the said period.
It will be noted further that in the case at bar the period
of redemption had not yet expired when action was
instituted in the court of origin, and that plaintiffs-
appellees did not choose to take possession under
Section 7, Act No. 3135, as amended, which is the law
selected by the parties to govern the extrajudicial
foreclosure of the chattel mortgage. Neither was there an
allegation to that effect. Since plaintiffs-appellees' right
to possess was not yet born at the filing of the complaint,
there could be no violation or breach thereof. Wherefore,
the original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be
ordered dismissed, even if there was no assignment of
error to that effect. The Supreme Court is clothed with
ample authority to review palpable errors not assigned
as such if it finds that their consideration is necessary in
arriving at a just decision of the cases. 37
It follows that the court below erred in requiring the
mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed
from is reversed and another one entered, dismissing the
complaint. With costs against plaintiffs-appellees.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro,
Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ.,
concur.
Footnotes
1 Exhibit "A," page 1, Folder of Exhibits.
2 See paragraph "G," Exhibit "A," supra.
3 Exhibit "B," page 4, Folder of Exhibits.
4 Page 2, Defendants' Record on appeal, page 97, Rollo.
5 Page 20, Id., page 115, Rollo.
6 Now Section 2, Rule 70, Revised Rules of Court, which
reads that —
"SEC. 2. Landlord, to proceed against tenant only after
demand. — No landlord, or his legal representative or
17
assign, shall bring such action against a tenant for failure
to pay rent due or to comply with the conditions of his
lease, unless the tenant shall have failed to pay such rent
or comply with such conditions for a period of ... five (5)
days in the case of building, after demand therefor, made
upon him personally, or by serving written notice of such
demand upon the person found on the premises, or by
posting such notice on the premises if no persons be
found thereon."
7 See CFI order of 20 February 1957, pages 21-25,
Defendants' Record on Appeal.
8 Page 31, Defendants' Record on Appeal, page
213, Rollo.
9 See Municipal court decision, pages 17-18, Defendants'
Record on Appeal, pages 199-200, Rollo.
10 59 Phil. 320-321.
11 Emphasis supplied.
12 L-19200, 27 February 1958, 22 SCRA 834; See also
Aquino vs. Deala, 63 Phil. 582 and De los Reyes vs.
Elepaño, et al., G.R. No. L-3466, 13 October 1950.
13 See Canaynay vs. Sarmiento, L-1246, 27 August 1947,
79 Phil. 36.
14 Last paragraph, Article 1290, N.C.C., supra.
15 No. L-10817-18, 28 February 1958, 103 Phil. 98.
16 No. L-10827-38, 30 May 1958, 103 Phil. 972.
17 No. L-8133, 18 May 1956, 99 Phil. 109.
18 No. L-20329, 16 March 1923, 44 Phil. 632.
19 Emphasis supplied.
20 No. L-4637, 30 June 1952, 91 Phil. 531.
21 No. L-18456, 30 November 1963, 9 SCRA 631.
22 Emphasis supplied.
23 Emphasis supplied.
24 See paragraph 2 of Exhibit "A," page 1, Folder of
Exhibits.
25 Supra.
26 Supra.
27 See Navarro vs. Pineda, supra.
28 Effective 1 August 1906.
29 See Luna vs. Encarnacion, et al., No. L-4637, 30 June
1952, 91 Phil. 531.
30 See paragraph "G," Exhibit "A," supra.
31 Section 6, Act No. 3135, as amended, provides:
"In all cases in which an extrajudicial sale is made under
the special power hereinbefore referred to, the debtor,
his successor in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed
of trust under which the property is sold, may redeem the
same at any time within the term of one year from and
after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundredand
sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act." (Emphasis
supplied) .
32 Section 7, Act No. 3135, as amended, states: .
"In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof
is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount
equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that
the sale was made without violating the mortgage or
without complying with the requirements of this Act..."
(Emphasis supplied) .
33 See De Gracia vs. San Jose, et al., No. L-6493, 25 March
1954.
34 "SEC. 34. Rents and profits pending redemption.
Statement thereof and credit therefor on redemption. —
The purchaser, from the time of the sale until a
redemption, and a redemptioner, from the time of his
redemption until another redemption, is entitled to
receive the rents of the property sold or the value of the
use and occupation thereof when such property is in
possession of a tenant. But when any such rents and
profits have been received by the judgment creditor or
purchaser, or by a redemptioner, or by the assignee or
either of them, from property thus sold preceding such
redemption, the amounts of such rents and profits shall
be a credit upon the redemption money to be paid; ..."
35 See Reyes vs. Hamada, No. L-19967, 31 May 1965, 14
SCRA 215; Emphasis supplied.
36 No. L-16777, 20 April 1961, 1 SCRA 1004.
37 Saura Import & Export Co. vs. Philippine International
Surety Co., et al., No. L-15184, 31 May 1963, 8 SCRA 143,
148; Hernandez vs. Andal, 78 Phil.198, See also Sec. 7,
Rule 51, of the Revised Rules of Court. Cf. Santaells
vs.Otto Lange Co., 155 Fed. 719; Mast vs. Superior Drill
Co., 154 Fed., 45, Francisco, Rules of Court (1965 Ed), Vol.
3, page 765.
18
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE
HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is
whether or not respondent Court erred in denying the
Motion to Set Case for Pre-trial with respect to
respondent Remedios Vda. de Lacsamana as the case had
been dismissed on the ground of improper venue upon
motion of co-respondent Philippine National Bank
(PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the
former registered owner of a parcel of land consisting of
340 square meters situated in Bamban, Tarlac. In 1963,
petitioner mortgaged said land to respondent PNB
(Tarlac Branch) in the amount of P10,000.00, but for
failure to pay said amount, the property was foreclosed
on December 16, 1970. Respondent PNB (Tarlac Branch)
was the highest bidder in said foreclosure proceedings.
However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was still in
the alleged possession of petitioner and with the alleged
acquiescence of respondent PNB (Tarlac Branch), and
upon securing a permit from the Municipal Mayor,
petitioner constructed a warehouse on said property.
Petitioner declared said warehouse for tax purposes for
which he was issued Tax Declaration No. 5619. Petitioner
then leased the warehouse to one Hermogenes Sibal for
a period of 10 years starting January 1975.
On July 26, 1978, a Deed of Sale was executed between
respondent PNB (Tarlac Branch) and respondent
Lacsamana over the property. This contract was
amended on July 31, 1978, particularly to include in the
sale, the building and improvement thereon. By virtue of
said instruments, respondent - Lacsamana secured title
over the property in her name (TCT No. 173744) as well
as separate tax declarations for the land and building. 1
On November 22, 1979, petitioner commenced suit for
"Annulment of Deed of Sale with Damages" against
herein respondents PNB and Lacsamana before
respondent Court of First Instance of Rizal, Branch XXXI,
Quezon City, essentially impugning the validity of the
sale of the building as embodied in the Amended Deed of
Sale. In this connection, petitioner alleged:
xxx xxx xxx
22. That defendant, Philippine National Bank,
through its Branch Manager ... by virtue of the
request of defendant ... executed a document dated
July 31, 1978, entitled Amendment to Deed of
Absolute Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the building
owned by the plaintiff under Tax Declaration No.
5619, notwithstanding the fact that said building is
not owned by the bank either by virtue of the public
auction sale conducted by the Sheriff and sold to the
Philippine National Bank or by virtue of the Deed of
Sale executed by the bank itself in its favor on
September 21, 1977 ...;
23. That said defendant bank fraudulently
mentioned ... that the sale in its favor should likewise
have included the building, notwithstanding no legal
basis for the same and despite full knowledge that
the Certificate of Sale executed by the sheriff in its
favor ... only limited the sale to the land, hence, by
selling the building which never became the
property of defendant, they have violated the
principle against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the building in
favor of respondent Lacsamana be declared null and void
and that damages in the total sum of P230,000.00, more
or less, be awarded to him.2
In her Answer filed on March 4, 1980,-respondent
Lacsamana averred the affirmative defense of lack of
cause of action in that she was a purchaser for value and
invoked the principle in Civil Law that the "accessory
follows the principal".3
On March 14, 1980, respondent PNB filed a Motion to
Dismiss on the ground that venue was improperly laid
considering that the building was real property under
article 415 (1) of the New Civil Code and therefore
section 2(a) of Rule 4 should apply. 4
Opposing said Motion to Dismiss, petitioner contended
that the action for annulment of deed of sale with
damages is in the nature of a personal action, which seeks
to recover not the title nor possession of the property but
to compel payment of damages, which is not an action
affecting title to real property.
On April 25, 1980, respondent Court granted respondent
PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the defendant
Philippine National Bank dated March 13, 1980,
considered against the plaintiff's opposition thereto
dated April 1, 1980, including the reply therewith of
said defendant, this Court resolves to DISMISS the
plaintiff's complaint for improper venue
considering that the plaintiff's complaint which
seeks for the declaration as null and void, the
amendment to Deed of Absolute Sale executed by
the defendant Philippine National Bank in favor of
the defendant Remedios T. Vda. de Lacsamana, on
July 31, 1978, involves a warehouse allegedly owned
and constructed by the plaintiff on the land of the
defendant Philippine National Bank situated in the
Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to
Article 415, No. 1 of the New Civil Code; and, as such
the action of the plaintiff is a real action affecting
title to real property which, under Section 2, Rule 4
of the New Rules of Court, must be tried in the
province where the property or any part thereof
lies.5
19
In his Motion for Reconsideration of the aforestated
Order, petitioner reiterated the argument that the action
to annul does not involve ownership or title to property
but is limited to the validity of the deed of sale and
emphasized that the case should proceed with or without
respondent PNB as respondent Lacsamana had already
filed her Answer to the Complaint and no issue on venue
had been raised by the latter.
On September 1, 1980,.respondent Court denied
reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in
so far as respondent Lacsamana was concerned, as the
issues had already been joined with the filing of
respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent Court
denied said Motion to Set Case for Pre-trial as the case
was already dismissed in the previous Orders of April 25,
1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave due
course.
We affirm respondent Court's Order denying the setting
for pre-trial.
The warehouse claimed to be owned by petitioner is an
immovable or real property as provided in article 415(l)
of the Civil Code. 6 Buildings are always immovable
under the Code. 7 A building treated separately from the
land on which it stood is immovable property and the
mere fact that the parties to a contract seem to have dealt
with it separate and apart from the land on which it stood
in no wise changed its character as immovable
property. 8
While it is true that petitioner does not directly seek the
recovery of title or possession of the property in
question, his action for annulment of sale and his claim
for damages are closely intertwined with the issue of
ownership of the building which, under the law, is
considered immovable property, the recovery of which is
petitioner's primary objective. The prevalent doctrine is
that an action for the annulment or rescission of a sale of
real property does not operate to efface the fundamental
and prime objective and nature of the case, which is to xxx
recover said real property. It is a real action. 9
7 3 Manresa 20.
Respondent Court, therefore, did not err in dismissing
the case on the ground of improper venue (Section 2,
8 Leung Yee vs. Strong Machinery Co., 37 Phil. 644
Rule 4) 10, which was timely raised (Section 1, Rule 16) 11. (1918).
Petitioner's other contention that the case should 9 Gavieres vs. Sanchez, et a]. 94 Phil. 760, (1954); Torres
proceed in so far as respondent Lacsamana is concerned vs. J.M. Tuason & Co., 12 SCRA 174 (1964); De Jesus vs.
as she had already filed an Answer, which did not allege
Coloso, 1 SCRA 272 (1961)
improper venue and, therefore, issues had already been
joined, is likewise untenable. Respondent PNB is an
indispensable party as the validity of the Amended 10 Section 2. Venue in Courts of First Instance.—Actions
Contract of Sale between the former and respondent affecting title, to or for recovery of possession or for
Lacsamana is in issue. It would, indeed, be futile to partition or condemnation of, or foreclosure of mortgage
proceed with the case against respondent Lacsamana on, real property, shall be commenced and tried in the
alone. province where the property or any part thereof Lies
(Rule 4, Rules of Court).
WHEREFORE, the petition is hereby denied without
prejudice to the refiling of the case by petitioner Antonio 11 Section 1. Grounds.— Within the time for pleading a
Punsalan, Jr. in the proper forum. motion to dismiss the action may be made on any of the
following grounds:
Costs against petitioner.
xxx
SO ORDERED.
c) That venue is improperly laid; (Rule 16)
Teehankee (Chairman), Plana, Vasquez, Relova and
Gutierrez, Jr., JJ., concur.
Footnotes
1 Exhibits "R" and "U", Original Records.
2 pp. 17-21, Rollo.
3 pp, 22-25, Ibid.
4 pp. 26 -28, Ibid.
5 p. 35, Ibid.
6 ART. 415. The following are immovable property. (1)
Land, buildings, roads and constructions of all kinds
adhered to the soil;
20
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE
CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE
COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for
petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the
Court of Appeals (now Intermediate Appellate Court)
promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified
herein, of Judge Ricardo J. Francisco, as Presiding Judge
of the Court of First instance of Rizal Branch VI, issued in
Civil Case No. 36040, as wen as the resolution dated
September 22, 1981 of the said appellate court, denying
petitioner's motion for reconsideration.
It appears that in order to obtain financial
accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable
Purchase Agreement. To secure the collection of the
receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as
well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a
petition for extrajudicial foreclosure of the properties
mortgage to it. However, the Deputy Sheriff assigned to
implement the foreclosure failed to gain entry into
private respondent's premises and was not able to effect
the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with
the Court of First Instance of Rizal, Branch VI, docketed
as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower
court issued a writ of seizure, the enforcement of which
was however subsequently restrained upon private
respondent's filing of a motion for reconsideration. After
several incidents, the lower court finally issued on
February 11, 1981, an order lifting the restraining order
for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to
enforce said writ. The lower court reaffirmed its stand
upon private respondent's filing of a further motion for
reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order,
repaired to the premises of private respondent and
removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition
proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and
ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the
machinery in suit cannot be the subject of replevin, much
less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same
being attached to the ground by means of bolts and the
only way to remove it from respondent's plant would be
to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take
the main drive motor of said machinery. The appellate
court rejected petitioner's argument that private
respondent is estopped from claiming that the machine
is real property by constituting a chattel mortgage
thereon.
A motion for reconsideration of this decision of the Court
of Appeals having been denied, petitioner has brought
the case to this Court for review by writ of certiorari. It is
contended by private respondent, however, that the
instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of
respondent's machinery after the Court of Appeals'
decision was promulgated.
The contention of private respondent is without merit.
When petitioner returned the subject motor drive, it
made itself unequivocably clear that said action was
without prejudice to a motion for reconsideration of the
Court of Appeals decision, as shown by the receipt duly
signed by respondent's representative. 1 Considering
that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has
been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in
this Petition is whether the machinery in suit is real or
personal property from the point of view of the parties,
with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by
the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as
contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v.
Vicencio, 41 SCRA 143 where this Court, speaking
through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to
the subject house as personal property, yet by
ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendants-
appellants merely had a temporary right as lessee,
and although this can not in itself alone determine
the status of the property, it does so when combined
with other factors to sustain the interpretation that
the parties, particularly the mortgagors, intended to
treat the house as personality. Finally, unlike in the
Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. &
Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-
appellants themselves, as debtors-mortgagors, who
are attacking the validity of the chattel mortgage in
this case. The doctrine of estoppel therefore applies
21
 to the herein defendants-appellants, having treated
the subject house as personality.
Examining the records of the instant case, We find no
logical justification to exclude the rule out, as the
appellate court did, the present case from the application
of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad
case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long
as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely
no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from
denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of
the Tumalad doctrine, the Court of Appeals lays stress on
the fact that the house involved therein was built on a
land that did not belong to the owner of such house. But
the law makes no distinction with respect to the
ownership of the land on which the house is built and We
should not lay down distinctions not contemplated by
law.
It must be pointed out that the characterization of the
subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property
the character determined by the parties. As stated
in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630,
it is undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property, as long as no interest of
third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply
against it because it had never represented nor agreed
that the machinery in suit be considered as personal
property but was merely required and dictated on by
herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the
respondent, the status of the subject machinery as
movable or immovable was never placed in issue before
the lower court and the Court of Appeals except in a
supplemental memorandum in support of the petition
filed in the appellate court. Moreover, even granting that
the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant
to Article 1390 of the new Civil Code, by a proper action
in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. On the other hand,
as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from
said contract. Equity dictates that one should not benefit
at the expense of another. Private respondent could not
now therefore, be allowed to impugn the efficacy of the
chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate
court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover,
the case of Machinery and Engineering Supplies, Inc. v. CA,
96 Phil. 70, heavily relied upon by said court is not
applicable to the case at bar, the nature of the machinery
and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the
subject of a Chattel Mortgage. Undoubtedly, the Tumalad
case bears more nearly perfect parity with the instant
case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of
the Court of Appeals are hereby reversed and set aside,
and the Orders of the lower court are hereby reinstated,
with costs against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero
and Escolin JJ., concur.
Abad Santos, J., concurs in the result.
22
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL
CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD
OF ASSESSMENT APPEALS OF LAGUNA and
PROVINCIAL ASSESSOR OF LAGUNA, respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities
Industrial Corporation assails the decision of the Central
Board of Assessment Appeals (composed of the
Secretary of Finance as chairman and the Secretaries of
Justice and Local Government and Community
Development as members) dated May 6, 1976, holding
that Meralco Securities' oil pipeline is subject to realty
tax.
The record reveals that pursuant to a pipeline concession
issued under the Petroleum Act of 1949, Republic Act No.
387, Meralco Securities installed from Batangas to
Manila a pipeline system consisting of cylindrical steel
pipes joined together and buried not less than one meter
below the surface along the shoulder of the public
highway. The portion passing through Laguna is about
thirty kilometers long.
The pipes for white oil products measure fourteen inches
in diameter by thirty-six feet with a maximum capacity of
75,000 barrels daily. The pipes for fuel and black oil
measure sixteen inches by forty-eight feet with a
maximum capacity of 100,000 barrels daily.
The pipes are embedded in the soil and are firmly and
solidly welded together so as to preclude breakage or
damage thereto and prevent leakage or seepage of the oil.
The valves are welded to the pipes so as to make the
pipeline system one single piece of property from end to
end.
In order to repair, replace, remove or transfer segments
of the pipeline, the pipes have to be cold-cut by means of
a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried.
In points where the pipeline traversed rivers or creeks,
the pipes were laid beneath the bed thereof. Hence, the
pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the
pipeline can be moved from one place to another as
shown in the permit issued by the Secretary of Public
Works and Communications which permit provides that
the government reserves the right to require the removal
or transfer of the pipes by and at the concessionaire's
expense should they be affected by any road repair or
improvement.
Pursuant to the Assessment Law, Commonwealth Act No.
470, the provincial assessor of Laguna treated the
pipeline as real property and issued Tax Declarations
Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-
7971, Sta. Rosa; 9882-9885, Biñan and 15806-15810,
Calamba, containing the assessed values of portions of
the pipeline.
Meralco Securities appealed the assessments to the
Board of Assessment Appeals of Laguna composed of the
register of deeds as chairman and the provincial auditor
as member. That board in its decision of June 18, 1975
upheld the assessments (pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board
of Assessment Appeals. As already stated, that Board,
composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente
Abad Santos and Secretary of Local Government and
Community Development Jose Roño as members, ruled
that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities'
counsel on August 27, 1976. Section 36 of the Real
Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, provides that the Board's
decision becomes final and executory after the lapse of
fifteen days from the date of receipt of a copy of the
decision by the appellant.
Under Rule III of the amended rules of procedure of the
Central Board of Assessment Appeals (70 O.G. 10085), a
party may ask for the reconsideration of the Board's
decision within fifteen days after receipt. On September
7, 1976 (the eleventh day), Meralco Securities filed its
motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roño
(Secretary Abad Santos abstained) denied the motion in
a resolution dated December 2, 1976, a copy of which
was received by appellant's counsel on May 24, 1977 (p.
4, Rollo). On June 6, 1977, Meralco Securities filed the
instant petition for certiorari.
The Solicitor General contends that certiorari is not
proper in this case because the Board acted within its
jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax
Appeals has no jurisdiction to review the decision of the
Central Board of Assessment Appeals and because no
judicial review of the Board's decision is provided for in
the Real Property Tax Code, Meralco Securities' recourse
is to file a petition for certiorari.
We hold that certiorari was properly availed of in this
case. It is a writ issued by a superior court to an inferior
court, board or officer exercising judicial or quasi-
judicial functions whereby the record of a particular case
is ordered to be elevated for review and correction in
matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising
quasi-judicial power there is an underlying power in the
courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of
review is given by the statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the
administrative agency within its jurisdiction and protect
substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of
checks and balances which is a limitation on the
separation of powers and which forestalls arbitrary and
unjust adjudications.
Judicial review of the decision of an official or
administrative agency exercising quasi-judicial functions
is proper in cases of lack of jurisdiction, error of law,
23
grave abuse of discretion, fraud or collusion or in case the
administrative decision is corrupt, arbitrary or
capricious (Mafinco Trading Corporation vs. Ople, L-
37790, March 25, 1976, 70 SCRA 139, 158; San Miguel
Corporation vs. Secretary of Labor, L-39195, May 16,
1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov.
Board of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming
the ruling of the provincial assessor and the provincial
board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the
pipes are machinery or improvements, as contemplated
in the Assessment Law and the Real Property Tax Code;
that they do not fall within the category of property
exempt from realty tax under those laws; that articles
415 and 416 of the Civil Code, defining real and personal
property, have no application to this case; that even
under article 415, the steel pipes can be regarded as
realty because they are constructions adhered to the soil
and things attached to the land in a fixed manner and that
Meralco Securities is not exempt from realty tax under
the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject
to realty tax because it is not real property within the
meaning of article 415. This contention is not sustainable
under the provisions of the Assessment Law, the Real
Property Tax Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty
tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property
Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall
be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem
tax on real property, such as land, buildings,
machinery and other improvements affixed or
attached to real property not hereinafter specifically
exempted. *
It is incontestable that the pipeline of Meralco Securities
does not fall within any of the classes of exempt real
property enumerated in section 3 of the Assessment Law
and section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves
and control devices for conveying liquids, gases or finely
divided solids. It is a line of pipe running upon or in the
earth, carrying with it the right to the use of the soil in
which it is placed (Note 21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may
consist of constructions of all kinds adhered to the soil and
everything attached to an immovable in a fixed manner,
in such a way that it cannot be separated therefrom
without breaking the material or deterioration of the
object.
The pipeline system in question is indubitably a
construction adhering to the soil (Exh. B, p. 39, Rollo). It
is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes
which were welded to form the pipeline.
Insofar as the pipeline uses valves, pumps and control
devices to maintain the flow of oil, it is in a sense
machinery within the meaning of the Real Property Tax
Code.
It should be borne in mind that what are being
characterized as real property are not the steel pipes but
the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as
real property for tax purposes (Miller County Highway,
etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board
of Directors of Red River Levee Dist. No. 1 of Lafayette
County, Ark vs. R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note
86).
The other contention of Meralco Securities is that the
Petroleum Law exempts it from the payment of realty
taxes. The alleged exemption is predicated on the
following provisions of that law which exempt Meralco
Securities from local taxes and make it liable for taxes of
general application:
ART. 102. Work obligations, taxes, royalties not to be
changed.— Work obligations, special taxes and
royalties which are fixed by the provisions of this
Act or by the concession for any of the kinds of
concessions to which this Act relates, are considered
as inherent on such concessions after they are
granted, and shall not be increased or decreased
during the life of the concession to which they apply;
nor shall any other special taxes or levies be applied
to such concessions, nor shall 0concessionaires
under this Act be subject to any provincial, municipal
or other local taxes or levies; nor shall any sales tax
be charged on any petroleum produced from the
concession or portion thereof, manufactured by the
concessionaire and used in the working of his
concession. All such concessionaires, however, shall
be subject to such taxes as are of general
application in addition to taxes and other levies
specifically provided in this Act.
Meralco Securities argues that the realty tax is a local tax
or levy and not a tax of general application. This
argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the
President of the Philippines in the exercise of his
lawmaking powers, as shown in section 342 et seq. of the
Revised Administrative Code, Act No. 3995,
Commonwealth Act No. 470 and Presidential Decree No.
464.
The realty tax is enforced throughout the Philippines and
not merely in a particular municipality or city but the
proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is
situated (Sec. 86, P.D. No. 464). In contrast, a local tax is
imposed by the municipal or city council by virtue of the
Local Tax Code, Presidential Decree No. 231, which took
effect on July 1, 1973 (69 O.G. 6197).
We hold that the Central Board of Assessment Appeals
did not act with grave abuse of discretion, did not commit
any error of law and acted within its jurisdiction in
sustaining the holding of the provincial assessor and the
local board of assessment appeals that Meralco
Securities' pipeline system in Laguna is subject to realty
tax.
WHEREFORE, the questioned decision and resolution are
affirmed. The petition is dismissed. No costs.
24
SO ORDERED.

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ.,

concur.

Justice Abad Santos, Concepcion, Jr., JJ., took no part.

Footnotes

* The Real Property Tax Code contains the following

definitions 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. "

"m) Machinery - shall embrace machines,

mechanical contrivances, instruments, appliances
and apparatus attached to the real estate. It includes
the physical facilities available for production, as
well as the installations and appurtenant service
facilities, together with all other equipment
designed for or essential to its manufacturing,
industrial or agricultural purposes." (See sec. 3[f],
Assessment Law).

25
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD
OF ASSESSMENT APPEALS OF BATANGAS and
PROVINCIAL ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on two
oil storage tanks installed in 1969 by Manila Electric
Company on a lot in San Pascual, Batangas which it
leased in 1968 from Caltex (Phil.), Inc. The tanks are
within the Caltex refinery compound. They have a total
capacity of 566,000 barrels. They are used for storing
fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel
plates welded and assembled on the spot. Their bottoms
rest on a foundation consisting of compacted earth as the
outermost layer, a sand pad as the intermediate layer and
a two-inch thick bituminous asphalt stratum as the top
layer. The bottom of each tank is in contact with the
asphalt layer,
The steel sides of the tank are directly supported
underneath by a circular wall made of concrete, eighteen
inches thick, to prevent the tank from sliding. Hence,
according to Meralco, the tank is not attached to its
foundation. It is not anchored or welded to the concrete
circular wall. Its bottom plate is not attached to any part
of the foundation by bolts, screws or similar devices. The
tank merely sits on its foundation. Each empty tank can
be floated by flooding its dike-inclosed location with
water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing
commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles on
top thereof and is divided into two parts as the site of
each tank. The foundation of the tanks is elevated from
the remaining area. On both sides of the earthen dikes
are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an
asphalt lining about an inch thick. Pipelines were
installed on the sides of each tank and are connected to
the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are
near Tank No. 2.
The Board concludes that while the tanks rest or sit on
their foundation, the foundation itself and the walls,
dikes and steps, which are integral parts of the tanks, are
affixed to the land while the pipelines are attached to the
tanks. (pp. 60-61, Rollo.) In 1970, the municipal
treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required
Meralco to pay realty taxes on the two tanks. For the five-
year period from 1970 to 1974, the tax and penalties
amounted to P431,703.96 (p. 27, Rollo). The Board
required Meralco to pay the tax and penalties as a
condition for entertaining its appeal from the adverse
decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of
Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos
and Secretary of Local Government and Community
Development Jose Roño as members) in its decision
dated November 5, 1976 ruled that the tanks together
with the foundation, walls, dikes, steps, pipelines and
other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28,
1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its resolution
of November 25, 1977, a copy of which was received by
Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action
of certiorari to annul the Board's decision and resolution.
It contends that the Board acted without jurisdiction and
committed a grave error of law in holding that its storage
tanks are taxable real property.
Meralco contends that the said oil storage tanks do not
fall within any of the kinds of real property enumerated
in article 415 of the Civil Code and, therefore, they cannot
be categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that
the tanks are not attached to the land and that they were
placed on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or
penumbral cases on the classification of property where
strong divergent opinions are inevitable. The issue
raised by Meralco has to be resolved in the light of the
provisions of the Assessment Law, Commonwealth Act
No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty
tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property
Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. — They shall
be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and
other improvements affixed or attached to real
property not hereinafter specifically exempted.
The Code contains the following definition in its section
3:
k) Improvements — is a valuable addition made to
property or an amelioration in its condition,
amounting to more than mere repairs or replacement
of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for
new or further purposes.
We hold that while the two storage tanks are not
embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing its
utility and rendering it useful to the oil industry. It is
undeniable that the two tanks have been installed with
some degree of permanence as receptacles for the
considerable quantities of oil needed by Meralco for its
operations.
26
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.

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ.,

concur.

Concepcion, Jr., J., is on leave.

Justice Abad Santos, J., took no part.

27
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and
CITY ASSESSOR OF PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and
equipment installed by Caltex (Philippines) Inc. in its gas
stations located on leased land.
The machines and equipment consists of underground
tanks, elevated tank, elevated water tanks, water tanks,
gasoline pumps, computing pumps, water pumps, car
washer, car hoists, truck hoists, air compressors and
tireflators. The city assessor described the said
equipment and machinery in this manner:
A gasoline service station is a piece of lot where a
building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists are
placed in an adjacent shed, an air compressor is
attached in the wall of the shed or at the concrete
wall fence.
The controversial underground tank, depository of
gasoline or crude oil, is dug deep about six feet more
or less, a few meters away from the shed. This is
done to prevent conflagration because gasoline and
other combustible oil are very inflammable.
This underground tank is connected with a steel
pipe to the gasoline pump and the gasoline pump is
commonly placed or constructed under the shed.
The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the
shed, and evidence that the gasoline underground
tank is attached and connected to the shed or
building through the pipe to the pump and the pump
is attached and affixed to the cement pad and
pavement covered by the roof of the building or
shed.
The building or shed, the elevated water tank, the
car hoist under a separate shed, the air compressor,
the underground gasoline tank, neon lights
signboard, concrete fence and pavement and the lot
where they are all placed or erected, all of them used
in the pursuance of the gasoline service station
business formed the entire gasoline service-station.
As to whether the subject properties are attached
and affixed to the tenement, it is clear they are, for
the tenement we consider in this particular case are
(is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and
the improvement which holds all the properties
under question, they are attached and affixed to the
pavement and to the improvement.
The pavement covering the entire lot of the gasoline
service station, as well as all the improvements,
machines, equipments and apparatus are allowed
by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the
shed by the steel pipe to the pump, so with the water
tank it is connected also by a steel pipe to the
pavement, then to the electric motor which electric
motor is placed under the shed. So to say that the
gasoline pumps, water pumps and underground
tanks are outside of the service station, and to
consider only the building as the service station is
grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex
to gas station operators under an appropriate lease
agreement or receipt. It is stipulated in the lease contract
that the operators, upon demand, shall return to Caltex
the machines and equipment in good condition as when
received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located,
does not become the owner of the machines and
equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said
items of gas station equipment and machinery as taxable
realty. The realty tax on said equipment amounts to
P4,541.10 annually (p. 52, Rollo). The city board of tax
appeals ruled that they are personalty. The assessor
appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance
Cesar Virata as chairman, Acting Secretary of Justice
Catalino Macaraig, Jr. and Secretary of Local Government
and Community Development Jose Roño, held in its
decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of
sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1,
1974, and that the definitions of real property and
personal property in articles 415 and 416 of the Civil
Code are not applicable to this case.
The decision was reiterated by the Board (Minister
Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion
for reconsideration, a copy of which was received by its
lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition
wherein it prayed for the setting aside of the Board's
decision and for a declaration that t he said machines and
equipment are personal property not subject to realty
tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax
Appeals has exclusive appellate jurisdiction over this
case is not correct. When Republic act No. 1125 created
the Tax Court in 1954, there was as yet no Central Board
of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review
by appeal decisions of provincial or city boards of
assessment appeals had in mind the local boards of
assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax
Code has appellate jurisdiction over decisions of the said
local boards of assessment appeals and is, therefore, in
the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that
the decision of the Central Board of Assessment Appeals
shall become final and executory after the lapse of fifteen
days from the receipt of its decision by the appellant.
28
Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide
for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a
review by this Court of the decision of the Central Board
of Assessment Appeals is the special civil action of
certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.
The issue is whether the pieces of gas station equipment
and machinery already enumerated are subject to realty
tax. This issue has to be resolved primarily under the
provisions of the Assessment Law and the Real Property
Tax Code.
Section 2 of the Assessment Law provides that the realty
tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property
Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall
be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem
tax on real property, such as land, buildings,
machinery and other improvements affixed or
attached to real property not hereinafter specifically
exempted.
The Code contains the following definitions 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.
m) Machinery — shall embrace machines,
mechanical contrivances, instruments, appliances
and apparatus attached to the real estate. It includes
the physical facilities available for production, as
well as the installations and appurtenant service
facilities, together with all other equipment
designed for or essential to its manufacturing,
industrial or agricultural purposes (See sec. 3[f],
Assessment Law).
We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed owned
by Caltex (as to which it is subject to realty tax) and
which fixtures are necessary to the operation of the gas
station, for without them the gas station would be
useless, and which have been attached or affixed
permanently to the gas station site or embedded therein,
are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property
Tax Code.
Caltex invokes the rule 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 (Davao Saw Mill Co. vs. Castillo,
61 Phil 709).
That ruling is an interpretation of paragraph 5 of article
415 of the Civil Code regarding machinery that becomes
real property by destination. In the Davao Saw Mills
case the question was whether the machinery mounted
on foundations of cement and installed by the lessee on
leased land should be regarded as real property
for purposes of execution of a judgment against the
lessee. The sheriff treated the machinery as personal
property. This Court sustained the sheriff's action.
(Compare with Machinery & Engineering Supplies, Inc.
vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment
and machinery permanently affixed by Caltex to its gas
station and pavement (which are indubitably taxable
realty) should be subject to the realty tax. This question
is different from the issue raised in the Davao Saw
Mill case.
Improvements on land are commonly taxed as realty
even though for some purposes they might be considered
personalty (84 C.J.S. 181-2, Notes 40 and 41). "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).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles
within the meaning of paragraph 9 of its franchise which
exempts its poles from taxation. The steel towers were
considered personalty because they were attached to
square metal frames by means of bolts and could be
moved from place to place when unscrewed and
dismantled.
Nor are Caltex's gas station equipment and machinery
the same as tools and equipment in the repair shop of a
bus company which were held to be personal property
not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit
a grave abuse of discretion in upholding the city
assessor's is imposition of the realty tax on Caltex's gas
station and equipment.
WHEREFORE, the questioned decision and resolution of
the Central Board of Assessment Appeals are affirmed.
The petition for certiorari is dismissed for lack of merit.
No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ.,
concur.
Concepcion, Jr. and Abad Santos, JJ., took no part.
29
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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:
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
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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).
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 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
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 & 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.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Footnotes

* Penned by Judge Domingo D. Panis.

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