G.R. No.
L-11658            February 15, 1918 which might be found to exist in the machinery company's title to the
LEUNG YEE, plaintiff-appellant,  went into possession of the building at or about the time when this sale
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
building under the sheriff's certificate of sale. The machinery company
took place, that is to say, the month of December, 1913, and it has
continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor
of the machinery company, the mortgagor, the "Compañia Agricola
Filipina" executed another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to secure payment
of the balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage, the plaintiff
secured judgment for that amount, levied execution upon the building,
bought it in at the sheriff's sale on or about the 18th of December, 1914,
and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with the
sheriff a sworn statement setting up its claim of title and demanding the
release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in
the sum of P12,000, in reliance upon which the sheriff sold the property
at public auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that
the company had its title to the building registered prior to the date of
registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first
taken possession thereof in good faith, if it should be personal
property.
Should it be real property, it shall belong to the person acquiring
it who first recorded it in the registry.
Should there be no entry, the property shall belong to the person
who first took possession of it in good faith, and, in the absence
thereof, to the person who presents the oldest title, provided
there is good faith.
The registry her referred to is of course the registry of real property, and
it must be apparent that the annotation or inscription of a deed of sale
of real property in a chattel mortgage registry cannot be given the legal
effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for
mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel
mortgages," that is to say, mortgages of personal property executed in
the manner and form prescribed in the statute. The building of strong
materials in which the rice-cleaning machinery was installed by the
"Compañia Agricola Filipina" was real property, and the mere fact that
the parties seem to have dealt with it separate and apart from the land
on which it stood in no wise changed its character as real property. It
follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that
registry of the sale of the mortgaged property, had any effect whatever
so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground
that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and
that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the
code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the
machinery company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the
Civil Code require "good faith," in express terms, in relation to
"possession" and "title," but contain no express requirement as to "good
faith" in relation to the "inscription" of the property on the registry, it
must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under
this article of the code upon an inscription of title in bad faith. Such an
interpretation placed upon the language of this section would open wide
the door to fraud and collusion. The public records cannot be converted
into instruments of fraud and oppression by one who secures an
inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who
enters such inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not and cannot
accrue under an inscription "in bad faith," to the benefit of the person
who thus makes the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of May, 1908,
that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found
that the second purchasers who record their purchase had
knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ.
Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the
title of conveyance of ownership of the real property that is first
recorded in the registry shall have preference, this provision must
always be understood on the basis of the good faith mentioned in
the first paragraph; the legislator could not have wished to strike it
out and to sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by
the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when
he bought the building at the sheriff's sale and inscribed his title in the
land registry, was duly notified that the machinery company had bought
the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession
at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the machinery
company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale
with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor,
the plaintiff cannot be said to have been a purchaser in good faith; and
of course, the subsequent inscription of the sheriff's certificate of title
must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of
the sheriff's certificate of sale to the plaintiff was not made in good faith,
we should not be understood as questioning, in any way, the good faith
and genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common
debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are
strongly inclined to believe that in procuring the levy of execution upon
the factory building and in buying it at the sheriff's sale, he considered
that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he
thought at that time that he would be able to maintain his position in a
contest with the machinery company. There was no collusion on his
part with the common debtor, and no thought of the perpetration of a
fraud upon the rights of another, in the ordinary sense of the word. He
may have hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action in a court of
law; and if later developments had confirmed his unfounded hopes, no
one could question the legality of the propriety of the course he
adopted.
But it appearing that he had full knowledge of the machinery company's
claim of ownership when he executed the indemnity bond and bought in
the property at the sheriff's sale, and it appearing further that the
machinery company's claim of ownership was well founded, he cannot
be said to have been an innocent purchaser for value. He took the risk
and must stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.
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.)

One who purchases real estate with knowledge of a defect or lack of We conclude that upon the grounds herein set forth the disposing part
title in his vendor cannot claim that he has acquired title thereto in good of the decision and judgment entered in the court below should be
faith as against the true owner of the land or of an interest therein; and affirmed with costs of this instance against the appellant. So ordered.
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 Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
be necessary to acquaint him with the defects in the title of his vendor. Torres, Avanceña and Fisher, JJ., took no part.
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

G.R. No. L-20329             March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,  contract of lease hereinabove referred to, and in and to the premises
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, seeking a peremptory mandamus to
compel the respondent to record in the proper register a document purporting
to be a chattel mortgage executed in the City of Manila by Gervasia de la
Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa,
Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila
and owner of the house of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage, purporting to convey
to the petitioner by way of mortgage both the leasehold interest in said lot and
the building which stands thereon.
The clauses in said document describing the property intended to be thus
mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the
mortgage, by way of mortgage, the following described personal
property, situated in the City of Manila, and now in possession of the
mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the
the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid
leased premises.
After said document had been duly acknowledge and delivered, the petitioner
caused the same to be presented to the respondent, Joaquin Jaramillo, as
register of deeds of the City of Manila, for the purpose of having the same
recorded in the book of record of chattel mortgages. Upon examination of the
instrument, the respondent was of the opinion that it was not a chattel
mortgage, for the reason that the interest therein mortgaged did not appear to
be personal property, within the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable;
and it is his duty to accept the proper fee and place the instrument on record.
The duties of a register of deeds in respect to the registration of chattel
mortgage are of a purely ministerial character; and no provision of law can be
cited which confers upon him any judicial or quasi-judicial power to determine
the nature of any document of which registration is sought as a chattel
mortgage.
The original provisions touching this matter are contained in section 15 of the
Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but
these have been transferred to section 198 of the Administrative Code, where
they are now found. There is nothing in any of these provisions conferring
upon the register of deeds any authority whatever in respect to the
"qualification," as the term is used in Spanish law, of chattel mortgage. His
duties in respect to such instruments are ministerial only. The efficacy of the
act of recording a chattel mortgage consists in the fact that it operates as
constructive notice of the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in relation with the fact of
notice. Registration adds nothing to the instrument, considered as a source of
title, and affects nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purpose of the
application of the Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this jurisdiction; but it must not be
forgotten that under given conditions property may have character different
from that imputed to it in said articles. It is undeniable that the parties to a
contract may by agreement treat as personal property that which by nature
would be real property; and it is a familiar phenomenon to see things classed
as real property for purposes of taxation which on general principle might be
considered personal property. Other situations are constantly arising, and
from time to time are presented to this court, in which the proper classification
of one thing or another as real or personal property may be said to be
doubtful.
The point submitted to us in this case was determined on September 8, 1914,
in an administrative ruling promulgated by the Honorable James A. Ostrand,
now a Justice of this Court, but acting at that time in the capacity of Judge of
the fourth branch of the Court of First Instance of the Ninth Judicial District, in
the City of Manila; and little of value can be here added to the observations
contained in said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property
described in the document in question is real or personal; the
discussion may be confined to the point as to whether a register of
deeds has authority to deny the registration of a document purporting
to be a chattel mortgage and executed in the manner and form
prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his
Honor continued:
Based principally upon the provisions of section quoted the Attorney-
General of the Philippine Islands, in an opinion dated August 11, 1909,
held that a register of deeds has no authority to pass upon the capacity
of the parties to a chattel mortgage which is presented to him for
record. A fortiori a register of deeds can have no authority to pass
upon the character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real instead
of personal the chattel mortgage would no doubt be held ineffective as
against third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil.,
644), this court held that where the interest conveyed is of the nature of real,
property, the placing of the document on record in the chattel mortgage
register is a futile act; but that decision is not decisive of the question now
before us, which has reference to the function of the register of deeds in
placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass upon
the point whether the interests conveyed in the instrument now in question
are real or personal; and we declare it to be the duty of the register of deeds
to accept the estimate placed upon the document by the petitioner and to
register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from the
date of the notification hereof, the respondent shall interpose a sufficient
answer to the petition, the writ of mandamus will be issued, as prayed, but
without costs. So ordered.
G.R. No. L-40411             August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,  the first part without any obligation on its part to pay any amount for
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
said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the
time herein stipulated, the improvements and buildings shall
likewise pass to the ownership of the party of the first part as though
the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements
which will pass to the party of the first part on the expiration or
abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein. Indeed the bidder, which was
the plaintiff in that action, and the defendant herein having consummated
the sale, proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale executed in
its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the
Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in favor of
third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to
the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to
the soil;
xxx     xxx     xxx
5. Machinery, liquid containers, instruments or implements intended
by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain no doubt that the trial judge and
appellees are right in their appreciation of the legal doctrines flowing from
the facts.
In the first place, it must again be pointed out that the appellant should
have registered its protest before or at the time of the sale of this property.
It must further be pointed out that while not conclusive, the
characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard
Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter
dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the
expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the
owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such
person acted as the agent of the owner. In the opinion written by Chief
Justice White, whose knowledge of the Civil Law is well known, it was in
part said:
To determine this question involves fixing the nature and character
of the property from the point of view of the rights of Valdes and its
nature and character from the point of view of Nevers & Callaghan
as a judgment creditor of the Altagracia Company and the rights
derived by them from the execution levied on the machinery placed
by the corporation in the plant. Following the Code Napoleon, the
Porto Rican Code treats as immovable (real) property, not only land
and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of
the destination to which it is applied. "Things," says section 334 of
the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are
applicable." Numerous illustrations are given in the fifth subdivision
of section 335, which is as follows: "Machinery, vessels, instruments
or implements intended by the owner of the tenements for the
industrial or works that they may carry on in any building or upon
any land and which tend directly to meet the needs of the said
industry or works." (See also Code Nap., articles 516, 518 et seq. to
and inclusive of article 534, recapitulating the things which, though owner in giving by contract a permanent destination to the
in themselves movable, may be immobilized.) So far as the subject- machinery.
matter with which we are dealing — machinery placed in the plant
— it is plain, both under the provisions of the Porto Rican Law and xxx     xxx     xxx
of the Code Napoleon, that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of The machinery levied upon by Nevers & Callaghan, that is, that
the property or plant. Such result would not be accomplished, which was placed in the plant by the Altagracia Company, being, as
therefore, by the placing of machinery in a plant by a tenant or a regards Nevers & Callaghan, movable property, it follows that they
usufructuary or any person having only a temporary right. had the right to levy on it under the execution upon the judgment in
(Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section their favor, and the exercise of that right did not in a legal sense
164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier- conflict with the claim of Valdes, since as to him the property was a
Herman ed. Code Napoleon under articles 522 et seq.) The part of the realty which, as the result of his obligations under the
distinction rests, as pointed out by Demolombe, upon the fact that lease, he could not, for the purpose of collecting his debt, proceed
one only having a temporary right to the possession or enjoyment of separately against. (Valdes vs. Central Altagracia [192], 225 U.S.,
property is not presumed by the law to have applied movable 58.)
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 Finding no reversible error in the record, the judgment appealed from will
that abstractly speaking the machinery put by the Altagracia be affirmed, the costs of this instance to be paid by the appellant.
Company in the plant belonging to Sanchez did not lose its
character of movable property and become immovable by Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
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

G.R. No. L-41643             July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,  improvements, sugar-cane mill, steel railway, telephone line, apparatus,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE
INSURANCE COMPANY, MABALACAT SUGAR COMPANY and
THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said
plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the
first assignment of alleged error, is whether or not the lower court erred
in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the mortgage
deed executed in favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar
Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on two parcels and land "with all its buildings,
utensils and whatever forms part or is necessary complement of said
sugar-cane mill, steel railway, telephone line, now existing or that may
in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted,
the Mabalacat Sugar Co., Inc., decided to increase the capacity of its
sugar central by buying additional machinery and equipment, so that
instead of milling 150 tons daily, it could produce 250. The estimated
cost of said additional machinery and equipment was approximately
P100,000. In order to carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the
necessary amount for the purchase of said machinery and equipment,
promising to reimburse him as soon as he could obtain an additional
loan from the mortgagees, the herein defendants Cu Unjieng e Hijos.
Having agreed to said proposition made in a letter dated October 5,
1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year,
delivered the sum of P1,710 to B.A. Green, president of the Mabalacat
Sugar Co., Inc., the total amount supplied by him to said B.A. Green
having been P25,750. Furthermore, B.H. Berkenkotter had a credit of
P22,000 against said corporation for unpaid salary. With the loan of
P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co.,
Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000
offering as security the additional machinery and equipment acquired
by said B.A. Green and installed in the sugar central after the execution
of the original mortgage deed, on April 27, 1927, together with whatever
additional equipment acquired with said loan. B.A. Green failed to
obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or
due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the
declarations, amplifications, and limitations established by law,
whether the estate continues in the possession of the person who
mortgaged it or whether it passes into the hands of a third
person.
In the case of Bischoff vs. Pomar and Compañia General de
Tabacos (12 Phil., 690), cited with approval in the case of Cea vs.
Villanueva (18 Phil., 538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES
IMPROVEMENTS AND FIXTURES. — It is a rule, established by
the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in
a mortgage of real estate, the improvements on the same are
included; therefore, all objects permanently attached to a
mortgaged building or land, although they may have been placed
there after the mortgage was constituted, are also included. (Arts.
110 and 111 of the Mortgage Law, and 1877 of the Civil Code;
decision of U.S. Supreme Court in the matter of Royal Insurance
Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46;
199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC.
— In order that it may be understood that the machinery and
other objects placed upon and used in connection with a
mortgaged estate are excluded from the mortgage, when it was
stated in the mortgage that the improvements, buildings, and
machinery that existed thereon were also comprehended, it is
indispensable that the exclusion thereof be stipulated between
the contracting parties.
The appellant contends that the installation of the machinery and
equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A.
Green, in proposing to him to advance the money for the purchase
thereof, made it appear in the letter, Exhibit E, that in case B.A. Green
should fail to obtain an additional loan from the defendants Cu Unjieng
e Hijos, said machinery and equipment would become security therefor,
said B.A. Green binding himself not to mortgage nor encumber them to
anybody until said plaintiff be fully reimbursed for the corporation's
indebtedness to him.
Upon acquiring the machinery and equipment in question with money
obtained as loan from the plaintiff-appellant by B.A. Green, as president
of the Mabalacat Sugar Co., Inc., the latter became owner of said
machinery and equipment, otherwise B.A. Green, as such president,
could not have offered them to the plaintiff as security for the payment
of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with
any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar industry, converted them into real
property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been
established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H.
Berkenkotter to hold said machinery and equipment as security for the
payment of the latter's credit and to refrain from mortgaging or
otherwise encumbering them until Berkenkotter has been fully
reimbursed therefor, is not incompatible with the permanent character
of the incorporation of said machinery and equipment with the sugar
central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A.
Green from giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff
and appellant after they had been permanently incorporated with sugar
central of the Mabalacat Sugar Co., Inc., and while the mortgage
constituted on said sugar central to Cu Unjieng e Hijos remained in
force, only the right of redemption of the vendor Mabalacat Sugar Co.,
Inc., in the sugar central with which said machinery and equipment had
been incorporated, was transferred thereby, subject to the right of the
defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1)
That the installation of a machinery and equipment in a mortgaged
sugar central, in lieu of another of less capacity, for the purpose of
carrying out the industrial functions of the latter and increasing
production, constitutes a permanent improvement on said sugar central
and subjects said machinery and equipment to the mortgage
constituted thereon (article 1877, Civil Code); (2) that the fact that the
purchaser of the new machinery and equipment has bound himself to
the person supplying him the purchase money to hold them as security
for the payment of the latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the permanent character of
the incorporation of said machinery and equipment with the central; and
(3) that the sale of the machinery and equipment in question by the
purchaser who was supplied the purchase money, as a loan, to the
person who supplied the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor with ownership of
said machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all
its parts, with costs to the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.

[G.R. No. L-8133.  May 18, 1956.]
MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-
Appellants, vs. MACARIO M. OFILADA, Sheriff of the City of Manila
and ERNESTO ESTEBAN, Respondents-Appellees.
 
DECISION
LABRADOR, J.:
On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan
of P200 from Ernesto Esteban, and to secure its payment she executed
a chattel mortgage over a house of mixed materials erected on a lot on
Alvarado Street, Manila. As Manarang did not pay the loan as agreed
upon, Esteban brought an action against her in the municipal court of
Manila for its recovery, alleging that the loan was secured by a chattel
mortgage on her property. Judgment having been entered in Plaintiff’s
favor, execution was issued against the same property mortgaged.
Before the property could be sold Manarang offered to pay the sum of
P277, which represented the amount of the judgment of P250, the
interest thereon, the costs, and the sheriff’s fees, but the sheriff refused
the tender unless the additional amount of P260 representing the
publication of the notice of sale in two newspapers be paid also.
So Defendants therein brought this suit to compel the sheriff to accept
the amount of P277 as full payment of the judgment and to annul the
published notice of sale.
It is to be noted that in the complaint filed in the municipal court, a copy
of the chattel mortgage is attached and mention made of its registration,
and in the prayer request is made that the house mortgaged be sold at
public auction to satisfy the debt. It is also important to note that the
house mortgaged was levied upon at Plaintiff’s request (Exhibit “E”).
On the basis of the above facts counsel for Manarang contended in the
court below that the house in question should be considered as
personal property and the publication of the notice of its sale at public
auction in execution considered unnecessary. The Court of First
Instance held that although real property may sometimes be considered
as personal property, the sheriff was in duty bound to cause the
publication of the notice of its sale in order to make the sale valid or to
prevent its being declared void or voidable, and he did not, therefore,
err in causing such publication of the notice. So it denied the petition.
There cannot be any question that a building of mixed materials may be
the subject of a chattel mortgage, in which case it is considered as
between the parties as personal property. We held so expressly in the
cases of Luna vs. Encarnacion, et al., * 48 Off. Gaz., No. 7, p.
2664; Standard Oil Co. of New York vs. Jaranillo, 44 Phil., 630; and De
Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter depends on the
circumstances and the intention of the parties.
“ The general principle of law is that a building permanently fixed to the
freehold becomes a part of it, that prima facie a house is real estate,
belonging to the owner of the land on which it stands, even though it
was erected against the will of the landowner, or without his consent.
The general rule is otherwise, however, where the improvement is
made with the consent of the landowner, and pursuant to an
understanding either expressed or implied that it shall remain personal
property. Nor does the general rule apply to a building which is
wrongfully removed from the land and placed on the land of the person
removing it.” (42 Am. Jur. 199-200.)
“ Among the principal criteria for determining whether property remains
personally or becomes realty are annexation to the soil, either actual or
construction, and the intention of the parties’
“Personal property may retain its character as such where it is so
agreed by the parties interested even though annexed to the realty, or
where it is affixed in the soil to be used for a particular purpose for a
short period and then removed as soon as it has served its purpose.”
(Ibid., 209-210.)
The question now before us, however, is: Does the fact that the parties
entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in
advertising the property’s sale at public auction as personal property? It
is to be remembered that in the case at bar the action was to collect a
loan secured by a chattel mortgage on the house. It is also to be
remembered that in practice it is the judgment creditor who points out to
the sheriff the properties that the sheriff is to levy upon in execution,
and the judgment creditor in the case at bar is the party in whose favor
the owner of the house and conveyed it by way of chattel mortgage
and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on
execution do not allow, and we should not interpret them in such a way
as to allow, the special consideration that parties to a contract may
have desired to impart to real estate, for example, as personal property,
when they are not ordinarily so. Sales on execution affect the public
and third persons. The regulation governing sales on execution are for
public officials to follow. The form of proceedings prescribed for each
kind of property is suited to its character, not to the character which the
parties have given to it or desire to give it. When the rules speak of
personal property, property which is ordinarily so considered is
meant; and when real property is spoken of, it means property which is
generally known as real property. The regulations were never intended
to suit the consideration that parties, may have privately given to the
property levied upon. Enforcement of regulations would be difficult were
the convenience or agreement of private parties to determine or govern
the nature of the proceedings. We, therefore, hold that the mere fact
that a house was the subject of a chattel mortgage and was considered
as personal property by the parties does not make said house personal
property for purposes of the notice to be given for its sale at public
auction. This ruling is demanded by the need for a definite, orderly and
well- defined regulation for official and public guidance and which would
prevent confusion and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between
the owner and a third person, is real property within the purview of Rule
39, section 16, of the Rules of Court as it has become a permanent
fixture on the land, which is real property. (42 Am. Jur. 199-200; Leung
Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al.,
90 Phil., 544; Ladera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz.,
5374.).
The judgment appealed from is hereby affirmed, with costs. SO
ORDERED.
Paras, C.J., Bengzon, Padilla., Montemayor, Reyes, A., Jugo,
Bautista Angelo, Concepcion, Reyes, J.B.L. and Endencia, JJ.,
concur.

G.R. No. L-19867           May 29, 1968
GOVERNMENT SERVICE INSURANCE SYSTEM, plaintiff-appellee,  be constructed on the mortgaged property (ies) of which MORTGAGOR is
vs.
CALSONS, INC., CESARIO P. CALANOC, and NENITA
GODINEZ, defendants-appellants.
The Government Corporate Counsel for plaintiff-appellee.
Juan T. David and Clemente M. Soriano for defendants-appellants.
MAKALINTAL., J.:
Appeal from the decision of the Court of First Instance of Manila..
On April 11, 1957 appellant CALSONS, INC. applied for a loan of
P2,000,000.00 to appellee to pay the balance of the purchase price of
certain parcels of land situated at the corner of Globo de Oro and Elizondo
Streets, Quiapo, Manila, and to finance the construction of a two-storey
textile market building on said land. The application was approved by
appellee's Board of Trustees on August 26, 1957. In connection with said
loan appellants executed on October 31, 1957 a promissory note binding
themselves jointly and severally to pay appellee the sum of
P2,000,000.00, with interest at the rate of 7% per annum compounded
monthly, in 120 equal monthly installments of P23,221.69 each. Under
said note "the first installment shall be due and payable beginning the
month following the last release and/or the month following the expiration
of the period for the construction of the textile market building, whichever
is earlier, and the rest on the 7th day of every month thereafter until the
principal of TWO MILLION PESOS (P2,000,000.00) and the interest shall
have been fully paid." To secure payment of the note "and/or the interest
thereon and/or other obligations arising thereunder", appellants executed
on the same date a first mortgage in favor of appellee on five (5) parcels of
land particularly described in the mortgage contract, "together with all the
buildings and improvements now existing thereon or which may hereafter
the absolute owner, free from all liens and encumbrances." The
aforementioned five (5) parcels of land were among the properties
acquired by appellant CALSONS, INC., from Tuason & Sampedro, Inc., for
and in consideration of the sum of ONE MILLION ONE HUNDRED
THOUSAND PESOS (P1,100,000.00) under a Deed of Assignment dated
October 29, 1957.1ªvvphi1.nêt
The conditions of the mortgage contract which are relevant to this case are
the following:
2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in
any manner encumber the mortgaged property (ies) without the
prior written consent of the MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of
the amortizations on the indebtedness, or the interest when due, or
whatever other obligation herein agreed, then all the amortizations
and other obligations of the MORTGAGOR of any nature, shall
become due, payable and defaulted and the MORTGAGEE may
immediately foreclose this mortgage judicially or extrajudicially
under Act 3135, as amended and/or under C.A. 186, as amended,
and/or Act No. 1508, as amended....
14. This mortgage shall furthermore be subject to the following
ADDITIONAL CONDITIONS:
1) That the applicant shall pay to the system P23,221.70
monthly, including principal and interest.
2) That the first release of P819,000.00 on this loan shall be
made only after:
xxx     xxx     xxx
b. The submission of evidence showing payment on
realty taxes up to and including that of the current year;
. 1957, while the second (and last) release in the amount of P30,000.00
c. The submission of evidence showing the reduction
of applicant's account on the lot to at least
P819,000.00; .
d. The submission of the certificates of title in the name
of the applicant to the property offered as collateral for
this loan; provided, that if the said certificates of title
could not be secured without paying the balance of the
purchase price, said balance shall be paid first from the
first release of this loan;
3) That the check covering the obligation of applicant on the
lots offered as collateral shall be drawn in favor of the vendor
of said lots;
4) That subsequent releases on this loan shall be controlled
in such manner that the amount to be released shall depend
on the progress of the work done on the proposed building
but in no case shall the amount to be released and the
amounts already released exceed 60% of the appraised
value of the lots and the existing improvements thereon as of
every release;
xxx     xxx     xxx
6) That the proposed building shall be completed within
twelve (12) months from the date the first release of this loan
is made;
The first release in the amount of P819,000.00 was made on November 7,
was made on May 15, 1958. The checks covering both releases were
drawn in favor of the vendor of the mortgaged properties.
In accordance with the agreement between the parties, the old building
standing on the mortgaged properties was insured for P300,000.00 on
December 1, 1959. Appellee advanced the sum of P5,628.00 for the
annual premium, but appellants failed to reimburse the same.
Appellee filed a complaint for the foreclosure of the mortgage with the
Court of First Instance of Manila on August 11, 1958, alleging a number of
violations of the mortgage contract, to wit: (1) that the mortgaged
properties had not been freed by the mortgagor from certain liens and
encumbrances other than the mortgage itself; (2) that without the prior
written consent of plaintiff defendants removed and disposed of the
complete band sawmill and filing machine which formed part of the
properties mortgaged; (3) that defendant Calsons, Inc., failed to submit to
appellee evidence showing the reduction of defendant's account on the lot
to at least P819,000.00; (4) and that Calsons, Inc., failed to begin, much
less complete, the construction of the supermarket building on the
mortgaged properties. On August 11, 1959, plaintiff filed supplemental
complaint, which was admitted without opposition. Two additional grounds
for the foreclosure of the mortgage were alleged, namely: (1) that
defendants failed, despite demands therefor, to pay the amortizations due
and payable, including accrued interest and surcharges, on the portion of
the loan released to them; and (2) that defendants failed to complete the
construction of the textile market building on the mortgaged properties
within 12 months from November 7, 1957, the date of the first release of
P819,000.00.
Judgment was rendered on March 3, 1962 in favor of plaintiff, and
defendants brought this appeal directly to this Court in view of the amount
involved.
In their brief, appellants make the following assignment of errors:
1. The Trial Court erred in holding that it is not true that defendants
have not defaulted in any of their obligations under the mortgage
contract.
2. The Trial Court erred in ruling that with respect to the liens and
encumbrances, the defendants' failure to pay the balance of the
purchase price of the mortgaged properties from their original
owners subjected the said properties to a vendor's lien.
3. The Trial Court erred in holding that the machineries on the
mortgaged properties are part of the mortgage and that the removal
and subsequent disposal of the same therefrom by the defendants
violated the said mortgage contract.
4. The Trial Court erred in holding that defendant Calsons, Inc., has
failed to reduce its account on the loan to at least P819,000.00 and
that such failure is a clear violation of a contract of mortgage.
5. The Trial Court erred in holding that the defendants failed despite
demand therefor, to pay the amortization due and payable, including
interests and surcharges on the portion of the loan released to
them.
6. The Trial Court erred in rendering judgment for plaintiff and
against the defendants ordering the latter to pay jointly and severally
the plaintiff of the sum of (1) P819,000.00 with interests at the rate
of 7% per annum compounded monthly from November 8, 1957
until the same is fully paid; (2) P30,000.00 with interests at the rate
of 7% per annum compounded monthly, from May 16, 1958 until the
same is fully paid; (3) P5,628.00 yearly insurance premium with
interests of 7% per annum compounded monthly, from December,
1959 until the same is fully paid; (4) the sum equivalent to 10% of
the foregoing sums as expenses of collection and attorney's fees,
plus the costs of this action.
7. The Trial Court erred in failing and/or neglecting to act and pass
upon the counterclaim of the defendants-appellants notwithstanding
the fact that said counterclaim is fully established by the evidence
on records.
The second and fourth errors assigned are interrelated and will first be
taken up. The two certificates of title covering the mortgaged properties do
not show any lien or encumbrance thereon other than the mortgage itself.
This is admitted by both parties. Appellee refers, however, to the vendor's
lien in favor of the former owners, representing the unpaid balance of
P280,000.00 on the purchase price of the lots mortgaged. The lien,
appellee point out, is a legal encumbrance and therefore effective,
although not recorded. On the other hand, appellants contend that
appellee is estopped from invoking its right to have the mortgaged
properties free from the vendor's lien on two grounds, namely: (1) that
appellant had previous knowledge of said lien as evidenced by the two
releases of P819,000 and P30,000 directly to the vendor of the mortgaged
properties, and (2) that appellant committed itself to pay to the said vendor
the amount of P280,000.00, balance on the purchase price, within a period
of six (6) months from October 28, 1957.
The contention cannot be sustained on the first ground. One of the
reasons why appellant Calsons, Inc., applied for the P2,000,000.00 loan
was precisely to use part thereof to pay the balance of the purchase price
of five (5) parcels of land it mortgaged to appellee. And to assure itself that
no vendor's lien attached to the said properties appellee caused the
following conditions to be added to the original terms of the mortgage
contract:
2) That the first release of P819,000.00 on this loan shall be made
only after:
e. The submission of evidence showing the reduction of
applicant's account on the lot to at least P819,000.00;
d. The submission of the certificates of title in the name of the
applicant to the property offered as collateral for this loan;
provided, that if the said certificates of title could not be
secured without paying the balance of the purchase price,
said balance shall be paid first from the first release of this
loan;
3) That the check covering the obligation of applicant on the lots
offered as collateral shall be drawn in favor of the vendor of said
lots;
Pursuant to the foregoing conditions the check covering the first release of
P819,000.00 was drawn in favor of the vendor of the properties, and the
release was made upon submission of the two transfer certificates of title
already in the name of appellant Calsons, Inc., as vendee, without any
annotation thereon of any lien or encumbrance except the mortgage itself
in favor of appellee. It turned out, however, that appellants had failed to
reduce their account on the lot to P819,000.00, as stipulated in the
mortgage contract, since there was still a balance of P280,000 on the
purchase price. With respect to the second release of P30,000.00, the
check was also drawn in favor of the vendor with the understanding that it
would be used to pay the real estate taxes due on said properties and thus
remove the corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it agreed to waive
its right to have the properties "free from all liens and encumbrances," as
provided in the mortgage contract.
Estoppel is invoked by appellants on the basis of a letter dated October
28, 1957, sent by the Manager of appellee's Real Estate Department to
the vendor of the properties, to the effect that the balance of the purchase
price in the amount of P280,000.00 would be released within six (6)
months from the date of the said letter. The commitment of said Manager
was not recognized by the Board of Trustees of the appellee as shown by
the fact that it was not incorporated in the mortgage contract, which was
executed on a later date — October 31, 1957. While the schedule of
subsequent releases was clearly defined in the mortgage contract, no
mention was made about the said commitment. Thus, Paragraph 14 (4) of
the mortgage contract states:
(4) .That subsequent releases on this loan shall be controlled in
such manner that the amount to be released shall depend in the
progress of the work done on the proposed building but in no case
 shall the amount to be released and the amounts already released
exceed 60% of the appraised value of the lots and the existing
improvements thereon as of every release;
Regarding the third error assigned, appellants do not deny the fact that
they removed and disposed of the machineries installed in the building
which were standing on the mortgaged properties. However, they contend
that the said machineries were not included in the mortgage. The
contention is groundless.
The mortgage was on the lands "together with all the buildings and
improvements now existing or which may hereafter be constructed"
thereon. And the machineries, as found by the trial court, were
permanently attached to the property, and installed there by the former
owner to meet the needs of certain works or industry therein. They were
therefore part of the immovable pursuant to Article 415 of the Civil Code,
and need not be the subject of a separate chattel mortgage in order to be
deemed duly encumbered in favor of appellee.
Under the fifth assignment of error, appellants point out that there is no
time specified in the mortgage contract within which the amortizations on
the loan should begin to be paid, and conclude that they should begin only
from the time the proposed building started earning rentals. The provision
of Paragraph 14 (13) of the mortgage contract is invoked, to wit:
That rentals from the proposed building equivalent to the monthly
amortization on this loan shall be assigned in favor of and made
payable to the System.
As a corollary argument, appellants add that since the present action was
instituted three (3) months before the expiration of the twelve-month period
(from November 7, 1957) within which the construction of the supermarket
building should be completed the premature institution of the suit rendered
the construction of said building impossible, and hence no default in
payment was incurred.
Again this contention of appellants is without merit. The promissory note
executed by them clearly provides when the first installment, as well as
subsequent ones, would become due, thus:
The first installment shall be due and payable beginning the month
following the last release and/or the month following the expiration
of the period for the construction of the textile market building,
whichever is earlier, and the rest on the 7th day of every month
thereafter until the principal of TWO MILLION PESOS
(P2,000,000.00) and the interest shall have been fully paid.
As previously mentioned, the mortgage contract provides that the
proposed building should be completed within twelve (12) months from the
date of the first release. Said release having been made on November 7,
1957, the construction period of 12 months expired on November 7, 1958;
hence, the first installment became due one month thereafter or on
December 7, 1958, and the rest on the 7th day of every month thereafter.
Appellants' failure to pay the amortizations, interest and surcharges
demanded of them by appellee, therefore, constitutes a violation of the
mortgage contract and is sufficient ground for the foreclosure of the
mortgage.
IN VIEW OF THE FOREGOING, the sixth and seventh assignments of
error are without merit.
The judgment appealed from is hereby affirmed, with costs against
appellants.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro and
Angeles, JJ., concur.
Fernando, J., is on leave.
G.R. No. L-17870             September 29, 1962
MINDANAO BUS COMPANY, petitioner,  Public Service Commission;
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
2. That petitioner has its main office and shop at Cagayan de Oro
City. It maintains Branch Offices and/or stations at Iligan City,
Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the respondent
as real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the
attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached
photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached
photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached
photograph, marked Annex "D";
 (e) PEMCO Hydraulic Press, appearing in the attached
photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in
the attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden
platforms as may be seen in the attached photographs which
form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and
operates a garage for its TPU motor trucks; a repair shop;
blacksmith and carpentry shops, and with these machineries
which are placed therein, its TPU trucks are made; body
constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it operates;
6. That these machineries have never been or were never used
as industrial equipments to produce finished products for sale,
nor to repair machineries, parts and the like offered to the general
public indiscriminately for business or commercial purposes for
which petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding
respondents' contention that the questioned assessments are
valid; and that said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of
Article 415 of the New Civil Code, and holding that pursuant
thereto the movable equipments are taxable realties, by reason of
their being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's
contention that the respondent City Assessor's power to assess
and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx     xxx     xxx
(5) Machinery, receptacles, instruments or implements intended
by the owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works.
(Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed
on wooden or cement platforms. They can be moved around and about
in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu
Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives
the character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the
requirements of such trade or industry."
If the installation of the machinery and equipment in question in
the central of the Mabalacat Sugar Co., Inc., in lieu of the other of
less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not
permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would
be unable to function or carry on the industrial purpose for which
it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for
carrying on the sugar industry for which it has been established
must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the
law must first be "essential and principal elements" of an industry or
works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was established."
We may here distinguish, therefore, those movable which become
immobilized by destination because they are essential and principal
elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and
principal. Thus, cash registers, typewriters, etc., usually found and used
in hotels, restaurants, theaters, etc. are merely incidentals and are not
and should not be considered immobilized by destination, for these
businesses can continue or carry on their functions without these equity
comments. Airline companies use forklifts, jeep-wagons, pressure
pumps, IBM machines, etc. which are incidentals, not essentials, and
thus retain their movable nature. On the other hand, machineries of
breweries used in the manufacture of liquor and soft drinks, though
movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they
usually own and use and are found within their industrial compounds
are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are,
by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used
only for expediency to facilitate and/or improve its service. Even without
such tools and equipments, its business may be carried on, as
petitioner has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair or service
shop if its rolling equipment is repaired or serviced in another shop
belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
 xxx     xxx     xxx assessment as real estate for the purposes of the real estate tax.
Without costs.
(5) Machinery, receptacles, instruments or implements intended
by the owner of the tenement for an industry or works which may So ordered.
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 Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon
Code of the Phil.) and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra,
the "machinery, liquid containers, and instruments or implements" are
found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the sawing
is conducted in the land or building.

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

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

WHEREFORE, the decision subject of the petition for review is hereby

set aside and the equipment in question declared not subject to

G.R. No. L-17898            October 31, 1962
PASTOR D. AGO, petitioner, vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of
the Court of First Instance of Agusan, THE PROVINCIAL SHERIFF OF
SURIGAO and GRACE PARK ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.-- The
Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court of Appeals in
CA-G.R. No. 26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of
Surigao, et al." which in part reads:
In this case for certiorari and prohibition with preliminary injunction, it
appears from the records that the respondent Judge of the Court of
First Instance of Agusan rendered judgment (Annex "A") in open court
on January 28, 1959, basing said judgment on a compromise
agreement between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a
writ of execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges
that he, or his counsel, did not receive a formal and valid notice of said
decision, which motion for reconsideration was denied by the court
below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge exceeded in his
jurisdiction in rendering the execution without valid and formal notice of
the decision.
A compromise agreement is binding between the parties and becomes
the law between them. (Gonzales vs. Gonzales G.R. No. L-1254, May
21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-12439, May 22,
1959) .
It is a general rule in this jurisdiction that a judgment based on a
compromise agreement is not appealable and is immediately
executory, unless a motion is filed on the ground fraud, mistake or
duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R.
No. L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served notice of the
decision is untenable. The judgment on the compromise agreement
rendered by the court below dated January 28, 1959, was given in
open court. This alone is a substantial compliance as to notice. (De los
Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor
abuse its jurisdiction in ordering the execution of the judgment. The
petition for certiorari is hereby dismissed and the writ of preliminary
 injunction heretofore dissolved, with costs against the petitioner. IT IS
SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner
Pastor D. Ago bought sawmill machineries and equipments from respondent
Grace Park Engineer domineering, Inc., executing a chattel mortgage over
said machineries and equipments to secure the payment of balance of the
price remaining unpaid of P32,000.00, which petitioner agreed to pay on
installment basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace
Park Engineering, Inc. instituted extra-judicial foreclosure proceedings of the
mortgage. To enjoin said foreclosure, petitioner herein instituted Special Civil
Case No. 53 in the Court of First Instance of Agusan. The parties to the case
arrived at a compromise agreement and submitted the same in court in
writing, signed by Pastor D. Ago and the Grace Park Engineering, Inc. The
Hon. Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then
presiding, dictated a decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in the judgment by
compromise, so Grace Park Engineering, Inc. filed with the lower court a
motion for execution, which was granted by the court on August 15, 1959. A
writ of execution, dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of
execution issued by the lower court, levied upon and ordered the sale of the
sawmill machineries and equipments in question. These machineries and
equipments had been taken to and installed in a sawmill building located in
Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to
whom, petitioner alleges, he had sold them on February 16, 1959 (a date
after the decision of the lower court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for
December 4, 1959, petitioner, on December 1, 1959, filed the petition
for certiorari and prohibition with preliminary injunction with respondent Court
of Appeals, alleging that a copy of the aforementioned judgment given in
open court on January 28, 1959 was served upon counsel for petitioner only
on September 25, 1959 (writ of execution is dated September 23, 1959); that
the order and writ of execution having been issued by the lower court before
counsel for petitioner received a copy of the judgment, its resultant last order
that the "sheriff may now proceed with the sale of the properties levied
constituted a grave abuse of discretion and was in excess of its jurisdiction;
and that the respondent Provincial Sheriff of Surigao was acting illegally upon
the allegedly void writ of execution by levying the same upon the sawmill
machineries and equipments which have become real properties of the
Golden Pacific sawmill, Inc., and is about to proceed in selling the same
without prior publication of the notice of sale thereof in some newspaper of
general circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary
injunction against the sheriff but it turned out that the latter had already sold at
public auction the machineries in question, on December 4, 1959, as
scheduled. The respondent Grace Park Engineering, Inc. was the only bidder
for P15,000.00, although the certificate sale was not yet executed. The Court
of Appeals constructed the sheriff to suspend the issuance of a certificate of
sale of the said sawmill machineries and equipment sold by him on December
4, 1959 until the final decision of the case. On November 9, 1960 the Court of
Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in
holding that the rendition of judgment on compromise in open court on
January 1959 was a sufficient notice; and (2) in not resolving the other issues
raised before it, namely, (a) the legality of the public auction sale made by the
sheriff, and (b) the nature of the machineries in question, whether they are
movables or immovables.
The Court of Appeals held that as a judgment was entered by the court below
in open court upon the submission of the compromise agreement, the parties
may be considered as having been notified of said judgment and this fact
constitutes due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of the court, and
is the fact the petitioner herein was present in open court was the judgment
was dictated, sufficient notice thereof? The provisions of the Rules of Court
decree otherwise. Section 1 of Rule 35 describes the manner in which
judgment shall be rendered, thus:
SECTION 1. How judgment rendered. — All judgments determining
the merits of cases shall be in writing personally and directly prepared
by the judge, and signed by him, stating clearly and distinctly the facts
and the law on which it is based, filed with the clerk of the court.
The court of first instance being a court of record, in order that a judgment
may be considered as rendered, must not only be in writing, signed by the
judge, but it must also be filed with the clerk of court. The mere
pronouncement of the judgment in open court with the stenographer taking
note thereof does not, therefore, constitute a rendition of the judgment. It
is the filing of the signed decision with the clerk of court that constitutes
rendition. While it is to be presumed that the judgment that was dictated in
open court will be the judgment of the court, the court may still modify said
order as the same is being put into writing. And even if the order or judgment
has already been put into writing and signed, while it has not yet been
delivered to the clerk for filing it is still subject to amendment or change by the
judge. It is only when the judgment signed by the judge is actually filed with
the clerk of court that it becomes a valid and binding judgment. Prior thereto,
it could still be subject to amendment and change and may not, therefore,
constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge
dictating the judgment in open court, is not a valid notice of said judgment. If
rendition thereof is constituted by the filing with the clerk of court of a signed
copy (of the judgment), it is evident that the fact that a party or an attorney
heard the order or judgment being dictated in court cannot be considered as
notice of the real judgment. No judgment can be notified to the parties unless
it has previously been rendered. The notice, therefore, that a party has of a
judgment that was being dictated is of no effect because at the time no
judgment has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served
personally or by registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. — Final orders or
judgments shall be served either personally or by registered mail.
In accordance with this provision, a party is not considered as having been
served with the judgment merely because he heard the judgment dictating the
said judgment in open court; it is necessary that he be served with a copy of
the signed judgment that has been filed with the clerk in order that he may
legally be considered as having been served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge
dictating the judgment in open court, is not sufficient to constitute the service
of judgement as required by the above-quoted section 7 of Rule 2 the signed
judgment not having been served upon the petitioner, said judgment could not
be effective upon him (petitioner) who had not received it. It follows as a
consequence that the issuance of the writ of execution null and void, having
been issued before petitioner her was served, personally or by registered
mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by
the Court of Appeals, concerns the validity of the proceedings of the sheriff in
selling the sawmill machineries and equipments at public auction with a notice
of the sale having been previously published.
The record shows that after petitioner herein Pastor D. Ago had purchased
the sawmill machineries and equipments he assigned the same to the Golden
Pacific Sawmill, Inc. in payment of his subscription to the shares of stock of
said corporation. Thereafter the sawmill machinery and equipments were
installed in a building and permanently attached to the ground. By reason of
such installment in a building, the said sawmill machineries and equipment
became real estate properties in accordance with the provision of Art. 415 (5)
of the Civil Code, thus:
ART. 415. The following are immovable property:
xxx           xxx           xxx
(5) Machinery, receptacles, instruments or implements tended by the
owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works;
This Court in interpreting a similar question raised before it in the case
of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683, held that the installation
of the machine and equipment in the central of the Mabalacat Sugar Co., Inc.
for use in connection with the industry carried by the company, converted the
said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the
sawmill machineries in the building of the Gold Pacific Sawmill, Inc., for use in
the sawing of logs carried on in said building, the same became a necessary
and permanent part of the building or real estate on which the same was
constructed, converting the said machineries and equipments into real estate
within the meaning of Article 415(5) above-quoted of the Civil Code of the
Philippines.
Considering that the machineries and equipments in question valued at more
than P15,000.00 appear to have been sold without the necessary
advertisement of sale by publication in a newspaper, as required in Sec. 16 of
Rule 39 of the Rules of Court, which is as follows:
SEC. 16. Notice of sale of property on execution. — Before the sale of
property on execution, notice thereof must be given as follows:
xxx           xxx           xxx
(c) In case of real property, by posting a similar notice particularly
describing the property for twenty days in three public places in the
municipality or city where the property is situated, and also where the
property is to be sold, and, if the assessed value of the property
exceeds four hundred pesos, by publishing a copy of the notice once a
week, for the same period, in some newspaper published or having
general circulation in the province, if there be one. If there are
newspapers published in the province in both the English and Spanish
languages, then a like publication for a like period shall be made in one
newspaper published in the English language, and in one published in
the Spanish language.
the sale made by the sheriff must be declared null and void.
WHEREFORE, the decision of the Court of Appeals sought to be reviewed is
hereby set aside and We declare that the issuance of the writ of execution in
this case against the sawmill machineries and equipments purchased by
petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as well as the
sale of the same by the Sheriff of Surigao, are null and void. Costs shall be
against the respondent Grace Park Engineering, Inc.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon, Regala and Makalintal, JJ., concur.
Padilla, J., took no part.

G.R. No. 137705               August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, 
vs.
PCI LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision1 of the Court of Appeals (CA)2in CA-GR SP No. 47332 and its
February 26, 1999 Resolution3 denying reconsideration. The decretal portion
of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated February 18,
1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15,
1998 is hereby LIFTED."4
In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon
City (Branch 218)6 issued a Writ of Seizure.7 The March 18, 1998
Resolution8 denied petitioners’ Motion for Special Protective Order, praying
that the deputy sheriff be enjoined "from seizing immobilized or other real
properties in (petitioners’) factory in Cainta, Rizal and to return to their original
place whatever immobilized machineries or equipments he may have
removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI
Leasing" for short) filed with the RTC-QC a complaint for [a] sum of money
(Annex ‘E’), with an application for a writ of replevin docketed as Civil Case
No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent
judge issued a writ of replevin (Annex ‘B’) directing its sheriff to seize and
deliver the machineries and equipment to PCI Leasing after 5 days and upon
the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioner’s factory, seized one machinery with [the] word that he [would]
return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective order
(Annex ‘C’), invoking the power of the court to control the conduct of its
officers and amend and control its processes, praying for a directive for the
sheriff to defer enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ
of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties’
agreement to the contrary notwithstanding. They argued that to give effect to
the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the "words of the contract are clear
and leave no doubt upon the true intention of the contracting parties."
Observing that Petitioner Goquiolay was an experienced businessman who
was "not unfamiliar with the ways of the trade," it ruled that he "should have
realized the import of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial
court in ruling upon the case below, since the merits of the whole matter are
laid down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects
of a full-blown trial, necessitating presentation of evidence by both parties.
The contract is being enforced by one, and [its] validity is attacked by the
other – a matter x x x which respondent court is in the best position to
determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
"A. Whether or not the machineries purchased and imported by SERG’S
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease."12
In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of replevin.
As a preliminary matter, the Court will also address briefly the procedural
points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is "Petition for
Review on Certiorari."13
While Judge Laqui should not have been impleaded as a
respondent,14 substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it
proper to remove, motu proprio, the name of Judge Laqui from the caption of
the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.15Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond,
the court shall issue an order and the corresponding writ of replevin
describing the personal property alleged to be wrongfully detained and
requiring the sheriff forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:
"ART. 415. The following are immovable property:
x x x           x x x          x x x
(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;
x x x           x x x          x x x"
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own land.
Indisputably, they were essential and principal elements of their chocolate-
making industry. Hence, although each of them was movable or personal
property on its own, all of them have become "immobilized by destination
because they are essential and principal elements in the industry."16 In that
sense, petitioners are correct in arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the Civil Code.17
Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.18After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth of
any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties
to treat a house as a personal property because it had been made the subject
of a chattel mortgage. The Court ruled:
"x x x. Although there is no specific statement referring to the subject house
as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand by claiming
otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills20 also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ
of replevin because it was treated as personal property in a contract.
Pertinent portions of the Court’s ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section
12.1 of the Agreement reads as follows:21
"12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent."
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are
proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement – is good
only insofar as the contracting parties are concerned.22 Hence, while the
parties are bound by the Agreement, third persons acting in good faith are not
affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.24 Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from "intrinsic ambiguity which places in serious doubt the intention of
the parties and the validity of the lease agreement itself." 25 In their Reply to
respondent’s Comment, they further allege that the Agreement is invalid.26
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the
merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy
under Rule 60 was that questions involving title to the subject property –
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule
60 was either to post a counter-bond or to question the sufficiency of the
plaintiff’s bond. They were not allowed, however, to invoke the title to the
subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to
dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at issue
the matter of the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should be ventilated
and determined only at the trial on the merits."28
Besides, these questions require a determination of facts and a presentation
of evidence, both of which have no place in a petition for certiorari in the CA
under Rule 65 or in a petition for review in this Court under Rule 45.29
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled.
In fact, petitioners assailed it first only in the RTC proceedings, which had
ironically been instituted by respondent. Accordingly, it must be presumed
valid and binding as the law between the parties.
Makati Leasing and Finance Corporation 30 is also instructive on this point. In
that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent had
allegedly been required "to sign a printed form of chattel mortgage which was
in a blank form at the time of signing." The Court rejected the argument and
relied on the Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same. x x x"
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that "if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets." 31 They also
allege that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners’ arguments do not preclude the implementation of the
Writ.1âwphi1 As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the filing
of a counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of
the applicant’s bond, or of the surety or sureties thereon, he cannot
immediately require the return of the property, but if he does not so object, he
may, at any time before the delivery of the property to the applicant, require
the return thereof, by filing with the court where the action is pending a bond
executed to the applicant, in double the value of the property as stated in the
applicant’s affidavit for the delivery thereof to the applicant, if such delivery be
adjudged, and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court
of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,  guarantee a loan of P4,800.00 received from plaintiffs-appellees, payable
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
within one year at 12% per annum. The mode of payment was P150.00
monthly, starting September, 1955, up to July 1956, and the lump sum of
P3,150 was payable on or before August, 1956. It was also agreed that
default in the payment of any of the amortizations, would cause the remaining
unpaid balance to becomeimmediately due and Payable and —
the Chattel Mortgage will be enforceable in accordance with the
provisions of Special Act No. 3135, and for this purpose, the
Sheriff of the City of Manila or any of his deputies is hereby
empowered and authorized to sell all the Mortgagor's property
after the necessary publication in order to settle the financial
debts of P4,800.00, plus 12% yearly interest, and attorney's
fees... 2
When defendants-appellants defaulted in paying, the mortgage was
extrajudicially foreclosed, and on 27 March 1956, the house was sold at
public auction pursuant to the said contract. As highest bidder, plaintiffs-
appellees were issued the corresponding certificate of sale.3 Thereafter, on
18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the house be
vacated and its possession surrendered to them, and for defendants-
appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time
the possession is surrendered.4 On 21 September 1956, the municipal court
rendered its decision —
 ... ordering the defendants to vacate the premises described in
the complaint; ordering further to pay monthly the amount of
P200.00 from March 27, 1956, until such (time that) the
premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the municipal court and
court a quo impugned the legality of the chattel mortgage, claiming that they
are still the owners of the house; but they waived the right to introduce
evidence, oral or documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the grounds that: (a)
the municipal court did not have jurisdiction to try and decide the case
because (1) the issue involved, is ownership, and (2) there was no allegation
of prior possession; and (b) failure to prove prior demand pursuant to Section
2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First Instance, defendants-
appellants failed to deposit the rent for November, 1956 within the first 10
days of December, 1956 as ordered in the decision of the municipal court. As
a result, the court granted plaintiffs-appellees' motion for execution, and it was
actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because
the subject house had been already demolished on 14 January 1957
pursuant to the order of the court in a separate civil case (No. 25816) for
ejectment against the present defendants for non-payment of rentals on the
land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the
supersedeas bond and withdrawal of deposited rentals was denied for the
reason that the liability therefor was disclaimed and was still being litigated,
and under Section 8, Rule 72, rentals deposited had to be held until final
disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance rendered its decision,
the dispositive portion of which is quoted earlier. The said decision was
appealed by defendants to the Court of Appeals which, in turn, certified the
appeal to this Court. Plaintiffs-appellees failed to file a brief and this appeal
was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error which can
be condensed into two questions, namely: .
(a) Whether the municipal court from which the case originated
had jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to
pay rentals to the plaintiffs during the period of one (1) year
provided by law for the redemption of the extrajudicially
foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the
municipal court from which the case originated, and consequently, the
appellate jurisdiction of the Court of First Instance a quo, on the theory that
the chattel mortgage is void ab initio; whence it would follow that the
extrajudicial foreclosure, and necessarily the consequent auction sale, are
also void. Thus, the ownership of the house still remained with defendants-
appellants who are entitled to possession and not plaintiffs-appellees.
Therefore, it is argued by defendants-appellants, the issue of ownership will
have to be adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First Instance which
has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage
on two grounds, which are: (a) that, their signatures on the chattel mortgage
were obtained through fraud, deceit, or trickery; and (b) that the subject
matter of the mortgage is a house of strong materials, and, being an
immovable, it can only be the subject of a real estate mortgage and not a
chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found
defendants-appellants' contentions as not supported by evidence and
accordingly dismissed the charge,8 confirming the earlier finding of the
municipal court that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the
answer is a mere statement of the facts which the party filing it expects to
prove, but it is not evidence;11 and further, that when the question to be
determined is one of title, the Court is given the authority to proceed with the
hearing of the cause until this fact is clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful bidder in an auction
sale, it was likewise held by this Court that in detainer cases the aim of
ownership "is a matter of defense and raises an issue of fact which should be
determined from the evidence at the trial." What determines jurisdiction are
the allegations or averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit does not
render a contract void ab initio, and can only be a ground for rendering the
contract voidable or annullable pursuant to Article 1390 of the New Civil
Code, by a proper action in court. 14 There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. Hence, defendants-appellants' claim of ownership on the
basis of a voidable contract which has not been voided fails.
It is claimed in the alternative by defendants-appellants that even if there was
no fraud, deceit or trickery, the chattel mortgage was still null and void ab
initio because only personal properties can be subject of a chattel mortgage.
The rule about the status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15cited in Associated Insurance
Surety Co., Inc. vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of the building, separate and
distinct from the land, in the enumeration of what may constitute
real properties (art. 415, New Civil Code) could only mean one
thing — that a building is by itself an immovable
property irrespective of whether or not said structure and the
land on which it is adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the
case of Manarang and Manarang vs. Ofilada,17 this Court stated that "it is
undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor
conveyed and transferred to the mortgagee by way of mortgage "the following
described personal property." 19 The "personal property" consisted of
leasehold rights and a building. Again, in the case of Luna vs.
Encarnacion,20 the subject of the contract designated as Chattel Mortgage
was a house of mixed materials, and this Court hold therein that it was a valid
Chattel mortgage because it was so expressly designated and specifically
that the property given as security "is a house of mixed materials, which by its
very nature is considered personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —
The view that parties to a deed of chattel mortgage may agree
to consider a house as personal property for the purposes of
said contract, "is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a
case, a mortgaged house built on a rented land was held to be
a personal property, not only because the deed of mortgage
 considered it as such, but also because it did not form part of
the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now
settled that an object placed on land by one who had only a
temporary right to the same, such as the lessee or usufructuary,
does not become immobilized by attachment (Valdez vs.
Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc.
vs. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to
a person stands on a rented land belonging to another person, it
may be mortgaged as a personal property as so stipulated in
the document of mortgage. (Evangelista vs. Abad, Supra.) It
should be noted, however that the principle is predicated on
statements by the owner declaring his house to be a chattel, a
conduct that may conceivably estop him from subsequently
claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G.
5374): 22
In the contract now before Us, the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that "the mortgagor ...
voluntarily CEDES, SELLS and TRANSFERS by way of Chattel
Mortgage23 the property together with its leasehold rights over the lot on
which it is constructed and participation ..." 24 Although there is no specific
statement referring to the subject house as personal property, yet by ceding,
selling or transferring a property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendats-appellants merely had a
temporary right as lessee, and although this can not in itself alone determine
the status of the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the mortgagors,
intended to treat the house as personalty. Finally unlike in the Iya
cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F.
L. Strong Machinery and 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.

G.R. No. L-18456           November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,  there would be no need for any formal demand, and plaintiff could proceed to
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana
Gonzales (married to Gregorio Pineda), borrowed from plaintiff Conrado P.
Navarro, the sum of P2,500.00, payable 6 months after said date or on June
14, 1959. To secure the indebtedness, Rufino executed a document
captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES",
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated a
parcel of land, belonging to her, registered with the Register of Deeds of
Tarlac, under Transfer Certificate of Title No. 25776, and Rufino G.
Pineda, by way of Chattel Mortgage, mortgaged his two-story residential
house, having a floor area of 912 square meters, erected on a lot belonging to
Atty. Vicente Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor
truck, registered in his name, under Motor Vehicle Registration Certificate No.
A-171806. Both mortgages were contained in one instrument, which was
registered in both the Office of the Register of Deeds and the Motor Vehicles
Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were
granted extension up to June 30, 1960, within which to pay. Came June 30,
defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that
in the remote event he should fail to make good the obligation on such date
(July 30, 1960), the defendant would no longer ask for further extension and
take whatever action he might desire to enforce his rights, under the said
mortgage contract. In spite of said promise, defendants, failed and refused to
pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage
and for damages, which consisted of liquidated damages in the sum of
P500.00 and 12% per annum interest on the principal, effective on the date of
maturity, until fully paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation to the
plaintiff the truth being the defendants are hard up these days and
pleaded to the plaintiff to grant them more time within which to pay
their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed
that this Honorable Court render judgment granting the defendants
until January 31, 1961, within which to pay their obligation to the
plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is not clear what ruling the lower
court made on the said motion. On November 11, 1960, however, the parties
submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and
Chattel Mortgages; that the indebtedness has been due and unpaid since
June 14, 1960; that a liability of 12% per annum as interest was agreed, upon
failure to pay the principal when due and P500.00 as liquidated damages; that
the instrument had been registered in the Registry of Property and Motor
Vehicles Office, both of the province of Tarlac; that the only issue in the case
is whether or not the residential house, subject of the mortgage therein, can
be considered a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino
Pineda and Ramon Reyes, to pay jointly and severally and within
ninety (90) days from the receipt of the copy of this decision to the
plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated
damages and the costs of this suit, with the warning that in default of
said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to
realize said mortgage debt, interests, liquidated damages and costs, in
accordance with the pertinent provisions of Act 3135, as amended by
Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to
deliver immediately to the Provincial Sheriff of Tarlac the personal
properties mentioned in said Annex "A", immediately after the lapse of
the ninety (90) days above-mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants
therein assigning only a single error, allegedly committed by the lower court,
to wit —
In holding that the deed of real estate and chattel mortgages appended
to the complaint is valid, notwithstanding the fact that the house of the
defendant Rufino G. Pineda was made the subject of the chattel
mortgage, for the reason that it is erected on a land that belongs to a
third person.
Appellants contend that article 415 of the New Civil Code, in classifying a
house as immovable property, makes no distinction whether the owner of the
land is or not the owner of the building; the fact that the land belongs to
another is immaterial, it is enough that the house adheres to the land; that in
case of immovables by incorporation, such as houses, trees, plants, etc; the
Code does not require that the attachment or incorporation be made by the
owner of the land, the only criterion being the union or incorporation with the
soil. In other words, it is claimed that "a building is an immovable property,
irrespective of whether or not said structure and the land on which it is
adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-
8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong Machinery Co.,
37 Phil. 644). Appellants argue that since only movables can be the subject of
a chattel mortgage (sec. 1, Act No. 3952) then the mortgage in question
which is the basis of the present action, cannot give rise to an action for
foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel
Iya v. Adriano Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected
on the land which belonged to a third person, but also and principally on the
doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed
materials of sawali and wood". In construing arts. 334 and 335 of the Spanish
Civil Code (corresponding to arts. 415 and 416, N.C.C.), for purposes of the
application of the Chattel Mortgage Law, it was held that under certain
conditions, "a property may have a character different from that imputed to it
in said articles. It is undeniable that the parties to a contract may by
agreement, treat as personal property that which by nature would be real
property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can
not be any question that a building of mixed materials may be the subject of a
chattel mortgage, in which case, it is considered as between the parties as
personal property. ... The matter depends on the circumstances and the
intention of the parties". "Personal property may retain its character as such
where it is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al.,
G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.) The view that
parties to a deed of chattel mortgagee may agree to consider a house as
personal property for the purposes of said contract, "is good only insofar as
the contracting parties are concerned. It is based partly, upon the principles of
estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a
case, a mortgage house built on a rented land, was held to be a personal
property, not only because the deed of mortgage considered it as such, but
also because it did not form part of the land (Evangelista v. Abad [CA];36
O.G. 2913), for it is now well settled that an object placed on land by one who
has only a temporary right to the same, such as a lessee or usufructuary,
does not become immobilized by attachment (Valdez v. Central Altagracia,
222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709).
Hence, if a house belonging to a person stands on a rented land belonging to
another person, it may be mortgaged as a personal property is so stipulated
in the document of mortgage. (Evangelista v. Abad, supra.) It should be
noted, however, that the principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably estop him
from subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al.,
[CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are not
parties to the contract, and specially in execution proceedings, the house is
considered as an immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage"
"my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was
small and made of light construction materials: G.I. sheets roofing, sawali and
wooden walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya
cases (L-10837-38, supra), refer to a building or a house of strong materials,
permanently adhered to the land, belonging to the owner of the house
himself. In the case of Lopez v. Orosa, (L-10817-18), the subject building was
a theatre, built of materials worth more than P62,000, attached permanently
to the soil. In these cases and in the Leung Yee case, supra, third persons
assailed the validity of the deed of chattel mortgages; in the present case, it
was one of the parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from,
should be, as it is hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala,
and Makalintal, JJ., concur.

G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner, 
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals
(now Intermediate Appellate Court) promulgated on August 27, 1981 in
CA-G.R. No. SP-12731, setting aside certain Orders later specified
herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court
of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as
wen as the resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned,
private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero
Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However, the
Deputy Sheriff assigned to implement the foreclosure failed to gain
entry into private respondent's premises and was not able to effect the
seizure of the aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First Instance of
Rizal, Branch VI, docketed as Civil Case No. 36040, the case before
the lower court.
Acting on petitioner's application for replevin, the lower court issued a
writ of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued on
February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent's filing of a further motion
for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of
the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders of
the lower court and ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the machinery in suit
cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil
Code, the same being attached to the ground by means of bolts and the
only way to remove it from respondent's plant would be to drill out or
destroy the concrete floor, the reason why all that the sheriff could do to
enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is
estopped from claiming that the machine is real property by constituting
a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for
review by writ of certiorari. It is contended by private respondent,
however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that
said action was without prejudice to a motion for reconsideration of the
Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved
its right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by
such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point
of view of the parties, with petitioner arguing that it is a personality,
while the respondent claiming the contrary, and was sustained by the
appellate court, which accordingly held that the chattel mortgage
constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
SCRA 143 where this Court, speaking through Justice J.B.L. Reyes,
ruled:
Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling
or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same
as such, so that they should not now be allowed to make
an inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendants-
appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of
the property, it does so when combined with other factors
to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. &
Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery
& Williamson, wherein third persons assailed the validity of
the chattel mortgage, it is the defendants-appellants
themselves, as debtors-mortgagors, who are attacking the
validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical
justification to exclude the rule out, as the appellate court did, the
present case from the application of the abovequoted pronouncement.
If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may
not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery
as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties.
As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it
is undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property, as long
as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit
be considered as personal property but was merely required and
dictated on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. This
contention lacks persuasiveness. As aptly pointed out by petitioner and
not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court
and the Court of Appeals except in a supplemental memorandum in
support of the petition filed in the appellate court. Moreover, even
granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps
were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has
indubitably benefited from said contract. Equity dictates that one should
not benefit at the expense of another. Private respondent could not now
therefore, be allowed to impugn the efficacy of the chattel mortgage
after it has benefited therefrom,
From what has been said above, the error of the appellate court in
ruling that the questioned machinery is real, not personal property,
becomes very apparent. Moreover, the case of Machinery and
Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by
said court is not applicable to the case at bar, the nature of the
machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a
Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly
perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED. Makasiar (Chairman), Aquino, Concepcion Jr.,
Guerrero and Escolin JJ., concur. Abad Santos, J., concurs in the
result.
G.R. No. 106041 January 29, 1993
BENGUET CORPORATION, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR
OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF
SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
CRUZ, J.:
The realty tax assessment involved in this case amounts to
P11,319,304.00. It has been imposed on the petitioner's tailings dam and
the land thereunder over its protest.
The controversy arose in 1985 when the Provincial Assessor of Zambales
assessed the said properties as taxable improvements. The assessment
was appealed to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was dismissed mainly on the
ground of the petitioner's "failure to pay the realty taxes that fell due during
the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of
Assessment Appeals,1 one of the herein respondents. In its decision dated
March 22, 1990, the Board reversed the dismissal of the appeal but, on
the merits, agreed that "the tailings dam and the lands submerged
thereunder (were) subject to realty tax."
For purposes of taxation the dam is considered as real
property as it comes within the object mentioned in
paragraphs (a) and (b) of Article 415 of the New Civil Code. It
is a construction adhered to the soil which cannot be
separated or detached without breaking the material or
causing destruction on the land upon which it is attached. The
immovable nature of the dam as an improvement determines
its character as real property, hence taxable under Section 38
of the Real Property Tax Code. (P.D. 464).
Although the dam is partly used as an anti-pollution device,
this Board cannot accede to the request for tax exemption in
the absence of a law authorizing the same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of
the construction of the tailings dam, covered by Tax
Declaration Nos.
002-0260 and 002-0266, to be in accordance with the
Schedule of Market Values for Zambales which was reviewed
and allowed for use by the Ministry (Department) of Finance
in the 1981-1982 general revision. No serious attempt was
made by Petitioner-Appellant Benguet Corporation to impugn
its reasonableness, i.e., that the P50.00 per square meter
applied by Respondent-Appellee Provincial Assessor is
 indeed excessive and unconscionable. Hence, we find no
cause to disturb the market value applied by Respondent
Appellee Provincial Assessor of Zambales on the properties
of Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land
within the meaning of the Real Property Tax Code. More particularly, it is
claimed —
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate
from and independent of the mine; hence, by
itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the
petitioner corporation in the area, the tailings
dam will benefit the local community by serving
as an irrigation facility;
(d) that the building of the dam has stripped the
property of any commercial value as the
property is submerged under water wastes from
the mine;
(e) that the tailings dam is an environmental
pollution control device for which petitioner must
be commended rather than penalized with a
realty tax assessment;
(f) that the installation and utilization of the
tailings dam as a pollution control device is a
requirement imposed by law;
(2) as regards the valuation of the tailings dam and the
submerged lands:
(a) that the subject properties have no market
value as they cannot be sold independently of
the mine;
(b) that the valuation of the tailings dam should
be based on its incidental use by petitioner as a
water reservoir and not on the alleged cost of
construction of the dam and the annual build-up
expense;
(c) that the "residual value formula" used by the
Provincial Assessor and adopted by respondent
CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands
for realty tax purposes:
 (a) that where a tax is not paid in an honest
belief that it is not due, no penalty shall be
collected in addition to the basic tax;
(b) that no other mining companies in the
Philippines operating a tailings dam have been
made to declare the dam for realty tax purposes.
The petitioner does not dispute that the tailings dam may be considered
realty within the meaning of Article 415. It insists, however, that the dam
cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine
although a considerable sum may have been spent in constructing and
maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court
considered the dikes and gates constructed by the taxpayer in connection
with a fishpond operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil.
303), involving a road constructed by the timber concessionaire in the
area, where this Court did not impose a realty tax on the road primarily for
two reasons:
In the first place, it cannot be disputed that the ownership of
the road that was constructed by appellee belongs to the
government by right of accession not only because it is
inherently incorporated or attached to the timber land . . . but
also because upon the expiration of the concession said road
would ultimately pass to the national government. . . . In the
second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive,
for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound
to allow the free use of forest products within the concession
for the personal use of individuals residing in or within the
vicinity of the land. . . . In other words, the government has
practically reserved the rights to use the road to promote its
varied activities. Since, as above shown, the road in question
cannot be considered as an improvement which belongs to
appellee, although in part is for its benefit, it is clear that the
same cannot be the subject of assessment within the
meaning of Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was an
integral part of the lumber concession but because the government had
the right to use the road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American
case, where it was declared that the reservoir dam went with and formed
part of the reservoir and that the dam would be "worthless and useless
except in connection with the outlet canal, and the water rights in the
reservoir represent and include whatever utility or value there is in the dam
and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the
United States. This case involved drain tunnels constructed by plaintiff
when it expanded its mining operations downward, resulting in a
constantly increasing flow of water in the said mine. It was held that:
 Whatever value they have is connected with and in fact is an
integral part of the mine itself. Just as much so as any shaft
which descends into the earth or an underground incline,
tunnel, or drift would be which was used in connection with
the mine.
On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of the
mine. The primary function of the dam is to receive, retain and hold the
water coming from the operations of the mine, and it also enables the
petitioner to impound water, which is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to
the gas station building or shed owned by Caltex (as to which
it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas
station would be useless and which have been attached or
affixed permanently to the gas station site or embedded
therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax
Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded
in the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering
it useful to the oil industry. It is undeniable that the two tanks
have been installed with some degree of permanence as
receptacles for the considerable quantities of oil needed by
MERALCO for its operations. (Manila Electric Co. v. CBAA,
114 SCRA 273).
The pipeline system in question is indubitably a construction
adhering to the soil. It is attached to the land in such a way
that it cannot be separated therefrom without dismantling the
steel pipes which were welded to form the pipeline.
(MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA
261).
The tax upon the dam was properly assessed to the plaintiff
as a tax upon real estate. (Flax-Pond Water Co. v. City of
Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are
designed and used by the owner as permanent improvement
of the free hold, and that for such reasons they were properly
assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d.
271)
The Real Property Tax Code does not carry a definition of "real property"
and simply says that the realty tax is imposed on "real property, such as
lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, we apply Article 415 of
the Civil Code, the pertinent portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to
the soil;
xxx xxx xxx
 (3) Everything attached to an immovable in a fixed manner, in
such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law,
provides that the realty tax is due "on the real property, including land,
buildings, machinery and other improvements" not specifically exempted in
Section 3 thereof. A reading of that section shows that the tailings dam of
the petitioner does not fall under any of the classes of exempt real
properties therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real
Property Tax Code defines improvement as follows:
(k) Improvements — is a valuable addition made to property
or an amelioration in its condition, amounting to more than
mere repairs or replacement of waste, costing labor or capital
and intended to enhance its value, beauty or utility or to adopt
it for new or further purposes.
The term has also been interpreted as "artificial alterations of the physical
condition of the ground that are reasonably permanent in character."2
The Court notes that in the Ontario case the plaintiff admitted that the mine
involved therein could not be operated without the aid of the drain tunnels,
which were indispensable to the successful development and extraction of
the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be
carried out because the primary function of the dam is merely to receive
and retain the wastes and water coming from the mine. There is no
allegation that the water coming from the dam is the sole source of water
for the mining operation so as to make the dam an integral part of the
mine. In fact, as a result of the construction of the dam, the petitioner can
now impound and recycle water without having to spend for the building of
a water reservoir. And as the petitioner itself points out, even if the
petitioner's mine is shut down or ceases operation, the dam may still be
used for irrigation of the surrounding areas, again unlike in the Ontario
case.
As correctly observed by the CBAA, the Kendrick case is also not
applicable because it involved water reservoir dams used for different
purposes and for the benefit of the surrounding areas. By contrast, the
tailings dam in question is being used exclusively for the benefit of the
petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has
no separate existence, just as vigorously contends that at the end of the
mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the
mine.
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of the
status of realty would depend upon the degree of permanence intended in
its construction and use. The expression "permanent" as applied to an
improvement does not imply that the improvement must be used
perpetually but only until the purpose to which the principal realty is
devoted has been accomplished. It is sufficient that the improvement is
intended to remain as long as the land to which it is annexed is still used
for the said purpose.
The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both
the value and utility of petitioner's mine. Moreover, the immovable nature
of the dam defines its character as real property under Article 415 of the
Civil Code and thus makes it taxable under Section 38 of the Real
Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per
square meter made by the Provincial Assessor is excessive and that his
use of the "residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual value
formula" as follows:
A 50% residual value is applied in the computation because,
while it is true that when slime fills the dike, it will then be
covered by another dike or stage, the stage covered is still
there and still exists and since only one face of the dike is
filled, 50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of
the construction of the tailings dam, covered by Tax
Declaration Nos.
002-0260 and 002-0266, to be in accordance with the
Schedule of Market Values for San Marcelino, Zambales,
which is fifty (50.00) pesos per square meter for third class
industrial land (TSN, page 17, July 5, 1989) and Schedule of
Market Values for Zambales which was reviewed and allowed
for use by the Ministry (Department) of Finance in the 1981-
1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its
reasonableness, i.e, that the P50.00 per square meter
applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no
cause to disturb the market value applied by Respondent-
Appellee Provincial Assessor of Zambales on the properties
of Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the
conclusions of quasi-judicial agencies like the CBAA, which, because of
the nature of its functions and its frequent exercise thereof, has developed
expertise in the resolution of assessment problems. The only exception to
this rule is where it is clearly shown that the administrative body has
committed grave abuse of discretion calling for the intervention of this
Court in the exercise of its own powers of review. There is no such
showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot
take cognizance of the issue of the propriety of the penalties imposed
upon it, which was raised by the petitioner for the first time only on appeal.
The CBAA held that this "is an entirely new matter that petitioner can take
up with the Provincial Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the local sanggunian . . ., and
in case of an adverse decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this Board for appropriate
action."
There is no need for this time-wasting procedure. The Court may resolve
the issue in this petition instead of referring it back to the local authorities.
We have studied the facts and circumstances of this case as above
discussed and find that the petitioner has acted in good faith in questioning
the assessment on the tailings dam and the land submerged thereunder. It
is clear that it has not done so for the purpose of evading or delaying the
payment of the questioned tax. Hence, we hold that the petitioner is not
subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax
purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the
questioned decision of respondent Central Board of Assessment Appeals
is tainted with grave abuse of discretion except as to the imposition of
penalties upon the petitioner which is hereby SET ASIDE. Costs against
the petitioner. It is so ordered.
Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Griño-Aquino, Regalado,
Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur
[G.R. No. L-47943. May 31, 1982.]
MANILA ELECTRIC COMPANY, Petitioner, v. CENTRAL BOARD OF
ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, Respondents.
Quiason, De Guzman, Makalintal, Veneracion and Barot for Petitioner.
Acting Solicitor General Vicente V . Mendoza, Assistant Solicitor
General Nathanael P. de Pano, Jr. and Solicitor Jesus P. Mapuno
for Respondents.
SYNOPSIS
Petitioner installed two storage tanks on a lot it leased from Caltex (Phil.) for
storing fuel oil for its power plants. The tanks are made of steel plates welded
and assembled on the spot and pipelines installed on the sides of each tank.
They are not attached to the land but merely sit on concrete foundations. On
assessment made by the Provincial Assessor in 1970, the Municipal
Treasurer of Bauan, Batangas required petitioner to pay realty taxes on the
two tanks. Payment of the realty taxes was upheld by the Batangas Board of
Assessment Appeals and subsequently by the Central Board of Assessment
Appeals. A motion for reconsideration was filed with the Board but the same
was denied Hence, the present petition. Petitioner claims that said oil storage
tanks do not fall within any of the kinds of real property enumerated in Article
415 of the Civil Code.
On review, the Supreme Court held that while the two storage tanks are not
embedded in the land, they may be considered as improvements on the land,
enhancing its utility and rendering it useful to the oil industry, which are
taxable under the provisions of the Real Property Tax Code.
SYLLABUS
1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; PROPERTIES
SUBJECT THERETO. — Section 2 of the Assessment Law provides
that the realty tax is due on "real property, including land, buildings,
machinery, and other improvements" not specifically exempted in
Section 3 thereof. This provision is reproduced with some modification
in the Real Property Tax Code which provides in Section 38 thereof
that "There shall be levied, assessed and collected in all provinces,
cities and municipalities an annual ad valorem tax on real property
such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted."
2. ID.; ID.; ID.; ID.; STORAGE TANKS NOT EMBEDDED IN THE LAND
CONSIDERED TAXABLE IMPROVEMENTS UNDER SECTION 3(k) OF
THE REAL PROPERTY TAX CODE. — While the two storage tanks are
not embedded in the land, they may, nevertheless, be considered as
taxable improvements on the land, enhancing its utility and rendering it
 useful to the oil industry as defined under Section 3 (k) of the Real
Property Tax Code. It is undeniable that the two tanks have been installed
with some degree of permanence at receptacles for the considerable
qualities of oil needed by Meralco for its operations. Oil storage tanks
were held to be taxable realty in Standard Oil Co. of New Jersy versus
Atlantic City, 15 Atl. 2nd 271.
3. ID.; ID.; REAL PROPERTY FOR PURPOSES OF TAXATION MAY
INCLUDE THINGS GENERALLY REGARDED AS PERSONAL
PROPERTY. — For purposes of taxation, the term "real property" may
include things which generally should be regarded as personal property
(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed
as real property for purposes of taxation which on general principle might
be considered personal property (Standard Oil Co. of New York v.
Jaramillo. 44 Phil. 630, 633).
DECISION
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks
installed in 1969 by Manila Electric Company on a lot in San Pascual,
Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within
the Caltex refinery compound. They have a total capacity of 566,000 barrels.
They are used for storing fuel oil for Meralco’s power plants.
According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of
compacted earth as the outermost layer, a sand pad as the intermediate layer
and a two-inch thick bituminous asphalt stratum as the top layer. The bottom
of each tank is in contact with the asphalt layer.
The steel sides of the tank are directly supported underneath by a circular
wall made of concrete, eighteen inches thick, to prevent the tank from sliding.
Hence, according to Meralco, the tank is not attached to its foundation. It is
not anchored or welded to the concrete circular wall. Its bottom plate is not
attached to any part of the foundation by bolts, screws or similar devices. The
tank merely sits on its foundation. Each empty tank can be floated by flooding
its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central
Board of Assessment Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles on top thereof and is
divided into two parts as the site of each tank. The foundation of the tanks is
elevated from the remaining area. On both sides of the earthen dikes are two
separate concrete steps leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about
an inch thick. Pipelines were installed on the sides of each tank and are
connected to the pipelines of the Manila Enterprises Industrial Corporation
whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the
foundation itself and the walls, dikes and steps, which are integral parts of the
tanks, are affixed to the land while the pipelines are attached to the tanks.
(pp. 60-61, Rollo.)
In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required Meralco to pay realty
taxes on the two tanks. For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required
Meralco to pay the tax and penalties as a condition for entertaining its appeal
from the adverse decision of the Batangas board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of
Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente
Abad Santos and Secretary of Local Government and Community
Development Jose Roño as members) in its decision dated November 5,
1976 ruled that the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the
fifteenth day, it filed a motion for reconsideration which the Board denied in its
resolution of November 25, 1977, a copy of which was received by Meralco
on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul
the Board’s decision and resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in holding that its storage
tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the
kinds of real property enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that the tanks are not
attached to the land and that they were placed on leased land, not on the land
owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on
the classification of property where strong divergent opinions are inevitable.
The issue raised by Meralco has to be resolved in the light of the provisions of
the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax
Code, Presidential Decree No. 464 which took effect on June 1,
1974.chanrobles lawlibrary : rednad
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with
some modification in the Real Property Tax Code which provides:
"Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed
and collected in all provinces, cities and municipalities an annual ad valorem
tax on real property, such as land, buildings, machinery and other
improvements affixed or attached to real property not hereinafter specifically
exempted." The Code contains the following definition in its section
"k) Improvements — is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes."
We hold that while the two storage tanks are not embedded in the land, they
may, nevertheless, be considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It is undeniable that the two
tanks have been installed with some degree of permanence as receptacles
for the considerable quantities of oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New
Jersey v. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which
should generally be regarded as personal property (84 C.J.S. 171, Note 8). It
is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property
(Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals v. Manila Electric Company, 119
Phil. 328, wherein Meralco’s steel towers were held not to be subject to realty
tax, is not in point because in that case the steel towers were regarded as
poles and under its franchise Meralco’s poles are exempt from taxation.
Moreover, the steel towers were not attached to any land or building. They
were removable from their metal frames.

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

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

and resolution are affirmed. No costs. SO ORDERED.

Barredo, Guerrero, De Castro and Escolin, JJ., concur. Concepcion, Jr., J., is

on leave.
Abad Santos, J., took no part.