1. The dismissal of the complaint was proper.

A house is classified as immovable

property by reason of its adherence to the soil on which it is built (Art. 415, par. 1,
G.R. No. L-16218           November 29, 1962 Civil Code). This classification holds true regardless of the fact that the house may
be situated on land belonging to a different owner. But once the house is
ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, demolished, as in this case, it ceases to exist as such and hence its character as
CAYETANO BICERRA, LINDA BICERRA, PIO BICERRA and EUFRICINA an immovable likewise ceases. It should be noted that the complaint here is for
BICERRA, plaintiffs-appellants, recovery of damages. This is the only positive relief prayed for by appellants. To be
vs. sure, they also asked that they be declared owners of the dismantled house and/or
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees. of the materials. However, such declaration in no wise constitutes the relief itself
which if granted by final judgment could be enforceable by execution, but is only
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants. incidental to the real cause of action to recover damages.
Ernesto Parol for defendants-appellees.
The order appealed from is affirmed. The appeal having been admitted in forma
MAKALINTAL, J.: pauperis, no costs are adjudged.

This case is before us on appeal from the order of the Court of First Instance of
Abra dismissing the complaint filed by appellants, upon motion of defendants-
appellate on the ground that the action was within the exclude (original) jurisdiction
of the Justice of the Peace Court of Lagangilang, of the same province.

The complaint alleges in substance that appellants were the owners of the house,
worth P200.00, built on and owned by them and situated in the said municipality
Lagangilang; that sometime in January 1957 appealed forcibly demolished the
house, claiming to be the owners thereof; that the materials of the house, after it
was dismantled, were placed in the custody of the barrio lieutenant of the place;
and that as a result of appellate's refusal to restore the house or to deliver the
material appellants the latter have suffered actual damages the amount of P200.00,
plus moral and consequential damages in the amount of P600.00. The relief prayed
for is that "the plaintiffs be declared the owners of the house in question and/or the
materials that resulted in (sic) its dismantling; (and) that the defendants be orders
pay the sum of P200.00, plus P600.00 as damages, the costs."

The issue posed by the parties in this appeal is whether the action involves title to
real property, as appellants contend, and therefore is cognizable by the Court of
First Instance (Sec. 44, par. [b], R.A. 296, as amended), whether it pertains to the
jurisdiction of the Justice of the Peace Court, as stated in the order appealed from,
since there is no real property litigated, the house having ceased to exist, and the
amount of the demand does exceed P2,000.00 (Sec. 88, id.)1
2.
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO
A. ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether or not respondent
Court erred in denying the Motion to Set Case for Pre-trial with respect to
respondent Remedios Vda. de Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-respondent Philippine National Bank
(PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of
a parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In
1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the property was
foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the
highest bidder in said foreclosure proceedings. However, the bank secured title
thereto only on December 14, 1977.
In the meantime, in 1974, while the properly was still in the alleged possession of
petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch),
and upon securing a permit from the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared said warehouse for tax purposes
for which he was issued Tax Declaration No. 5619. Petitioner then leased the
warehouse to one Hermogenes Sibal for a period of 10 years starting January
1975.
On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac
Branch) and respondent Lacsamana over the property. This contract was amended
on July 31, 1978, particularly to include in the sale, the building and improvement
thereon. By virtue of said instruments, respondent - Lacsamana secured title over
the property in her name (TCT No. 173744) as well as separate tax declarations for
the land and building. 1
On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale
with Damages" against herein respondents PNB and Lacsamana before
respondent Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially
impugning the validity of the sale of the building as embodied in the Amended Deed
of Sale. In this connection, petitioner alleged:
xxx xxx xxx
22. That defendant, Philippine National Bank, through its Branch
Manager ... by virtue of the request of defendant ... executed a
document dated July 31, 1978, entitled Amendment to Deed of
Absolute Sale ... wherein said defendant bank as Vendor sold to
defendant Lacsamana the building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the fact that said building is
not owned by the bank either by virtue of the public auction sale
conducted by the Sheriff and sold to the Philippine National Bank or
by virtue of the Deed of Sale executed by the bank itself in its favor
on September 21, 1977 ...;
23. That said defendant bank fraudulently mentioned ... that the sale
in its favor should likewise have included the building,
notwithstanding no legal basis for the same and despite full
knowledge that the Certificate of Sale executed by the sheriff in its
favor ... only limited the sale to the land, hence, by selling the
building which never became the property of defendant, they have
violated the principle against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor of respondent
Lacsamana be declared null and void and that damages in the total sum of
P230,000.00, more or less, be awarded to him.2
In her Answer filed on March 4, 1980,-respondent Lacsamana averred the
affirmative defense of lack of cause of action in that she was a purchaser for value
and invoked the principle in Civil Law that the "accessory follows the principal".3
On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that
venue was improperly laid considering that the building was real property under
article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should
apply. 4
Opposing said Motion to Dismiss, petitioner contended that the action for
annulment of deed of sale with damages is in the nature of a personal action, which
seeks to recover not the title nor possession of the property but to compel payment
of damages, which is not an action affecting title to real property.
On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss
as follows:
Acting upon the 'Motion to Dismiss' of the defendant Philippine
National Bank dated March 13, 1980, considered against the
plaintiff's opposition thereto dated April 1, 1980, including the reply
therewith of said defendant, this Court resolves to DISMISS the
plaintiff's complaint for improper venue considering that the plaintiff's
complaint which seeks for the declaration as null and void, the
amendment to Deed of Absolute Sale executed by the defendant
Philippine National Bank in favor of the defendant Remedios T. Vda.
de Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant
Philippine National Bank situated in the Municipality of Bamban,
Province of Tarlac, which warehouse is an immovable property
pursuant to Article 415, No. 1 of the New Civil Code; and, as such
the action of the plaintiff is a real action affecting title to real property
which, under Section 2, Rule 4 of the New Rules of Court, must be
tried in the province where the property or any part thereof lies.5
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the
argument that the action to annul does not involve ownership or title to property but
is limited to the validity of the deed of sale and emphasized that the case should
proceed with or without respondent PNB as respondent Lacsamana had already
filed her Answer to the Complaint and no issue on venue had been raised by the
latter.
On September 1, 1980,.respondent Court denied reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent
Lacsamana was concerned, as the issues had already been joined with the filing of
respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent Court denied said Motion to Set
Case for Pre-trial as the case was already dismissed in the previous Orders of April
25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave due course.
We affirm respondent Court's Order denying the setting for pre-trial.
The warehouse claimed to be owned by petitioner is an immovable or real property
as provided in article 415(l) of the Civil Code. 6 Buildings are always immovable
under the Code. 7 A building treated separately from the land on which it stood is
immovable property and the mere fact that the parties to a contract seem to have
dealt with it separate and apart from the land on which it stood in no wise changed
its character as immovable property. 8
While it is true that petitioner does not directly seek the recovery of title or
possession of the property in question, his action for annulment of sale and his
claim for damages are closely intertwined with the issue of ownership of the
building which, under the law, is considered immovable property, the recovery of
which is petitioner's primary objective. The prevalent doctrine is that an action for
the annulment or rescission of a sale of real property does not operate to efface the
fundamental and prime objective and nature of the case, which is to recover said
real property. It is a real action. 9
Respondent Court, therefore, did not err in dismissing the case on the ground of
improper venue (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule
16) 11.
Petitioner's other contention that the case should proceed in so far as respondent
Lacsamana is concerned as she had already filed an Answer, which did not allege
improper venue and, therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the validity of the
Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent
Lacsamana alone.

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

Costs against petitioner.

SO ORDERED.
3.
G.R. No. L-18456           November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
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 there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights, under
the said mortgage contract. In spite of said promise, defendants, failed and refused
to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and
for damages, which consisted of liquidated damages in the sum of P500.00 and
12% per annum interest on the principal, effective on the date of maturity, until fully
paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the defendants
unreasonably failed and refuse to pay their obligation to the plaintiff the truth
being the defendants are hard up these days and pleaded to the plaintiff to
grant them more time within which to pay their obligation and the plaintiff
refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that
this Honorable Court render judgment granting the defendants until January
31, 1961, within which to pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is not clear what ruling the lower court
made on the said motion. On November 11, 1960, however, the parties submitted a
Stipulation of Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12%
per annum as interest was agreed, upon failure to pay the principal when due and
P500.00 as liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province of Tarlac; that
the only issue in the case is whether or not the residential house, subject of the
mortgage therein, can be considered a Chattel and the propriety of the attorney's
fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
 (a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda
and Ramon Reyes, to pay jointly and severally and within ninety (90) days
from the receipt of the copy of this decision to the plaintiff Conrado P.
Navarro the principal sum of P2,550.00 with 12% compounded interest per
annum from June 14, 1960, until said principal sum and interests are fully
paid, plus P500.00 as liquidated damages and the costs of this suit, with the
warning that in default of said payment of the properties mentioned in the
deed of real estate mortgage and chattel mortgage (Annex "A" to the
complaint) be sold to realize said mortgage debt, interests, liquidated
damages and costs, in accordance with the pertinent provisions of Act
3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law,
Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties
mentioned 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.
4.
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the
reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal
court of Manila in Civil Case No. 43073, for ejectment. Having lost therein,
defendants-appellants appealed to the court a quo (Civil Case No. 30993) which
also rendered a decision against them, the dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the
plaintiffs and against the defendants, ordering the latter to pay jointly
and severally the former a monthly rent of P200.00 on the house,
subject-matter of this action, from March 27, 1956, to January 14,
1967, with interest at the legal rate from April 18, 1956, the filing of
the complaint, until fully paid, plus attorney's fees in the sum of
P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants
executed a chattel mortgage in favor of plaintiffs-appellees over their house of
strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over
Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from Madrigal &
Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on
2 September 1955. The herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per
annum. The mode of payment was P150.00 monthly, starting September, 1955, up
to July 1956, and the lump sum of P3,150 was payable on or before August, 1956.
It was also agreed that default in the payment of any of the amortizations, would
cause the remaining unpaid balance to becomeimmediately due and Payable and
—
the Chattel Mortgage will be enforceable in accordance with the
provisions of Special Act No. 3135, and for this purpose, the Sheriff
of the City of Manila or any of his deputies is hereby empowered and
 authorized to sell all the Mortgagor's property after the necessary
publication in order to settle the financial debts of P4,800.00, plus
12% yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was extrajudicially
foreclosed, and on 27 March 1956, the house was sold at public auction pursuant
to the said contract. As highest bidder, plaintiffs-appellees were issued the
corresponding certificate of sale.3 Thereafter, on 18 April 1956, plaintiffs-appellant
commenced Civil Case No. 43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its possession surrendered to them,
and for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956
up to the time the possession is surrendered.4 On 21 September 1956, the
municipal court rendered its decision —
... ordering the defendants to vacate the premises described in the
complaint; ordering further to pay monthly the amount of P200.00
from March 27, 1956, until such (time that) the premises is (sic)
completely vacated; plus attorney's fees of P100.00 and the costs of
the suit.5
Defendants-appellants, in their answers in both the municipal court and court a
quo impugned the legality of the chattel mortgage, claiming that they are still the
owners of the house; but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in support of their motion to
dismiss, predicated mainly on the grounds that: (a) the municipal court did not have
jurisdiction to try and decide the case because (1) the issue involved, is ownership,
and (2) there was no allegation of prior possession; and (b) failure to prove prior
demand pursuant to Section 2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First Instance, defendants-
appellants failed to deposit the rent for November, 1956 within the first 10 days of
December, 1956 as ordered in the decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for execution, and it was actually issued
on 24 January 1957. However, the judgment regarding the surrender of possession
to plaintiffs-appellees could not be executed because the subject house had been
already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for
non-payment of rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas
bond and withdrawal of deposited rentals was denied for the reason that the liability
therefor was disclaimed and was still being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance rendered its decision, the
dispositive portion of which is quoted earlier. The said decision was appealed by
defendants to the Court of Appeals which, in turn, certified the appeal to this Court.
Plaintiffs-appellees failed to file a brief and this appeal was submitted for decision
without it.
Defendants-appellants submitted numerous assignments of error which can be
condensed into two questions, namely: .
(a) Whether the municipal court from which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay
rentals to the plaintiffs during the period of one (1) year provided by
law for the redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal
court from which the case originated, and consequently, the appellate jurisdiction of
the Court of First Instance a quo, on the theory that the chattel mortgage is void ab
initio; whence it would follow that the extrajudicial foreclosure, and necessarily the
consequent auction sale, are also void. Thus, the ownership of the house still
remained with defendants-appellants who are entitled to possession and not
plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of
ownership will have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First Instance
which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on
two grounds, which are: (a) that, their signatures on the chattel mortgage were
obtained through fraud, deceit, or trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being an immovable, it can only be
the subject of a real estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found
defendants-appellants' contentions as not supported by evidence and accordingly
dismissed the charge,8 confirming the earlier finding of the municipal court that "the
defense of ownership as well as the allegations of fraud and deceit ... are mere
allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a
mere statement of the facts which the party filing it expects to prove, but it is not
evidence;11 and further, that when the question to be determined is one of title, the
Court is given the authority to proceed with the hearing of the cause until this fact is
clearly established. In the case of Sy vs. Dalman,12 wherein the defendant was also
a successful bidder in an auction sale, it was likewise held by this Court that in
detainer cases the aim of ownership "is a matter of defense and raises an issue of
fact which should be determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the relief asked
for. 13
Moreover, even granting that the charge is true, fraud or deceit does not render a
contract void ab initio, and can only be a ground for rendering the contract voidable
or annullable pursuant to Article 1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. Hence, defendants-
appellants' claim of ownership on the basis of a voidable contract which has not
been voided fails.
It is claimed in the alternative by defendants-appellants that even if there was no
fraud, deceit or trickery, the chattel mortgage was still null and void ab
initio because only personal properties can be subject of a chattel mortgage. The
rule about the status of buildings as immovable property is stated in Lopez vs.
Orosa, Jr. and Plaza Theatre Inc.,15 cited in Associated Insurance Surety Co., Inc.
vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real
properties (art. 415, New Civil Code) could only mean one thing —
that a building is by itself an immovable property irrespective of
whether or not said structure and the land on which it is adhered to
belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case
of Manarang and Manarang vs. Ofilada,17 this Court stated that "it is undeniable
that the parties to a contract may by agreement treat as personal property that
which by nature would be real property", citing Standard Oil Company of New York
vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following described personal property." 19 The
"personal property" consisted of leasehold rights and a building. Again, in the case
of Luna vs. Encarnacion,20 the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and this Court hold therein that it was a
valid Chattel mortgage because it was so expressly designated and specifically
that the property given as security "is a house of mixed materials, which by its very
nature is considered personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —
The view that parties to a deed of chattel mortgage may agree to
consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case,
a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as
such, but also because it did not form part of the land (Evangelists
vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an object
placed on land by one who had only a temporary right to the same,
such as the lessee or usufructuary, does not become immobilized by
attachment (Valdez vs. Central Altagracia, 222 U.S. 58, cited in
Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to
another person, it may be mortgaged as a personal property as so
stipulated in the document of mortgage. (Evangelista vs.
Abad, Supra.) It should be noted, however that the principle is
predicated on statements by the owner declaring his house to be a
chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48
O.G. 5374): 22
In the contract now before Us, the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that "the mortgagor ...
voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage23 the
property together with its leasehold rights over the lot on which it is constructed and
participation ..." 24 Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot to which defendats-appellants
merely had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the mortgagors, intended to
treat the house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr.
and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the chattel
mortgage,27 it is the defendants-appellants themselves, as debtors-mortgagors,
who are attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated the
subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question.
The Court of First Instance noted in its decision that nearly a year after the
foreclosure sale the mortgaged house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor of the land on which the house
stood. For this reason, the said court limited itself to sentencing the erstwhile
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold) until 14 January 1957
(when it was torn down by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to
remain in possession without any obligation to pay rent during the one year
redemption period after the foreclosure sale, i.e., until 27 March 1957. On this
issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act
No. 1508.28 Section 14 of this Act allows the mortgagee to have the property
mortgaged sold at public auction through a public officer in almost the same
manner as that allowed by Act No. 3135, as amended by Act No. 4118, provided
that the requirements of the law relative to notice and registration are complied
with. 29 In the instant case, the parties specifically stipulated that "the chattel
mortgage will be enforceable in accordance with the provisions of Special Act No.
3135 ... ." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-
appellants herein) may, at any time within one year from and after the date of the
auction sale, redeem the property sold at the extra judicial foreclosure sale. Section
7 of the same Act 32 allows the purchaser of the property to obtain from the court
the possession during the period of redemption: but the same provision expressly
requires the filing of a petition with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the proper motion and the approval of
the corresponding bond that the order for a writ of possession issues as a matter of
course. No discretion is left to the court. 33 In the absence of such a compliance, as
in the instant case, the purchaser can not claim possession during the period of
redemption as a matter of right. In such a case, the governing provision is Section
34, Rule 39, of the Revised Rules of Court 34 which also applies to properties
purchased in extrajudicial foreclosure proceedings.35 Construing the said section,
this Court stated in the aforestated case of Reyes vs. Hamada.
In other words, before the expiration of the 1-year period within
which the judgment-debtor or mortgagor may redeem the property,
the purchaser thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the Rules of Court
allow the purchaser to receive the rentals if the purchased property
is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount
so received and the same will be duly credited against the
redemption price when the said debtor or mortgagor effects the
redemption. Differently stated, the rentals receivable from tenants,
although they may be collected by the purchaser during the
redemption period, do not belong to the latter but still pertain to the
debtor of mortgagor. The rationale for the Rule, it seems, is to
secure for the benefit of the debtor or mortgagor, the payment of the
redemption amount and the consequent return to him of his
properties sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe.36

Since the defendants-appellants were occupying the house at the time of the
auction sale, they are entitled to remain in possession during the period of
redemption or within one year from and after 27 March 1956, the date of the
auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet
expired when action was instituted in the court of origin, and that plaintiffs-
appellees did not choose to take possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties to govern the extrajudicial
foreclosure of the chattel mortgage. Neither was there an allegation to that effect.
Since plaintiffs-appellees' right to possess was not yet born at the filing of the
complaint, there could be no violation or breach thereof. Wherefore, the original
complaint stated no cause of action and was prematurely filed. For this reason, the
same should be ordered dismissed, even if there was no assignment of error to that
effect. The Supreme Court is clothed with ample authority to review palpable errors
not assigned as such if it finds that their consideration is necessary in arriving at a
just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for the
year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-
appellees.
5.
G.R. No. L-19468            October 30, 1964
SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-appellants,
vs.
CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees.
Santiago F. Alidio for plaintiffs-appellants.
Marcos Mangubat in his own behalf and for co-defendant-appellee Conrado S.
David.
CONCEPCION, J.:
This is an appeal from an order of the Court of First Instance of Manila in Civil Case
No. 47664 thereof. The pertinent facts are set forth in said order from which we
quote:
It appears from the complaint that on December 11, 1948, defendant herein
Conrado S. David received a loan of P3,000 with interest at 12% per annum
from Claudia B. Vda. de Uy Kim, one of the plaintiffs, and to secure the
payment of the same, Conrado S. David executed a chattel mortgage on a
house situated at 1259 Sande Street, Tondo, Manila; that the chattel
mortgage was registered with the Register of Deeds of Manila on December
19, 1948; that on February 10, 1953, the mortgaged house was sold at
public auction to satisfy the indebtedness to Claudia B. Vda. de Uy Kim, and
the house was sold to Claudia B. Vda. de Uy Kim in the said foreclosure
proceedings; that on March 22, 1954, Claudia B. Vda. de Uy Kim sold the
said house to Marcos Mangubat, and on March 1, 1956. Marcos Mangubat
filed a complaint against Conrado S. David, Civil Case No. 29078, in the
Court of First Instance of Manila, for the collection of the loan of P2,000;
that on March 24, 1956, the complaint was amended to include the plaintiffs
herein Salvador Piansay and Claudia B. Vda. de Uy Kim as party
defendants and praying that auction sale executed by the Sheriff on
February 10, 1953, and the deed of absolute sale executed by Claudia B.
Vda. de Uy Kim in favor of Salvador Piansay be annulled; that decision was
rendered in Civil Case No. 29078 ordering Conrado S. David to pay the
plaintiff the sum of P2,000, damages and attorney's fees, and dismissing
the complaint with respect to Claudia B. Vda. de Uy Kim, Leonardo Uy Kim
and Salvador Piansay; that upon appeal, the Court of Appeals affirmed the
decision but setting aside the award of damages in favor of Claudia B. Vda.
de Uy Kim; that in the execution of Civil Case No. 29078, which was
affirmed by the Court of Appeals in CA-G.R. No. 21797-R, the house, which
had been bought by Uy Kim at the foreclosure proceedings and sold by her
to Salvador Piansay, was levied upon at the instance of the defendant
Marcos Mangubat; that to prevent the sale at public auction of the house
here in question, the plaintiffs herein filed a petition
for certiorari and mandamus with preliminary injunction in the Court of
Appeals, CA-G.R. No. 28974-R, entitled Claudia B. Vda. de Uy Kim
and Salvador Piansay versus Hon. Judge Jesus Y. Perez, et al.; that acting
upon the said petition, the Court of Appeals in its order of April 28, 1961,
denied the petition to lift or discharge the writ of execution.
Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to
as the plaintiffs, instituted the present action which was docketed as Civil Case No.
47664 of the Court of First Instance of Manila, against David and Mangubat,
hereinafter referred to as the defendants. In their complaint, plaintiffs, after averring
the foregoing facts, allege that, in the proceedings for the execution of the decision
in Civil Case No. 29078. David demanded from Piansay the payment of rentals for
the use and occupation of the house aforementioned, which, Piansay claims, is his
property, and that the defendants are threatening to cause said house to be levied
upon and sold at public auction in violation of the alleged rights of the plaintiffs.
Accordingly plaintiffs prayed that a writ of preliminary injunction to restrain said levy
and sale at public auction be issued and that, after appropriate proceedings,
judgment be rendered declaring that Piansay is the true and lawful owner of said
house sentencing the defendants to pay damages and making the preliminary
injunction permanent.
Mangubat moved to dismiss said complaint, upon the theory that the same is
barred by the principle of res adjudicata and that plaintiffs have no personality to
bring this action or to question the levy upon the house in question, because they
have no interest therein. After due hearing the lower court issued the order
appealed from, granting said motion and dismissing the complaint, with costs
against the plaintiffs. A reconsideration of said order having been denied, plaintiffs
interposed the present appeal directly to this Court only questions of law being
raised in the appeal, namely: (1) applicability of the principle of res adjudicata; and
(2) validity of the chattel mortgage constituted in favor of Mrs. Uy Kim.
With reference to the first question, it should be noted that in case CA-G.R. No.
21797-R, the Court of Appeals affirmed the decision in Case No. 29078 of the
Court of First Instance of Manila stating:
In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R,
promulgated Sept. 23, 1952) this Court, thru Justice J. B. L. Reyes, said,
among others:
Since it is a rule in our law that buildings and constructions are
regarded as mere accesories to the land (following the Roman
maxim omne quod solo inaedificatur solo credit) it is logical that said
accessories should partaked of the nature of the principal thing,
which is the land forming, as they do, but a single object (res) with it
in contemplation of law.
... While it is true that said document was correspondingly registered
in the Chattel Mortgage Register of Rizal, this Act produced no effect
whatsoever for where the interest conveyed is in the nature of real
property, the registration of the document in the registry of chattels is
merely a futile act. Thus the registration of the chattel mortgage of a
building of strong materials produced no effect as far as the building
is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil. 644).
Nor can we give any consideration to that contention of the surety
that it has acquired ownership over the property in question by
reason of the sale conducted by the Provincial Sheriff of Rizal for as
this court has aptly pronounced:
A mortgage creditor who purchases real properties at an
extra-judicial foreclosure sale thereof by virtue of a chattel
mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties
acquires no right thereto by virtue of said sale. (De la Riva
vs. Ah Kee, 60 Phil. 899).
Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel
mortgage constituted in her favor, because it was in reality a mere contract
of an unsecured loan. It follows that the Sheriff was not authorized to sell
the house as a result of the foreclosure of such chattel mortgage. And as
Mrs. Uy Kim could not have acquired the house when the Sheriff sold it at
public auction, she could not, in the same token, it validly to Salvador
Piansay. Conceding that the contract of sale between Mrs. Uy Kim and
Salvador Piansay was of no effect, we cannot nevertheless set it aside upon
instance of Mangubat because, as the court below opined, he is not a party
thereto nor has he any interest in the subject matter therein, as it was never
sold or mortgaged to him (Emphasis supplied);
that, thereafter, the records of the case were remanded to the Court of First
Instance of Manila, which caused the corresponding writ of execution to be issued;
that upon the request of Mangubat, the house in question was levied upon; that
Piansay filed with the trial court, presided over by Hon. Jesus Y. Perez, Judge, a
motion to set aside said levy; that this motion was denied by said court, in an order
dated February 4, 1961, upon the following ground:
Considering that the decision rendered by the Court of Appeals in this case
when the same was elevated to said Court recognizes that defendant
Claudia B. de Uy Kim did not acquire the house of defendant Conrado S.
David and can therefore be executed by the plaintiff to satisfy the
judgment rendered against said defendant David in favor of the plaintiff.
The mere fact that the dispositive part of the decision states that the
complaint is dismissed with respect to defendants Claudia B. de Uy Kim,
Leonardo Uy Kim and Salvador Piansay is of no moment because the
chattel mortgage executed by David in favor of Claudia B. de Uy Kim might
not be annulled but it did not transmit any right from defendant David to
Claudia B. de Uy Kim. The house in question can therefore be levied upon
because it had remained the property of defendant David (Emphasis
supplied);
that a reconsideration of this order of February 4, 1961 having been denied by
Judge Perez, on February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-R
of the Court of Appeals, for a writ of certiorari and mandamus to annul said orders
of Judge Perez and to compel him to release said house from the aforementioned
levy; and that on March 3, 1961, the Court of Appeals denied said petition
for certiorari and mandamus "insofar as it prays that the order of respondent Judge
denying the lifting and discharge of the writ of execution be set aside and revoked."
In other words, in Civil Case No. 29078 of the Court of First Instance of Manila,
Piansay assailed the right of Mangubat to levy execution upon the house in
question alleging that the same belongs to him, he having bought it from Mrs. Uy
Kim, who had acquired it at the auction sale held in connection with the extrajudicial
foreclosure of the chattel mortgage constituted in her favor by David. This pretense
was, however, overruled by Judge Perez, who presided at said court, in its order of
February 4, 1961, upon the theory that the chattel mortgage and sale in favor of
Mrs. Uy Kim had been annulled in the original decision in said case, as affirmed by
the Court of Appeals in CA-G.R. No. 21797-R. Regardless of whether this theory is
accurate or not, the fact is that said order became final and executory upon the
denial of the petition for certiorari and mandamus, to annul the same in CA-G.R.
No. 28974-R of the Court of Appeals. Hence, plaintiffs are now barred from
asserting that the aforementioned chattel mortgage and sale are valid.

At any rate, regardless of the validity of a contract constituting a chattel mortgage

on a house, as between the parties to said contract (Standard Oil Co. of N. Y. vs.
Jaramillo, 44 Phil. 632-633), the same cannot and does not bind third persons, who
are not parties to the aforementioned contract or their privies (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644; Evangelista vs. Alto Surety, G.R. No. L-11139,
April 23, 1958; Navarro vs. Pineda, G.R. No. L-18456, November 30, 1963). As a
consequence, the sale of the house in question in the proceedings for the
extrajudicial foreclosure of said chattel mortgage, is null and void insofar as
defendant Mangubat is concerned, and did not confer upon Mrs. Uy Kim, as buyer
in said sale, any dominical right in and to said house (De la Riva vs. Ah Yee, 60
Phil. 800), so that she could not have transmitted to her assignee, plaintiff Piansay
any such right as against defendant Mangubat. In short plaintiffs have no cause of
action against the defendants herein.

WHEREFORE, the others appealed from are hereby affirmed, with costs against
plaintiffs Salvador Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.
6.
G.R. Nos. L-10837-38             May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and
SURETY COMPANY. INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and
Surety Co., Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and
possessors of a house of strong materials constructed on Lot No. 3, Block No. 80
of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on
installment basis from the Philippine Realty Corporation. On November 6, 1951, to
enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a bond
in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated
Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses
Valino executed an alleged chattel mortgage on the aforementioned house in favor
of the surety company, which encumbrance was duly registered with the Chattel
Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time
said undertaking took place, the parcel of land on which the house is erected was
still registered in the name of the Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the Valinos were able to secure
on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of
an indebtedness in the amount of P12,000.00, executed a real estate
mortgage over the lot and the house in favor of Isabel Iya, which was duly
registered and annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC,
the surety company was compelled to pay the same pursuant to the undertaking of
the bond. In turn, the surety company demanded reimbursement from the spouses
Valino, and as the latter likewise failed to do so, the company foreclosed the chattel
mortgage over the house. As a result thereof, a public sale was conducted by the
Provincial Sheriff of Rizal on December 26, 1952, wherein the property was
awarded to the surety company for P8,000.00, the highest bid received therefor.
The surety company then caused the said house to be declared in its name for tax
purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real
estate mortgage over the lot covered by T.C.T. No. 26884 together with the
improvements thereon; thus, said surety company instituted Civil Case No. 2162 of
the Court of First Instance of Manila naming Adriano and Lucia Valino and Isabel
Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of the
residential house from the real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to ownership over the same in virtue of
the award given by the Provincial Sheriff of Rizal during the public auction held on
December 26, 1952. Plaintiff likewise asked the Court to sentence the spouses
Valino to pay said surety moral and exemplary damages, attorney's fees and costs.
Defendant Isabel Iya filed her answer to the complaint alleging among other things,
that in virtue of the real estate mortgage executed by her co-defendants, she
acquired a real right over the lot and the house constructed thereon; that the
auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the
foreclosure of the chattel mortgage on the house was null and void for non-
compliance with the form required by law. She, therefore, prayed for the dismissal
of the complaint and anullment of the sale made by the Provincial Sheriff. She also
demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of
P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the
complaint and denied the others. They, however, prayed for the dismissal of the
action for lack of cause of action, it being alleged that plaintiff was already the
owner of the house in question, and as said defendants admitted this fact, the claim
of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and
the surety company (Civil Case No. 2504 of the Court of First Instance of Manila)
stating that pursuant to the contract of mortgage executed by the spouses Valino
on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with interest
at 12% per annum or P120.00 a month, which indebtedness was payable in 4
years, extendible for only one year; that to secure payment thereof, said
defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at
No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a party defendant because it
claimed to have an interest on the residential house also covered by said
mortgage; that it was stipulated in the aforesaid real estate mortgage that default in
the payment of the interest agreed upon would entitle the mortgagee to foreclose
the same even before the lapse of the 4-year period; and as defendant spouses
had allegedly failed to pay the interest for more than 6 months, plaintiff prayed the
Court to order said defendants to pay the sum of P12,000.00 with interest thereon
at 12% per annum from March 25, 1953, until fully paid; for an additional sum
equivalent to 20% of the total obligation as damages, and for costs. As an
alternative in case such demand may not be met and satisfied plaintiff prayed for a
decree of foreclosure of the land, building and other improvements thereon to be
sold at public auction and the proceeds thereof applied to satisfy the demands of
plaintiff; that the Valinos, the surety company and any other person claiming
interest on the mortgaged properties be barred and foreclosed of all rights, claims
or equity of redemption in said properties; and for deficiency judgment in case the
proceeds of the sale of the mortgaged property would be insufficient to satisfy the
claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the
building, arguing that as the lot on which the house was constructed did not belong
to the spouses at the time the chattel mortgage was executed, the house might be
considered only as a personal property and that the encumbrance thereof and the
subsequent foreclosure proceedings made pursuant to the provisions of the Chattel
Mortgage Law were proper and legal. Defendant therefore prayed that said building
be excluded from the real estate mortgage and its right over the same be declared
superior to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due
execution of the mortgage upon the land but assailed the allegation that the
building was included thereon, it being contended that it was already encumbered
in favor of the surety company before the real estate mortgage was executed, a
fact made known to plaintiff during the preparation of said contract and to which the
latter offered no objection. As a special defense, it was asserted that the action was
premature because the contract was for a period of 4 years, which had not yet
elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the
same on a stipulation of facts, after which the Court rendered judgment dated
March 8, 1956, holding that the chattel mortgage in favor of the Associated
Insurance and Surety Co., Inc., was preferred and superior over the real estate
mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the
Valinos were not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made, the building
then was still a personality and a chattel mortgage over the same was proper.
However, as the mortgagors were already the owner of the land at the time the
contract with Isabel Iya was entered into, the building was transformed into a real
property and the real estate mortgage created thereon was likewise adjudged as
proper. It is to be noted in this connection that there is no evidence on record to
sustain the allegation of the spouses Valino that at the time they mortgaged
their house and lot to Isabel Iya, the latter was told or knew that part of the
mortgaged property, i.e., the house, had previously been mortgaged to the surety
company.
The residential building was, therefore, ordered excluded from the foreclosure
prayed for by Isabel Iya, although the latter could exercise the right of a junior
encumbrance. So the spouses Valino were ordered to pay the amount demanded
by said mortgagee or in their default to have the parcel of land subject of the
mortgage sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of 2
mortgages; controversy arise as to which of these encumbrances should receive
preference over the other. The decisive factor in resolving the issue presented by
this appeal is the determination of the nature of the structure litigated upon, for
where it be considered a personality, the foreclosure of the chattel mortgage and
the subsequent sale thereof at public auction, made in accordance with the Chattel
Mortgage Law would be valid and the right acquired by the surety company
therefrom would certainly deserve prior recognition; otherwise, appellant's claim for
preference must be granted. The lower Court, deciding in favor of the surety
company, based its ruling on the premise that as the mortgagors were not the
owners of the land on which the building is erected at the time the first
encumbrance was made, said structure partook of the nature of a personal property
and could properly be the subject of a chattel mortgage. We find reason to hold
otherwise, for as this Court, defining the nature or character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the
building constructed thereon, it is obvious that the inclusion of the building,
separate and distinct from the land, in the enumeration of what may
constitute real properties (Art. 415, new Civil Code) could only mean one
thing — that a building is by itself an immovable property . . . Moreover, and
in view of the absence of any specific provision to the contrary, a building is
an immovable property irrespective of whether or not said structure and the
land on which it is adhered to belong to the same owner. (Lopez vs. Orosa,
G.R. Nos. supra, p. 98).
Wherefore the portion of the decision of the lower Court in these two cases
appealed from holding the rights of the surety company, over the building superior
to that of Isabel Iya and excluding the building from the foreclosure prayed for by
the latter is reversed and appellant Isabel Iya's right to foreclose not only the land
but also the building erected thereon is hereby recognized, and the proceeds of the
sale thereof at public auction (if the land has not yet been sold), shall be applied to
the unsatisfied judgment in favor of Isabel Iya. This decision however is without
prejudice to any right that the Associated Insurance and Surety Co., Inc., may have
against the spouses Adriano and Lucia Valino on account of the mortgage of said
building they executed in favor of said surety company. Without pronouncement as
to costs. It is so ordered.

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

A mortgage creditor who purchases real properties at an extrajudicial

foreclosure sale thereof by virtue of a chattel mortgage constituted in his
favor, which mortgage has been declared null and void with respect to said
real properties, acquires no right thereto by virtue of said sale (De la
Riva vs. Ah Keo, 60 Phil., 899).
7.
EN BANC
[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; chan roblesvirtualawlibraryStandard Oil Co. of New York vs. Jaranillo, 44
Phil., 630; chan roblesvirtualawlibraryand De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464.
The matter depends on the circumstances and the intention of the parties.
“ cralaw 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 cralaw . 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.)
“ cralaw 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 cralaw
“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 cralaw .” (Ibid., 209-210.)
The question now before us, however, is:chanroblesvirtuallawlibrary 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; chan
roblesvirtualawlibraryand 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; chan roblesvirtualawlibraryLeung Yee vs. Strong Machinery Co., 37 Phil., 644; chan
roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90 Phil., 544; chan
roblesvirtualawlibraryLadera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.).
The judgment appealed from is hereby affirmed, with costs. SO ORDERED.
8.
G.R. No. L-26278             August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the Province of Tarlac
on the 14th day of December 1924. The facts are about as conflicting as it is
possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal,
deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by
the Court of First Instance of Pampanga, attached and sold to the defendant
Emiliano J. Valdez the sugar cane planted by the plaintiff and his tenants on seven
parcels of land described in the complaint in the third paragraph of the first cause of
action; that within one year from the date of the attachment and sale the plaintiff
offered to redeem said sugar cane and tendered to the defendant Valdez the
amount sufficient to cover the price paid by the latter, the interest thereon and any
assessments or taxes which he may have paid thereon after the purchase, and the
interest corresponding thereto and that Valdez refused to accept the money and to
return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J.
Valdez was attempting to harvest the palay planted in four of the seven parcels
mentioned in the first cause of action; that he had harvested and taken possession
of the palay in one of said seven parcels and in another parcel described in the
second cause of action, amounting to 300 cavans; and that all of said palay
belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the defendant
Emiliano J. Valdez his attorneys and agents, restraining them (1) from distributing
him in the possession of the parcels of land described in the complaint; (2) from
taking possession of, or harvesting the sugar cane in question; and (3) from taking
possession, or harvesting the palay in said parcels of land. Plaintiff also prayed that
a judgment be rendered in his favor and against the defendants ordering them to
consent to the redemption of the sugar cane in question, and that the defendant
Valdez be condemned to pay to the plaintiff the sum of P1,056 the value of palay
harvested by him in the two parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval of
the bond for P6,000 filed by the plaintiff, issued the writ of preliminary injunction
prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and
specifically each and every allegation of the complaint and step up the following
defenses:
(a) That the sugar cane in question had the nature of personal property and
was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause
of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of
the preliminary injunction he was unable to gather the sugar cane, sugar-cane
shoots (puntas de cana dulce) palay in said parcels of land, representing a loss to
him of P8,375.20 and that, in addition thereto, he suffered damages amounting to
P3,458.56. He prayed, for a judgment (1) absolving him from all liability under the
complaint; (2) declaring him to be the absolute owner of the sugar cane in question
and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the
sum of P11,833.76, representing the value of the sugar cane and palay in question,
including damages.
Upon the issues thus presented by the pleadings the cause was brought on for trial.
After hearing the evidence, and on April 28, 1926, the Honorable Cayetano Lukban,
judge, rendered a judgment against the plaintiff and in favor of the defendants —
It appears from the record:
(1) Holding that the sugar cane in question was personal property and, as
such, was not subject to redemption;
(2) Absolving the defendants from all liability under the complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the defendant
Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant
was not able to raise by reason of the injunction, at P4 cavan.
9,439.08 From that judgment the plaintiff appealed and in his
assignments of error contends that the lower court erred: (1) In
holding that the sugar cane in question was personal property and,
therefore, not subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as
well as parcels 7 and 8, and that the palay therein was planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed to
realized P6,757.40 from the sugar cane and P1,435.68 from sugar-cane
shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the
defendant was unable to raise palay on the land, which would have netted
him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the defendant the
sum of P9,439.08.
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by
virtue of writ of execution in civil case No. 20203 of the Court of First
Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied an
attachment on eight parcels of land belonging to said Leon Sibal, situated in
the Province of Tarlac, designated in the second of attachment as parcels 1,
2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels
of land, at the auction held by the sheriff of the Province of Tarlac, for the
sum to P4,273.93, having paid for the said parcels separately as follows
(Exhibit C, and 2-A):
Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 ..................................................................... 1,000.00
==========
4,273.93
 (3) That within one year from the sale of said parcel of land, and on the 24th
day of September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to
Macondray & Co., Inc., for the account of the redemption price of said
parcels of land, without specifying the particular parcels to which said
amount was to applied. The redemption price said eight parcels was
reduced, by virtue of said transaction, to P2,579.97 including interest
(Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff
of the Province of Tarlac, by virtue of a writ of execution in civil case No.
1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1.º —
the same parties in the present case), attached the personal property of
said Leon Sibal located in Tarlac, among which was included the sugar
cane now in question in the seven parcels of land described in the
complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction
said personal properties of Leon Sibal, including the sugar cane in question
to Emilio J. Valdez, who paid therefor the sum of P1,550, of which P600
was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of
execution, also attached the real property of said Leon Sibal in Tarlac,
including all of his rights, interest and participation therein, which real
property consisted of eleven parcels of land and a house and camarin
situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the house
and the camarin, were bought by Emilio J. Valdez at the auction held by the
sheriff for the sum of P12,200. Said eight parcels were designated in the
certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11. The house and
camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the sheriff
as parcels 2, 12, and 13, were released from the attachment by virtue of
claims presented by Agustin Cuyugan and Domiciano Tizon (Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and interest in the
eight parcels of land acquired by it at public auction held by the deputy
sheriff of Tarlac in connection with civil case No. 20203 of the Court of First
Instance of Manila, as stated above. Said amount represented the unpaid
balance of the redemption price of said eight parcels, after payment by Leon
Sibal of P2,000 on September 24, 1923, fro the account of the redemption
price, as stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in the
seven parcels of land described in the first cause of action of the complaint
at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight
parcels of land situated in the Province of Tarlac belonging to Leon Sibal
and that on September 24, 1923, Leon Sibal paid to Macondray & Co.
P2,000 for the account of the redemption price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co.
all of its rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights
and interest which Leon Sibal had or might have had on said eight parcels
by virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight parcels
of land.
The first question raised by the appeal is, whether the sugar cane in question is
personal or real property. It is contended that sugar cane comes under the
classification of real property as "ungathered products" in paragraph 2 of article 334
of the Civil Code. Said paragraph 2 of article 334 enumerates as real property the
following: Trees, plants, and ungathered products, while they are annexed to the
land or form an integral part of any immovable property." That article, however, has
received in recent years an interpretation by the Tribunal Supremo de España,
which holds that, under certain conditions, growing crops may be considered as
personal property. (Decision of March 18, 1904, vol. 97, Civil Jurisprudence of
Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing
section 334 of the Civil Code, in view of the recent decisions of the supreme Court
of Spain, admits that growing crops are sometimes considered and treated as
personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos
autores hacen tocante a la venta de toda cosecha o de parte de ella cuando
aun no esta cogida (cosa frecuente con la uvay y la naranja), y a la de
lenas, considerando ambas como muebles. El Tribunal Supremo, en
sentencia de 18 de marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su terminacion por
desahucio no extingue los derechos del arrendario, para recolectar o
percibir los frutos correspondientes al año agricola, dentro del que nacieron
aquellos derechos, cuando el arrendor ha percibido a su vez el importe de
la renta integra correspondiente, aun cuando lo haya sido por precepto
legal durante el curso del juicio, fundandose para ello, no solo en que de
otra suerte se daria al desahucio un alcance que no tiene, sino en que, y
esto es lo interesante a nuestro proposito, la consideracion de inmuebles
que el articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les
priva del caracter de productos pertenecientes, como tales, a quienes a
ellos tenga derecho, Ilegado el momento de su recoleccion.
xxx     xxx     xxx
Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria,
publicada en 16 de diciembre de 1909, con las reformas introducidas por la
de 21 de abril anterior, la hipoteca, salvo pacto expreso que disponga lo
contrario, y cualquiera que sea la naturaleza y forma de la obligacion que
garantice, no comprende los frutos cualquiera que sea la situacion en que
se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending fruits and
ungathered products may be sold and transferred as personal property; (2) that the
Supreme Court of Spain, in a case of ejectment of a lessee of an agricultural land,
held that the lessee was entitled to gather the products corresponding to the
agricultural year, because said fruits did not go with the land but belonged
separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909, as
amended, the mortgage of a piece of land does not include the fruits and products
existing thereon, unless the contract expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana may give us
some light on the question which we are discussing. Article 465 of the Civil Code of
Louisiana, which corresponds to paragraph 2 of article 334 of our Civil Code,
provides: "Standing crops and the fruits of trees not gathered, and trees before they
are cut down, are likewise immovable, and are considered as part of the land to
which they are attached."
The Supreme Court of Louisiana having occasion to interpret that provision, held
that in some cases "standing crops" may be considered and dealt with as personal
property. In the case of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the
Supreme Court said: "True, by article 465 of the Civil Code it is provided that
'standing crops and the fruits of trees not gathered and trees before they are cut
down . . . are considered as part of the land to which they are attached, but the
immovability provided for is only one in abstracto and without reference to rights on
or to the crop acquired by others than the owners of the property to which the crop
is attached. . . . The existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering the crop movable quoad
the right acquired therein. Our jurisprudence recognizes the possible mobilization of
the growing crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28
La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann.,
267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs.
Bodin (28 La. An., 761) that "article 465 of the Revised Code says that standing
crops are considered as immovable and as part of the land to which they are
attached, and article 466 declares that the fruits of an immovable gathered or
produced while it is under seizure are considered as making part thereof, and
incurred to the benefit of the person making the seizure. But the evident meaning of
these articles, is where the crops belong to the owner of the plantation they form
part of the immovable, and where it is seized, the fruits gathered or produced inure
to the benefit of the seizing creditor.
 A crop raised on leased premises in no sense forms part of the immovable.
It belongs to the lessee, and may be sold by him, whether it be gathered or
not, and it may be sold by his judgment creditors. If it necessarily forms part
of the leased premises the result would be that it could not be sold under
execution separate and apart from the land. If a lessee obtain supplies to
make his crop, the factor's lien would not attach to the crop as a separate
thing belonging to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be construed so as to
result in such absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an
immovable, it would be destructive of the very objects of the act, it would
render the pledge of the crop objects of the act, it would render the pledge
of the crop impossible, for if the crop was an inseparable part of the realty
possession of the latter would be necessary to that of the former; but such
is not the case. True, by article 465 C. C. it is provided that "standing crops
and the fruits of trees not gathered and trees before they are cut down are
likewise immovable and are considered as part of the land to which they are
attached;" but the immovability provided for is only one in abstracto and
without reference to rights on or to the crop acquired by other than the
owners of the property to which the crop was attached. The immovability of
a growing crop is in the order of things temporary, for the crop passes from
the state of a growing to that of a gathered one, from an immovable to a
movable. The existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired thereon. The provision of our Code is
identical with the Napoleon Code 520, and we may therefore obtain light by
an examination of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de España but by
the Supreme Court of Louisiana, is followed in practically every state of the Union.
From an examination of the reports and codes of the State of California and other
states we find that the settle doctrine followed in said states in connection with the
attachment of property and execution of judgment is, that growing crops raised by
yearly labor and cultivation are considered personal property. (6 Corpuz Juris, p.
197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal.,
254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1
Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts
and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich.,
174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment, sec. 249;
Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then belonging
to the vendor, and then title will vest in the buyer the moment the thing comes into
existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a potential
existence. A man may sell property of which he is potentially and not actually
possessed. He may make a valid sale of the wine that a vineyard is expected to
produce; or the gain a field may grow in a given time; or the milk a cow may yield
during the coming year; or the wool that shall thereafter grow upon sheep; or what
may be taken at the next cast of a fisherman's net; or fruits to grow; or young
animals not yet in existence; or the good will of a trade and the like. The thing sold,
however, must be specific and identified. They must be also owned at the time by
the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of the Code of Civil Procedure as well as
by Act No. 1508, the Chattel Mortgage Law. Said section 450 enumerates the
property of a judgment debtor which may be subjected to execution. The pertinent
portion of said section reads as follows: "All goods, chattels, moneys, and other
property, both real and personal, * * * shall be liable to execution. Said section 450
and most of the other sections of the Code of Civil Procedure relating to the
execution of judgment were taken from the Code of Civil Procedure of California.
The Supreme Court of California, under section 688 of the Code of Civil Procedure
of that state (Pomeroy, p. 424) has held, without variation, that growing crops were
personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are
personal property. Section 2 of said Act provides: "All personal property shall be
subject to mortgage, agreeably to the provisions of this Act, and a mortgage
executed in pursuance thereof shall be termed a chattel mortgage." Section 7 in
part provides: "If growing crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds himself properly to tend, care for
and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on the
assumption that "growing crops" are personal property. This consideration tends to
support the conclusion hereinbefore stated, that paragraph 2 of article 334 of the
Civil Code has been modified by section 450 of Act No. 190 and by Act No. 1508 in
the sense that "ungathered products" as mentioned in said article of the Civil Code
have the nature of personal property. In other words, the phrase "personal
property" should be understood to include "ungathered products."
At common law, and generally in the United States, all annual crops which
are raised by yearly manurance and labor, and essentially owe their annual
existence to cultivation by man, . may be levied on as personal property."
(23 C. J., p. 329.) On this question Freeman, in his treatise on the Law of
Executions, says: "Crops, whether growing or standing in the field ready to
be harvested, are, when produced by annual cultivation, no part of the
realty. They are, therefore, liable to voluntary transfer as chattels. It is
equally well settled that they may be seized and sold under execution.
(Freeman on Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has
been modified by section 450 of the Code of Civil Procedure and by Act No. 1508,
in the sense that, for the purpose of attachment and execution, and for the
purposes of the Chattel Mortgage Law, "ungathered products" have the nature of
personal property. The lower court, therefore, committed no error in holding that the
sugar cane in question was personal property and, as such, was not subject to
redemption.
All the other assignments of error made by the appellant, as above stated, relate to
questions of fact only. Before entering upon a discussion of said assignments of
error, we deem it opportune to take special notice of the failure of the plaintiff to
appear at the trial during the presentation of evidence by the defendant. His
absence from the trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first cause of
action of the complaint, the plaintiff made a futile attempt to show that said two
parcels belonged to Agustin Cuyugan and were the identical parcel 2 which was
excluded from the attachment and sale of real property of Sibal to Valdez on June
25, 1924, as stated above. A comparison of the description of parcel 2 in the
certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 of
the complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º
en una parcela de terreno de la pertenencia del citado ejecutado, situada
en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas poco mas o
menos de superficie.
2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º,
Ilamado Alejandro Policarpio, en una parcela de terreno de la pertenencia
del ejecutado, situada en Dalayap, Culubasa, Bamban, Tarlac de unas dos
hectareas de superficie poco mas o menos." The description of parcel 2
given in the certificate of sale (Exhibit A) is as follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090
metros cuadrados de superficie, linda al N. con Canuto Sibal, Esteban
Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mañu and
others; al S. con Alejandro Dayrit, Isidro Santos and Melecio Mañu; y al O.
con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador amillarado
P4,200 pesos.
On the other hand the evidence for the defendant purported to show that parcels 1
and 2 of the complaint were included among the parcels bought by Valdez from
Macondray on June 25, 1924, and corresponded to parcel 4 in the deed of sale
(Exhibit B and 2), and were also included among the parcels bought by Valdez at
the auction of the real property of Leon Sibal on June 25, 1924, and corresponded
to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The description
of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de
Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de superficie,
 lindante al Norte con Road of the barrio of Culubasa that goes to
Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto Sibal
y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de
P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of the
complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as
the plaintiff did not care to appear at the trial when the defendant offered his
evidence, we are inclined to give more weight to the evidence adduced by him that
to the evidence adduced by the plaintiff, with respect to the ownership of parcels 1
and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the
complaint belong to the defendant, having acquired the same from Macondray &
Co. on June 25, 1924, and from the plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and
harvested therefrom 190 cavans. There being no evidence of bad faith on his part,
he is therefore entitled to one-half of the crop, or 95 cavans. He should therefore be
condemned to pay to the defendant for 95 cavans only, at P3.40 a cavan, or the
sum of P323, and not for the total of 190 cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows that said
parcel corresponds to parcel 1 of the deed of sale of Macondray & Co, to Valdez
(Exhibit B and 2), and to parcel 4 in the certificate of sale to Valdez of real property
belonging to Sibal, executed by the sheriff as above stated (Exhibit A). Valdez is
therefore the absolute owner of said parcel, having acquired the interest of both
Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of
the second cause of action, it appears from the testimony of the plaintiff himself that
said parcel corresponds to parcel 8 of the deed of sale of Macondray to Valdez
(Exhibit B and 2) and to parcel 10 in the deed of sale executed by the sheriff in
favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were
attached under said execution. Said parcels of land were sold to Macondray & Co.
on the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923, Leon
Sibal paid to Macondray & Co. P2,000 on the redemption of said parcels of land.
(See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was
attached, including the sugar cane in question. (Exhibit A) The said personal
property so attached, sold at public auction May 9 and 10, 1924. April 29, 1924, the
real property was attached under the execution in favor of Valdez (Exhibit A). June
25, 1924, said real property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at
public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the
evidence shows that the sugar cane in question covered an area of 22 hectares
and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have yielded an average
crop of 1039 picos and 60 cates; that one-half of the quantity, or 519 picos and 80
cates would have corresponded to the defendant, as owner; that during the season
the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant,
as owner, would have netted P 6,757.40 from the sugar cane in question. The
evidence also shows that the defendant could have taken from the sugar cane
1,017,000 sugar-cane shoots (puntas de cana) and not 1,170,000 as computed by
the lower court. During the season the shoots were selling at P1.20 a thousand
(Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 from
sugar-cane shoots and not P1,435.68 as allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint,
amounting to 190 cavans, one-half of said quantity should belong to the plaintiff, as
stated above, and the other half to the defendant. The court erred in awarding the
whole crop to the defendant. The plaintiff should therefore pay the defendant for 95
cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by the lower
court.
The evidence also shows that the defendant was prevented by the acts of the
plaintiff from cultivating about 10 hectares of the land involved in the litigation. He
expected to have raised about 600 cavans of palay, 300 cavans of which would
have corresponded to him as owner. The lower court has wisely reduced his share
to 150 cavans only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified. The
plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are
hereby ordered to pay to the defendant jointly and severally the sum of P8,900.80,
instead of P9,439.08 allowed by the lower court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.

8,900.80
============

In all other respects, the judgment appealed from is hereby affirmed, with costs. So
ordered.
9. xxx           xxx           xxx

G.R. No. 120098            October 2, 2001 The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First
Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with
RUBY L. TSAI, petitioner, all the buildings and improvements now existing or which may hereafter
vs. exist thereon, situated in . . .
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents. "Annex A"

x---------------------------------------------------------x (Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications — continued)
[G.R. No. 120109. October 2, 2001.]
LIST OF MACHINERIES & EQUIPMENT
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs. A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R Hongkong:
VILLALUZ, respondents.
Serial Numbers Size of Machines
QUISUMBING, J.:
xxx           xxx           xxx
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R.
CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
7, in Civil Case No. 89-48265. Also assailed is respondent court's resolution
denying petitioners' motion for reconsideration. xxx           xxx           xxx

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a C. Two (2) Circular Knitting Machines made in West Germany.
three million peso (P3,000,000.00) loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of xxx           xxx           xxx
PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein as enumerated in a D. Four (4) Winding Machines.
schedule attached to the mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below: xxx           xxx           xxx
MORTGAGE SCHEDULE "A"
(REAL AND CHATTEL) I. TCT # 372097 - RIZAL
 xxx           xxx           xxx
II. Any and all buildings and improvements now existing or hereafter to exist
on the above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the
above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and
accretions to above properties.
xxx           xxx           xxx3
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX.
The loan was secured by a Chattel Mortgage over personal properties enumerated
in a list attached thereto. These listed properties were similar to those listed in
Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned
above, EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency
proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First
Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24,
1982 declaring the corporation insolvent. All its assets were taken into the custody
of the Insolvency Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the
latter commenced extrajudicial foreclosure proceedings against EVERTEX under
Act 3135, otherwise known as "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or
"The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1,
1982.
On December 15, 1982, the first public auction was held where petitioner PBCom
emerged as the highest bidder and a Certificate of Sale was issued in its favor on
the same date. On December 23, 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same
day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the
properties in it. In November 1986, it leased the entire factory premises to petitioner
Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory,
lock, stock and barrel to Tsai for P9,000,000.00, including the contested
machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was in
violation of the Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and
Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the Notice of Sheriff's Sale
dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock
Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin
Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular
and illegal because they were not duly foreclosed nor sold at the December 15,
1982 auction sale since these were not included in the schedules attached to the
mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation
and against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine
Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988
insofar as it affects the personal properties listed in par. 9 of the complaint,
and their return to the plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done
within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use and
possession of the properties in question from November 1986 to February
1991 and P100,000.00 every month thereafter, with interest thereon at the
legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney's fees and expenses
of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued
its decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary
damages, and reduction of the actual damages, from P100,000.00 to P20,000.00
per month, from November 1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby AFFIRMED, in all other respects.
No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for
review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent
court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED
IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING
THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL
PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND
CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED
IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE MORTGAGE — DESPITE THE
CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF
THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED
IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED
IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES
AND EXPENSES OF LITIGATION — FOR WANT OF VALID FACTUAL
AND LEGAL BASIS.
 V For her part, Tsai avers that the Court of Appeals in effect made a contract for the
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED
IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON
PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED
UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL
PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND
EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY
FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED
THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE
MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED
FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR
CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE
MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX
PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION
IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS
WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR
MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD
TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU
THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO
A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned
properties in the foreclosed properties is proper. The secondary issue is whether or
not the sale of these properties to petitioner Ruby Tsai is valid.
parties by treating the 1981 acquired units of machinery as chattels instead of real
properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979
deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in
holding that the disputed 1981 machineries are not real properties.9 Finally, she
contends that the Court of Appeals erred in holding against petitioner's arguments
on prescription and laches10 and in assessing petitioner actual damages, attorney's
fees and expenses of litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower
court's judgment decreeing that the pieces of machinery in dispute were not duly
foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued
that the Court of Appeals' pronouncement that the pieces of machinery in question
were personal properties have no factual and legal basis. Finally, it asserts that the
Court of Appeals erred in assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery
are not "real properties" but chattels, and, therefore, they were not part of the
foreclosed real properties, rendering the lease and the subsequent sale thereof to
Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the
petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, unless the factual findings complained of
are devoid of support by the evidence on record or the assailed judgment is based
on misapprehension of facts.13 This rule is applied more stringently when the
findings of fact of the RTC is affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of
Appeals that are decisive of the issues: (1) the "controverted machineries" are not
covered by, or included in, either of the two mortgages, the Real Estate and Chattel
Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not
included in the list of properties appended to the Notice of Sale, and neither were
they included in the Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by EVERTEX to
PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New
Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts
do not foreclose the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of
the contract of Real and Chattel Mortgage executed by the parties herein gives us
a contrary indication. In the case at bar, both the trial and the appellate courts
reached the same finding that the true intention of PBCOM and the owner,
EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion
of respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as
chattels; never as real properties. Indeed, the 1975 mortgage contract,
which was actually real and chattel mortgage, militates against appellants'
posture. It should be noted that the printed form used by appellant bank
was mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage, of the phrase "real
and chattel." So also, the "machineries and equipment" in the printed form
of the bank had to be inserted in the blank space of the printed contract and
connected with the word "building" by typewritten slash marks. Now, then, if
the machineries in question were contemplated to be included in the real
estate mortgage, there would have been no necessity to ink a chattel
mortgage specifically mentioning as part III of Schedule A a listing of the
machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building
involved.
As regards the 1979 contract, the intention of the parties is clear and
beyond question. It refers solely to chattels. The inventory list of the
mortgaged properties is an itemization of sixty-three (63) individually
described machineries while the schedule listed only machines and
2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to depart
therefrom.
Too, assuming arguendo that the properties in question are immovable by nature,
nothing detracts the parties from treating it as chattels to secure an obligation under
the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property if there is a stipulation as when
it is used as security in the payment of an obligation where a chattel mortgage is
executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real
Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if
indeed their intention is to treat all properties included therein as immovable, and
(2) attached to the said contract a separate "LIST OF MACHINERIES &
EQUIPMENT". These facts, taken together, evince the conclusion that the parties'
intention is to treat these units of machinery as chattels. A fortiori, the contested
after-acquired properties, which are of the same description as the units
enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also
be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling
that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: "a chattel
mortgage shall be deemed to cover only the property described therein and not like
or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to
the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have
been involved in the 1975 or 1979 chattel mortgages, it was consequently an error
on the part of the Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed
in its favor. Consequently, the sale thereof to Tsai is also a nullity under the
elementary principle of nemo dat quod non habet, one cannot give what one does
not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested
properties is a nullity, she is nevertheless a purchaser in good faith and for value
who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court
that she is not a purchaser in good faith. Well-settled is the rule that the person who
asserts the status of a purchaser in good faith and for value has the burden of
proving such assertion.18 Petitioner Tsai failed to discharge this burden
persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai purchased the controverted
properties, she knew of respondent's claim thereon. As borne out by the records,
she received the letter of respondent's counsel, apprising her of respondent's claim,
dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her
knowledge of respondent's claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a
purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale of
lands and not to sale of properties situated therein. Likewise, the mere fact that the
lot where the factory and the disputed properties stand is in PBCom's name does
not automatically make PBCom the owner of everything found therein, especially in
view of EVERTEX's letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We
find no cogent reason to disturb the consistent findings of both courts below that
the case for the reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches does not apply. Note
that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent
company immediately filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure or neglect on its part,
for an unreasonable and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of time, it would be
inequitable to allow a party to enforce his legal rights. Moreover, except for very
strong reasons, this Court is not disposed to apply the doctrine of laches to
prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages,
and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00
corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on the
accepted practice in banking and finance, business and investments that the rental
price must take into account the cost of money used to buy them. The Court of
Appeals did not give full credence to Chua's projection and reduced the award to
P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the actual
amount thereof.23 However, the allegations of respondent company as to the
amount of unrealized rentals due them as actual damages remain mere assertions
unsupported by documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.24 However, we are not prepared to
disregard the following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on
record warranting the said award of P5,200,000.00, representing monthly
rental income of P100,000.00 from November 1986 to February 1991, and
the additional award of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is
 necessary to substantiate the actual damages allegedly sustained by
appellees, by way of unrealized rental income of subject machineries and
equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection
based on what is claimed to be a practice in business and industry. But
such a testimony cannot serve as the sole basis for assessing the actual
damages complained of. What is more, there is no showing that had
appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for P100,000.00
a month.
xxx           xxx           xxx
Then, too, even assuming arguendo that the said machineries and
equipments could have generated a rental income of P30,000.00 a month,
as projected by witness Mamerto Villaluz, the same would have been a
gross income. Therefrom should be deducted or removed, expenses for
maintenance and repairs . . . Therefore, in the determination of the actual
damages or unrealized rental income sued upon, there is a good basis to
calculate that at least four months in a year, the machineries in dispute
would have been idle due to absence of a lessee or while being repaired. In
the light of the foregoing rationalization and computation, We believe that a
net unrealized rental income of P20,000.00 a month, since November 1986,
is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the
Court of Appeals deleted. But according to the CA, there was no clear showing that
petitioners acted malevolently, wantonly and oppressively. The evidence, however,
shows otherwise.It is a requisite to award exemplary damages that the wrongful act
must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner.27 As previously stressed, petitioner
Tsai's act of purchasing the controverted properties despite her knowledge of
EVERTEX's claim was oppressive and subjected the already insolvent respondent
to gross disadvantage. Petitioner PBCom also received the same letters of Atty.
Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all
the properties found in the factory of the financially handicapped respondent,
including those properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that
an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article
2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the
adjudication of exemplary damages, their assessment being left to the discretion of
the court in accordance with the circumstances of each case.29 While the imposition
of exemplary damages is justified in this case, equity calls for its reduction.
In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576,
585, (May 30, 1983), we laid down the rule that judicial discretion granted to the
courts in the assessment of damages must always be exercised with balanced
restraint and measured objectivity. Thus, here the award of exemplary damages by
way of example for the public good should be reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC's award of
P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the
circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of
the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH
MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L.
Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the
following: (1) P20,000.00 per month, as compensation for the use and possession
of the properties in question from November 198631 until subject personal
properties are restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses.
Costs against petitioners.
SO ORDERED.
10.
G.R. No. L-40411             August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for
appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the
trial court and as set forth by counsel for the parties on appeal, involves the
determination of the nature of the properties described in the complaint. The trial
judge found that those properties were personal in nature, and as a consequence
absolved the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa,
barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon
which the business was conducted belonged to another person. On the land the
sawmill company erected a building which housed the machinery used by it. Some
of the implements thus used were clearly personal property, the conflict concerning
machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there
appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and
buildings introduced and erected by the party of the second part shall pass
to the exclusive ownership of the party of the first part without any obligation
on its part to pay any amount for said improvements and buildings; also, in
the event the party of the second part should leave or abandon the land
leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though
the time agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and
the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in
favor of the plaintiff in that action against the defendant in that action; a writ of
execution issued thereon, and the properties now in question were levied upon as
personalty by the sheriff. No third party claim was filed for such properties at the
time of the sales thereof as is borne out by the record made by the plaintiff herein.
Indeed the bidder, which was the plaintiff in that action, and the defendant herein
having consummated the sale, proceeded to take possession of the machinery and
other properties described in the corresponding certificates of sale executed in its
favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw
Mill Co., Inc., has on a number of occasions treated the machinery as personal
property by executing chattel mortgages in favor of third persons. One of such
persons is the appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the
Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx     xxx     xxx
5. Machinery, liquid containers, instruments or implements intended by the
owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the
requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right in their
appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must further
be pointed out that while not conclusive, the characterization of the property as
chattels by the appellant is indicative of intention and impresses upon the property
the character determined by the parties. In this connection the decision of this court
in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this
appeal on side issues. It is machinery which is involved; moreover, machinery not
intended by the owner of any building or land for use in connection therewith, but
intended by a lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United
States Supreme Court, it was held that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant, a usufructuary, or any person having
only a temporary right, unless such person acted as the agent of the owner. In the
opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:
To determine this question involves fixing the nature and character of the
property from the point of view of the rights of Valdes and its nature and
character from the point of view of Nevers & Callaghan as a judgment
creditor of the Altagracia Company and the rights derived by them from the
execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable
(real) property, not only land and buildings, but also attributes immovability
in some cases to property of a movable nature, that is, personal property,
because of the destination to which it is applied. "Things," says section 334
of the Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as
follows: "Machinery, vessels, instruments or implements intended by the
owner of the tenements for the industrial or works that they may carry on in
any building or upon any land and which tend directly to meet the needs of
the said industry or works." (See also Code Nap., articles 516, 518 et seq.
to and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized.) So far as the subject-matter
with which we are dealing — machinery placed in the plant — it is plain,
both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant.
Such result would not be accomplished, therefore, by the placing of
machinery in a plant by a tenant or a usufructuary or any person having only
a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12,
Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-
Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a
temporary right to the possession or enjoyment of property is not presumed
by the law to have applied movable property belonging to him so as to
deprive him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its
character of movable property and become immovable by destination. But
in the concrete immobilization took place because of the express provisions
of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any
right to charge against the lessor the cost such machinery, and it was
expressly stipulated that the machinery so put in should become a part of
the plant belonging to the owner without compensation to the lessee. Under
such conditions the tenant in putting in the machinery was acting but as the
agent of the owner in compliance with the obligations resting upon him, and
the immobilization of the machinery which resulted arose in legal effect from
the act of the owner in giving by contract a permanent destination to the
machinery.
xxx     xxx     xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was
placed in the plant by the Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had the right to levy on it
under the execution upon the judgment in their favor, and the exercise of
that right did not in a legal sense conflict with the claim of Valdes, since as
to him the property was a part of the realty which, as the result of his
obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225
U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be
affirmed, the costs of this instance to be paid by the appellant.
11.
G.R. No. L-17870             September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City, respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A.
Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the
payment of the realty tax on its maintenance and repair equipment hereunder
referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's
above-mentioned equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that the same are not realty. The
Board of Tax Appeals of the City sustained the city assessor, so petitioner herein
filed with the Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the
following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in the
Island of Mindanao, collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real
properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached
photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph,
marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph,
marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the
attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as
may be seen in the attached photographs which form part of this agreed
stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed therein, its TPU trucks
are made; body constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it operates;
 6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries,
parts and the like offered to the general public indiscriminately for business
or commercial purposes for which petitioner has never engaged in, to
date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's ruling,
and having denied a motion for reconsideration, petitioner brought the case to this
Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of
the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or
destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
machineries is further restricted by section 31, paragraph (c) of Republic Act
No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:
Art. 415. — The following are immovable properties:
xxx     xxx     xxx
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly to meet the needs of
the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on wooden
or cement platforms. They can be moved around and about in petitioner's repair
shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme
Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing
therein, for its sugar and industry, converted them into real property by
reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable
to function or carry on the industrial purpose for which it was established.
Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized in contemplation of the law must
first be "essential and principal elements" of an industry or works without which
such industry or works would be "unable to function or carry on the industrial
purpose for which it was established." We may here distinguish, therefore, those
movable which become immobilized by destination because they are essential and
principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus,
cash registers, typewriters, etc., usually found and used in hotels, restaurants,
theaters, etc. are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use forklifts, jeep-
wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials,
and thus retain their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found within their so said equipment may not be considered real estate within the meaning of Article
industrial compounds are merely incidental and retain their movable nature. 415 (c) of the Civil Code.

Similarly, the tools and equipments in question in this instant case are, by their WHEREFORE, the decision subject of the petition for review is hereby set aside
nature, not essential and principle municipal elements of petitioner's business of and the equipment in question declared not subject to assessment as real estate
transporting passengers and cargoes by motor trucks. They are merely incidentals for the purposes of the real estate tax. Without costs.
— 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 So ordered.
on, as petitioner has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair or service shop if its
rolling equipment is repaired or serviced in another shop belonging to another.

The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

xxx     xxx     xxx

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

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

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

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

Resuming what we have set forth above, we hold that the equipments in question
are not absolutely essential to the petitioner's transportation business, and
petitioner's business is not carried on in a building, tenement or on a specified land,
12.
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)2 in 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.15 Section 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.18 After 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 Corporation30 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.
13.
G.R. No. 168557             February 16, 2007
FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628            February 16, 2007
NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C.
ANDAYA, in his capacity as the Assessor of the Province of Batangas, and
the PROVINCE OF BATANGAS represented by its Provincial
Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No.
170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National
Power Corporation (NPC), respectively. The first is a petition for review on certiorari
assailing the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition
for review on certiorari, challenges the February 9, 2005 Decision3 and November
23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were
dismissed on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc.
over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca,
Batangas. The contract, denominated as an Energy Conversion
Agreement5 (Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all
taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality
thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes imposed
or calculated on the basis of the net income of POLAR and Personal Income Taxes
of its employees and (ii) construction permit fees, environmental permit fees and
other similar fees and charges) and (b) all real estate taxes and assessments, rates
and other charges in respect of the Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS.
The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article
17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the
power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The
assessed tax, which likewise covered those due for 1994, amounted to
₱56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property
assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial
Assessor’s decision to assess real property taxes on the power barges. However,
the motion was denied on September 22, 1995, and the Provincial Assessor
advised NPC to pay the assessment.8 This prompted NPC to file a petition with the
Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment
and the declaration of the barges as non-taxable items; it also prayed that should
LBAA find the barges to be taxable, the Provincial Assessor be directed to make
the necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the barges were
real property for purposes of taxation under Section 199(c) of Republic Act (R.A.)
No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the
LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May
20, 1996, where it is clearly stated that power barges are not real property subject
to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The
fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real
estate tax in the amount of ₱56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real property for
taxation purposes because they are installed at a specific location with a character
of permanency. The LBAA also pointed out that the owner of the barges–FELS, a
private corporation–is the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not
justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed
out of time.
Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment
Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of
Levy and Warrant by Distraint13 over the power barges, seeking to collect real
property taxes amounting to ₱232,602,125.91 as of July 31, 1996. The notice and
warrant was officially served to FELS on November 8, 1996. It then filed a Motion to
Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further
restrained by the CBAA from enforcing the disputed assessment during the
pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on
the properties of FELS in order not to preempt and render ineffectual, nugatory and
illusory any resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an Order16 dated
September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to
admit bond to guarantee the payment of real property taxes assessed by the
Provincial Assessor (in the event that the judgment be unfavorable to them). The
bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt
from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the
Province of Batangas is hereby reversed. Respondent-appellee Provincial
Assessor of the Province of Batangas is hereby ordered to drop subject property
under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in
the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to
act accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges
belong to NPC; since they are actually, directly and exclusively used by it, the
power barges are covered by the exemptions under Section 234(c) of R.A. No.
7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not
preclude the NPC from pursuing its claim for tax exemption in accordance with
Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001
reversing its earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
 (a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is
hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of
Batangas is likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely
opposed by the Provincial Assessor. The CBAA denied the said motions in a
Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R.
SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP
No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-
G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No.
67491. In a Resolution23 dated February 12, 2002, the appellate court directed NPC
to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the
ponente of the latter petition who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490
denying the petition on the ground of prescription. The decretal portion of the
decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of
Assessment Appeals are AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate court’s decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this
Court, docketed as G.R. No. 165113, assailing the appellate court’s decision in CA-
G.R. SP No. 67490. The petition was, however, denied in this Court’s
Resolution25 of November 8, 2004, for NPC’s failure to sufficiently show that the CA
committed any reversible error in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a Resolution26 dated January
19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It
held that the right to question the assessment of the Provincial Assessor had
already prescribed upon the failure of FELS to appeal the disputed assessment to
the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the tax
was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491.
The motion was denied in a Resolution27 dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been
earlier denied for lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before
this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties
and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are
exempt from real estate tax under Section 234 of the Local Government Code
("LGC").
 C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under the
law.
D.
Assuming arguendo that the subject power barges are real properties, whether or
not the same is subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioner’s personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R.
No. 170628), indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL
TO THE LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE
WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court
ordered the consolidation of the two cases in a Resolution31 dated March 8,
2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties
to submit their respective Memoranda within 30 days from notice. Almost a year
passed but the parties had not submitted their respective memoranda. Considering
that taxes—the lifeblood of our economy—are involved in the present controversy,
the Court was prompted to dispense with the said pleadings, with the end view of
advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not
time-barred. FELS argues that when NPC moved to have the assessment
reconsidered on September 7, 1995, the running of the period to file an appeal with
the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing
to the LBAA should be reckoned from its receipt of the denial of its motion for
reconsideration.
Petitioners’ contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of
1991, provides:
SECTION 226. Local Board of Assessment Appeals. – Any owner or person having
legal interest in the property who is not satisfied with the action of the provincial,
city or municipal assessor in the assessment of his property may, within sixty (60)
days from the date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals of the province or city by filing a petition under oath
in the form prescribed for the purpose, together with copies of the tax declarations
and such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS
on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from
the date of receipt hereof, appeal to the Board of Assessment Appeals of the
province by filing a petition under oath on the form prescribed for the purpose,
together with copies of ARP/Tax Declaration and such affidavits or documents
submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice),
NPC opted to file a motion for reconsideration of the Provincial Assessor’s decision,
a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of
the provincial, city or municipal assessor in the assessment of the property. It
follows then that the determination made by the respondent Provincial Assessor
with regard to the taxability of the subject real properties falls within its power to
assess properties for taxation purposes subject to appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and
CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of
Callanta v. Office of the Ombudsman,34 where we ruled that under Section 226 of
R.A. No 7160,35 the last action of the local assessor on a particular assessment
shall be the notice of assessment; it is this last action which gives the owner of the
property the right to appeal to the LBAA. The procedure likewise does not permit
the property owner the remedy of filing a motion for reconsideration before the local
assessor. The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have
brought their appeals before the LBAA. Unfortunately, despite the advice to this
effect contained in their respective notices of assessment, the owners chose to
bring their requests for a review/readjustment before the city assessor, a remedy
not sanctioned by the law. To allow this procedure would indeed invite corruption in
the system of appraisal and assessment. It conveniently courts a graft-prone
situation where values of real property may be initially set unreasonably high, and
then subsequently reduced upon the request of a property owner. In the latter
instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in
fact can conveniently take place. Such occasion for mischief must be prevented
and excised from our system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a
notice to the owner or lawful possessor of real property of its revised assessed
value, the former shall no longer have any jurisdiction to entertain any request for a
review or readjustment. The appropriate forum where the aggrieved party may
bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-
day period for making the appeal to the LBAA runs without interruption. This is what
We held in SP 67490 and reaffirm today in SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local
government to collect the taxes due with respect to the taxpayer’s property
becomes absolute upon the expiration of the period to appeal.38 It also bears
stressing that the taxpayer’s failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory and demandable,
thus, precluding the taxpayer from questioning the correctness of the assessment,
or from invoking any defense that would reopen the question of its liability on the
merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for
having been filed out of time; the CBAA and the appellate court were likewise
correct in affirming the dismissal. Elementary is the rule that the perfection of an
appeal within the period therefor is both mandatory and jurisdictional, and failure in
this regard renders the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant
petition is barred by res judicata; that the final and executory judgment in G.R. No.
165113 (where there was a final determination on the issue of prescription),
effectively precludes the claims herein; and that the filing of the instant petition after
an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely
misplaced since it was not a party to the erroneous petition which the NPC filed in
G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and
the Supreme Court never acquired jurisdiction over it. As to the issue of forum
shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded
upon two grounds embodied in various maxims of common law, namely: (1) public
policy and necessity, which makes it to the interest of the
State that there should be an end to litigation – republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause – nemo debet
bis vexari et eadem causa. A conflicting doctrine would subject the public peace
and quiet to the will and dereliction of individuals and prefer the regalement of the
litigious disposition on the part of suitors to the preservation of the public tranquility
and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court
of Appeals:42
x x x An existing final judgment or decree – rendered upon the merits, without fraud
or collusion, by a court of competent jurisdiction acting upon a matter within its
authority – is conclusive on the rights of the parties and their privies. This ruling
holds in all other actions or suits, in the same or any other judicial tribunal of
concurrent jurisdiction, touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the
same parties or their privies to litigate anew a question once it has been considered
and decided with finality. Litigations must end and terminate sometime and
somewhere. The effective and efficient administration of justice requires that once a
judgment has become final, the prevailing party should not be deprived of the fruits
of the verdict by subsequent suits on the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it had
jurisdiction over the subject matter and the parties; (3) the judgment must be on the
merits; and (4) there must be between the first and the second actions, identity of
parties, subject matter and causes of action. The application of the doctrine of res
judicata does not require absolute identity of parties but merely substantial identity
of parties. There is substantial identity of parties when there is community of
interest or privity of interest between a party in the first and a party in the second
case even if the first case did not implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC
filed its petition for review docketed as G.R. No. 165113, it did so not only on its
behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier
petition for review filed in this Court was the decision of the appellate court in CA-
G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity of interest. In
fine, FELS and NPC are substantially "identical parties" as to warrant the
application of res judicata. FELS’s argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum
shopping exists when, as a result of an adverse judgment in one forum, a party
seeks another and possibly favorable judgment in another forum other than by
appeal or special civil action or certiorari. There is also forum shopping when a
party institutes two or more actions or proceedings grounded on the same cause,
on the gamble that one or the other court would make a favorable disposition.44
Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res
judicata may be properly applied herein. Petitioners engaged in forum shopping
when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R.
No. 165116. Indeed, petitioners went from one court to another trying to get a
favorable decision from one of the tribunals which allowed them to pursue their
cases.
It must be stressed that an important factor in determining the existence of forum
shopping is the vexation caused to the courts and the parties-litigants by the filing
of similar cases to claim substantially the same reliefs.45 The rationale against
forum shopping is that a party should not be allowed to pursue simultaneous
remedies in two different fora. Filing multiple petitions or complaints constitutes
abuse of court processes, which tends to degrade the administration of justice,
wreaks havoc upon orderly judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least
such parties as represent the same interests in both actions, (b) identity of rights
asserted and relief prayed for, the relief being founded on the same facts, and (c)
the identity of the two preceding particulars is such that any judgment rendered in
the pending case, regardless of which party is successful, would amount to res
judicata in the other.47
Having found that the elements of res judicata and forum shopping are present in
the consolidated cases, a discussion of the other issues is no longer necessary.
Nevertheless, for the peace and contentment of petitioners, we shall shed light on
the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real
property and are thus subject to real property tax. This is also the inevitable
conclusion, considering that G.R. No. 165113 was dismissed for failure to
sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.48 Besides, factual findings of administrative bodies, which have
acquired expertise in their field, are generally binding and conclusive upon the
Court; we will not assume to interfere with the sensible exercise of the judgment of
men especially trained in appraising property. Where the judicial mind is left in
doubt, it is a sound policy to leave the assessment undisturbed.49 We find no
reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York,
et al.,50 a power company brought an action to review property tax assessment. On
the city’s motion to dismiss, the Supreme Court of New York held that the barges
on which were mounted gas turbine power plants designated to generate electrical
power, the fuel oil barges which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and
structures which, though floating, are intended by their nature and object to remain
at a fixed place on a river, lake, or coast" are considered immovable property.
Thus, power barges are categorized as immovable property by destination, being in
the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and
which tend directly to meet the needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real
estate tax under Section 234 (c) of R.A. No. 7160 because they are actually,
directly and exclusively used by petitioner NPC, a government- owned and
controlled corporation engaged in the supply, generation, and transmission of
electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS, which in fine, is the entity being taxed by the local
government. As stipulated under Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all
the fixtures, fittings, machinery and equipment on the Site used in connection with
the Power Barges which have been supplied by it at its own cost. POLAR shall
operate, manage and maintain the Power Barges for the purpose of converting
Fuel of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. – The following are exempted
from payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations engaged
in the supply and distribution of water and/or generation and transmission of
electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively
used by the government owned or controlled corporation; nevertheless, petitioner
FELS still cannot find solace in this provision because Section 5.5, Article 5 of the
Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to
the supply of the necessary Fuel pursuant to Article 6 and to the other provisions
hereof, it will operate the Power Barges to convert such Fuel into electricity in
accordance with Part A of Article 7.53
It is a basic rule that obligations arising from a contract have the force of law SO ORDERED.
between the parties. Not being contrary to law, morals, good customs, public order
or public policy, the parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception.55 The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted.56 Thus, applying the rule of
strict construction of laws granting tax exemptions, and the rule that doubts should
be resolved in favor of provincial corporations, we hold that FELS is considered a
taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that
it shall be responsible for the payment of all real estate taxes and assessments,
does not justify the exemption. The privilege granted to petitioner NPC cannot be
extended to FELS. The covenant is between FELS and NPC and does not bind a
third person not privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously
resulted in the local government’s deprivation of revenues. The power to tax is an
incident of sovereignty and is unlimited in its magnitude, acknowledging in its very
nature no perimeter so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who are
to pay for it.57 The right of local government units to collect taxes due must always
be upheld to avoid severe tax erosion. This consideration is consistent with the
State policy to guarantee the autonomy of local governments58 and the objective of
the Local Government Code that they enjoy genuine and meaningful local
autonomy to empower them to achieve their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to
raise the needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of the
people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.
14.
G.R. No. L-15334             January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY
TREASURER OF QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the
following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which
authorized the Municipal Board of Manila to grant a franchise to construct, maintain
and operate an electric street railway and electric light, heat and power system in
the City of Manila and its suburbs to the person or persons making the most
favorable bid. Charles M. Swift was awarded the said franchise on March 1903, the
terms and conditions of which were embodied in Ordinance No. 44 approved on
March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan
Falls, Laguna and is transmitted to the City of Manila by means of electric
transmission wires, running from the province of Laguna to the said City. These
electric transmission wires which carry high voltage current, are fastened to
insulators attached on steel towers constructed by respondent at intervals, from its
hydro-electric plant in the province of Laguna to the City of Manila. The respondent
Meralco has constructed 40 of these steel towers within Quezon City, on land
belonging to it. A photograph of one of these steel towers is attached to the petition
for review, marked Annex A. Three steel towers were inspected by the lower court
and parties and the following were the descriptions given there of by said court:
The first steel tower is located in South Tatalon, España Extension, Quezon
City. The findings were as follows: the ground around one of the four posts
was excavated to a depth of about eight (8) feet, with an opening of about
one (1) meter in diameter, decreased to about a quarter of a meter as it we
deeper until it reached the bottom of the post; at the bottom of the post were
two parallel steel bars attached to the leg means of bolts; the tower proper
was attached to the leg three bolts; with two cross metals to prevent
mobility; there was no concrete foundation but there was adobe stone
underneath; as the bottom of the excavation was covered with water about
three inches high, it could not be determined with certainty to whether said
adobe stone was placed purposely or not, as the place abounds with this
kind of stone; and the tower carried five high voltage wires without cover or
any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon
City, on land owned by the petitioner approximate more than one kilometer
from the first tower. As in the first tower, the ground around one of the four
legs was excavate from seven to eight (8) feet deep and one and a half (1-
½) meters wide. There being very little water at the bottom, it was seen that
there was no concrete foundation, but there soft adobe beneath. The leg
was likewise provided with two parallel steel bars bolted to a square metal
frame also bolted to each corner. Like the first one, the second tower is
made up of metal rods joined together by means of bolts, so that by
unscrewing the bolts, the tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in
the first two towers given above, the ground around the two legs of the third
tower was excavated to a depth about two or three inches beyond the
outside level of the steel bar foundation. It was found that there was no
concrete foundation. Like the two previous ones, the bottom arrangement of
the legs thereof were found to be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was also found that the square
metal frame supporting the legs were not attached to any material or
foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the
aforesaid steel towers for real property tax under Tax declaration Nos. 31992 and
15549. After denying respondent's petition to cancel these declarations, an appeal
was taken by respondent to the Board of Assessment Appeals of Quezon City,
which required respondent to pay the amount of P11,651.86 as real property tax on
the said steel towers for the years 1952 to 1956. Respondent paid the amount
under protest, and filed a petition for review in the Court of Tax Appeals (CTA for
short) which rendered a decision on December 29, 1958, ordering the cancellation
of the said tax declarations and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The motion for reconsideration
having been denied, on April 22, 1959, the instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers
come within the term "poles" which are declared exempt from taxes under part II
paragraph 9 of respondent's franchise; (2) the steel towers are personal properties
and are not subject to real property tax; and (3) the City Treasurer of Quezon City
is held responsible for the refund of the amount paid. These are assigned as errors
by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real
estate, buildings, plant (not including poles, wires, transformers, and
insulators), machinery and personal property as other persons are or may
be hereafter required by law to pay ... Said percentage shall be due and
payable at the time stated in paragraph nineteen of Part One hereof, ... and
shall be in lieu of all taxes and assessments of whatsoever nature and by
whatsoever authority upon the privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee from which taxes
and assessments the grantee is hereby expressly exempted. (Par. 9, Part
Two, Act No. 484 Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of
wood or timber, as typically the stem of a small tree stripped of its branches; also
by extension, a similar typically cylindrical piece or object of metal or the like". The
term also refers to "an upright standard to the top of which something is affixed or
by which something is supported; as a dovecote set on a pole; telegraph poles; a
tent pole; sometimes, specifically a vessel's master (Webster's New International
Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen
cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which
are made of two steel bars joined together by an interlacing metal rod. They are
called "poles" notwithstanding the fact that they are no made of wood. It must be
noted from paragraph 9, above quoted, that the concept of the "poles" for which
exemption is granted, is not determined by their place or location, nor by the
character of the electric current it carries, nor the material or form of which it is
made, but the use to which they are dedicated. In accordance with the definitions,
pole is not restricted to a long cylindrical piece of wood or metal, but includes
"upright standards to the top of which something is affixed or by which something is
supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of
which are cross-arms supporting five high voltage transmission wires (See Annex
A) and their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the
term "poles" is not a novelty. Several courts of last resort in the United States have
called these steel supports "steel towers", and they denominated these supports or
towers, as electric poles. In their decisions the words "towers" and "poles" were
used interchangeably, and it is well understood in that jurisdiction that a
transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the
law provided that wires shall be constructed upon suitable poles, this term was
construed to mean either wood or metal poles and in view of the land being subject
to overflow, and the necessary carrying of numerous wires and the distance
between poles, the statute was interpreted to include towers or poles. (Stemmons
and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by
an association used to convey its electric power furnished to subscribers and
members, constructed for the purpose of fastening high voltage and dangerous
electric wires alongside public highways. The steel supports or towers were made
of iron or other metals consisting of two pieces running from the ground up some
thirty feet high, being wider at the bottom than at the top, the said two metal pieces
being connected with criss-cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n
v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company
engaged in the generation of hydro-electric power generated from its plant to the
Tower of Oxford and City of Waterbury. These steel towers are about 15 feet
square at the base and extended to a height of about 35 feet to a point, and are
embedded in the cement foundations sunk in the earth, the top of which extends
above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the
transmission of electric power (Connecticut Light and Power Co. v. Oxford, 101
Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met
his death was built for the purpose of supporting a transmission wire used for
carrying high-tension electric power, but claimed that the steel towers on which it is
carried were so large that their wire took their structure out of the definition of a
pole line. It was held that in defining the word pole, one should not be governed by
the wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material
wire of its individual members, any continuous series of structures intended and
used solely or primarily for the purpose of supporting wires carrying electric
currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and
incorporated in the petitioner's franchise, should not be given a restrictive and
narrow interpretation, as to defeat the very object for which the franchise was
granted. The poles as contemplated thereon, should be understood and taken as a
part of the electric power system of the respondent Meralco, for the conveyance of
electric current from the source thereof to its consumers. If the respondent would
be required to employ "wooden poles", or "rounded poles" as it used to do fifty
years back, then one should admit that the Philippines is one century behind the
age of space. It should also be conceded by now that steel towers, like the ones in
question, for obvious reasons, can better effectuate the purpose for which the
respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question
are not embraced within the term poles, the logical question posited is whether
they constitute real properties, so that they can be subject to a real property tax.
The tax law does not provide for a definition of real property; but Article 415 of the
Civil Code does, by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxx     xxx     xxx
(3) Everything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object;
xxx     xxx     xxx
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried in a
building or on a piece of land, and which tends directly to meet the needs of
the said industry or works;
xxx     xxx     xxx
The steel towers or supports in question, do not come within the objects mentioned
in paragraph 1, because they do not constitute buildings or constructions adhered
to the soil. They are not construction analogous to buildings nor adhering to the
soil. As per description, given by the lower court, they are removable and merely
attached to a square metal frame by means of bolts, which when unscrewed could
easily be dismantled and moved from place to place. They can not be included
under paragraph 3, as they are not attached to an immovable in a fixed manner,
and they can be separated without breaking the material or causing deterioration
upon the object to which they are attached. Each of these steel towers or supports
consists of steel bars or metal strips, joined together by means of bolts, which can
be disassembled by unscrewing the bolts and reassembled by screwing the same.
These steel towers or supports do not also fall under paragraph 5, for they are not
machineries, receptacles, instruments or implements, and even if they were, they
are not intended for industry or works on the land. Petitioner is not engaged in an
industry or works in the land in which the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon
City to refund the sum of P11,651.86, despite the fact that Quezon City is not a
party to the case. It is argued that as the City Treasurer is not the real party in
interest, but Quezon City, which was not a party to the suit, notwithstanding its
capacity to sue and be sued, he should not be ordered to effect the refund. This
question has not been raised in the court below, and, therefore, it cannot be
properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City
Treasurer) whom had insisted that respondent herein pay the real estate taxes,
which respondent paid under protest. Having acted in his official capacity as City
Treasurer of Quezon City, he would surely know what to do, under the
circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs
against the petitioners.
15.
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA,
respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation
assails the decision of the Central Board of Assessment Appeals (composed of the
Secretary of Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated May 6, 1976,
holding that Meralco Securities' oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the
Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from
Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the shoulder
of the public highway. The portion passing through Laguna is about thirty
kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six
feet with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black
oil measure sixteen inches by forty-eight feet with a maximum capacity of 100,000
barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so
as to preclude breakage or damage thereto and prevent leakage or seepage of the
oil. The valves are welded to the pipes so as to make the pipeline system one
single piece of property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes
have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried. In points where the
pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof.
Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved
from one place to another as shown in the permit issued by the Secretary of Public
Works and Communications which permit provides that the government reserves
the right to require the removal or transfer of the pipes by and at the
concessionaire's expense should they be affected by any road repair or
improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax
Declarations Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta.
Rosa; 9882-9885, Biñan and 15806-15810, Calamba, containing the assessed
values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals
of Laguna composed of the register of deeds as chairman and the provincial
auditor as member. That board in its decision of June 18, 1975 upheld the
assessments (pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals.
As already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development Jose Roño as
members, ruled that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, provides that the Board's decision becomes final
and executory after the lapse of fifteen days from the date of receipt of a copy of
the decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of
Assessment Appeals (70 O.G. 10085), a party may ask for the reconsideration of
the Board's decision within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June
6, 1977, Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no
jurisdiction to review the decision of the Central Board of Assessment Appeals and
because no judicial review of the Board's decision is provided for in the Real
Property Tax Code, Meralco Securities' recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-
judicial functions whereby the record of a particular case is ordered to be elevated
for review and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd
777).
The rule is that as to administrative agencies exercising quasi-judicial power there
is an underlying power in the courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary and
unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising
quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave
abuse of discretion, fraud or collusion or in case the administrative decision is
corrupt, arbitrary or capricious (Mafinco Trading Corporation vs. Ople, L-37790,
March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs. Secretary of
Labor, L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov.
Board of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax
under those laws; that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even under article 415, the
steel pipes can be regarded as realty because they are constructions adhered to
the soil and things attached to the land in a fixed manner and that Meralco
Securities is not exempt from realty tax under the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of article 415. This contention is not
sustainable under the provisions of the Assessment Law, the Real Property Tax
Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
 machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of
the classes of exempt real property enumerated in section 3 of the Assessment
Law and section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or
in the earth, carrying with it the right to the use of the soil in which it is placed (Note
21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all
kinds adhered to the soil and everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil
(Exh. B, p. 39, Rollo). It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were welded to form
the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow
of oil, it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are
not the steel pipes but the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed.
2nd 3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark
vs. R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it
from the payment of realty taxes. The alleged exemption is predicated on the
following provisions of that law which exempt Meralco Securities from local taxes
and make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.—
Work obligations, special taxes and royalties which are fixed by the
provisions of this Act or by the concession for any of the kinds of
concessions to which this Act relates, are considered as inherent on
such concessions after they are granted, and shall not be increased
or decreased during the life of the concession to which they apply;
nor shall any other special taxes or levies be applied to such
concessions, nor shall 0concessionaires under this Act be subject to
any provincial, municipal or other local taxes or levies; nor shall any
sales tax be charged on any petroleum produced from the
concession or portion thereof, manufactured by the concessionaire
and used in the working of his concession. All such concessionaires,
however, shall be subject to such taxes as are of general
application in addition to taxes and other levies specifically provided
in this Act.
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines
in the exercise of his lawmaking powers, as shown in section 342 et seq. of the
Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and
Presidential Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In
contrast, a local tax is imposed by the municipal or city council by virtue of the
Local Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69
O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave
abuse of discretion, did not commit any error of law and acted within its jurisdiction
in sustaining the holding of the provincial assessor and the local board of
assessment appeals that Meralco Securities' pipeline system in Laguna is subject
to realty tax.
WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs.
SO ORDERED.
16.
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.
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.

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