PROPERTY

1
st
Batch of Cases
Leung vs. Strong
The "Compaia Agricola Filipina" bought a considerable quantity of rice-
cleaning machinery company from the defendant machinery company,
and executed a chattel mortgage thereon to secure payment of the
purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this instrument
not having been paid when it fell due, the mortgaged property was sold by
the sheriff, in pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the machinery
company in satisfaction of the mortgage was annotated in the same
registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compaia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of sale,
although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear
to have been executed for the purpose of curing any defects which might
be found to exist in the machinery company's title to the building under the
sheriff's certificate of sale. The machinery company went into possession
of the building at or about the time when this sale took place, that is to
say, the month of December, 1913, and it has continued in possession
ever since.
At or about the time when the chattel mortgage was executed in favor of
the machinery company, the mortgagor, the "Compaia Agricola Filipina"
executed another mortgage to the plaintiff upon the building, separate and
apart from the land on which it stood, to secure payment of the balance of
its indebtedness to the plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for
that amount, levied execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land registry of the Province of
Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with the
sheriff a sworn statement setting up its claim of title and demanding the
release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in
the sum of P12,000, in reliance upon which the sheriff sold the property at
public auction to the plaintiff, who was the highest bidder at the sheriff's
sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that the
company had its title to the building registered prior to the date of registry
of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first taken
possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who
first recorded it in the registry.
Should there be no entry, the property shall belong to the person who first
took possession of it in good faith, and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it
must be apparent that the annotation or inscription of a deed of sale of
real property in a chattel mortgage registry cannot be given the legal effect
of an inscription in the registry of real property. By its express terms, the
Chattel Mortgage Law contemplates and makes provision for mortgages
of personal property; and the sole purpose and object of the chattel
mortgage registry is to provide for the registry of "Chattel mortgages," that
is to say, mortgages of personal property executed in the manner and
form prescribed in the statute. The building of strong materials in which
the rice-cleaning machinery was installed by the "Compaia Agricola
Filipina" was real property, and the mere fact that the parties seem to
have dealt with it separate and apart from the land on which it stood in no
wise changed its character as real property. It follows that neither the
original registry in the chattel mortgage of the building and the machinery
installed therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building was
concerned.
We conclude that the ruling in favor of the machinery company cannot be
sustained on the ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses that neither the
purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the
machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that
the company first took possession of the property; and further, that the
building and the land were sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil
Code require "good faith," in express terms, in relation to "possession"
and "title," but contain no express requirement as to "good faith" in relation
to the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the legislator to base
the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion.
The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The
force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights
created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme
court of Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that the
second purchasers who record their purchase had knowledge of the
previous sale, the question is to be decided in accordance with the
following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon
[1911] edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the
registry shall have preference, this provision must always be understood
on the basis of the good faith mentioned in the first paragraph; the
legislator could not have wished to strike it out and to sanction bad faith,
just to comply with a mere formality which, in given cases, does not obtain
even in real disputes between third persons. (Note 2, art. 1473, Civ. Code,
issued by the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he
bought the building at the sheriff's sale and inscribed his title in the land
registry, was duly notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an indemnity bond by
the plaintiff in favor of the sheriff, after the machinery company had filed
its sworn claim of ownership, leaves no room for doubt in this regard.
Having bought in the building at the sheriff's sale with full knowledge that
at the time of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the
sheriff's certificate of sale to the plaintiff was not made in good faith, we
should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common
debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the
amount of his claim from the estate of the common debtor. We are
strongly inclined to believe that in procuring the levy of execution upon the
factory building and in buying it at the sheriff's sale, he considered that he
was doing no more than he had a right to do under all the circumstances,
and it is highly possible and even probable that he thought at that time
that he would be able to maintain his position in a contest with the
machinery company. There was no collusion on his part with the common
debtor, and no thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have hoped, and
doubtless he did hope, that the title of the machinery company would not
stand the test of an action in a court of law; and if later developments had
confirmed his unfounded hopes, no one could question the legality of the
propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's
claim of ownership when he executed the indemnity bond and bought in
the property at the sheriff's sale, and it appearing further that the
machinery company's claim of ownership was well founded, he cannot be
said to have been an innocent purchaser for value. He took the risk and
must stand by the consequences; and it is in this sense that we find that
he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title
in his vendor cannot claim that he has acquired title thereto in good faith
as against the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His mere refusal
to believe that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title, will not make
him an innocent purchaser for value, if afterwards develops that the title
was in fact defective, and it appears that he had such notice of the defects
as would have led to its discovery had he acted with that measure of
precaution which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question of intention;
but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct
and outward acts by which alone the inward motive may, with safety, be
determined. So it is that "the honesty of intention," "the honest lawful
intent," which constitutes good faith implies a "freedom from knowledge
and circumstances which ought to put a person on inquiry," and so it is
that proof of such knowledge overcomes the presumption of good faith in
which the courts always indulge in the absence of proof to the contrary.
"Good faith, or the want of it, is not a visible, tangible fact that can be seen
or touched, but rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt.,
504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of
the decision and judgment entered in the court below should be affirmed
with costs of this instance against the appellant. So ordered.
Standard Oil Company NY vs Jaramillo
This cause is before us upon demurrer interposed by the respondent,
Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, seeking a
peremptory mandamusto compel the respondent to record in the proper
register a document purporting to be a chattel mortgage executed in the
City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the
Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la
Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the City
of Manila and owner of the house of strong materials built thereon, upon
which date she executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage both the
leasehold interest in said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus
mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the
mortgage, by way of mortgage, the following described personal property,
situated in the City of Manila, and now in possession of the mortgagor, to
wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract
of lease hereinabove referred to, and in and to the premises the subject of
the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid
leased premises.
After said document had been duly acknowledge and delivered, the
petitioner caused the same to be presented to the respondent, Joaquin
Jaramillo, as register of deeds of the City of Manila, for the purpose of
having the same recorded in the book of record of chattel mortgages.
Upon examination of the instrument, the respondent was of the opinion
that it was not a chattel mortgage, for the reason that the interest therein
mortgaged did not appear to be personal property, within the meaning of
the Chattel Mortgage Law, and registration was refused on this ground
only.
We are of the opinion that the position taken by the respondent is
untenable; and it is his duty to accept the proper fee and place the
instrument on record. The duties of a register of deeds in respect to the
registration of chattel mortgage are of a purely ministerial character; and
no provision of law can be cited which confers upon him any judicial or
quasi-judicial power to determine the nature of any document of which
registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of
the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496;
but these have been transferred to section 198 of the Administrative
Code, where they are now found. There is nothing in any of these
provisions conferring upon the register of deeds any authority whatever in
respect to the "qualification," as the term is used in Spanish law, of chattel
mortgage. His duties in respect to such instruments are ministerial only.
The efficacy of the act of recording a chattel mortgage consists in the fact
that it operates as constructive notice of the existence of the contract, and
the legal effects of the contract must be discovered in the instrument itself
in relation with the fact of notice. Registration adds nothing to the
instrument, considered as a source of title, and affects nobody's rights
except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purpose of
the application of the Chattel Mortgage Law. Those articles state rules
which, considered as a general doctrine, are law in this jurisdiction; but it
must not be forgotten that under given conditions property may have
character different from that imputed to it in said articles. It is undeniable
that the parties to a contract may by agreement treat as personal property
that which by nature would be real property; and it is a familiar
phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal
property. Other situations are constantly arising, and from time to time are
presented to this court, in which the proper classification of one thing or
another as real or personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8,
1914, in an administrative ruling promulgated by the Honorable James A.
Ostrand, now a Justice of this Court, but acting at that time in the capacity
of Judge of the fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be here added
to the observations contained in said ruling. We accordingly quote
therefrom as follows:
It is unnecessary here to determine whether or not the property described
in the document in question is real or personal; the discussion may be
confined to the point as to whether a register of deeds has authority to
deny the registration of a document purporting to be a chattel mortgage
and executed in the manner and form prescribed by the Chattel Mortgage
Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508),
his Honor continued:
Based principally upon the provisions of section quoted the Attorney-
General of the Philippine Islands, in an opinion dated August 11, 1909,
held that a register of deeds has no authority to pass upon the capacity of
the parties to a chattel mortgage which is presented to him for record. A
fortiori a register of deeds can have no authority to pass upon the
character of the property sought to be encumbered by a chattel mortgage.
Of course, if the mortgaged property is real instead of personal the chattel
mortgage would no doubt be held ineffective as against third parties, but
this is a question to be determined by the courts of justice and not by the
register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil.,
644), this court held that where the interest conveyed is of the nature of
real, property, the placing of the document on record in the chattel
mortgage register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function of the register
of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass
upon the point whether the interests conveyed in the instrument now in
question are real or personal; and we declare it to be the duty of the
register of deeds to accept the estimate placed upon the document by the
petitioner and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from
the date of the notification hereof, the respondent shall interpose a
sufficient answer to the petition, the writ of mandamus will be issued, as
prayed, but without costs. So ordered.
Davao vs. Castillo
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;
x x x x x x x x x
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 Yorkvs. 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.
x x x x x x x x x
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.
Berkenkotter vs. Cu-Unjieng
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said plaintiff's
complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage deed executed in
favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar
Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a
first mortgage constituted on two parcels and land "with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus,
utensils and whatever forms part or is necessary complement of said
sugar-cane mill, steel railway, telephone line, now existing or that may in
the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar
central by buying additional machinery and equipment, so that instead of
milling 150 tons daily, it could produce 250. The estimated cost of said
additional machinery and equipment was approximately P100,000. In
order to carry out this plan, B.A. Green, president of said corporation,
proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary
amount for the purchase of said machinery and equipment, promising to
reimburse him as soon as he could obtain an additional loan from the
mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to
said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H.
Berkenkotter, on October 9th of the same year, delivered the sum of
P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total
amount supplied by him to said B.A. Green having been P25,750.
Furthermore, B.H. Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said credit of
P22,000, the Mabalacat Sugar Co., Inc., purchased the additional
machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co.,
Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000
offering as security the additional machinery and equipment acquired by
said B.A. Green and installed in the sugar central after the execution of
the original mortgage deed, on April 27, 1927, together with whatever
additional equipment acquired with said loan. B.A. Green failed to obtain
said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements,
growing fruits, and rents not collected when the obligation falls due, and
the amount of any indemnities paid or due the owner by the insurers of the
mortgaged property or by virtue of the exercise of the power of eminent
domain, with the declarations, amplifications, and limitations established
by law, whether the estate continues in the possession of the person who
mortgaged it or whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12
Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES
IMPROVEMENTS AND FIXTURES. It is a rule, established by the Civil
Code and also by the Mortgage Law, with which the decisions of the
courts of the United States are in accord, that in a mortgage of real estate,
the improvements on the same are included; therefore, all objects
permanently attached to a mortgaged building or land, although they may
have been placed there after the mortgage was constituted, are also
included. (Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil
Code; decision of U.S. Supreme Court in the matter of Royal Insurance
Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S.,
353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In
order that it may be understood that the machinery and other objects
placed upon and used in connection with a mortgaged estate are
excluded from the mortgage, when it was stated in the mortgage that the
improvements, buildings, and machinery that existed thereon were also
comprehended, it is indispensable that the exclusion thereof be stipulated
between the contracting parties.
The appellant contends that the installation of the machinery and
equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A. Green,
in proposing to him to advance the money for the purchase thereof, made
it appear in the letter, Exhibit E, that in case B.A. Green should fail to
obtain an additional loan from the defendants Cu Unjieng e Hijos, said
machinery and equipment would become security therefor, said B.A.
Green binding himself not to mortgage nor encumber them to anybody
until said plaintiff be fully reimbursed for the corporation's indebtedness to
him.
Upon acquiring the machinery and equipment in question with money
obtained as loan from the plaintiff-appellant by B.A. Green, as president of
the Mabalacat Sugar Co., Inc., the latter became owner of said machinery
and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with
any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principal
elements of a sugar central, without them the sugar central would be
unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for carrying on the sugar
industry for which it has been established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H.
Berkenkotter to hold said machinery and equipment as security for the
payment of the latter's credit and to refrain from mortgaging or otherwise
encumbering them until Berkenkotter has been fully reimbursed therefor,
is not incompatible with the permanent character of the incorporation of
said machinery and equipment with the sugar central of the Mabalacat
Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as
security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and
appellant after they had been permanently incorporated with sugar central
of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on
said sugar central to Cu Unjieng e Hijos remained in force, only the right
of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar
central with which said machinery and equipment had been incorporated,
was transferred thereby, subject to the right of the defendants Cu Unjieng
e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1)
That the installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing production, constitutes
a permanent improvement on said sugar central and subjects said
machinery and equipment to the mortgage constituted thereon (article
1877, Civil Code); (2) that the fact that the purchaser of the new
machinery and equipment has bound himself to the person supplying him
the purchase money to hold them as security for the payment of the
latter's credit, and to refrain from mortgaging or otherwise encumbering
them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the
machinery and equipment in question by the purchaser who was supplied
the purchase money, as a loan, to the person who supplied the money,
after the incorporation thereof with the mortgaged sugar central, does not
vest the creditor with ownership of said machinery and equipment but
simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all
its parts, with costs to the appellant. So ordered.
Navarro vs. Pineda
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
whichby 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.
Lavarro vs Labitoria
Anastacio Labitoria, who died over thirty years ago, was the original owner
of a tract of land divided into three parcels and situated in the barrio of
Mangilag, municipality of Candelaria, Province of Tayabas. He left four
children, Francisco, Liberata, Tirso, and Eustacio Labitoria. Francisco
acquired the shares of Tirso and Eustacio together with the greater part of
that of Liberata, and thus became the owner of nearly all of the land. After
his death, his children, Macario and Regina Labitoria, became the owners
of his interest in the land.
Sofia Lavarro is the daughter of Liberata Labitoria, and in or about the
year 1897, her first husband, Crispulo Alcantara, borrowed P330 from
Francisco Labitoria on the condition that Alcantara should plant 3,300
coconut palms on the land to be divided in equal shares between the
parties, the loan to be paid back by turning over to the creditor 330
coconut palms out of the share of Alcantara and Sofia. Under this
agreement, about 1,700 palms were planted by Alcantara, but later on,
further plantings were made by his wife, Sofia Lavarro.
In July, 1916, the land was registered in the names of Macario Labitoria,
Regina Labitoria, Bernardo Labitoria, Vidal Labitoria, Ariston Lavarro,
Sofia Lavarro, and Isidro Lavaris. Nothing seems to have been said about
the improvements on the land and no special mention of them appears in
the certificate of title. Neither were the respective shares of the persons to
whom the land was adjudicated definitely determined.
On October 31, 1916, Macario, Regina, and Bernardo Labitoria and
Ariston Lavarro brought an action against Sofia Lavarro and her then
husband, Emeterio Pureza, for the partition of the land with its
improvements. The action is civil case No. 351 of the Court of First
Instance of Tayabas. In her answer in that case, Sofia Lavarro set up a
cross-complaint alleging, among other things, that she was a coowner of
the land and was entitled to a large proportion of the coconut palms
thereon. The prayer of the cross-complaint reads as follows:
Wherefore, by this cross-complaint Sofia Lavarro and Emeterio Pureza,
through their undersigned attorney, pray the court to decree the partition
of the three parcels of land described above, with all the improvements
thereon, allotting to Sofia Lavarro and Emeterio Pureza their rightful
portion, and ordering Macario Labitoria to render the proper accounts, and
to deliver to his coheirs their proportionate part of the fruits and products
of said lands, with costs against the cross-complaint defendants.
(Emphasis supplied.)
Upon trial partition was ordered, and Sofia Lavarro was awarded 520
coconut trees and 43,391 square meters of land. She thereupon appealed
to the Supreme Court, and a decision was rendered by that court on
March 24, 1927,
1
in which it was held that Sofia Lavarro was entitled to
1/28 of the land. In all the respects, the decision of the Court of First
Instances was affirmed. The partition seems to have been carried out in
conformity with the decision of the Supreme Court, and Sofia was
awarded 6 hectares, 88 ares, and 77 centiares of land, together with 850
coconut palms instead of 520.
The present action was initiated by Sofia Lavarro and her daughters,
Apolonia and Isabel Alcantara, on August 15, 1927, against Regina
Labitoria and Marciano Labitoria, the latter as administrator of the estate
of the deceased Macario Labitoria. In their amended complaint, the
plaintiffs allege that on or about the year 1897, Sofia Lavarro and her
husband, Crispulo Alcantara, planted 2,850 coconut palms on the land
above-mentioned, of which 1,970 trees were actually alive and bearing
fruit; that after the death of Crispulo Alcantara in the year 1910, Sofia
Lavarro, being then a widow, planted 2,200 coconut palms on the same
tract of land, 2,000 palms being still in existence and the greater part of
them bearing fruit; that from the year 1897, the plaintiffs had been in
possession of the above-mentioned plantings and had collected the fruits,
but that the defendants were now endeavoring to take possession of said
coconut palms; and that each coconut palm was worth P12. The plaintiffs
therefore prayed that unless the defendants paid to the plaintiffs the sum
of P47,640, the value of the 3,970 palms planted, it be ordered that said
plaintiffs be allowed to continue in possession of said coconut palms in
accordance with the law.
In their answer to the complaint, the defendants set up as special
defenses res judicata and prescription.
Upon trial, the court below, basing its decision on the case of Bautista vs.
Jimenez (24 Phil., 111), and article 361 of the Civil Code, ordered the
defendants to pay the plaintiffs the sum of P4,820 for 1,205 coconut palms
or to require the plaintiffs to purchase the land, the plaintiffs to retain the
coconut palms until the aforesaid sum was paid. From this judgment both
the plaintiffs and defendants appealed.
It is very obvious that the court below erred in rendering judgment in favor
of the plaintiffs. This is an action for compensation for improvements
alleged to have been made by the plaintiffs on the land awarded to the
defendants and is brought notwithstanding the fact that the question of
improvements was put in issue in case No. 351 and that the portion of
land due Sofia Lavarro, and the improvements as well, were determined
and adjudicated by the court in that case. Her rights in regard to the
improvements are consequently res judicata.
But it is intimated that, while in the earlier case the issues related to the
ownership of the improvements, the issue here is only a question of
money payment and that therefore the causes of action are different.
Assuming, without conceding, that such is the case, the result would be
the same. The issues in both cases arose from the same source or
transactions and should have been determined in the same case (sec. 97,
Code of Civil Procedure). A judgment upon the merits bars a subsequent
suit upon the same cause, though brought in a different form of action.
(White vs. Martin, 1 Port. [Ala.], 215.) "The principle is firmly established
that a party will not be permitted to split up a single cause of action and
make it the basis for several suits. If several suits be brought for different
parts of such a claim, the pendency of the first may be pleaded in
abatement of the others, and a recovery of any part of the cause of action
will be a bar to an action brought upon the other part. Not only is it a bar to
suit, but the plaintiff in the former action cannot subsequently avail himself
of the residue by way of offset in an action against him by the opposite
party." (15 R. C. L., 965) In passing, it may be noted that a close
examination of the facts in the case of Bautista vs. Jimenez (24 Phil.,
111), will show that it differs materially from the present case; the case of
Berses vs. Villanueva (25 Phil., 473), is more in point.
As to the other plaintiffs, Apolonia and Isabel Alcantara, it is sufficient to
say that if they had any claim to the property or improvements, such
claims should have been presented in the registration proceedings in
1916; trees and plants annexed to the land are parts thereof and unless
rights or interests in such trees or plants are claimed in the registration
proceedings by others, they become the property of the persons to whom
the land is adjudicated. By timely proceedings in equity, matters of that
character, if fraudulent, may sometimes be corrected, but in the present
case, the plaintiffs Apolonia and Isabel Alcantara did not prosecute their
alleged rights until eleven years after the registration of the property, and it
is obvious that whatever rights they may have had are now lost by
prescription.
The judgment of the court below is therefore reversed, and the case is
dismissed with the costs in both instances against the plaintiffs, jointly and
severally. So ordered.
Lopez vs. Orosa
Enrique Lopez is a resident of Balayan, Batangas, doing business under
the trade name of Lopez-Castelo Sawmill. Sometime in May, 1946,
Vicente Orosa, Jr., also a resident of the same province, dropped at
Lopez' house and invited him to make an investment in the theatre
business. It was intimated that Orosa, his family and close friends were
organizing a corporation to be known as Plaza Theatre, Inc., that would
engage in such venture. Although Lopez expressed his unwillingness to
invest of the same, he agreed to supply the lumber necessary for the
construction of the proposed theatre, and at Orosa's behest and
assurance that the latter would be personally liable for any account that
the said construction might incur, Lopez further agreed that payment
therefor would be on demand and not cash on delivery basis. Pursuant to
said verbal agreement, Lopez delivered the lumber which was used for
the construction of the Plaza Theatre on May 17, 1946, up to December 4
of the same year. But of the total cost of the materials amounting to
P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a
piece of land with an area of 679.17 square meters formerly owned by
Vicente Orosa, Jr., and was acquired by the corporation on September 25,
1946, for P6,000. As Lopez was pressing Orosa for payment of the
remaining unpaid obligation, the latter and Belarmino Rustia, the president
of the corporation, promised to obtain a bank loan by mortgaging the
properties of the Plaza Theatre., out of which said amount of P41,771.35
would be satisfied, to which assurance Lopez had to accede. Unknown to
him, however, as early as November, 1946, the corporation already got a
loan for P30,000 from the Philippine National Bank with the Luzon Surety
Company as surety, and the corporation in turn executed a mortgage on
the land and building in favor of said company as counter-security. As the
land at that time was not yet brought under the operation of the Torrens
System, the mortgage on the same was registered on November 16,
1946, under Act No. 3344. Subsequently, when the corporation applied for
the registration of the land under Act 496, such mortgage was not
revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance
appearing thereon.
Persistent demand from Lopez for the payment of the amount due him
caused Vicente Orosa, Jr. to execute on March 17, 1947, an alleged
"deed of assignment" of his 420 shares of stock of the Plaza Theater, Inc.,
at P100 per share or with a total value of P42,000 in favor of the creditor,
and as the obligation still remained unsettled, Lopez filed on November
12, 1947, a complaint with the Court of First Instance of Batangas (Civil
Case No. 4501 which later became R-57) against Vicente Orosa, Jr. and
Plaza Theater, Inc., praying that defendants be sentenced to pay him
jointly and severally the sum of P41,771.35, with legal interest from the
firing of the action; that in case defendants fail to pay the same, that the
building and the land covered by OCT No. O-391 owned by the
corporation be sold at public auction and the proceeds thereof be applied
to said indebtedness; or that the 420 shares of the capital stock of the
Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be
sold at public auction for the same purpose; and for such other remedies
as may be warranted by the circumstances. Plaintiff also caused the
annotation of a notice of lis pendens on said properties with the Register
of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate
answers, the first denying that the materials were delivered to him as a
promoter and later treasurer of the corporation, because he had
purchased and received the same on his personal account; that the land
on which the movie house was constructed was not charged with a lien to
secure the payment of the aforementioned unpaid obligation; and that the
420 shares of stock of the Plaza Theatre, Inc., was not assigned to
plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the
420 shares of stock assigned and conveyed by the assignor and accepted
by Lopez as direct security for the payment of the amount of P41,771.35
were personal properties, plaintiff was barred from recovering any
deficiency if the proceeds of the sale thereof at public auction would not
be sufficient to cover and satisfy the obligation. It was thus prayed that he
be declared exempted from the payment of any deficiency in case the
proceeds from the sale of said personal properties would not be enough to
cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the
same line of defense by alleging that the building materials delivered to
Orosa were on the latter's personal account; and that there was no
understanding that said materials would be paid jointly and severally by
Orosa and the corporation, nor was a lien charged on the properties of the
latter to secure payment of the same obligation. As special defense,
defendant corporation averred that while it was true that the materials
purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when
plaintiff failed to claim said materials within 30 days from the time of
removal thereof from Orosa, lumber became a different and distinct specie
and plaintiff lost whatever rights he might have in the same and
consequently had no recourse against the Plaza Theatre, Inc., that the
claim could not have been refectionary credit, for such kind of obligation
referred to an indebtedness incurred in the repair or reconstruction of
something already existing and this concept did not include an entirely
new work; and that the Plaza Theatre, Inc., having been incorporated on
October 14, 1946, it could not have contracted any obligation prior to said
date. It was, therefore, prayed that the complaint be dismissed; that said
defendant be awarded the sum P 5,000 for damages, and such other
relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land was
already registered under the Torrens System and that there was a notice
of lis pendens thereon, filed on August 17, 1948, or within the 1-year
period after the issuance of the certificate of title, a petition for review of
the decree of the land registration court dated October 18, 1947, which
was made the basis of OCT No. O-319, in order to annotate the rights and
interests of the surety company over said properties (Land Registration
Case No. 17 GLRO Rec. No. 296). Opposition thereto was offered by
Enrique Lopez, asserting that the amount demanded by him constituted a
preferred lien over the properties of the obligors; that the surety company
was guilty of negligence when it failed to present an opposition to the
application for registration of the property; and that if any violation of the
rights and interest of said surety would ever be made, same must be
subject to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30,
1952, the lower Court, after making an exhaustive and detailed analysis of
the respective stands of the parties and the evidence adduced at the trial,
held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc.,
were jointly liable for the unpaid balance of the cost of lumber used in the
construction of the building and the plaintiff thus acquired the
materialman's lien over the same. In making the pronouncement that the
lien was merely confined to the building and did not extend to the land on
which the construction was made, the trial judge took into consideration
the fact that when plaintiff started the delivery of lumber in May, 1946, the
land was not yet owned by the corporation; that the mortgage in favor of
Luzon Surety Company was previously registered under Act No. 3344;
that the codal provision (Art. 1923 of the old Spanish Civil Code)
specifying that refection credits are preferred could refer only to buildings
which are also classified as real properties, upon which said refection was
made. It was, however, declared that plaintiff's lien on the building was
superior to the right of the surety company. And finding that the Plaza
Theatre, Inc., had no objection to the review of the decree issued in its
favor by the land registration court and the inclusion in the title of the
encumbrance in favor of the surety company, the court a quo granted the
petition filed by the latter company. Defendants Orosa and the Plaza
Theatre, Inc., were thus required to pay jointly the amount of P41,771.35
with legal interest and costs within 90 days from notice of said decision;
that in case of default, the 420 shares of stock assigned by Orosa to
plaintiff be sold at public auction and the proceeds thereof be applied to
the payment of the amount due the plaintiff, plus interest and costs; and
that the encumbrance in favor of the surety company be endorsed at the
back of OCT No. O-391, with notation I that with respect to the building,
said mortgage was subject to the materialman's lien in favor of Enrique
Lopez.
Plaintiff tried to secure a modification of the decision in so far as it
declared that the obligation of therein defendants was joint instead of
solidary, and that the lien did not extend to the land, but same was denied
by order the court of December 23, 1952. The matter was thus appealed
to the Court of appeals, which affirmed the lower court's ruling, and then
to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1)
whether a materialman's lien for the value of the materials used in the
construction of a building attaches to said structure alone and does not
extend to the land on which the building is adhered to; and (2) whether the
lower court and the Court of Appeals erred in not providing that the
material mans liens is superior to the mortgage executed in favor surety
company not only on the building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any
question against the part of the decision sentencing defendants Orosa
and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will
not take up or consider anything on that point. Appellant, however,
contends that the lien created in favor of the furnisher of the materials
used for the construction, repair or refection of a building, is also extended
to the land which the construction was made, and in support thereof he
relies on Article 1923 of the Spanish Civil Code, pertinent law on the
matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the
debtor, the following are preferred:
x x x x x x x x x
5. Credits for refection, not entered or recorded, with respect to the estate
upon which the refection was made, and only with respect to other credits
different from those mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or
immovable property, and inasmuch as said provision does not contain any
specification delimiting the lien to the building, said article must be
construed as to embrace both the land and the building or structure
adhering thereto. We cannot subscribe to this view, for 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
1
could mean only one thing that a building is by itself an
immovable property, a doctrine already pronounced by this Court in the
case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover,
and in view of the absence of any specific provision of law 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.
A close examination of the provision of the Civil Code invoked by
appellant reveals that the law gives preference to unregistered
refectionary credits only with respect to the real estate upon which the
refection or work was made. This being so, the inevitable conclusion must
be that the lien so created attaches merely to the immovable property for
the construction or repair of which the obligation was incurred. Evidently,
therefore, the lien in favor of appellant for the unpaid value of the lumber
used in the construction of the building attaches only to said structure and
to no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien
could be charged only to the building for which the credit was made or
which received the benefit of refection, the lower court was right in,
holding at the interest of the mortgagee over the land is superior and
cannot be made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the
decision appealed from is hereby affirmed, with costs against appellant. It
is so ordered.
Makati vs. Wearever
Petition for review on certiorari of the decision of the Court of Appeals
(now Intermediate Appellate Court) promulgated on August 27, 1981 in
CA-G.R. No. SP-12731, setting aside certain Orders later specified herein,
of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First
instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate court, denying
petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several receivables
with the former under a Receivable Purchase Agreement. To secure the
collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a
machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for
extrajudicial foreclosure of the properties mortgage to it. However, the
Deputy Sheriff assigned to implement the foreclosure failed to gain entry
into private respondent's premises and was not able to effect the seizure
of the aforedescribed machinery. Petitioner thereafter filed a complaint for
judicial foreclosure with the Court of First Instance of Rizal, Branch VI,
docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ
of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for reconsideration.
After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ
of seizure and an order to break open the premises of private respondent
to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings
subsequently filed by herein private respondent, set aside the Orders of
the lower court and ordered the return of the drive motor seized by the
sheriff pursuant to said Orders, after ruling that the machinery in suit
cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code,
the same being attached to the ground by means of bolts and the only
way to remove it from respondent's plant would be to drill out or destroy
the concrete floor, the reason why all that the sheriff could do to enfore the
writ was to take the main drive motor of said machinery. The appellate
court rejected petitioner's argument that private respondent is estopped
from claiming that the machine is real property by constituting a chattel
mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals
having been denied, petitioner has brought the case to this Court for
review by writ of certiorari. It is contended by private respondent, however,
that the instant petition was rendered moot and academic by petitioner's
act of returning the subject motor drive of respondent's machinery after
the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that
said action was without prejudice to a motion for reconsideration of the
Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative.
1
Considering that petitioner has reserved its
right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by
such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point of
view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate
court, which accordingly held that the chattel mortgage constituted
thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41
SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to
convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject house stood on a
rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the
property, it does so when combined with other factors to sustain the
interpretation that the parties, particularly the mortgagors, intended to treat
the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa,
Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel
mortgage, it is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification
to exclude the rule out, as the appellate court did, the present case from
the application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from
denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery
as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties. As
stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property, as long as
no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit be
considered as personal property but was merely required and dictated on
by herein petitioner to sign a printed form of chattel mortgage which was
in a blank form at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the
respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals
except in a supplemental memorandum in support of the petition filed in
the appellate court. Moreover, even granting that the charge is true, such
fact alone does not render a contract void ab initio, but can only be a
ground for rendering said contract voidable, or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled. Neither is
it disclosed that steps were taken to nullify the same. On the other hand,
as pointed out by petitioner and again not refuted by respondent, the latter
has indubitably benefited from said contract. Equity dictates that one
should not benefit at the expense of another. Private respondent could not
now therefore, be allowed to impugn the efficacy of the chattel mortgage
after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling
that the questioned machinery is real, not personal property, becomes
very apparent. Moreover, the case of Machinery and Engineering
Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not
applicable to the case at bar, the nature of the machinery and equipment
involved therein as real properties never having been disputed nor in
issue, and they were not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity with the instant case to
be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
Board of Assessment Appeals vs Meralco
From the stipulation of facts and evidence adduced during the hearing, the
following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484
which authorized the Municipal Board of Manila to grant a franchise to
construct, maintain and operate an electric street railway and electric light,
heat and power system in the City of Manila and its suburbs to the person
or persons making the most favorable bid. Charles M. Swift was awarded
the said franchise on March 1903, the terms and conditions of which were
embodied in Ordinance No. 44 approved on March 24, 1903. Respondent
Manila Electric Co. (Meralco for short), became the transferee and owner
of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at
Botocan Falls, Laguna and is transmitted to the City of Manila by means
of electric transmission wires, running from the province of Laguna to the
said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by
respondent at intervals, from its hydro-electric plant in the province of
Laguna to the City of Manila. The respondent Meralco has constructed 40
of these steel towers within Quezon City, on land belonging to it. A
photograph of one of these steel towers is attached to the petition for
review, marked Annex A. Three steel towers were inspected by the lower
court and parties and the following were the descriptions given there of by
said court:
The first steel tower is located in South Tatalon, Espaa Extension,
Quezon City. The findings were as follows: the ground around one of the
four posts was excavated to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter, decreased to about a quarter
of a meter as it we deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars attached to the leg means
of bolts; the tower proper was attached to the leg three bolts; with two
cross metals to prevent mobility; there was no concrete foundation but
there was adobe stone underneath; as the bottom of the excavation was
covered with water about three inches high, it could not be determined
with certainty to whether said adobe stone was placed purposely or not,
as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon
City, on land owned by the petitioner approximate more than one
kilometer from the first tower. As in the first tower, the ground around one
of the four legs was excavate from seven to eight (8) feet deep and one
and a half (1-) meters wide. There being very little water at the bottom, it
was seen that there was no concrete foundation, but there soft adobe
beneath. The leg was likewise provided with two parallel steel bars bolted
to a square metal frame also bolted to each corner. Like the first one, the
second tower is made up of metal rods joined together by means of bolts,
so that by unscrewing the bolts, the tower could be dismantled and
reassembled.
The third tower examined is located along Kamias Road, Quezon City. As
in the first two towers given above, the ground around the two legs of the
third tower was excavated to a depth about two or three inches beyond
the outside level of the steel bar foundation. It was found that there was
no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe,
which, probably due to high humidity, looks like mud or clay. It was also
found that the square metal frame supporting the legs were not attached
to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared
the aforesaid steel towers for real property tax under Tax declaration Nos.
31992 and 15549. After denying respondent's petition to cancel these
declarations, an appeal was taken by respondent to the Board of
Assessment Appeals of Quezon City, which required respondent to pay
the amount of P11,651.86 as real property tax on the said steel towers for
the years 1952 to 1956. Respondent paid the amount under protest, and
filed a petition for review in the Court of Tax Appeals (CTA for short) which
rendered a decision on December 29, 1958, ordering the cancellation of
the said tax declarations and the petitioner City Treasurer of Quezon City
to refund to the respondent the sum of P11,651.86. The motion for
reconsideration having been denied, on April 22, 1959, the instant petition
for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel
towers come within the term "poles" which are declared exempt from
taxes under part II paragraph 9 of respondent's franchise; (2) the steel
towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the
refund of the amount paid. These are assigned as errors by the petitioner
in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real
estate, buildings, plant (not including poles, wires, transformers, and
insulators), machinery and personal property as other persons are or may
be hereafter required by law to pay ... Said percentage shall be due and
payable at the time stated in paragraph nineteen of Part One hereof,
... and shall be in lieu of all taxes and assessments of whatsoever nature
and by whatsoever authority upon the privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee
from which taxes and assessments the grantee is hereby expressly
exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise;
emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical
piece of wood or timber, as typically the stem of a small tree stripped of its
branches; also by extension, a similar typically cylindrical piece or object
of metal or the like". The term also refers to "an upright standard to the top
of which something is affixed or by which something is supported; as a
dovecote set on a pole; telegraph poles; a tent pole; sometimes,
specifically a vessel's master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila, may be seen
cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co.
which are made of two steel bars joined together by an interlacing metal
rod. They are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above quoted, that the
concept of the "poles" for which exemption is granted, is not determined
by their place or location, nor by the character of the electric current it
carries, nor the material or form of which it is made, but the use to which
they are dedicated. In 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;
x x x x x x x x x
(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;
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 in a
building or on a piece of land, and which tends directly to meet the needs
of the said industry or works;
x x x x x x x x x
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.
Mindanao Bus Company vs City Assessor and Treasurer
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.1awphl.nt
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:
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. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng,
61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar and industry, converted them into real
property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principle elements of a sugar central, without them the sugar
central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying
on the sugar industry for which it has been established must necessarily
be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law
must first be "essential and principal elements" of an industry or works
without which such industry or works would be "unable to function or carry
on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by
destination because they are essential and principal elements in the
industry for those which may not be so considered immobilized because
they are merely incidental, not essential and principal. Thus, cash
registers, typewriters, etc., usually found and used in hotels, restaurants,
theaters, etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses can continue
or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines,
etc. which are incidentals, not essentials, and thus retain their movable
nature. On the other hand, machineries of breweries used in the
manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the delivery
trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain
their movable nature.
Similarly, the tools and equipments in question in this instant case are, by
their nature, not essential and principle municipal elements of petitioner's
business of transporting passengers and cargoes by motor trucks. They
are merely incidentals acquired as movables and used only for
expediency to facilitate and/or improve its service. Even without such tools
and equipments, its business may be carried on, as petitioner has carried
on, without such equipments, before the war. The transportation business
could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
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; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a piece
of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found in
a building constructed on the land. A sawmill would also be installed in a
building on land more or less permanently, and the sawing is conducted in
the land or building.
But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on in a
building or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation
business, and petitioner's business is not carried on in a building,
tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil
Code.
WHEREFORE, the decision subject of the petition for review is hereby set
aside and the equipment in question declared not subject to assessment
as real estate for the purposes of the real estate tax. Without costs.
Meralco vs Central Board of Appeals
This case is about the imposition of the realty tax on two oil storage tanks
installed in 1969 by Manila Electric Company on a lot in San Pascual,
Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are
within the Caltex refinery compound. They have a total capacity of
566,000 barrels. They are used for storing fuel oil for Meralco's power
plants.
According to Meralco, the storage tanks are made of steel plates welded
and assembled on the spot. Their bottoms rest on a foundation consisting
of compacted earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous asphalt stratum as the
top layer. The bottom of each tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular
wall made of concrete, eighteen inches thick, to prevent the tank from
sliding. Hence, according to Meralco, the tank is not attached to its
foundation. It is not anchored or welded to the concrete circular wall. Its
bottom plate is not attached to any part of the foundation by bolts, screws
or similar devices. The tank merely sits on its foundation. Each empty tank
can be floated by flooding its dike-inclosed location with water four feet
deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central
Board of Assessment Appeals, the area where the two tanks are located
is enclosed with earthen dikes with electric steel poles on top thereof and
is divided into two parts as the site of each tank. The foundation of the
tanks is elevated from the remaining area. On both sides of the earthen
dikes are two separate concrete steps leading to the foundation of each
tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining
about an inch thick. Pipelines were installed on the sides of each tank and
are connected to the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation,
the foundation itself and the walls, dikes and steps, which are integral
parts of the tanks, are affixed to the land while the pipelines are attached
to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan,
Batangas, on the basis of an assessment made by the provincial
assessor, required Meralco to pay realty taxes on the two tanks. For the
five-year period from 1970 to 1974, the tax and penalties amounted to
P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and
penalties as a condition for entertaining its appeal from the adverse
decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary
of Finance Pedro M. Almanzor as chairman and Secretary of Justice
Vicente Abad Santos and Secretary of Local Government and Community
Development Jose Roo as members) in its decision dated November 5,
1976 ruled that the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the
fifteenth day, it filed a motion for reconsideration which the Board denied
in its resolution of November 25, 1977, a copy of which was received by
Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to
annul the Board's decision and resolution. It contends that the Board
acted without jurisdiction and committed a grave error of law in holding
that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of
the kinds of real property enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by nature, by
incorporation, by destination nor by analogy. Stress is laid on the fact that
the tanks are not attached to the land and that they were placed on leased
land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases
on the classification of property where strong divergent opinions are
inevitable. The issue raised by Meralco has to be resolved in the light of
the provisions of the Assessment Law, Commonwealth Act No. 470, and
the Real Property Tax Code, Presidential Decree No. 464 which took
effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on
real property, including land, buildings, machinery, and
other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax
Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
We hold that while the two storage tanks are not embedded in the land,
they may, nevertheless, be considered as improvements on the land,
enhancing its utility and rendering it useful to the oil industry. It is
undeniable that the two tanks have been installed with some degree of
permanence as receptacles for the considerable quantities of oil needed
by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of
New Jersey vs. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things
which should generally be regarded as personal property(84 C.J.S. 171,
Note 8). It is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be considered
personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil.
630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company,
119 Phil. 328, wherein Meralco's steel towers were held not to be subject
to realty tax, is not in point because in that case the steel towers were
regarded as poles and under its franchise Meralco's poles are exempt
from taxation. Moreover, the steel towers were not attached to any land or
building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs.
City Assessor, 116 Phil. 501, where the tools and equipment in the repair,
carpentry and blacksmith shops of a transportation company were held
not subject to realty tax because they were personal property.
WHEREFORE, the petition is dismissed. The Board's questioned decision
and resolution are affirmed. No costs.
Caltex vs Central Board of Assessment
This case is about the realty tax on machinery and equipment installed by
Caltex (Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated
tank, elevated water tanks, water tanks, gasoline pumps, computing
pumps, water pumps, car washer, car hoists, truck hoists, air compressors
and tireflators. The city assessor described the said equipment and
machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is
erected, a water tank if there is any is placed in one corner of the lot, car
hoists are placed in an adjacent shed, an air compressor is attached in the
wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is
dug deep about six feet more or less, a few meters away from the shed.
This is done to prevent conflagration because gasoline and other
combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump
and the gasoline pump is commonly placed or constructed under the
shed. The footing of the pump is a cement pad and this cement pad is
imbedded in the pavement under the shed, and evidence that the gasoline
underground tank is attached and connected to the shed or building
through the pipe to the pump and the pump is attached and affixed to the
cement pad and pavement covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a
separate shed, the air compressor, the underground gasoline tank, neon
lights signboard, concrete fence and pavement and the lot where they are
all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the
tenement, it is clear they are, for the tenement we consider in this
particular case are (is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and the improvement
which holds all the properties under question, they are attached and
affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as
well as all the improvements, machines, equipments and apparatus are
allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to
the pump, so with the water tank it is connected also by a steel pipe to the
pavement, then to the electric motor which electric motor is placed under
the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only
the building as the service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station
operators under an appropriate lease agreement or receipt. It is stipulated
in the lease contract that the operators, upon demand, shall return to
Caltex the machines and equipment in good condition as when received,
ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become
the owner of the machines and equipment installed therein. Caltex retains
the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. The realty tax on said
equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of
tax appeals ruled that they are personalty. The assessor appealed to the
Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as
chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and
Secretary of Local Government and Community Development Jose Roo,
held in its decision of June 3, 1977 that the said machines and equipment
are real property within the meaning of sections 3(k) & (m) and 38 of the
Real Property Tax Code, Presidential Decree No. 464, which took effect
on June 1, 1974, and that the definitions of real property and personal
property in articles 415 and 416 of the Civil Code are not applicable to this
case.
The decision was reiterated by the Board (Minister Vicente Abad Santos
took Macaraig's place) in its resolution of January 12, 1978, denying
Caltex's motion for reconsideration, a copy of which was received by its
lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the
setting aside of the Board's decision and for a declaration that t he said
machines and equipment are personal property not subject to realty tax
(p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has
exclusive appellate jurisdiction over this case is not correct. When
Republic act No. 1125 created the Tax Court in 1954, there was as yet no
Central Board of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review by appeal decisions
of provincial or city boards of assessment appeals had in mind the local
boards of assessment appeals but not the Central Board of Assessment
Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals
and is, therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the
Central Board of Assessment Appeals shall become final and executory
after the lapse of fifteen days from the receipt of its decision by the
appellant. Within that fifteen-day period, a petition for reconsideration may
be filed. The Code does not provide for the review of the Board's decision
by this Court.
Consequently, the only remedy available for seeking a review by this
Court of the decision of the Central Board of Assessment Appeals is the
special civil action of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery
already enumerated are subject to realty tax. This issue has to be
resolved primarily under the provisions of the Assessment Law and the
Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on
real property, including land, buildings, machinery, and other
improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax
Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances,
instruments, appliances and apparatus attached to the real estate. It
includes the physical facilities available for production, as well as the
installations and appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the
gas station building or shed owned by Caltex (as to which it is subject to
realty tax) and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have
been attached or affixed permanently to the gas station site or embedded
therein, are taxable improvements and machinery within the meaning of
the Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property
or plant but not when so placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil
Code regarding machinery that becomes real property by destination. In
the Davao Saw Mills case the question was whether the machinery
mounted on foundations of cement and installed by the lessee on leased
land should be regarded as real property forpurposes of execution of a
judgment against the lessee. The sheriff treated the machinery as
personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70,
where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery
permanently affixed by Caltex to its gas station and pavement (which are
indubitably taxable realty) should be subject to the realty tax. This
question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for
some purposes they might be considered personalty (84 C.J.S. 181-2,
Notes 40 and 41). "It is a familiar phenomenon to see things classed as
real property for purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment
Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco's steel
towers were considered poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The steel towers were
considered personalty because they were attached to square metal
frames by means of bolts and could be moved from place to place when
unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools
and equipment in the repair shop of a bus company which were held to be
personal property not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse
of discretion in upholding the city assessor's is imposition of the realty tax
on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central
Board of Assessment Appeals are affirmed. The petition for certiorari is
dismissed for lack of merit. No costs.
Benguet Corp vs. Central Board of Assessment Appeals
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 arereasonably permanent in character."
2

The Court notes that in the Ontario case the plaintiff admitted that the
mine involved therein could not be operated without the aid of the drain
tunnels, which were indispensable to the successful development and
extraction of the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be
carried out because the primary function of the dam is merely to receive
and retain the wastes and water coming from the mine. There is no
allegation that the water coming from the dam is the sole source of water
for the mining operation so as to make the dam an integral part of the
mine. In fact, as a result of the construction of the dam, the petitioner can
now impound and recycle water without having to spend for the building of
a water reservoir. And as the petitioner itself points out, even if the
petitioner's mine is shut down or ceases operation, the dam may still be
used for irrigation of the surrounding areas, again unlike in the Ontario
case.
As correctly observed by the CBAA, the Kendrick case is also not
applicable because it involved water reservoir dams used for different
purposes and for the benefit of the surrounding areas. By contrast, the
tailings dam in question is being used exclusively for the benefit of the
petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has
no separate existence, just as vigorously contends that at the end of the
mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the
mine.
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of the
status of realty would depend upon the degree of permanence intended in
its construction and use. The expression "permanent" as applied to an
improvement does not imply that the improvement must be used
perpetually but only until the purpose to which the principal realty is
devoted has been accomplished. It is sufficient that the improvement is
intended to remain as long as the land to which it is annexed is still used
for the said purpose.
The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both
the value and utility of petitioner's mine. Moreover, the immovable nature
of the dam defines its character as real property under Article 415 of the
Civil Code and thus makes it taxable under Section 38 of the Real
Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per
square meter made by the Provincial Assessor is excessive and that his
use of the "residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual value
formula" as follows:
A 50% residual value is applied in the computation because, while it is
true that when slime fills the dike, it will then be covered by another dike or
stage, the stage covered is still there and still exists and since only one
face of the dike is filled, 50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the
construction of the tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market
Values for San Marcelino, Zambales, which is fifty (50.00) pesos per
square meter for third class industrial land (TSN, page 17, July 5, 1989)
and Schedule of Market Values for Zambales which was reviewed and
allowed for use by the Ministry (Department) of Finance in the 1981-1982
general revision. No serious attempt was made by Petitioner-Appellant
Benguet Corporation to impugn its reasonableness, i.e, that the P50.00
per square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to disturb
the market value applied by Respondent-Appellee Provincial Assessor of
Zambales on the properties of Petitioner-Appellant Benguet Corporation
covered by Tax Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the
conclusions of quasi-judicial agencies like the CBAA, which, because of
the nature of its functions and its frequent exercise thereof, has developed
expertise in the resolution of assessment problems. The only exception to
this rule is where it is clearly shown that the administrative body has
committed grave abuse of discretion calling for the intervention of this
Court in the exercise of its own powers of review. There is no such
showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it cannot
take cognizance of the issue of the propriety of the penalties imposed
upon it, which was raised by the petitioner for the first time only on appeal.
The CBAA held that this "is an entirely new matter that petitioner can take
up with the Provincial Assessor (and) can be the subject of another
protest before the Local Board or a negotiation with the local sanggunian .
. ., and in case of an adverse decision by either the Local Board or the
local sanggunian, (it can) elevate the same to this Board for appropriate
action."
There is no need for this time-wasting procedure. The Court may resolve
the issue in this petition instead of referring it back to the local authorities.
We have studied the facts and circumstances of this case as above
discussed and find that the petitioner has acted in good faith in
questioning the assessment on the tailings dam and the land submerged
thereunder. It is clear that it has not done so for the purpose of evading or
delaying the payment of the questioned tax. Hence, we hold that the
petitioner is not subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax
purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the
questioned decision of respondent Central Board of Assessment Appeals
is tainted with grave abuse of discretion except as to the imposition of
penalties upon the petitioner which is hereby SET ASIDE. Costs against
the petitioner. It is so ordered.
Sibal vs. Valdez
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
(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.
It appears from the record:
(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. 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
Espaa, 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 ao 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.
x x x x x x x x x
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
Espaa 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;
Crinevs. 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 caa dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.
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 caa dulce sembrada por el inquilino del ejecutado Leon Sibal 1.,
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 Mau and
others; al S. con Alejandro Dayrit, Isidro Santos and Melecio Mau; 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 Mao 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.
Strochecker vs Ramirez
The question at issue in this appeal is, which of the two mortgages here in
question must be given preference? Is it the one in favor of the Fidelity &
Surety Co., or that in favor of Ildefonso Ramirez. The first was declared by
the trial court to be entitled to preference.
In the lower court there were three mortgagees each of whom claimed
preference. They were the two above mentioned and Concepcion Ayala.
The latter's claim was rejected by the trial court, and from that ruling she
did not appeal.
There is no question as to the priority in time of the mortgage in favor of
the Fidelity & Surety Co. which was executed on March 10, 1919, and
registered in due time in the registry of property, that in favor of the
appellant being dated September 22, 1919, and registered also in the
registry.
The appellant claims preference on these grounds: (a) That the first
mortgage above-mentioned is not valid because the property which is the
subject-matter thereof is not capable of being mortgaged, and the
description of said property is not sufficient; and (b) that the amount due
the appellant is a purchase price, citing article 1922 of the Civil Code in
support thereof, and that his mortgage is but a modification of the security
given by the debtor on February 15, 1919, that is, prior to the mortgage
executed in favor of the Fidelity & Surety Co.
As to the first ground, the thing that was mortgaged to this corporation is
described in the document as follows:
. . . his half interest in the drug business known as Antigua Botica
Ramirez (owned by Srta. Dolores del Rosario and the mortgagor herein
referred to as the partnership), located at Calle Real Nos. 123 and 125,
District of Intramuros, Manila, Philippine Islands.
With regard to the nature of the property thus mortgaged, which is one-
half interest in the business above described, such interest is a personal
property capable of appropriation and not included in the enumeration of
real properties in article 335 of the Civil Code, and may be the subject of
mortgage. All personal property may be mortgaged. (Sec. 2, Act No.
1508.)
The description contained in the document is sufficient. The law (sec. 7,
Act No. 1508) requires only a description of the following nature:
The description of the mortgaged property shall be such as to enable the
parties to the mortgage, or any other person, after reasonable inquiry and
investigation, to identify the same.
Turning to the second error assigned, numbers 1, 2, and 3 of article 1922
of the Civil Code invoked by the appellant are not applicable. Neither he,
as debtor, nor the debtor himself, is in possession of the property
mortgaged, which is, and since the registration of the mortgage has been,
legally in possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508;
Meyers vs. Thein, 15 Phil., 303.)
In no way can the mortgage executed in favor of the appellant on
September 22, 1919, be given effect as of February 15, 1919, the date of
the sale of the drug store in question. On the 15th of February of that year,
there was a stipulation about a persons security, but not a mortgage upon
any property, and much less upon the property in question.
Moreover, the appellant cannot deny the preferential character of the
mortgage in favor of the Fidelity & Surety Co. because in the very
document executed in his favor it was stated that his mortgage was
a second mortgage, subordinate to the one made in favor of the Fidelity &
Surety Co.
The judgment appealed from is affirmed with costs against the appellant.
So ordered.
Chua vs. Samahang Magsasaka
1. CORPORATIONS; MORTGAGE OF SHARES OF STOCK. The
registration of the chattel mortgage in the office of the corporation was not
necessary and had no legal effect. (Monserrat v. Ceron, 58 Phil., 469) The
long mooted question as to whether or not shares of a corporation could
be hypothecated by placing a chattel mortgage on the certificate
representing such shares we now regard as settled by the case above
cited of Monserrat v. Ceron.

2. ID.; ID.; SITUS OF SHARES. It is a common but not accurate
generalization that the situs of shares of stock is at the domicile of the
owner. The term situs is not one of fixed or invariable meaning of usage.
The situs of shares of stock for some purposes may be at the domicile of
the owner and for others at the domicile of the corporation; and even
elsewhere. (Cf. Vidal v. South American Securities Co., 276 Fed., 855;
Black Eagle Min. Co. v. Conroy, 94 Okla., 221 Pac., 425; Norrie v. Kansas
City Southern Ry. Co., 7 Fed [2d], 158.)

3. ID.; ID.; ID.; DOMICILE. It is a general rule that for purposes of
execution, attachment and garnishment, it is not the domicile of the owner
of a certificate but the domicile of the corporation which is decisive.
(Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11,
paragraph 5106; Cf. sections 430 and 450, Code of Civil Procedure.)

4. ID.; ID.; ID.; ACT NO. 1508, SECTION 4, CONSTRUED. By analogy
with the foregoing and considering the ownership of shares in a
corporation as property distinct from the certificate which are merely the
evidence of such ownership, it is a reasonable construction of section 4 of
Act No. 1508 to hold that the property in the shares may be deemed to be
situated in the province in which the corporation has its principal office or
place of business. If this province is also the province of the owners
domicile, a single registration is sufficient. If not the chattel mortgage
should be registered both at the owners domicile and in the province
where the corporation has its principal office or place of business. In this
sense the property mortgaged is not the certificate but the participation
and share of the owner in the assets of the corporation.

5. ID.; ID.; ASSIGNMENT AND DELIVERY OF CERTIFICATE. The
only safe way to accomplish the hypothecation of shares of stock of a
Philippine corporation is for the creditor to insist on the assignment and
delivery of the certificate and to obtain the transfer of the legal title to him
on the books of the corporation by the cancellation of the certificate and
the issuance of a new one to him.

6. ID.; ID.; ACT NO. 1459, SECTION 35, CONSTRUED. Section 35 of
the Corporation Law (Act No. 1459) enacts that shares of stock "may be
transferred by delivery of the certificate endorsed by the owner or his
attorney in fact or other person legally authorized to make the transfer."
The use of the verb "may" does not exclude the possibility that a transfer
may be made in a different manner, thus leaving the creditor in an
insecure position even though he has the certificate in his possession.
The shares still standing in the name of the debtor on the books of the
corporation will be liable to seizure by attachment or levy on execution at
the instance of other creditors. (Cf. Uy Piaoco v. McMicking, 10 Phil., 286,
and Uson v. Diosomito, 61 Phil., 535) This unsatisfactory state of our law
is well known to the bench and bar. (Cf. Fisher, The Philippine Law of
Stock Corporations, pages 163-168.)
D E C I S I O N
BUTTE, J.:
This is an appeal from a judgment of the Court of First Instance of Nueva
Ecija in an action for a writ of mandamus. The case is remarkable for the
following reason: that the parties entered into a stipulation in which the
defendants admitted all of the allegations of the complaint and the plaintiff
admitted all of the special defenses in the answer of the defendants, and
on this stipulation they submitted the case for decision.

The complaint alleges that the defendant Samahang Magsasaka, Inc. is a
corporation duly organized under the laws of the Philippine Islands with
principal office in Cabanatuan, Nueva Ecija, and that the individual
defendants are the president, secretary and treasurer respectively of the
same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894
shares of the capital stock of the said corporation represented by nine
certificates having a par value of P5 per share; that on said date Gonzalo
H. Co Toco, a resident of Manila, mortgaged said 5,894 shares to Chua
Chiu to guarantee the payment of a debt of P20,000 due on or before
June 19, 1932. The said certificates of stock were delivered with the
mortgage to the mortgagee, Chua Chiu. The said mortgage was duly
registered in the office of the registered of deeds of Manila on June 23,
1931, and in the office of the said corporation on September 30, 1931.

On November 28, 1931, Chua Chiu assigned all his right and interest in
said mortgage to the plaintiff and the assignment in the office of the
register of deeds in the City of Manila on December 28, 1931, and in the
office of the said corporation on January 4, 1932.

The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said
debt at maturity, the plaintiff foreclosed said mortgage and delivered the
certificates of stock and copies of the mortgage and assignment to the
sheriff of the City of Manila in order to sell the said shares at public
auction. The sheriff auctioned said 5,894 shares of stock on December
22, 1932, and the plaintiff having been the highest bidder for the sum of
P14,390, the sheriff executed in his favor a certificate of sale of said
shares.

The plaintiff tendered the certificates of stock standing in the name of
Gonzalo H. Co to the proper officers of the corporation for cancellation
and demanded that they issue new certificates in the name of the plaintiff.
The said officers (the individual defendants) refused and still refuse to
issue said new shares in the name of the plaintiff.

The prayer is that a writ of mandamus be issued requiring the defendants
to transfer the said 5,894 shares of stock to the plaintiff by cancelling the
old certificates and issuing new ones in their stead.

The special defenses set up in the answer are as follows, that the
defendants refuse to cancel said certificates standing in the name of
Gonzalo H. Co Toco on the books of the corporation and to issue new
ones in the name of the plaintiff because prior to the date when the
plaintiff made his demand, to wit, February 4, 1933, nine attachments had
been issued and served and noted on the books of the corporation against
the shares of Gonzalo H. Co Toco and the plaintiff objected to having
these attachments noted on the new certificates which he demanded.
These attachments noted on the books of the corporation against the
shares of Gonzalo H. Co Toco are as follows:jgc:chanrobles.com.ph

"(1) Con fecha agosto 26, 1931, se recibio por el Secretario de la entidad
demandada la notificacion de embargo expedida por el Juzgado de
Primera Instancia de Nueva Ecija en la causa civil No. 6043, siendo
partes Lucia Matias contra Gonzalo H. Co Toco y otros, siendo la
cantidad reclamada P23,582.55.

"(2) Con fecha agosto 27, 1931, se recibio por el Secretario de la entidad
demandada la notificacion de embargo expedida por el Juzgado de Paz
de Cabanatuan, Nueva Ecija. en la causa civil No. 2322, siendo partes
Samahang Magsasaka, Inc. contra Gonzalo H. Co Toco, abarcando las
acciones o titulos Nos. 280 al 2,279 o 2,000 acciones por valor de
P10,000.

"(3) Con fecha 27 de agosto, 1931, se recibio por el Secretario de la
entidad demandada la notificacion de embargo expedida por el Juzgado
de Paz de Cabanatuan, Nueva Ecija, en la causa civil No. 2323 siendo
partes Samahang Magsasaka, Inc. contra Gonzalo H. Co toco, abarcando
las acciones o titulos Nos. 280 al 2,279 o 2,000 acciones por valor de
P10,000.

"(4) Con fecha 28 de agosto, 1931, se ricibio por el Secretario de la
entidad damandada la notificacion de embargo expedida por el Juzgado
de Primera Instancia de Nueva Ecija en la causa civil No. 6049, siendo
partes Hermenegilda Garcia contra Gonzalo H. Co Toco, siendo la
cantidad reclamada P3,064.72.

"(5) Con fecha 29 de agosto, 1931, se recibio por el Secretario de la
demandada la notificacion de embargo expedida por el Juzgado de
Promera Instancia de Nueva Ecija en la causa civil No. 6042, siendo
partes Licerio Soto contra Gonzalo H. Co Toco, y abarcando todas las
acciones o titulo a nombre del Sr. Gonzalo H. Co Toco.

"(6) Con fecha septiembre 1, 1931, se recibio por el Secretario de la
entidad demandada la notificacion de embargo expedida por el Juzgado
de Primera Instancia de Manila en la causa civil No. 40211, siendo partes
Asiatic Petroleum Co. (P.I.) , Ltd. contra Gonzalo H. Co Toco y abarcando
todas las acciones o titulos a nombre del Sr. Gonzalo H. Co Toco.

"(7) Co fecha septiembre 1, 1931, se recibio por el Secretario de la
entidad damandada la notificacion de embargo expedida por el Juzgado
de Primera Instancia de Nueva Ecija en la causa civil No. 6053, siendo
partes Rufina Pacheco contra Gonzalo H. Co Toco, y abarcando todas las
acciones o titulos a nombre del Sr. Gonzalo H. Co Toco.

"(8) Con fecha septiembre 2, 1931, se recibio por el Secretario de la
entidad demandada la notificacion de embargo expedida por el Juzgado
de Primera Instacia de Manila el a causa civil No. 40294, siendo partes
Manuel Borja contra Gozalo H. Co Toco y abarcando todas las accioes o
titulos a ombre del Sr. Gonzalo H. Co Toco.

"(9) Que el enero 15, 1932, se recibio por el Secretariode la etidad
demandada la notificacion de embargo expedida por el Juzgado de
Primera Instancia de Manila en la causa civil No. 40244, siendo partes
The Philippine Guaranty Co., Inc. contra Gonzalo H. Co Toco y otros y
abarcando todas las acciones o titulos a omre del Sr. Gonzalo H. Co
Toco."cralaw virtua1aw library

It will be noted that the first eight of the said writs of attachments were
served on the corporation and noted on its records before the corporation
received from the mortgagee Chua Chiu of the mortgage of said shares
dated June 18, 1931. No question is raised as to the validity of said
mortgagee or of said writs of attachment ad the sole question presented
for decision is whether the said mortgage takes priority over the said writs
of attachments.

It is not alleged that the said attaching creditors had actual notice of the
said mortgage and the question therefore narrows itself down to this: Did
the registration of said chattel mortgage in the registry of chattel
mortgages in the office of the register of deeds of Manila, under date of
July 23, 1931, give constructive notice to the said attaching creditors?.

I passing, let it be noted that the registration of the said chattel mortgage
in the office of the corporation was not necessary and had no legal effect.
(Monserrat v. Ceron 58 Phil., 469.) The log mooted question as to whether
or not shares of a corporation could be hypothecated by placing a chattel
mortgage on the certificate representing such shares we now regard as
settled by the case of Monserrat v. Ceron, supra. But that case did not
deal with any question relating to the registration of such a mortgage or
the effect of such registration. Nothing appears in the record of that case
even tending to show that the chattel mortgage there involved was ever
registered anywhere except in the office of the corporation, and there was
no question involved there as to the right of priority among conflicting
claims of creditors of the owner of the shares. The Chattel Mortgage Law,
Act No. 1508, as amended by Act No. 2496, contains the following
provisions:jgc:chanrobles.com.ph

"Sec. 4. A chattel mortgage shall not be valid against any person except
the mortgagor, his executors or administrators, unless the possession of
the property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province
in which the mortgagor resides at the time of making the same, or, if he
resides without the Philippine Islands in the province in which the property
is situated: Provided, however, That if the property is situated in a different
province from that in which the mortgagor resides, the mortgage shall be
recorded in the office of the register of deeds of both the province in which
the mortgagor resides and that in which the property is situated, and for
the purposes of this Act the City of Manila shall be deemed to be a
province."cralaw virtua1aw library

The practical application of the Chattel Mortgage Law to shares of stock of
a corporation presents considerable difficulty and we have obtained little
aid from the decisions of other jurisdictions because that form of mortgage
is ill suited to the hypothecation of shares of stock and has been rarely
used elsewhere. In fact, it has been doubted whether shares of stock in a
corporation are chattels in the sense in which that word is used in chattel
mortgage statutes. This doubt is reflected in our own decision in the case
of Fua Cun v. Summers and China Banking Corporation (44 Phil., 705), in
which we said:jgc:chanrobles.com.ph

". . . an equity in shares of stock is of such an intangible character that it is
somewhat difficult to see how it can be treated as a chattel and mortgaged
in such a manner that the recording of the mortgagee will furnish
constructive notice to third parties. . . ." And we held that the chattel
mortgage there involved: "at least operated as a conditional equitable
assignment." In that case we quoted the following from Spalding v.
Paines Admr. (81 Ky., 416), with regard to a chattel mortgage of shares
of stock:jgc:chanrobles.com.ph

"These certificates of stock are in the pockets of the owner, and go with
him where he may happen to locate, as choses in action, or evidence of
his right, without any means on the part of those with whom he proposes
to deal on the faith of such a security of ascertaining whether or not this
stock is in pledge or mortgaged to others. He finds the name of the owner
on the books of the company as a subscriber of paid-up stock, amounting
to 180 shares, with the certificates in his possession, pays for these
certificates their full value, and has the transfer to him made on the books
of the company, thereby obtaining a perfect title. What other inquiry is he
to make, so as to make his investment certain and secure? Where is he to
look, in order to ascertain whether or not this stock has been mortgaged?
The chief office of the company may be at one place today and at another
tomorrow. The owner may have no fixed or permanent abode, and with
his notes in one pocket and his certificates of stock in the other the one
evidencing the extent of his interest in the stock of the corporation, the
other his right to money owing him by his debtor, we are asked to say that
the mortgage is effectual as to the one and inoperative as to the other."

But the case of Fua Cun v. Summers and China Banking Corporation,
supra, did not decide the question here presented and gave no light as to
the registration of a chattel mortgage of shares of stock of a corporation
under the provisions of section 4 of the Chattel Mortgage Law, supra.

Section 4 of Act No. 1508 provides two ways for executing a valid chattel
mortgage which shall be effective against third persons. First, the
possession of the property mortgaged must be delivered to and retained
by the mortgagee; and, second, without such delivery the mortgage must
be recorded in the proper office or offices of the register or registers of
deeds. If a chattel mortgage of shares of stock of a corporation may
validly be made without the delivery of possession of the property to the
mortgagee and the mere registration of the mortgage is sufficient to give
constructive notice to third parties, we are confronted with the question as
to the proper place of registration of such a mortgage. Section 4 provides
that in such a case the mortgage shall be registered in the province in
which the mortgagor resides at the time of making the same or, if he is a
non-resident, in the province in which the property is situated; and it also
provides that if the property is situated in a different province from that in
which the mortgagor resides the mortgage shall be recorded both in the
province of the mortgagors residence and in the province where the
property is situated.

If with respect to a chattel mortgage of shares of stock of a corporation,
registration in the province of the owners domicile should be sufficient,
those who lend on such security would be confronted with the practical
difficulty of being compelled not only to search the records of every
province in which the mortgagor might have been domiciled but also every
province in which a chattel mortgage by any former owner of such shares
might be registered. We cannot think that it was the intention of the
legislature to put this almost prohibitive impediment upon the
hypothecation of shares of stock in view of the great volume of business
that is done on the faith of the pledge of shares of stock as collateral.

It is a common but not accurate generalization that the situs of shares of
stock is at the domicile of the owner. The term situs is not one of fixed or
invariable meaning or usage. Nor should we lose sight of the difference
between the situs of the shares and the situs of the certificate of shares.
The situs of shares of stock for some purposes may be at the domicile of
the owner and for others at the domicile of the corporation; and even
elsewhere. (Cf. Vidal v. South American Securities Co., 276 Fed., 855;
Black Eagle Min. Co. v. Conroy, 94 Okla., 199; 221 Pac., 425; Norrie v.
Kansas City Southern Ry. Co., 7 Fed. [2d].158.) It is a general rule that for
purposes of execution, attachment and garnishment, it is not the domicile
of the owner of a certificate but the domicile of the corporation which is
decisive. (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11,
paragraph 5106. Cf. sections 430 and 450, Code of Civil Procedure.)

By analogy with the foregoing and considering the ownership of shares in
a corporation as property distinct from the certificates which are merely
the evidence of such ownership, it seems to us a reasonable construction
of section 4 of Act No. 1508 to hold that the property in the shares may be
deemed to be situated in the province in which the corporation has its
principal office or place of business. If this province is also the province of
the owners domicile, a single registration is sufficient. If not, the chattel
mortgage should be registered both at the owners domicile and in the
province where the corporation has its principal office or place of
business. In this sense the property mortgaged is not the certificate but
the participation and share of the owner in the assets of the corporation.

Apart from the cumbersome and unusual method of hypothecating shares
of stock by chattel mortgage, it appears that in the present state of our
law, the only safe way to accomplish the hypothecation of share of stock
of a Philippine corporation is for the creditor to insist on the assignment
and delivery of the certificate and to obtain the transfer of the legal title to
him on the books of the corporation by the cancellation of the certificate
and the issuance of a new one to him. From the standpoint of the debtor
this may be unsatisfactory because it leaves the creditor as the ostensible
owner of the shares and the debtor is forced to rely upon the honesty and
solvency of the creditor. Of course, the mere possession and retention of
the debtors certificate by the creditor gives some security to the creditor
against an attempted voluntary transfer by the debtor, provided by- laws of
the corporation expressly enact that transfers may be made only upon the
surrender of the certificate. It is to be noted, however, that section 35 of
the Corporation Law (Act No. 1459) enacts that shares of stock "may be
transferred by delivery of the certificate endorsed by the owner or his
attorney in fact or other person legally authorized to make the transfer."
The use of the verb "may" does not exclude the possibility that a transfer
may be made in a different manner, thus leaving the creditor in an
insecure position even though he has the certificate in his possession.
Moreover, the shares still standing in the name of the debtor on the books
of the corporation will be liable to seizure by attachment or levy on
execution at the instance of other creditors. (Cf. Uy Piaoco v. McMicking,
10 Phil., 286, and Uson v. Diosomito, 61 Phil., 535.) This unsatisfactory
state of our law is well known to the bench and bar. (Cf. Fisher, The
Philippine Law of Stock Corporations, pages 163-168.) Loans upon stock
securities should be facilitated in order to foster economic development.
The transfer by endorsement and delivery of a certificate with intention to
pledge the shares covered thereby should be sufficient to give legal effect
to that intention and to consummate the juristic act without necessity for
registration.

We are fully conscious of the fact that our decisions in the case of
Monserrat v. Ceron, supra, and in the present case have done little
perhaps to ameliorate the present uncertain and unsatisfactory state of
our law applicable to pledges and chattel mortgages of shares of stock of
Philippine corporations. The remedy lies with the legislature.

In view of the premises, the attaching creditors are entitled to priority over
the defectively registered mortgage of the appellant and the judgment
appealed from must be affirmed special pronouncement as to costs in this
instance.
Bachrach vs. Ledesma
This is an action brought by the plaintiff to recover the amount of the
judgments obtained by it in civil cases Nos. 31597 and 31821 of the Court
of First Instance of Manila, praying in its complaint: (a) That the transfer of
certificate of stock dividends No. 772 of the Talisay-Silay Milling of the
Philippine National Bank, be declared null and void, as against the
plaintiff: (b) that the Talisay-Silay Milling Co., Inc., ordered to cancel the
entry of the transfer of the 6,300 stock dividends covered by certificate No.
772, made by it on its books in favor of the Philippine National Bank; (c)
that said stock dividends be sold to satisfy the judgment obtained by it in
civil cases Nos. 31597 of the Court of First Instance of Manila; (d) that the
Talisay-Silay Milling Co., Inc., be ordered to pay to it amount of
P21,379.39, with interest on the sums and from the dates set forth in
paragraph XV of the complain, or any part thereof necessary to complete
payment of said sums and interest thereon , in case the 6,300 stock
dividends can not be sold or the proceeds of the sale thereof should be
insufficient to cover the sums in question, and (e) that the defendants pay
the costs of the suit. The plaintiff appealed from the judgment declaring
the right of the Philippine National Bank to the 6,300 stock dividends a
preferred one, and absolving the defendants from the complaint, with
costs.
The parties submitted the case upon the following stipulation of facts, to
wit:
STIPULATION OF FACTS. That the plaintiff, the Bachrach Motor Co.,
Inc., on June 30, 1927, obtained judgment in civil case No. 31597 of the
Court of First Instance of Manila against the defendant Mariano Lacson
Ledesma, in the sum of P3,442.75, with interest thereon from March 30,
1927, with costs. That a writ of execution of said judgment was issued on
August 20, 1927, and Jose Y. Orosa was appointed Special sheriff to
execute it. That on October 4, 1927, said Jose Y. Orosa, as special
sheriff, in compliance with the writ of execution in question, attached all
right, title to and interest which the defendant Mariano Lacson Ledesma
may have in "Any bonus, dividend, share of stock, money, or other
property which that defendant is entitle to receive from the Talisay-Silay
Milling Co., Inc., by virtue of the fact that such defendant has mortgage his
land in favor of the Philippine National Bank to guarantee the
indebtedness of the Talisay-Silay Milling Co., Inc., or which such
defendant is entitled to receive from the Talisay-Silay Milling Co., Inc., on
account of being a stockholder in the corporation or which he is entitled to
receive from that corporation for any other cause or pretext whatsoever."
That notice of said attachment was served not only upon the defendant
Mariano Lacson Ledesma but also upon the herein defendant the Talisay-
Silay Milling Co., Inc., which received a copy of the notice of attachment,
as evidenced by the Annex A attached to this stipulation of facts. That on
October 3, 1927, the herein plaintiff, the Bachrach Motor Co., Inc.,
obtained judgment in case No. 31821 of the Court of First Instance of
Manila against the defendant Mariano Lacson Ledesma, in the sum of four
thousand four hundred pesos and seventy-eight centavos with interest at
10 per cent per annum on the sum of P3,523.82 from April 30, 1927; in
the sum of P14,171, 52 with interest at 10 per cent per annum on the sum
of P13,290.89 from April 30, 1927; and in the sum of P1,150.72 with the
legal interest of 6 per cent per annum thereon from May 25, 1927, and the
costs. A copy of said judgment is attached to this stipulation of facts and
marked Annex B. That a writ of execution of said judgment was issue,
thereby causing the attachment, sale and adjudication to the plaintiff the
Bachrach Motor Co., Inc., for the sum of P100, Philippine currency, of the
defendant Mariano Lacson Ledesma's right of redemption over the
following properties to wit: "Original certificate of title No. 1929 (Lot No.
1473 of the Cadastral Survey of Bacolod) containing an area of 2,647
square meters, more or less.
Original certificate of title No. 2978 (Lot No. 1475 of the Cadastral Survey
of Bacolod) containing an area of 8.501 square meters, more or less.
Original certificate of title No. 2624 (Lot No. 1474 of the Cadastral Survey
of Bacolod) containing an area of 8,714 square meter, more or less.
Original certificate of title No. 9443 (Lot No. 426 of the Cadastral Survey of
Talisay) containing an area of 150,301 square meters more or less.
Original certificate of title No. 1928 (Lot No. 1472 of the Cadastral Survey
of Bacolod) containing an area of 36,818 square meters, more or less.
Original certificate of title No. 2923 (Lot No. 1489 of the Cadastral Survey
of Bacolod) containing an area of 286,879 square meters, more or less.
Original certificate of title No. 356 (Lot No. 4-A of the Cadastral Survey of
Bacolod) containing an area of 641,448 square meters, more or less.
Original certificate of title No. 356 (Lot No. 4-B of the Cadastral Survey of
Bacolod) containing an area of 280,556 square meters, more or less.
Original certificate of title No. 356 (Lot No. 4-C of the cadastral Survey of
Bacolod) containing an area of 2,842,946 square meters, more or less."
The certificate of sale issued by the provincial sheriff of Occidental Negros
in favor of the Bachrach Motor Co., Inc., on March 29, 1928, is attached to
this stipulation of facts, and marked Annex C. That on the date of the
issuance of the execution in case No. 31597 of the Court of First Instance
of Manila as well as on that of the issuance of the execution and sale of
the properties described in Exhibit C, in case No. 31821 of the same
court, said real properties were mortgaged to the Philippine National Bank
to secure the payment to said bank by Mariano Lacson Ledesma of the
sum of P624,000, Philippine currency, by virtue of an instrument executed
by the debtor Mariano Lacson Ledesma in favor of said bank on August 9,
1923. said instrument of mortgage is copied on pages 18 to 32, both
inclusive, of the bill of exceptions in case No. 8136 of the Court of First
Instance of Iloilo (G. R. No. 35223), which is attached to this stipulation of
facts and marked Annex D. That in the same instrument of mortgage
(pages 18 to 32 of Annex D) said debtor Mariano Lacson Ledesma
mortgaged in favor the bank, as part of the securities to ensure
compliance with his obligation, the following shares owned by him in the
Talisay-Silay Milling Co., Inc., to wit: 1,540 share covered by Certificate
No. 147; 520 shares covered by Certificate No. 146; 40 share covered by
Certificate in the preceeding two paragraph, there was another mortgage
constituted on the above-described real properties in favor of the
Philippine National Bank, to answer for the debts contracted by the
Central Talisay-Silay Milling Co., with said bank. That on December 22,
1923, the defendant, Central Talisay-Silay Milling Co. resolved to grant a
bonus or compensation to the owners of the real properties mortgaged to
answer for the debts contracted by said central with the Philippine
National Bank, for the risk incurred by said properties upon being
subjected to said mortgage lien, and the resolution in question the
defendant Mariano Lacson Ledesma was allotted the sum of P19,911.11,
Philippine currency, which sum, however, would not be payable until the
month of January, 1930. That on September 29, 1928, the Philippine
National Bank brought an action against the defendant Mariano Lacson
Ledesma and his wife Concepcion Diaz for the recovery of a mortgage
credit which, together with interest thereon amounted to P853,729.49 on
said date. Sometime later that is, on January 2, 1929, the Philippine
National Bank amended its complaint by including the Bachrach Motor
Co., Inc., as party defendant, among other, because they claim to have
some right to certain properties which are the subject matter of this
complaint." Said case bears No. 4706 of the Court of First Instance of
Occidental Negros. That on January 30, 1929, the defendant Bachrach
Motor Co., Inc., file a general denial. That after due hearing the Court of
First Instance of Bacolod on September 3, 1930, rendered judgment in
case No. 4706 of said court in favor of the Philippine National Bank and
against the defendant Mariano Lacson Ledesma, sentencing the latter to
pay the amount claimed by said bank and ordering, upon failure to satisfy
said amount, the sale at public auction of the real properties mortgaged
under the instrument of mortgage appearing on pages 18 to 32 of Annex
D. That the real estate and chattel mortgage deed in question (pages 18
to 32 of Annex D), marked as Exhibit G, was among the exhibits
presented in said case No. 4706 of the Court of First Instance of
Occidental Negros. That likewise, among the exhibit presented in said
case No. 4706 of the Court of First Instance of Occidental Negros, was
Exhibit H which was a deed of mortgage of certain carabaos belonging to
the debtor Mariano Lacson Ledesma, executed by the latter in favor of the
Philippine National Bank on January 21, 1925. That in the decision
rendered by the Court of First Instance of Occidental Negros in case No.
4706 thereof, said court, referring to stock certificates Nos. 145 and 147 of
the Talisay-Silay Milling Co., Inc., which were pledged or mortgaged by
virtue of Exhibit G of said No. 4706, rendered the following ruling: "(e)
With respect to the chattel mortgaged bank, which are described in Exhibit
G and H, the Philippine National Bank, as soon as this judgment becomes
final, shall have authority to sell them in accordance with the provisions of
section 23 of Act No. 2938, immediately informing this court of whatever
action it may take in the premises." That during the pendency of case No.
4706 of the Court of First Instance of Bacolod referred to in the foregoing
paragraphs, the plaintiff Bachrach Motor Co., Inc., on December 20, 1929,
brought an action in the Court of First Instance of Iloilo against the
Talisay-Silay Milling Co., Inc., recover from it the sum of P13,850 against
the bonus or dividend which, by virtue of the resolution of December 22,
1923, said Central Talisay-Silay Milling Co., Inc., had declared in favor of
the defendant Mariano Lacson Ledesma as one of the owners of the
hacienda which had been mortgaged to the Philippine National Bank to
secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said
bank. Copy of said complaint appears on pages 2 to 5 of the bill of
exceptions in case No. 8136 of the Court of First Instance of Iloilo (G. R.
No. 35223), Annex D of this stipulation of facts. That on January 30, 1930,
the Philippine National Bank sought permission to intervene in said case
No. 8136 of the Court of First Instance of Iloilo and after the permission
had been granted, said bank, on February 13, 1930, filed a complaint in
intervention alleging that it had a preferred right to said bonus granted by
the central to the defendant Mariano Lacson Ledesma as one of the
owners of the haciendas which had been mortgaged to said bank to
answer for the obligations of the Central Talisay-Silay Milling Co., Inc.,
basing such allegation on the fact that, as said properties were mortgaged
to it by the debtor Mariano Lacson Ledesma, not Talisay Milling Co., Inc.,
but also by virtue of the deed of August 9, 1923 (pages 18 to 32 of Annex
D) and said bonus being a civil fruit of the mortgaged lands, said bank
was entitled to it on the ground that the mortgage of August 9, 1923, had
become due. That after the trial of civil case No. 8136 of the Court of First
Instance of Iloilo, said court, on December 8, 1930, rendered judgment in
favor of the plaintiff Bachrach Motor Co., Inc., Upon appeal, the Supreme
Court, on September 17, 1931, 1 affirmed the judgment of the lower court,
holding that the bonus had no immediate relation to the lands in question
but merely a remote and accidental one and, therefore, it was not a civil
fruit of the real properties mortgaged to the Philippine National Bank to
secure the obligation of the Talisay-Silay Milling Co., Inc., being a mere
personal right of Mariano Lacson Ledesma. The decision of the Supreme
Court published in Volume 30, No. 104, of the Official Gazette, on August
29, 1932, is attached to this stipulation of facts and marked Annex E. That
on January 24, 1930, that Talisay-Silay Milling Co., Inc., issued stock
certificate No. 772 for 3,600 shares, as stock dividend to Mariano Lacson
Ledesma, which certificate was ordered by Mariano Lacson Ledesma to
be delivered to Roman Lacson, attorney for the Philippine National Bank,
by virtue of the letter of February 27, 1930, Annex G of this stipulation of
facts, and of the letter of the Philippine National Bank dated January 18,
1930, Annex G-1. Said 6,300 shares constituted the stock dividend
allotted to Mariano Lacson Ledesma for his 2,100 original shares in the
Talisay-Silay Milling Co., Inc., which were given as pledge to the
Philippine National Bank under the deed of mortgage appearing on pages
18 to 32 of Annex D prior to the issuance of stock certificate No. 772, an
were covered by Stock Certificates Nos. 145, 146 and 147 of the Talisay-
Silay Milling Co., Inc. That stock certificate No. 772 was issued by virtue of
resolution No. 4 of the general meeting of stockholders of the Talisay-
Silay Milling Co., Inc., which resolution is quote in paragraph 8 of the
complaint in this case. That in a letter of March 25, 1930, addressed by
the Philippine National Bank to the Talisay-Silay Milling Co., said bank
informed the letter that the 6,300 shares represented by stock certificate
No. 772 had been given by Mariano Lacson Ledesma as pledge to the
Philippine National Bank. Said letter is attached to this stipulation of facts
as Annex H. That said stock certificate No. 772 has continuously been in
the possession of the Philippine National Bank from February 27, 1930, to
February 25, 1931, but like stock certificates Nos. 145, 146 and 147, it
was registered in the books of the Talisay-Silay Milling Co. in the name of
Mariano Lacson Ledesma. That on August 11, 1930, the plaintiff Bachrach
Motor Co., by virtue of an alias execution issued in case No. 31821 of the
Court of First Instance of Manila, attached all right, title to an interest
which the defendant Mariano Lacson Ledesma might have in Any bonus,
dividend, shares of stock, money or other property specially on the sum of
P19,911.11 which the defendant is entitled to receive from the Talisay-
Silay Milling Co., Inc., by virtue of the fact that such defendant has
mortgage his lands in favor of the Philippine National Bank to guarantee
the indebtedness of the Talisay-Silay Milling Co., Inc., or which such
defendant is entitled to receive from the Talisay-Silay Milling Co., Inc., on
account of being stockholder in that corporation, or which he is entitle to
receive from that corporation for any other cause or pretext whatsoever."
In connection with the proceedings and attachment made notice of
garnishment was served on the Talisay-Silay Milling Co., Inc., as evidence
by Annexes I and J of this stipulation of facts. That on February 5, 1931,
the provincial the is positive part of the decision rendered in civil case NO.
4706 of the Court of First Instance of Occidental Negros, copy of which is
attached to this stipulation of facts as Annex I, sold at public auction not
only the 2,100 share specified in the deed of August 9, 1923, but also the
6,300 shares covered by stock certificate No. 772, the sale of said shares
having been made by order and under the direction of the attachment
creditor Philippine National Bank. A copy of the certificate of sale marked
Exhibit K is attached hereto. That on February 25, 1931, the Talisay-Silay
Milling Co., Inc., upon petition of the Philippine National Bank, as shown
by the letter dated February 19,1931, marked and attached to this
stipulation as Annex L, which letter was accompanied by the certificate of
sale Exhibit K, issued stock certificate No. 1155 representing 8,968
shares, which include the 6,300 shares formerly represented by stock
certificate No. 772 and the 2,100 shares formerly represented by stock
certificates Nos. 145, 146 and 147, the bank having acknowledged receipt
of certificate No. 1155 in a letter of March 4, 1931, marked as Exhibit M.
Attention is invited to the fact that of the 8,969 shares represented by
stock certificate No. 1155, 568 shares formerly belonged to Concepcion
Diaz e Lacson wife of the defendant Mariano Lacson Ledesma, and of the
568 shares, 142 were mortgaged under the deed of August 9, 1923, and
426 were the stock dividend that had corresponded to said 142 shares.
That on the same date, February 25,1931, Marino Lacson Ledesma
endorsed the back of stock certificate No. 772 in favor of the Philippine
National Bank. Said stock certificate with the endorsement in question is
attached to this stipulation of facts and marked Annex N. That both on the
date on which the garnishment was carried out by the Bachrach Motor
Co., that is, on August 11, 1930, and on the date on which the 6,300
shares, covered by stock certificate No. 772, were sold, case No. 8136 of
the Court of First Instance of Iloilo (G. R. No. 35223) was still pending.
That the amount of the actual indebtedness of the defendant Mariano
Lacson Ledesma to the plaintiff the Bachrach Motor Co. is P21,377.34
with the interest and other sums specified in paragraph XV of the
complaint. That the real properties mortgaged to the Philippine National
Bank were sold for P300,000 Philippine currency; the mortgaged
carabaos for P2,000 Philippine currency, and all the shares, that is, the
8,968 share for the sum of P90,000 Philippine currency, the bank having
been the highest bidder herein all these sales, there still remaining unpaid
in civil case No. 4796 of the Court of First Instance of Occidental Negros
the sum of P695,421.74, as stated in Annex 9. That the notices of
garnishment issue by virtue of the execution in cases Nos. 31597 and
31821 of the Court of First Instance of Manila are the same notices of
attachment and garnishment mentioned in the complaint in the case No.
8136 of the Court of First Instance of Iloilo and presented as evidence in
said case, and are the same notices mentioned in this case now
submitted to the court for decision. That on March 20,1925, the Philippine
National Bank served notice on the Talisay-Silay Milling Co., Inc, of the
pledge made by Mariano Lacson Ledesma to said bank of the shares
represented by stock certificates Nos. 145, 146 and 147, and on March
25th the Talisay-Silay Milling Co., Inc., acknowledged receipt thereof and
considered itself notified of said pledge, as evidenced by Annexes P and
Q of this stipulation of facts, That prior to the declaration of stock divided
by virtue of resolution No. 4 of the regular meeting of stockholders of the
Talisay-Silay Milling Co., Inc., the shares of this corporation were quote in
private sales at P32 a share; and immediately after the declaration of
stock dividend, the quotation of said shares dropped by P7 or P8 a share,
the same having been P11.25 a share on the date of their sale at public
auction. Upon this stipulation of facts, the parties submit the case to the
court for decision.
I. The plaintiff bases the preferred right invoked by it over the 6,300 stock
dividends, certificate No. 772, on the garnishment made thereon by
reason of the issuance of the alias execution in civil case No. 31821 of the
Court of First Instance of Manila, which garnishment was carried out on
August 11, 1930. The plaintiff contends in its first assignment of error that
these stock dividends were certificate No. 772 thereof was delivered to the
Philippine National Bank and when the Talisay-Silay Milling Co., Inc.,
entered them in its books in the name of said bank and issued certificate
No. 1166 in favor of the latter. The contention is unfounded because it
appears that the stock dividends in question were pledged to the bank
prior to the garnishment and because certificate No. 772 was in the
possession of said bank from February 27, 1930. The reasons upon which
this court base its opinion in declaring that the stock dividends were
pledge beforehand to the Philippine National Bank will be stated in the
discussion of the following assignment of error.
II. In the stipulation of facts, it appears stipulated by the parties that, by
virtue of the letters of the Philippine National Bank and having been so
asked by Mariano Lacson Ledesma, certificate No. 772 covering the 6,300
stock dividends was delivered as security to Attorney Roman Lacson as
representative of the bank, on February 27, 1930, in view of the fact that
the original shares covered by certificate Nos. 145, 146 and 147 had been
previously mortgaged to the same bank. On February 25, 1931, the
Talisay-Silay Milling Co., Inc., in conformity with the letter of the
Philippines National Bank of the 19th of said month, cancelled certificate
No. 772 and in lieu thereof issued certificate No. 1155 in favor of said
bank, which certificate includes the 6,300 stock dividends, among other
shares. On the other hand, the garnishment obtained by the plaintiff, upon
which it bases all its alleged preferred right was notified to the parties and
became effective on August 11, 1930, more than five months after the
delivery of certificate No. 772. The plaintiff, in its second assignment of
error, maintains that the pledge is ineffective as against it because
evidence of its date was not made to appear in a public instrument and
concludes that its right to the 6,300 stock dividends is superior and
preferred. It is admitted that the delivery of the certificate in question and
the pledge thereof were not made to appear in a public instrument.
It is true, according to article 1865 of the Civil Code, that in order that a
pledge may be effective as against third person, evidence of its date must
appear in a public instrument in addition to the delivery of the thing
pledged to the creditor. This provision has been interpreted in the sense
that for the contract to affect third person, it must appear in a public
instrument in addition to delivery of the thing pledged (Ocejo, Perez and
Co., vs. International Banking Corporation, 37 Phil., 631; Tec Bi & Co. vs.
Chartered Bank of India, Australia and China, 41 Phil., 596; Te Pate vs.
Ingersoll, 43 Phil., 394). It cannot be denied, however, that section 4
of Act No. 1508, otherwise known as the Chattel Mortgage Law, implicitly
modified article 1865 of the Civil Code in the sense that a contract of
pledge and that of chattel mortgage, to be effective as against third
persons, need not appear in public instruments provided the thing pledged
or mortgaged be delivered or placed in the possession of the creditor. In
the case of Mahoney vs. Tuason (39 Phil., 952, 958), where this doctrine
was laid down, it was stated; "From the foregoing provisions of the
abovecited Act, it is inferred that the same does not entirely repeal the
provisions of the Civil Code, but only modify them in part and amplify them
in another, as may be seen from an examination of, and comparison
between, the provisions of the Civil Code regarding pledge and the
abovequoted provisions of Act No. 1508. Article 1865 of the Civil Code
provides that no pledge shall be effective against a third person unless
evidence of its date appears in a public instrument. The provision of this
article has, undoubtedly, been modified by section 4 of the Chattel
Mortgage Law, in so far as it provides that a chattel mortgage shall not be
valid against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to and
retained by the mortgagee or unless the mortgage is recorded in the office
of the register of deeds of the province in which the mortgagor resides.
From the date the said Act No. 1508was in force, a contract of pledge or
chattel mortgage should be deemed legally entered into and should
produce all its effects and consequences, provided it appears to have
been in some manner perfected and that the things pledged have been
delivered, and in a contrary case, and even if the creditor has not received
them or has not retained them in his custody, provided that the contract of
pledge or chattel mortgage appears in a notarial document and is
inscribed in the registry of deeds of the province." Therefore, this court
holds that the pledge of the 6,300 stock dividends is valid against the
plaintiff for the reason that the certificate was delivered to the creditor
bank, notwithstanding the fact that the contract does not appear in a
public instrument.
The plaintiff further contends that the pledge could not legally exist
because the certificate was not the shares themselves, making it
understood that a certificate of stock or of stock dividends can not be the
subject matter of the contract of pledge or of chattel mortgage. Neither is
this contention tenable. Certificates of stock or of stock dividends, under
the Corporation Law, are quasi negotiable instruments in the sense that
they may be given in pledge or mortgage to secure an obligation. The
question is settled in this wise by the weight of American authorities and it
is the modern doctrine of general acceptance by the courts.
In view, however, of the fact that certificates of stock, while not negotiable
in the sense of the law merchant, like bills and notes, are so framed and
dealt with as to be transferable, when property endorsed, by mere
delivery, and as they frequently convey, by estoppel against the
corporation or against prior holders, as good a title to the transferee as if
they were negotiable, and inasmuch as a large commercial use is made of
such certificates as collateral security, and it is to the public interest that
such use should be simplify and facilitated by placing them as nearly as
possible on the plane of commercial paper, they are often spoken of and
treated as quasi negotiable, that is as having some of the attributes and
partaking of the character of negotiable instruments, in passing from hand
to hand, especially where they are accompanied by an assignment and
power of attorney, executed in blank, to transfer them to anyone who may
obtain possession as holders, even though such assignment and power
are under seal. (14 C. J., 665, sec 1034; South Bend First Nat. Bank vs.
Lanier, 20 Law. ed., 172; Weniger vs. Success Min. Co., 227 Fedd., 548;
Scott vs. Pequonnock Nat. Bank, 15 Fed., 494.)
III. In the third assignment of error, the plaintiff maintains that the court
erred in holding that the stock dividends are civil fruits or an extension of
the original shares. This court deems it unnecessary to determine whether
or not the stock devidends are civil fruits or an extension of the original
shares. This point becomes immaterial after the case has been decided in
the manner stated in the discussion of the second assignment of error .
IV. In the forth assignment of error, the plaintiff contends that court erred
in not declaring null and void the sale of the 6,300 stock dividends in
execution of the judgment rendered in favor of the Philippine National
Bank in civil case No. 4706 of the Court of First Instance of Occidental
Negros. Inasmuch as this court has declared that the stock dividends in
question were pledged to the bank, it follows that the sale thereof in
execution of said judgment is legal and valid.
V. In the fifth assignment of error, the plaintiff argues that the court erred
in declaring the Philippine National Bank's right to the stock dividends a
preferred one. After it has been held that these stock dividends had been
pledged to the Philippine National Bank and that this contract was prior to
the garnishment of the plaintiff, it appear clear that the court violated no
law in holding the right of the Philippine National Bank, as pledgee, a
superior one.
VI. The plaintiff assigns as sixth and last error committed by the court the
fact of its having absolved all the defendants. The case having been
decided in favor of the Philippine National Bank, on the grounds stated in
passing upon the second assignment of error, the absolution of the
defendants is unavoidable, thereby making this last assignment of error
likewise untenable.
For the foregoing consideration the appealed judgment is affirmed, with
the costs of this instance to the plaintiff-appellant. So ordered.
Bicera vs. Teneza
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

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, 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 demolished, as in this case, it ceases to
exist as such and hence its character as an immovable likewise ceases. It
should be noted that the complaint here is for recovery of damages. This
is the only positive relief prayed for by appellants. To be sure, they also
asked that they be declared owners of the dismantled house and/or 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 incidental to the real cause of action to recover damages.
The order appealed from is affirmed. The appeal having been admitted
in forma pauperis, no costs are adjudged.
US vs. Carlos
SYLLABUS
1. ELECTRICITY; UNLAWFUL USE: OF ELECTRIC CURRENT;
LARCENY. A person to whom an electric light company furnishes
electric current for lighting purposes, and who, by means of a "jumper,"
uses electricity which does not pass through the meter installed for the
purpose of measuring the current used, thus depriving the company of
such electric current, is guilty of larceny.
D E C I S I O N
PER CURIAM:
The information filed in this case is as follows:jgc:chanrobles.com.ph

"The undersigned accuses Ignacio Carlos of the crime of theft, committed
as follows:jgc:chanrobles.com.ph

"That on, during, and between the 13th day of February, 1909, and the 3d
day of March, 1910, in the city of Manila, Philippine Islands, the said
Ignacio Carlos, with intent of gain and without violence or intimidation
against the person or force against the thing, did then and there, willfully,
unlawfully, and feloniously, take, steal, and carry away two thousand two
hundred and seventy-three (2,2~3) kilowatts of electric current, of the
value of nine hundred and nine (909) pesos and twenty (20) cents
Philippine currency, the property of the Manila Electric Railroad and Light
Company, a corporation doing business in the Philippine Islands, without
the consent of the owner thereof; to the damage and prejudice of the said
Manila Electric Railroad and Light Company in the said sum of nine
hundred and nine (909) pesos and twenty (20) cents Philippine currency,
equal to and the equivalent of 4,546 pesetas Philip pine currency. All
contrary to law.

(Sgd. )L.M. SOUTHWORTH,

Prosecuting Attorney

"Subscribed and sworn to before me this 4th day of March, 1910, in the
city of Manila, Philippine Islands, by L. M. Southworth, prosecuting
attorney for the city of Manila.

(Sgd.) "CHARLES S. LOBINGIER,

"Judge, First Instance.

"A preliminary investigation has heretofore been con ducted in this case,
under my direction, having examined the witnesses under oath, in
accordance with the provisions of section 39 of Act No. 183 of the
Philippine Commission, as amended by section 2 of Act No. 6-12 of the
Philippine Commission.

(Sgd.) "L. M. SOUTHWORTH,

"Prosecuting Attorney.

"Subscribed and sworn to before me this 4th day of March, 1910, in the
city of Manila, Philippine Islands, by L. M. Southworth, prosecuting
attorney for the city of Manila.

(Sgd.) "CHARLES S. LOBINGIER,

"Judge, First Instance."cralaw virtua1aw library

A warrant for the arrest of the defendant was issued by the Honorable J.
C. Jenkins on the 4th of March and placed in the hands of the sheriff. The
sheriffs return shows that the defendant gave bond for his appearance.
On the 14th of the same month counsel for the defendant demurred to the
complaint on the following grounds:jgc:chanrobles.com.ph

"1. That the court has no jurisdiction over the person of the accused nor of
the offense charged because the accused has not been accorded a
preliminary investigation or examination as required by law and no court,
magistrate, or other competent authority has determined from a sworn
complaint or evidence adduced that there is probable cause to believe
that a crime has been committed, or that this defendant has committed
any crime.

"2. That the facts charged do not constitute a public offense."cralaw
virtua1aw library

The demurrer was overruled on the same day and the defendant having
refused to plead, a plea of not guilty was entered by direction of the court
for him and the trial proceeded.

After due consideration of all the proofs presented and the arguments of
counsel the trial court found the defendant guilty of the crime charged and
sentenced him to one year eight months and twenty-one days presidio
correccional, to indemnify the offended party, The Manila Electric Rail
road and Light Company, in the sum of P865.26, to the corresponding
subsidiary imprisonment in case of insolvency and to the payment of the
costs. From this judgment the defendant appealed and makes the
following assignments of error:chanrob1es virtual 1aw library
"I
"The court erred in overruling the objection of the accused to the
jurisdiction of the court, because he was not given a preliminary
investigation as required by law, and in overruling his demurrer for the
same reason.
"II.
"The court erred in declaring the accused to be guilty, in view of the
evidence submitted.
"III.
"The court erred in declaring that electrical energy may be stolen.
"IV.
"The court erred in not declaring that the plaintiff consented to the taking
of the current.
"V
"The court erred in finding the accused guilty of more than one offense.
"VI.
"The court erred in condemning the accused to pay P15.26 to the electric
company as damages."cralaw virtua1aw library

Exactly the same question as that raised in the first assignment of error
was, after a thorough examination and due consideration, decided
adversely to appellants contention in the case of U. S. v. Grant and
Kennedy (18 Phil. Rep., 122). No sufficient reason is presented why we
should not follow the doctrine enunciated in that case. The question raised
in the second assignment of error is purely one of fact. Upon this point the
trial court said:jgc:chanrobles.com.ph

"For considerably more than a year previous to the filing of this complaint
the accused had been a consumer of electricity furnished by the Manila
Electric Railroad and Light Company for a building containing the
residence of the accused and three other residences, and which was
equipped, according to the defendants testimony, with thirty electric lights.
On March 15, 1909, the representatives of the company, believing that
more light was being used than their meter showed, installed an additional
meter (Exhibit A) on a pole outside of defendants house, and both it and
the meter (Exhibit B) which had been previously installed in the house
were read on said date. Exhibit A read 218 kilowatt hours; Exhibit B, 746
kilowatt hours. On March 3, 1910, each was read again, Exhibit A showing
2,718 kilo watt hours and Exhibit B, 968. It is undisputed that the current
which supplied the house passed through both meters and the city
electrician testifies that each meter was tested on the date of the last
reading and was "in good condition." The result of this registration
therefore is that while the outside meter (Exhibit A) showed a consumption
in defendants building of 2,500 kilowatt hours of electricity, the inside
meter (Exhibit B) showed but 223 kilowatt hours. In other words the actual
consumption, according to the outside meter, was more than ten times as
great as that registered by the one inside. (obviously this difference could
not be due to normal causes, for while the electrician called by the
defense (Lanusa) testifies to the possibility of a difference between two
such meters, he places the extreme limit of such difference between them
at 5 per cent. Here, as we have seen. the difference is more than 900 per
cent. Besides, according to the defendants electrician, the outside meter
should normally run faster, while according to the test made in this case
the inside meter (Exhibit B) ran the faster. The city electrician also testifies
that the electric current could have been deflected from the inside meter
by placing thereon a device known as a jumper connecting the two
outside wires, and there is other testimony that there were marks on the
insulation of the meter Exhibit B which showed the use of such a device.
There is further evidence that the consumption of 223 kilowatt hours,
registered by the inside meter would not be a reasonable amount for the
number of lights installed in defendants building during the period in
question, and the accused fails to explain why he should have had thirty
lights installed if he needed but four or five.

"On the strength of this showing a search warrant was issued for the
examination of defendants premises and was duly served by a police
officer (Hartpence). He was accompanied at the time by three employees
of the Manila Electric Railroad and Light Company, and he found there the
accused, his wife and son, and perhaps one or two others. There is a
sharp conflict between the several spectators on some points but on one
there is no dispute. All agree that the jumper (Exhibit C) was found in a
drawer of a small cabinet in the room of defendants house where the
meter was installed and not more than 20 feet therefrom. In the absence
of a satisfactory explanation this constituted possession on defendants
part, and such possession, under the Code of Civil Procedure, section 334
(10), raises the presumption that the accused was the owner of a device
whose only use was to deflect the current from the meter.

"Is there any other satisfactory explanation of the jumpers presence?
The only one sought to be offered is the statement by the son of the
accused, a boy of twelve years, that he saw the jumper placed there by
the witness Porter, an employee of the Light Company. The boy is the
only witness who so testifies and Porter himself squarely denies it. We
can Dot agree with counsel for the defense that the boys interest in the
outcome of this case is less than that of the witnesses for the prosecution.
It seems to us that his natural desire to shield his father would far
outweigh any interest such an employee like Porter would have and
which, at most, would be merely pecuniary.

"There is, however, one witness whom so far as appears, has no interest
in the matter whatsoever. This is officer Hartpence, who executed the
search warrant. He testifies that after inspecting other articles and places
in the building as he and the other spectators, including the accused,
approached the cabinet in which the jumper was found, the officers
attention was called to the defendants appearance and the former noticed
that the latter was becoming nervous. Where the only two witnesses who
are supposed to know anything of the matter thus contradict each other
this item of testimony by the officer is of more than ordinary significance;
for if, as the accused claims, the jumper was placed in the cabinet for the
first time by Porter there would be no occasion for any change of
demeanor on the part of the accused. We do not think that the officers
declination to wait until defendant should secure a notary public shows
bias. The presence of such an official was neither required nor authorized
by law and the very efficacy of a search often depends upon its swiftness.

"We must also agree with the prosecuting attorney that the attending
circumstances do not strengthen the story told by the boy; that the latter
would have been likely to call out at the time he saw the jumper being
placed in the drawer, or at least directed his fathers attention to it
immediately instead of waiting, as he says, until the latter was called by
the officer. Finally, to accept the boys story we must believe that this
company or its representatives deliberately conspired not merely to lure
the defendant into the commission of a crime but to fasten upon him a
crime which he did not commit and thus convict an innocent man by
perjured evidence. This is a much more serious charge than that
contained in the complaint and should be supported by very strong
corroborating circumstances which we do not find here. We are,
accordingly, unable to consider as satisfactory defendants explanation of
the jumpers presence.

"The only alternative is the conclusion that the jumper was placed there
by the accused or by some one acting for him and that it was the
instrument by which the current was deflected from the meter Exhibit B
and the Light Company deprived of its lawful compensation." After a
careful examination of the entire record we are satisfied beyond
peradventure of a doubt that the proofs presented fully support the facts
as set forth in the fore- going finding.

Counsel for the appellant insists that only corporeal property can be the
subject of the crime of larceny, and in support of this proposition cites
several authorities for the purpose of showing that the only subjects of
larceny are tangible, movable, chattels, something which could be taken in
possession and carried away, and which had some, although trifling,
intrinsic value, and also to show that electricity is an unknown force and
can not be a subject of larceny.

In the case of U. S. v. Genato (15 Phil. Rep., 170) the defendant, the
owner of the store situated at No. 154 Escolta, Manila, was using a
contrivance known as a "jumper" on the electric meter installed by the
Manila Electric Rail road and Light Company. As a result of the use of this
"jumper" the meter, instead of making one revolution in every four
seconds, registered one in seventy-seven seconds, thereby reducing the
current approximately 95 per cent. Genato was charged in the municipal
court with a violation of a certain ordinance of the city of Manila, and was
sentenced to pay a fine of P200. He appealed to the Court of First
Instance, was again tried and sentenced to pay the same fine. An appeal
was taken from the judgment of the Court of First Instance to the Supreme
Court on the ground that the ordinance in question was null and void. It is
true that the only question directly presented was that of the validity of the
city ordinance. The court, after holding that said ordinance was valid,
said:jgc:chanrobles.com.ph

"Even without them (ordinances), the right of ownership of electric current
is secured by articles 517 and 518 of the Penal Code; the application of
these articles in cases of substraction of gas, a fluid used for lighting, and
in some respects resembling electricity, is confirmed by the rule laid down
in the decisions of the supreme court of Spain January 20, 1887, and April
1, 1897, construing and enforcing the provisions of articles 530 and 531 of
the penal code of that country, articles identical with articles 517 and 518
of the code in force in these Islands."cralaw virtua1aw library

Article 517 of the Penal Code above referred to reads as
follows:jgc:chanrobles.com.ph

"The following are guilty of larceny:jgc:chanrobles.com.ph

"(1) Those who with intent of gain and without violence or intimidation
against the person, or force against things, shall take anothers personal
property without the owners consent."cralaw virtua1aw library

And article 518 fixes the penalty for larceny in proportion to the value of
the personal property stolen.

It is true that electricity is no longer, as formerly, regarded by electricians
as a fluid, but its manifestations and effects, like those of gas, may be
seen and felt. The true test of what is a proper subject of larceny seems to
be not whether the subject is corporeal or incorporeal, but whether it is
capable of appropriation by another than the owner.

It is well-settled that illuminating gas may be the subject of larceny, even
in the absence of a statute so providing. (Decisions of supreme court of
Spain, January 20, 1887. and April 1, 1897, supra; also (England) Queen
v. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234; Queen v. White, 3 C. & K.,
363, 6 Cox C. C., 213; Woods v. People, 222 Ill., 293, 7 L. R. A., 520;
Commonwealth v. Shaw, 4 Allen (Mass.) , 308; State v. Wellman, 34
Minn., 221, N. W. Rep., 385, and 25 Cyc., p. 12, note 10.)

In the case of Commonwealth v. Shaw, supra, the court, speaking through
Chief Justice Bigelow, said:jgc:chanrobles.com.ph

"There is nothing in the nature of gas used for illuminating purposes which
renders it incapable of being feloniously taken and carried away. It is a
valuable article of merchandise, bought and sold like other personal
property, susceptible of being severed from a mass or larger quantity, and
of being transported from place to place. In the present case it appears
that it was the property of the Boston Gas Light Company; that it was in
their possession by being confined in conduits and tubes which belonged
to them, and that the defendant severed a portion of that which was in the
pipes of the company by taking it into her house and there consuming it.
All this being proved to have been done by her secretly and with intent to
deprive the company of their property and to appropriate it to her own use,
clearly constitutes the crime of larceny."cralaw virtua1aw library

Electricity, the same as gas, is a valuable article of merchandise, bought
and sold like other personal property and is capable of appropriation by
another. So no error was committed by the trial court in holding that
electricity is a subject of larceny.

It is urged in support of the fourth assignment of error that if it be true that
the appellant did appropriate to his own use the electricity as charged he
can not be held guilty of larceny for any part of the electricity thus
appropriated, after the first month, for the reason that the complaining
party, the Manila Electric Railroad and Light Company, knew of this
misappropriation and consented thereto.

The outside meter was installed on March 15, 1909, and read 218 kilowatt
hours. On the same day the inside meter was read and showed 745
kilowatt hours. Both meters were again read on March 3, 1910, and the
outside one showed 2,718 kilowatt hours while the one on the inside only
showed 968, the difference in consumption during this time being 2,277
kilowatt hours. The taking of this cur rent continued over a period of one
year, less twelve days.

Assuming that the company read both meters at the end of each month;
that it knew the defendant was misappropriating the current to that extent;
and that it continued to furnish the current, thereby giving the defendant
an opportunity to continue the misappropriation still, we think, that the
defendant is criminally responsible for the taking of the whole amount,
2,277 kilowatt hours. The company had a contract with the defendant to
furnish him with current for lighting purposes. It could not stop the
misappropriation without cutting off the current entirely. It could not reduce
the current so as to just furnish sufficient for the lighting of two, three, or
five lights, as claimed by the defendant that he used during the most of
this times but the current must always be sufficiently strong to furnish
current for the thirty lights, at any time the defendant desired to use them.

There is no pretense that the accused was solicited by the company or
any one else to commit the acts charged At most there was a mere
passive submission on the part of the company that the current should be
taken and no indication that it wished it to be taken, and no knowledge by
the defendant that the company wished him to take the current, and no
mutual understanding between the company and the defendant, and no
measures of induce ment of any kind were employed by the company for
the purpose of leading the defendant into temptation, and no preconcert
whatever between him and the company: The original design to
misappropriate this current was formed by the defendant absolutely
independent of any acts on the part of the company or its agents. It is true,
no doubt, as a general proposition, that larceny is not committed when the
property is taken with the consent of its owner. It may be difficult in some
instances to determine whether certain acts constitute, in law, such
"consent." But under the facts in the case at bar it is not difficult to reach a
conclusion that the acts performed by the plaintiff company did not
constitute a consent on its part that the defendant take its property. We
have been unable to find a well considered case holding a contrary
opinion under similar facts, but, there are numerous cases holding that
such acts do not constitute such consent as would relieve the taker of
criminal responsibility. The fourth assignment of error is, therefore, not
well founded.

It is also contended that since the "jumper" was not used continuously, the
defendant committed not a single offense but a series of offenses. It is, no
doubt, true that the defendant did not allow the "jumper" to remain in place
continuously for any number of days as the company inspected monthly
the inside meter. So the "jumper" was put on and taken off at least
monthly, if not daily, in order to avoid detection, and while the "jumper"
was off the defendant was not misappropriating the current. The complaint
alleged that the defendant did on, during, and between the 13th day of
February, 1909, and the 3d of March, 1910, willfully, unlawfully, and
feloniously take, steal, and carry away 2,277 kilowatts of electric current of
the value of P909. No demurrer was presented against this complaint on
the ground that more than one crime was charged. The Government had
no opportunity to amend or correct this error, if error at all. In the case of
U. S. v. Macaspac (12 Phil. Rep., 26), the defendant received from one
Joaquina Punu the sum of P31.50, with the request to deliver it to
Marcelina Dy-Oco. The defendant called upon Marcelina, but instead of
delivering the said amount she asked Marcelina for P30 in the name of
Joaquina who had in no way authorized her to do so. Marcelina gave her
P30, believing that Joaquina had sent for it. Counsel for the defendant
insisted that the complaint charged his client with two different crimes of
estafa in violation of section 11 of General Orders, No. 58. In disposing of
this question this court said:jgc:chanrobles.com.ph

"The said defect constitutes one of the dilatory pleas indicated by section
21, and the accused ought to have raised the point before the trial began.
Had this been done, the complaint might have been amended in time,
because it is merely a defect of form easily remedies. . . . Inasmuch as in
the first instance the accused did not make the corresponding dilatory plea
to the irregularity of the complaint, it must be understood that she has
waived such objection, and is not now entitled to raise for the first time any
question in reference thereto when submitting to this court her assignment
of errors. Apart from the fact that the defense does not pretend that any of
the essential rights of the accused have been injured, the allegation of the
defect above alluded to, which in any case would only affect the form of
the complaint, can not justify a reversal of the judgment appealed from,
according to the provisions of section 10 of General Orders, No.
58."cralaw virtua1aw library

In the case at bar it is not pointed out wherein any of the essential rights of
the defendant have been prejudiced by reason of the fact that the
complaint covered the entire period. If twelve distinct and separate
complaints had been filed against the defendant, one for each month, the
sum total of the penalties imposed might have been very much greater
than that imposed by the court in this case. The covering of the entire
period by one charge has been beneficial, if anything, and not prejudicial
to the rights of the defendant. The prosecuting attorney elected to cover
the entire period with one charge and the accused having been convicted
for this offense, he can not again be prosecuted for the stealing of the
current at any time within that period. Then, again, we are of the opinion
that the charge was properly laid. The electricity was stolen from the same
person, in the same manner, and in the same place. It was substantially
one continuous act, although the "jumper" might have been removed and
replaced daily or monthly. The defendant was moved by one impulse to
appropriate to his own use the current, and the means adopted by him for
the taking of the current were in the execution of a general fraudulent
plan.

"A person stole gas for the use of a manufactory by means of a pipe,
which drew off the gas from the main without allowing it to pass through
the meter. The gas from this pipe was burnt everyday, and turned off at
night. The pipe was never closed at its junction with the main, and
consequently always remained full of gas. It was held, that if the pipe
always remained full, there was, in fact, a continuous taking of the gas
and not a series of separate takings. It was held also that even if the pipe
had not been kept full, the taking would have been continuous, as it was
substantially all one transaction." (Regina v. Firth, L. R., 1 C. C., 172; 11
Cox C. C., 234. Cited on p. 758 of Whartons Criminal-Law, vol. 1, 10th
ed.)

The value of the electricity taken by the defendant was found by the trial
court to be P865.26. This finding is fully in accordance with the evidence
presented. So no error was committed in sentencing the defendant to
indemnify the company in this amount, or to suffer the corresponding
subsidiary imprisonment in case of insolvency.

The judgment being strictly in accordance with the law and the merits of
the case, same is hereby affirmed, with costs against the Appellant.