Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10817-18 February 28, 1958
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B.
Macatangay for respondent Plaza Theatre, Inc.
FELIX, J.:
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:
xxx xxx xxx
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 properties1 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.
[Nos. L-10837-38. May 30, 1958]
ASSOCIATED INSURANCE & SURETY COMPANY, INC., plaintiff, vs. ISABEL lYA, ADRIANO
VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff, vs. ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE
& SURETY COMPANY. INC., defendants.
Associated Ins. & Surety Co., Inc. vs. lya, et al.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors
of a house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park
Subdivision in Caloocan, Rizal, which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on
credit rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO
Bond No. G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as
counter-guaranty therefor, the spouses Valino executed an alleged chattel mortgage on
the aforementioned house in favor of the surety company, which encumbrance was
duly registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is
admitted that at the time said undertaking took place, the parcel of land on which the
house is erected was still registered in the name of the Philippine Realty Corporation.
Having completed payment on the purchase price of the lot, the Valinos were able to
secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an
indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot
and the house in favor of Isabel Iya, which was duly registered and annotated at the
back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the
surety company was compelled to pay the same pursuant to the undertaking of the
bond. In turn, the surety company demanded reimbursement from the spouses Valino,
and as the latter likewise failed to do so, the company foreclosed the chattel mortgage
over the house. As a result thereof, a public sale was conducted by the Provincial Sheriff
of Rizal on December 26, 1952, wherein the property was awarded to the surety
company for P8,000.00, the highest bid received therefor. The surety company then
caused the said house to be declared in its name for tax purposes (Tax Declaration No.
25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements
thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First
Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as
defendants. The complaint prayed for the exclusion of the residential house from the
real estate mortgage in favor of defendant Iya and the declaration and recognition of
plaintiff's right to ownership over the same in virtue of the award given by the Provincial
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise
asked the Court to sentence the spouses Valino to pay said surety moral and exemplary
damages, attorney's fees and costs. Defendant Isabel Iya filed her answer to the
complaint alleging among other things, that in virtue of the real estate mortgage
executed by her co-defendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff
of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and
void for non-compliance with the form required by law. She, therefore, prayed for the
dismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She
also demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of
P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint
and denied the others. They, however, prayed for the dismissal of the action for lack of
cause of action, it being alleged that plaintiff was already the owner of the house in
question, and as said defendants admitted this fact, the claim of the former was already
satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the
surety company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that
pursuant to the contract of mortgage executed by the spouses Valino on October 24,
1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum
or P120.00 a month, which indebtedness was payable in 4 years, extendible for only one
year; that to secure payment thereof, said defendants mortgaged the house and lot
covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision,
Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a
party defendant because it claimed to have an interest on the residential house also
covered by said mortgage; that it was stipulated in the aforesaid real estate mortgage
that default in the payment of the interest agreed upon would entitle the mortgagee to
foreclose the same even before the lapse of the 4-year period; and as defendant
spouses had allegedly failed to pay the interest for more than 6 months, plaintiff prayed
the Court to order said defendants to pay the sum of P12,000.00 with interest thereon
at 12% per annum from March 25, 1953, until fully paid; for an additional sum
equivalent to 20% of the total obligation as damages, and for costs. As an alternative in
case such demand may not be met and satisfied plaintiff prayed for a decree of
foreclosure of the land, building and other improvements thereon to be sold at public
auction and the proceeds thereof applied to satisfy the demands of plaintiff; that the
Valinos, the surety company and any other person claiming interest on the mortgaged
properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the
mortgaged property would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the
building, arguing that as the lot on which the house was constructed did not belong to
the spouses at the time the chattel mortgage was executed, the house might be
considered only as a personal property and that the encumbrance thereof and the
subsequent foreclosure proceedings made pursuant to the provisions of the Chattel
Mortgage Law were proper and legal. Defendant therefore prayed that said building be
excluded from the real estate mortgage and its right over the same be declared superior
to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of
the mortgage upon the land but assailed the allegation that the building was included
thereon, it being contended that it was already encumbered in favor of the surety
company before the real estate mortgage was executed, a fact made known to plaintiff
during the preparation of said contract and to which the latter offered no objection. As a
special defense, it was asserted that the action was premature because the contract was
for a period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the
same on a stipulation of facts, after which the Court rendered judgment dated March 8,
1956, holding that the chattel mortgage in favor of the Associated Insurance and Surety
Co., Inc., was preferred and superior over the real estate mortgage subsequently
executed in favor of Isabel Iya. It was ruled that as the Valinos were not yet the
registered owner of the land on which the building in question was constructed at the
time the first encumbrance was made, the building then was still a personality and a
chattel mortgage over the same was proper. However, as the mortgagors were already
the owner of the land at the time the contract with Isabel Iya was entered into, the
building was transformed into a real property and the real estate mortgage created
thereon was likewise adjudged as proper. It is to be noted in this connection that there
is no evidence on record to sustain the allegation of the spouses Valino that at the time
they mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of
the mortgaged property, i.e., the house, had previously been mortgaged to the surety
company.
The residential building was, therefore, ordered excluded from the foreclosure prayed
for by Isabel Iya, although the latter could exercise the right of a junior encumbrance. So
the spouses Valino were ordered to pay the amount demanded by said mortgagee or in
their default to have the parcel of land subject of the mortgage sold at public auction for
the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of 2
mortgages; controversy arise as to which of these encumbrances should receive
preference over the other. The decisive factor in resolving the issue presented by this
appeal is the determination of the nature of the structure litigated upon, for where it be
considered a personality, the foreclosure of the chattel mortgage and the subsequent
sale thereof at public auction, made in accordance with the Chattel Mortgage Law
would be valid and the right acquired by the surety company therefrom would certainly
deserve prior recognition; otherwise, appellant's claim for preference must be granted.
The lower Court, deciding in favor of the surety company, based its ruling on the
premise that as the mortgagors were not the owners of the land on which the building is
erected at the time the first encumbrance was made, said structure partook of the
nature of a personal property and could properly be the subject of a chattel mortgage.
We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:
. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and
distinct from the land, in the enumeration of what may constitute real properties (Art.
415, new Civil Code) could only mean one thing — that a building is by itself an
immovable property . . . Moreover, and in view of the absence of any specific provision
to the contrary, a building is an immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner. (Lopez vs.
Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the
land on which it is constructed belongs to another. To hold it the other way, the
possibility is not remote that it would result in confusion, for to cloak the building with
an uncertain status made dependent on the ownership of the land, would create a
situation where a permanent fixture changes its nature or character as the ownership of
the land changes hands. In the case at bar, as personal properties could only be the
subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in
question is not one, the execution of the chattel mortgage covering said building is
clearly invalid and a nullity. While it is true that said document was correspondingly
registered in the Chattel Mortgage Register of Rizal, this act produced no effect
whatsoever for where the interest conveyed is in the nature of a real property, the
registration of the document in the registry of chattels is merely a futile act. Thus, the
registration of the chattel mortgage of a building of strong materials produce no effect
as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644).
Nor can we give any consideration to the contention of the surety that it has acquired
ownership over the property in question by reason of the sale conducted by the
Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has
been declared null and void with respect to said real properties, acquires no right
thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed
from holding the rights of the surety company, over the building superior to that of
Isabel Iya and excluding the building from the foreclosure prayed for by the latter is
reversed and appellant Isabel Iya's right to foreclose not only the land but also the
building erected thereon is hereby recognized, and the proceeds of the sale thereof at
public auction (if the land has not yet been sold), shall be applied to the unsatisfied
judgment in favor of Isabel Iya. This decision however is without prejudice to any right
that the Associated Insurance and Surety Co., Inc., may have against the spouses
Adriano and Lucia Valino on account of the mortgage of said building they executed in
favor of said surety company. Without pronouncement as to costs. It is so ordered.
 Instance (Sec. 44, par. [b], R.A. 296, as amended), whether it pertains to the jurisdiction
G.R. No. L-16218 November 29, 1962 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
ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA, does exceed P2,000.00 (Sec. 88, id.)1
LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs. The dismissal of the complaint was proper. A house is classified as immovable property
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees. 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
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants. land belonging to a different owner. But once the house is demolished, as in this case, it
Ernesto Parol for defendants-appellees. 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
MAKALINTAL, J.: 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
This case is before us on appeal from the order of the Court of First Instance of Abra no wise constitutes the relief itself which if granted by final judgment could be
dismissing the complaint filed by appellants, upon motion of defendants-appellate on enforceable by execution, but is only incidental to the real cause of action to recover
the ground that the action was within the exclude (original) jurisdiction of the Justice of damages.
the Peace Court of Lagangilang, of the same province.
The order appealed from is affirmed. The appeal having been admitted in forma
The complaint alleges in substance that appellants were the owners of the house, worth pauperis, no costs are adjudged.
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
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.
Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted
Civil Case No. 8235 of the Court of First, Instance of Manila entitled " Santos
Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a
writ of attachment, which levied upon a house, built by Rivera on a land situated in
Manila and leased to him, by filing copy of said writ and the corresponding notice of
attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due
course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought
the house at public auction held in compliance with the writ of execution issued in said
case. The corresponding definite deed of sale was issued to him on October 22, 1952,
upon expiration of the period of redemption. When Evangelista sought to take
possession of the house, Rivera refused to surrender it, upon the ground that he had
leased the property from the Alto Surety & Insurance Co., Inc. — respondent herein —
and that the latter is now the true owner of said property. It appears that on May 10,
1952, a definite deed of sale of the same house had been issued to respondent, as the
highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ
of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety &
Insurance Co., Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which
judgment, for the sum of money, had been rendered in favor respondent herein, as
plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action
against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista)
title over said house, securing possession thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to the house,
because the sale made, and the definite deed of sale executed, in its favor, on
September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista
(October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also,
made some special defenses which are discussed hereafter. Rivera, in effect, joined
forces with respondent. After due trial, the Court of First Instance of Manila rendered
judgment for Evangelista, sentencing Rivera and respondent to deliver the house in
question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a
month from October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of Appeals,
which absolved said respondent from the complaint, upon the ground that, although the
writ of attachment in favor of Evangelista had been filed with the Register of Deeds of
Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a
preferential lien, the attachment having been levied as if the house in question were
immovable property, although in the opinion of the Court of Appeals, it is "ostensibly a
personal property." As such, the Court of Appeals held, "the order of attachment . . .
should have been served in the manner provided in subsection (e) of section 7 of Rule
59," of the Rules of Court, reading:
The property of the defendant shall be attached by the officer executing the order in the
following manner:
(e) Debts and credits, and other personal property not capable of manual delivery, by
leaving with the person owing such debts, or having in his possession or under his
control, such credits or other personal property, or with, his agent, a copy of the order,
and a notice that the debts owing by him to the defendant, and the credits and other
personal property in his possession, or under his control, belonging to the defendant,
are attached in pursuance of such order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that the house
of Rivera should have been attached in accordance with subsection (c) of said section 7,
as "personal property capable of manual delivery, by taking and safely keeping in his
custody", for it declared that "Evangelists could not have . . . validly purchased Ricardo
Rivera's house from the sheriff as the latter was not in possession thereof at the time he
sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In
this connection, it is not disputed that although the sale to the respondent preceded
that made to Evangelists, the latter would have a better right if the writ of attachment,
issued in his favor before the sale to the respondent, had been properly executed or
enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is
real property or not. In the affirmative case, the applicable provision would be
subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the
attachment should be made "by filing with the registrar of deeds a copy of the order,
together with a description of the property attached, and a notice that it is attached,
and by leaving a copy of such order, description, and notice with the occupant of the
property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's house is
personal property, the levy upon which must be made in conformity with subsections (c)
and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house,
constructed the lessee of the land on which it is built, should be dealt with, for purpose,
of attachment, as immovable property, or as personal property.
It is, our considered opinion that said house is not personal property, much less a debt,
credit or other personal property not capable of manual delivery, but immovable
property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building
(not merely superimposed on the soil) is immovable or real property, whether it is
erected by the owner of the land or by usufructuary or lessee. This is the doctrine of our
Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is
amply supported by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a house as
personal property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz.,
2664; Standard Oil Co. of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co.,
Inc., 72 Phil., 464). However, this view is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel. Neither this principle, nor
said view, is applicable to strangers to said contract. Much less is it in point where there
has been no contract whatsoever, with respect to the status of the house involved, as in
the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz.,
3954), we held:
The question now before us, however, is: Does the fact that the parties entering into a
contract regarding a house gave said property the consideration of personal property in
their contract, bind the sheriff in advertising the property's sale at public auction as
personal property? It is to be remembered that in the case at bar the action was to
collect a loan secured by a chattel mortgage on the house. It is also to be remembered
that in practice it is the judgment creditor who points out to the sheriff the properties
that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar
is the party in whose favor the owner of the house had conveyed it by way of chattel
mortgage and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow,
and, we should not interpret them in such a way as to allow, the special consideration
that parties to a contract may have desired to impart to real estate, for example, as
personal property, when they are, not ordinarily so. Sales on execution affect the public
and third persons. The regulation governing sales on execution are for public officials to
follow. The form of proceedings prescribed for each kind of property is suited to its
character, not to the character, which the parties have given to it or desire to give it.
When the rules speak of personal property, property which is ordinarily so considered is
meant; and when real property is spoken of, it means property which is generally known
as real property. The regulations were never intended to suit the consideration that
parties may have privately given to the property levied upon. Enforcement of regulations
would be difficult were the convenience or agreement of private parties to determine or
govern the nature of the proceedings. We therefore hold that the mere fact that a
house was the subject of the chattel mortgage and was considered as personal property
by the parties does not make said house personal property for purposes of the notice to
be given for its sale of public auction. This ruling is demanded by the need for a definite,
orderly and well defined regulation for official and public guidance and would prevent
confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on execution, although
subject of a contract of chattel mortgage between the owner and a third person, is real property
within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent
fixture of the land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery
Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et al., [C.A.]
Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for the levy of
attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable property, its
attachment by Evangelista was void or ineffective, because, in the language of the Court of
Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of
Deeds, the person who might then be in possession of the house, the sheriff took no pains to serve
Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neither conclusive
upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in paragraph 3
of the complaint, that he acquired the house in question "as a consequence of the levy of an attachment
and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his answer
(paragraph 2), Ricardo Rivera admitted said attachment execution of judgment. He alleged, however, by
way a of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a
public instrument," whereas Evangelista relied upon a "promissory note" which "is only a private
instrument"; that said Public instrument in favor of respondent "is superior also to the judgment in Civil
Case No. 8235"; and that plaintiff's claim against Rivera amounted only to P866, "which is much below the
real value" of said house, for which reason it would be "grossly unjust to acquire the property for such an
inadequate consideration." Thus, Rivera impliedly admitted that his house had been attached, that the
house had been sold to Evangelista in accordance with the requisite formalities, and that said attachment
was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to
Evangelista was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the reasons
stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed
executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in
question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent "took possession
and control of said house"; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of
Manila of the property in question as neither took actual or constructive possession or control of the
property at any time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of sale and
final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no
registry of transactions covering houses erected on land belonging to or leased from another." In this
manner, respondent claimed a better right, merely under the theory that, in case of double sale of
immovable property, the purchaser who first obtains possession in good faith, acquires title, if the sale has
not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the
writ of attachment and the notice of attachment in favor of Evangelista should be considered unregistered,
"as there is no registry of transactions covering houses erected on land belonging to or leased from
another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, was quoted
on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error
therein, to the effect that it "has preference or priority over the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of attachment had been served
on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies of said writ
and notice, was introduced in the Court of First Instance. In its brief in the Court of Appeals, respondent did
not aver, or even, intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on
Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour
throughout the proceedings in the Court of First Instance, and, as regards respondent, in the Court of
Appeals. In fact, petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were
delivered to Rivera, simultaneously with copies of the complaint, upon service of summons, prior to the filing
of copies of said writ and notice with the register deeds, and the truth of this assertion has not been directly
and positively challenged or denied in the brief filed before us by respondent herein. The latter did not dare
therein to go beyond making a statement — for the first time in the course of these proceedings, begun
almost five (5) years ago (June 18, 1953) — reproducing substantially the aforementioned finding of the
Court of Appeals and then quoting the same.
Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on
whether or not copies of the writ of attachment and notice of attachment had been served upon Rivera; that
the defendants had impliedly admitted-in said pleadings and briefs, as well as by their conduct during the
entire proceedings, prior to the rendition of the decision of the Court of Appeals — that Rivera had received
copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we, are of
the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been
served upon Rivera is based upon a misapprehension of the specific issues involved therein and
goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the
parties, and that, accordingly, a grave abuse of discretion was committed in making said finding, which is,
furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered
affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the
Alto Surety and Insurance Co., Inc. It is so ordered.
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-
appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning
machinery company from the defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It included in the mortgage
deed the building of strong materials in which the machinery was installed, without any
reference to the land on which it stood. The indebtedness secured by this instrument
not having been paid when it fell due, the mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in the chattel mortgage registry, and
the sale of the property to the machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although executed in a public document, was
not registered. This deed makes no reference to the building erected on the land and
would appear to have been executed for the purpose of curing any defects which might
be found to exist in the machinery company's title to the building under the sheriff's
certificate of sale. The machinery company went into possession of the building at or
about the time when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compañia Agricola Filipina" executed another mortgage
to the plaintiff upon the building, separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to pay the amount of
the indebtedness secured by the mortgage, the plaintiff secured judgment for that
amount, levied execution upon the building, bought it in at the sheriff's sale on or about
the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered
in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up
its claim of title and demanding the release of the property from the levy. Thereafter,
upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of the
sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at
public auction to the plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the
machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in
favor of the machinery company, on the ground that the company had its title to the
building registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be
transfer to the person who may have the first taken possession thereof in good faith, if
it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it
in the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to
say, mortgages of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning machinery was
installed by the "Compañia Agricola Filipina" was real property, and the mere fact that
the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It follows that neither the
original registry in the chattel mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the mortgaged property, had
any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on
the ground assigned by the trial judge. We are of opinion, however, that the judgment
must be sustained on the ground that the agreed statement of facts in the court below
discloses that neither the purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and that the
machinery company must be held to be the owner of the property under the third
paragraph of the above cited article of the code, it appearing that the company first
took possession of the property; and further, that the building and the land were sold to
the machinery company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require
"good faith," in express terms, in relation to "possession" and "title," but contain no
express requirement as to "good faith" in relation to the "inscription" of the property on
the registry, it must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention of the legislator to base
the preferential right secured under this article of the code upon an inscription of title in
bad faith. Such an interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public record presupposes
the good faith of him who enters such inscription; and rights created by statute, which
are predicated upon an inscription in a public registry, do not and cannot accrue under
an inscription "in bad faith," to the benefit of the person who thus makes the
inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain
held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have
preference, this provision must always be understood on the basis of the good faith
mentioned in the first paragraph; the legislator could not have wished to strike it out
and to sanction bad faith, just to comply with a mere formality which, in given cases,
does not obtain even in real disputes between third persons. (Note 2, art. 1473, Civ.
Code, issued by the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the
building at the sheriff's sale and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from plaintiff's judgment debtor;
that it had gone into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had
filed its sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the time of the
levy and sale the building had already been sold to the machinery company by the
judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith;
and of course, the subsequent inscription of the sheriff's certificate of title must be held
to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and genuineness of the plaintiff's
claim against the "Compañia Agricola Filipina." The truth is that both the plaintiff and
the defendant company appear to have had just and righteous claims against their
common debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the amount of
his claim from the estate of the common debtor. We are strongly inclined to believe that
in procuring the levy of execution upon the factory building and in buying it at the
sheriff's sale, he considered that he was doing no more than he had a right to do under
all the circumstances, and it is highly possible and even probable that he thought at that
time that he would be able to maintain his position in a contest with the machinery
company. There was no collusion on his part with the common debtor, and no thought
of the perpetration of a fraud upon the rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and if later
developments had confirmed his unfounded hopes, no one could question the legality
of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of ownership
was well founded, he cannot be said to have been an innocent purchaser for value. He
took the risk and must stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.
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.
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo,
register of deeds of the City of Manila, to an original petition of the Standard Oil
Company of New York, seeking a peremptory mandamus to compel the respondent to
record in the proper register a document purporting to be a chattel mortgage executed
in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil
Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de
Vera, was the lessee of a parcel of land situated in the City of Manila and owner of the
house of strong materials built thereon, upon which date she executed a document in
the form of a chattel mortgage, purporting to convey to the petitioner by way of
mortgage both the leasehold interest in said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of
mortgage, the following described personal property, situated in the City of Manila, and
now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the 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 The demurrer is overruled; and unless within the period of five days from the date of
administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of the notification hereof, the respondent shall interpose a sufficient answer to the
this Court, but acting at that time in the capacity of Judge of the fourth branch of the petition, the writ of mandamus will be issued, as prayed, but without costs. So ordered.
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.
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the Province of Tarlac on
the 14th day of December 1924. The facts are about as conflicting as it is possible for
facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal,
deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the
Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J.
Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land
described in the complaint in the third paragraph of the first cause of action; that within
one year from the date of the attachment and sale the plaintiff offered to redeem said
sugar cane and tendered to the defendant Valdez the amount sufficient to cover the
price paid by the latter, the interest thereon and any assessments or taxes which he may
have paid thereon after the purchase, and the interest corresponding thereto and that
Valdez refused to accept the money and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez
was attempting to harvest the palay planted in four of the seven parcels mentioned in
the first cause of action; that he had harvested and taken possession of the palay in one
of said seven parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the defendant
Emiliano J. Valdez his attorneys and agents, restraining them (1) from distributing him in
the possession of the parcels of land described in the complaint; (2) from taking
possession of, or harvesting the sugar cane in question; and (3) from taking possession,
or harvesting the palay in said parcels of land. Plaintiff also prayed that a judgment be
rendered in his favor and against the defendants ordering them to consent to the
redemption of the sugar cane in question, and that the defendant Valdez be condemned
to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the two
parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval of the
bond for P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for
in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and
specifically each and every allegation of the complaint and step up the following
defenses:
(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of
the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the
preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots
(puntas de cana dulce) palay in said parcels of land, representing a loss to him of
P8,375.20 and that, in addition thereto, he suffered damages amounting to P3,458.56.
He prayed, for a judgment (1) absolving him from all liability under the complaint; (2)
declaring him to be the absolute owner of the sugar cane in question and of the palay in
parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of P11,833.76,
representing the value of the sugar cane and palay in question, including damages.
Upon the issues thus presented by the pleadings the cause was brought on for trial.
After hearing the evidence, and on April 28, 1926, the Honorable Cayetano Lukban,
judge, rendered a judgment against the plaintiff and in favor of the defendants —
(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.º — the same parties in the present
case), attached the personal property of said Leon Sibal located in Tarlac, among which
was included the sugar cane now in question in the seven parcels of land described in
the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who
paid therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also
attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest
and participation therein, which real property consisted of eleven parcels of land and a
house and camarin situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the house and the
camarin, were bought by Emilio J. Valdez at the auction held by the sheriff for the sum
of P12,200. Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4,
5, 6, 7, 10 and 11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels
2, 12, and 13, were released from the attachment by virtue of claims presented by
Agustin Cuyugan and Domiciano Tizon (Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio
J. Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired
by it at public auction held by the deputy sheriff of Tarlac in connection with civil case
No. 20203 of the Court of First Instance of Manila, as stated above. Said amount
represented the unpaid balance of the redemption price of said eight parcels, after
payment by Leon Sibal of P2,000 on September 24, 1923, fro the account of the
redemption price, as stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels
of land described in the first cause of action of the complaint at public auction on May 9
and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land
situated in the Province of Tarlac belonging to Leon Sibal and that on September 24,
1923, Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption
price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its
rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest
which Leon Sibal had or might have had on said eight parcels by virtue of the P2,000
paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.
The first question raised by the appeal is, whether the sugar cane in question is personal
or real property. It is contended that sugar cane comes under the classification of real
property as "ungathered products" in paragraph 2 of article 334 of the Civil Code. Said
paragraph 2 of article 334 enumerates as real property the following: Trees, plants, and
ungathered products, while they are annexed to the land or form an integral part of any
immovable property." That article, however, has received in recent years an
interpretation by the Tribunal Supremo de España, which holds that, under certain
conditions, growing crops may be considered as personal property. (Decision of March
18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334
of the Civil Code, in view of the recent decisions of the supreme Court of Spain, admits
that growing crops are sometimes considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen
tocante a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa
frecuente con la uvay y la naranja), y a la de lenas, considerando ambas como muebles.
El Tribunal Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve que su terminacion por
desahucio no extingue los derechos del arrendario, para recolectar o percibir los frutos
correspondientes al año agricola, dentro del que nacieron aquellos derechos, cuando el
arrendor ha percibido a su vez el importe de la renta integra correspondiente, aun
cuando lo haya sido por precepto legal durante el curso del juicio, fundandose para ello,
no solo en que de otra suerte se daria al desahucio un alcance que no tiene, sino en que,
y esto es lo interesante a nuestro proposito, la consideracion de inmuebles que el
articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les priva del caracter de
productos pertenecientes, como tales, a quienes a ellos tenga derecho, Ilegado el
momento de su recoleccion.
xxx xxx xxx
Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16
de diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la
hipoteca, salvo pacto expreso que disponga lo contrario, y cualquiera que sea la
naturaleza y forma de la obligacion que garantice, no comprende los frutos cualquiera
que sea la situacion en que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending fruits and
ungathered products may be sold and transferred as personal property; (2) that the
Supreme Court of Spain, in a case of ejectment of a lessee of an agricultural land, held
that the lessee was entitled to gather the products corresponding to the agricultural
year, because said fruits did not go with the land but belonged separately to the lessee;
and (3) that under the Spanish Mortgage Law of 1909, as amended, the mortgage of a
piece of land does not include the fruits and products existing thereon, unless the
contract expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana may give us some
light on the question which we are discussing. Article 465 of the Civil Code of Louisiana,
which corresponds to paragraph 2 of article 334 of our Civil Code, provides: "Standing
crops and the fruits of trees not gathered, and trees before they are cut down, are
likewise immovable, and are considered as part of the land to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that provision, held that in
some cases "standing crops" may be considered and dealt with as personal property. In
the case of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court
said: "True, by article 465 of the Civil Code it is provided that 'standing crops and the
fruits of trees not gathered and trees before they are cut down . . . are considered as
part of the land to which they are attached, but the immovability provided for is only
one in abstracto and without reference to rights on or to the crop acquired by others
than the owners of the property to which the crop is attached. . . . The existence of a
right on the growing crop is a mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right acquired therein. Our
jurisprudence recognizes the possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass,
27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La.
An., 761) that "article 465 of the Revised Code says that standing crops are considered
as immovable and as part of the land to which they are attached, and article 466
declares that the fruits of an immovable gathered or produced while it is under seizure
are considered as making part thereof, and incurred to the benefit of the person making
the seizure. But the evident meaning of these articles, is where the crops belong to the
owner of the plantation they form part of the immovable, and where it is seized, the
fruits gathered or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the immovable. It belongs to
the lessee, and may be sold by him, whether it be gathered or not, and it may be sold by
his judgment creditors. If it necessarily forms part of the leased premises the result
would be that it could not be sold under execution separate and apart from the land. If a
lessee obtain supplies to make his crop, the factor's lien would not attach to the crop as
a separate thing belonging to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be construed so as to result in such
absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would
be destructive of the very objects of the act, it would render the pledge of the crop
objects of the act, it would render the pledge of the crop impossible, for if the crop was
an inseparable part of the realty possession of the latter would be necessary to that of
the former; but such is not the case. True, by article 465 C. C. it is provided that
"standing crops and the fruits of trees not gathered and trees before they are cut down
are likewise immovable and are considered as part of the land to which they are
attached;" but the immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by other than the owners of the property
to which the crop was attached. The immovability of a growing crop is in the order of
things temporary, for the crop passes from the state of a growing to that of a gathered
one, from an immovable to a movable. The existence of a right on the growing crop is a
mobilization by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired thereon. The provision of our Code is identical with
the Napoleon Code 520, and we may therefore obtain light by an examination of the
jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de España but by the
Supreme Court of Louisiana, is followed in practically every state of the Union.
From an examination of the reports and codes of the State of California and other states
we find that the settle doctrine followed in said states in connection with the
attachment of property and execution of judgment is, that growing crops raised by
yearly labor and cultivation are considered personal property. (6 Corpuz Juris, p. 197; 17
Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254;
Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on
Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644;
Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution,
vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then belonging to
the vendor, and then title will vest in the buyer the moment the thing comes into
existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a potential
existence. A man may sell property of which he is potentially and not actually possessed.
He may make a valid sale of the wine that a vineyard is expected to produce; or the gain
a field may grow in a given time; or the milk a cow may yield during the coming year; or
the wool that shall thereafter grow upon sheep; or what may be taken at the next cast
of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the good
will of a trade and the like. The thing sold, however, must be specific and identified.
They must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of the Code of Civil Procedure as well as by Act
No. 1508, the Chattel Mortgage Law. Said section 450 enumerates the property of a
judgment debtor which may be subjected to execution. The pertinent portion of said
section reads as follows: "All goods, chattels, moneys, and other property, both real and
personal, * * * shall be liable to execution. Said section 450 and most of the other
sections of the Code of Civil Procedure relating to the execution of judgment were taken
from the Code of Civil Procedure of California. The Supreme Court of California, under
section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held,
without variation, that growing crops were personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are
personal property. Section 2 of said Act provides: "All personal property shall be subject
to mortgage, agreeably to the provisions of this Act, and a mortgage executed in
pursuance thereof shall be termed a chattel mortgage." Section 7 in part provides: "If
growing crops be mortgaged the mortgage may contain an agreement stipulating that
the mortgagor binds himself properly to tend, care for and protect the crop while
growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on the
assumption that "growing crops" are personal property. This consideration tends to
support the conclusion hereinbefore stated, that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of Act No. 190 and by Act No. 1508 in the sense
that "ungathered products" as mentioned in said article of the Civil Code have the
nature of personal property. In other words, the phrase "personal property" should be
understood to include "ungathered products."
At common law, and generally in the United States, all annual crops which are raised by
yearly manurance and labor, and essentially owe their annual existence to cultivation by
man, . may be levied on as personal property." (23 C. J., p. 329.) On this question
Freeman, in his treatise on the Law of Executions, says: "Crops, whether growing or
standing in the field ready to be harvested, are, when produced by annual cultivation,
no part of the realty. They are, therefore, liable to voluntary transfer as chattels. It is
equally well settled that they may be seized and sold under execution. (Freeman on
Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense
that, for the purpose of attachment and execution, and for the purposes of the Chattel
Mortgage Law, "ungathered products" have the nature of personal property. The lower
court, therefore, committed no error in holding that the sugar cane in question was
personal property and, as such, was not subject to redemption.
All the other assignments of error made by the appellant, as above stated, relate to
questions of fact only. Before entering upon a discussion of said assignments of error,
we deem it opportune to take special notice of the failure of the plaintiff to appear at
the trial during the presentation of evidence by the defendant. His absence from the
trial and his failure to cross-examine the defendant have lent considerable weight to the
evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first cause of action of
the complaint, the plaintiff made a futile attempt to show that said two parcels
belonged to Agustin Cuyugan and were the identical parcel 2 which was excluded from
the attachment and sale of real property of Sibal to Valdez on June 25, 1924, as stated
above. A comparison of the description of parcel 2 in the certificate of sale by the sheriff
(Exhibit A) and the description of parcels 1 and 2 of the complaint will readily show that
they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela
de terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa,
Bamban, Tarlac, de unas dos hectareas poco mas o menos de superficie.
2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado
Alejandro Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada
en Dalayap, Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o
menos." The description of parcel 2 given in the certificate of sale (Exhibit A) is as
follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros
cuadrados de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro
Dayrit; al E. con Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit,
Isidro Santos and Melecio Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax
No. 2854, vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show that parcels 1 and
2 of the complaint were included among the parcels bought by Valdez from Macondray
on June 25, 1924, and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and
were also included among the parcels bought by Valdez at the auction of the real
property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in the certificate
of sale made by the sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and parcel
3 (Exhibit A) is as follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I.
F. de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio
of Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y
Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de
P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint
and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did
not care to appear at the trial when the defendant offered his evidence, we are inclined
to give more weight to the evidence adduced by him that to the evidence adduced by
the plaintiff, with respect to the ownership of parcels 1 and 2 of the compliant. We,
therefore, conclude that parcels 1 and 2 of the complaint belong to the defendant,
having acquired the same from Macondray & Co. on June 25, 1924, and from the
plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and harvested
therefrom 190 cavans. There being no evidence of bad faith on his part, he is therefore
entitled to one-half of the crop, or 95 cavans. He should therefore be condemned to pay
to the defendant for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for
the total of 190 cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel
corresponds to parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and
2), and to parcel 4 in the certificate of sale to Valdez of real property belonging to Sibal,
executed by the sheriff as above stated (Exhibit A). Valdez is therefore the absolute
owner of said parcel, having acquired the interest of both Macondray and Sibal in said
parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the
second cause of action, it appears from the testimony of the plaintiff himself that said
parcel corresponds to parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and
2) and to parcel 10 in the deed of sale executed by the sheriff in favor of Valdez (Exhibit
A). Valdez is therefore the absolute owner of said parcel, having acquired the interest of
both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were
attached under said execution. Said parcels of land were sold to Macondray & Co. on
the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid
to Macondray & Co. P2,000 on the redemption of said parcels of land. (See Exhibits B
and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached,
including the sugar cane in question. (Exhibit A) The said personal property so attached,
sold at public auction May 9 and 10, 1924. April 29, 1924, the real property was
attached under the execution in favor of Valdez (Exhibit A). June 25, 1924, said real
property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public
auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the evidence
shows that the sugar cane in question covered an area of 22 hectares and 60 ares
(Exhibits 8, 8-b and 8-c); that said area would have yielded an average crop of 1039
picos and 60 cates; that one-half of the quantity, or 519 picos and 80 cates would have
corresponded to the defendant, as owner; that during the season the sugar was selling
at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have netted
P 6,757.40 from the sugar cane in question. The evidence also shows that the defendant
could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas de cana) and
not 1,170,000 as computed by the lower court. During the season the shoots were
selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have
netted P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by the lower
court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting
to 190 cavans, one-half of said quantity should belong to the plaintiff, as stated above,
and the other half to the defendant. The court erred in awarding the whole crop to the
defendant. The plaintiff should therefore pay the defendant for 95 cavans only, at P3.40
a cavan, or P323 instead of P646 as allowed by the lower court.
The evidence also shows that the defendant was prevented by the acts of the plaintiff
from cultivating about 10 hectares of the land involved in the litigation. He expected to
have raised about 600 cavans of palay, 300 cavans of which would have corresponded to
him as owner. The lower court has wisely reduced his share to 150 cavans only. At P4 a
cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff
and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered
to pay to the defendant jointly and severally the sum of P8,900.80, instead of P9,439.08
allowed by the lower court, as follows:
P6,757.40 for the sugar cane;
1,220.40 for the sugar cane shoots;
 323.00 for the palay harvested by plaintiff in parcels 1 and 2;

600.00 for the palay which defendant could have raised.

8,900.80
============
In all other respects, the judgment appealed from is hereby affirmed, with costs. So
ordered.
G.R. No. 120098 October 2, 2001 (Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications
RUBY L. TSAI, petitioner, — continued)
vs. LIST OF MACHINERIES & EQUIPMENT
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:
VILLALUZ, respondents. Serial Numbers Size of Machines
x---------------------------------------------------------x xxx xxx xxx
[G.R. No. 120109. October 2, 2001.] B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, xxx xxx xxx
vs. C. Two (2) Circular Knitting Machines made in West Germany.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R xxx xxx xxx
VILLALUZ, respondents. D. Four (4) Winding Machines.
xxx xxx xxx
QUISUMBING, J.: SCHEDULE "A"
I. TCT # 372097 - RIZAL
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. xxx xxx xxx
32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil II. Any and all buildings and improvements now existing or hereafter to exist on the
Case No. 89-48265. Also assailed is respondent court's resolution denying petitioners' above-mentioned lot.
motion for reconsideration. III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three mentioned lot located at . . .
million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (a) Forty eight sets (48) Vayrow Knitting Machines . . .
(PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real (b) Sixteen sets (16) Vayrow Knitting Machines . . .
and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and (c) Two (2) Circular Knitting Machines . . .
the chattels located therein as enumerated in a schedule attached to the mortgage (d) Two (2) Winding Machines . . .
contract. The pertinent portions of the Real and Chattel Mortgage are quoted below: (e) Two (2) Winding Machines . . .
MORTGAGE IV. Any and all replacements, substitutions, additions, increases and accretions to above
(REAL AND CHATTEL) properties.
xxx xxx xxx xxx xxx xxx3
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and was secured by a Chattel Mortgage over personal properties enumerated in a list
improvements now existing or which may hereafter exist thereon, situated in . . . attached thereto. These listed properties were similar to those listed in Annex A of the
"Annex A" first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned
above, EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay
City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the
corporation insolvent. All its assets were taken into the custody of the Insolvency Court,
including the collateral, real and personal, securing the two mortgages as
abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135,
otherwise known as "An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner PBCom
emerged as the highest bidder and a Certificate of Sale was issued in its favor on the
same date. On December 23, 1982, another public auction was held and again, PBCom
was the highest bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties
in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai
for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel
to Tsai for P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the
extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law.
EVERTEX claimed that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and
should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated
the contested properties, which were not included in the Real and Chattel Mortgage of
November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were
those properties included in the Notice of Sheriff's Sale dated December 1, 1982 and
Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular
Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and
1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and
illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction
sale since these were not included in the schedules attached to the mortgage contracts.
The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against
the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects
the personal properties listed in par. 9 of the complaint, and their return to the plaintiff
corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P5,200,000.00 as compensation for the use and possession of the properties in
question from November 1986 to February 1991 and P100,000.00 every month
thereafter, with interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its
decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary damages,
and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from
November 1986 until subject personal properties are restored to appellees, the
judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement
as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution
of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this
Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A
CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS
CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE
DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE
MORTGAGE — DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE
RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING
PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.
V litigation, for want of valid factual and legal basis.11
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST
PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE
1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL
PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE
1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE
MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT
SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL
PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR
REAL ESTATE TAX PURPOSES?
II
FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE
DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS
BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU
THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF
UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned
properties in the foreclosed properties is proper. The secondary issue is whether or not
the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the
parties by treating the 1981 acquired units of machinery as chattels instead of real
properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of
Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that
the disputed 1981 machineries are not real properties.9 Finally, she contends that the
Court of Appeals erred in holding against petitioner's arguments on prescription and
laches10 and in assessing petitioner actual damages, attorney's fees and expenses of
Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed
and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of
Appeals' pronouncement that the pieces of machinery in question were personal
properties have no factual and legal basis. Finally, it asserts that the Court of Appeals
erred in assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are
not "real properties" but chattels, and, therefore, they were not part of the foreclosed
real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the petitions
devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of Appeals
that are decisive of the issues: (1) the "controverted machineries" are not covered by, or
included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the
pure Chattel Mortgage; (2) the said machineries were not included in the list of
properties appended to the Notice of Sale, and neither were they included in the
Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make
them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This
assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the
controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate courts reached the same
finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery
and equipment as chattels. The pertinent portion of respondent appellate court's ruling
is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels;
never as real properties. Indeed, the 1975 mortgage contract, which was actually real
and chattel mortgage, militates against appellants' posture. It should be noted that the
printed form used by appellant bank was mainly for real estate mortgages. But reflective
of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital
letters, immediately following the printed caption of mortgage, of the phrase "real and
chattel." So also, the "machineries and equipment" in the printed form of the bank had
to be inserted in the blank space of the printed contract and connected with the word
"building" by typewritten slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there would have been no
necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a
listing of the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question.
It refers solely to chattels. The inventory list of the mortgaged properties is an
itemization of sixty-three (63) individually described machineries while the schedule
listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural
cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to depart
therefrom.
Too, assuming arguendo that the properties in question are immovable by nature,
nothing detracts the parties from treating it as chattels to secure an obligation under
the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property if there is a stipulation as when it is
used as security in the payment of an obligation where a chattel mortgage is executed
over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate
Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their
intention is to treat all properties included therein as immovable, and (2) attached to
the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken
together, evince the conclusion that the parties' intention is to treat these units of
machinery as chattels. A fortiori, the contested after-acquired properties, which are of
the same description as the units enumerated under the title "LIST OF MACHINERIES &
EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that
inasmuch as the subject mortgages were intended by the parties to involve chattels,
insofar as equipment and machinery were concerned, the Chattel Mortgage Law
applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed
to cover only the property described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been
involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the
part of the Sheriff to include subject machineries with the properties enumerated in said
chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its
favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary
principle of nemo dat quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested
properties is a nullity, she is nevertheless a purchaser in good faith and for value who
now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that
she is not a purchaser in good faith. Well-settled is the rule that the person who asserts
the status of a purchaser in good faith and for value has the burden of proving such
assertion.18 Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or before he
has notice of the claims or interest of some other person in the property.19 Records
reveal, however, that when Tsai purchased the controverted properties, she knew of
respondent's claim thereon. As borne out by the records, she received the letter of
respondent's counsel, apprising her of respondent's claim, dated February 27,
1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's
claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the
RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not
to sale of properties situated therein. Likewise, the mere fact that the lot where the
factory and the disputed properties stand is in PBCom's name does not automatically
make PBCom the owner of everything found therein, especially in view of EVERTEX's
letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find
no cogent reason to disturb the consistent findings of both courts below that the case
for the reconveyance of the disputed properties was filed within the reglementary
period. Here, in our view, the doctrine of laches does not apply. Note that upon
petitioners' adamant refusal to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and ownership of the disputed
properties. There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier. The doctrine of stale demands would
apply only where by reason of the lapse of time, it would be inequitable to allow a party
to enforce his legal rights. Moreover, except for very strong reasons, this Court is not
disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages, and
attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to
the unpaid rentals of the contested properties based on the testimony of John Chua,
who testified that the P100,000.00 was based on the accepted practice in banking and
finance, business and investments that the rental price must take into account the cost
of money used to buy them. The Court of Appeals did not give full credence to Chua's
projection and reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be
capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount
thereof.23 However, the allegations of respondent company as to the amount of
unrealized rentals due them as actual damages remain mere assertions unsupported by
documents and other competent evidence. In determining actual damages, the court
cannot rely on mere assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence obtainable regarding the actual
amount of loss.24 However, we are not prepared to disregard the following dispositions
of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record
warranting the said award of P5,200,000.00, representing monthly rental income of
P100,000.00 from November 1986 to February 1991, and the additional award of
P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of
Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the
actual damages allegedly sustained by appellees, by way of unrealized rental income of
subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on what is
claimed to be a practice in business and industry. But such a testimony cannot serve as
the sole basis for assessing the actual damages complained of. What is more, there is no
showing that had appellant Tsai not taken possession of the machineries and
equipments in question, somebody was willing and ready to rent the same for
P100,000.00 a month.
xxx xxx xxx
Then, too, even assuming arguendo that the said machineries and equipments could
have generated a rental income of P30,000.00 a month, as projected by witness
Mamerto Villaluz, the same would have been a gross income. Therefrom should be
deducted or removed, expenses for maintenance and repairs . . . Therefore, in the
determination of the actual damages or unrealized rental income sued upon, there is a
good basis to calculate that at least four months in a year, the machineries in dispute
would have been idle due to absence of a lessee or while being repaired. In the light of
the foregoing rationalization and computation, We believe that a net unrealized rental
income of P20,000.00 a month, since November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners
acted malevolently, wantonly and oppressively. The evidence, however, shows
otherwise.It is a requisite to award exemplary damages that the wrongful act must be
accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive,
reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of
purchasing the controverted properties despite her knowledge of EVERTEX's claim was
oppressive and subjected the already insolvent respondent to gross disadvantage.
Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on
March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of
the financially handicapped respondent, including those properties not covered by or
included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are
in agreement with the RTC that an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216
of the Civil Code provides that no proof of pecuniary loss is necessary for the
adjudication of exemplary damages, their assessment being left to the discretion of the
court in accordance with the circumstances of each case.29 While the imposition of
exemplary damages is justified in this case, equity calls for its reduction. In Inhelder
Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983),
we laid down the rule that judicial discretion granted to the courts in the assessment of
damages must always be exercised with balanced restraint and measured objectivity.
Thus, here the award of exemplary damages by way of example for the public good
should be reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be recovered
when exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as
attorney's fees and expenses of litigation is reasonable, given the circumstances in these
cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court
of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners
Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly
and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as
compensation for the use and possession of the properties in question from November
198631 until subject personal properties are restored to respondent corporation; (2)
P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and
litigation expenses. Costs against petitioners.
SO ORDERED.
G.R. No. L-32917 July 18, 1988
JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.),
INC., respondents.
Paterno P. Natinga for private respondent.
NARVASA, J.:
The petition for review on certiorari at bar involves two (2) Orders of respondent Judge
Tañada 1 in Civil Case No. 10984. The first, dated September 16, 1970, denied petitioner
Yap's motion to set aside execution sale and to quash alias writ of execution. The
second, dated November 21, 1970, denied Yap's motion for reconsideration. The issues
concerned the propriety of execution of a judgment claimed to be "incomplete, vague
and non-final," and the denial of petitioner's application to prove and recover damages
resulting from alleged irregularities in the process of execution.
The antecedents will take some time in the telling. The case began in the City Court of
Cebu with the filing by Goulds Pumps International (Phil.), Inc. of a complaint 2 against
Yap and his wife 3 seeking recovery of P1,459.30 representing the balance of the price
and installation cost of a water pump in the latter's premises. 4 The case resulted in a
judgment by the City Court on November 25, 1968, reading as follows:
When this case was called for trial today, Atty. Paterno Natinga appeared for the
plaintiff Goulds and informed the court that he is ready for trial. However, none of the
defendants appeared despite notices having been served upon them.
Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence ex-
parte.
After considering the evidence of the plaintiff, the court hereby renders judgment in
favor of the plaintiff and against the defendant (Yap), ordering the latter to pay to the
former the sum of Pl,459.30 with interest at the rate of 12% per annum until fully paid,
computed from August 12, 1968, date of the filing of the complaint; to pay the sum of
P364.80 as reasonable attorney's fees, which is equivalent " to 25% of the unpaid
principal obligation; and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to the sala of
respondent Judge Tañada. For failure to appear for pre-trial on August 28, 1968, this
setting being intransferable since the pre-trial had already been once postponed at his
instance, 5 Yap was declared in default by Order of Judge Tañada dated August 28,
1969, 6 reading as follows:
When this case was called for pre-trial this morning, the plaintiff and counsel appeared,
but neither the defendants nor his counsel appeared despite the fact that they were
duly notified of the pre-trial set this morning. Instead he filed an Ex-Parte Motion for
Postponement which this Court received only this morning, and on petition of counsel
for the plaintiff that the Ex-Parte Motion for Postponement was not filed in accordance
with the Rules of Court he asked that the same be denied and the defendants be
declared in default; .. the motion for the plaintiff being well- grounded, the defendants
are hereby declared in default and the Branch Clerk of Court ..is hereby authorized to
receive evidence for the plaintiff and .. submit his report within ten (10) days after
reception of evidence.
Goulds presented evidence ex parte and judgment by default was rendered the
following day by Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30 representing
the unpaid balance of the pump purchased by him; (2) interest of 12% per annum
thereon until fully paid; and (3) a sum equivalent to 25% of the amount due as
attorney's fees and costs and other expenses in prosecuting the action. Notice of the
judgment was served on Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted that his
motion for postponement should have been granted since it expressed his desire to
explore the possibility of an amicable settlement; that the court should give the parties
time to arrive at an amicable settlement failing which, he should be allowed to present
evidence in support of his defenses (discrepancy as to the price and breach of warranty).
The motion was not verified or accompanied by any separate affidavit. Goulds opposed
the motion. Its opposition 9 drew attention to the eleventh-hour motion for
postponement of Yap which had resulted in the cancellation of the prior hearing of June
30, 1969 despite Goulds' vehement objection, and the re-setting thereof on August 28,
1969 with intransferable character; it averred that Yap had again sought postponement
of this last hearing by another eleventh-hour motion on the plea that an amicable
settlement would be explored, yet he had never up to that time ever broached the
matter, 10 and that this pattern of seeking to obtain last-minute postponements was
discernible also in the proceedings before the City Court. In its opposition, Goulds also
adverted to the examination made by it of the pump, on instructions of the City Court,
with a view to remedying the defects claimed to exist by Yap; but the examination had
disclosed the pump's perfect condition. Yap's motion for reconsideration was denied by
Order dated October 10, 1969, notice of which was received by Yap on October 4,
1969. 11
On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for
Issuance of Writ of Execution dated October 14, 1969, declaring the reasons therein
alleged to be meritorious. 12 Yap forthwith filed an "Urgent Motion for Reconsideration
of Order" dated October 17, 1969, 13 contending that the judgment had not yet become
final, since contrary to Goulds' view, his motion for reconsideration was not pro
forma for lack of an affidavit of merit, this not being required under Section 1 (a) of Rule
37 of the Rules of Court upon which his motion was grounded. Goulds presented an
opposition dated October 22, 1969. 14 It pointed out that in his motion for
reconsideration Yap had claimed to have a valid defense to the action, i.e., "..
discrepancy as to price and breach of seller's warranty," in effect, that there was fraud
on Goulds' paint; Yap's motion for reconsideration should therefore have been
supported by an affidavit of merit respecting said defenses; the absence thereof
rendered the motion for reconsideration fatally defective with the result that its filing
did not interrupt the running of the period of appeal. The opposition also drew
attention to the failure of the motion for reconsideration to specify the findings or
conclusions in the judgment claimed to be contrary to law or not supported by the
evidence, making it a pro forma motion also incapable of stopping the running of the
appeal period. On October 23, 1969, Judge Tañada denied Yap's motion for
reconsideration and authorized execution of the judgment.15 Yap sought
reconsideration of this order, by another motion dated October 29, 1969. 16 This motion
was denied by Order dated January 26, 1970. 17 Again Yap moved for reconsideration,
and again was rebuffed, by Order dated April 28, 1970. 18
In the meantime the Sheriff levied on the water pump in question, 19 and by notice
dated November 4, 1969, scheduled the execution sale thereof on November 14,
1969. 20 But in view of the pendency of Yap's motion for reconsideration of October 29,
1969, suspension of the sale was directed by Judge Tañada in an order dated November
6, 1969.21
Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated
October 29, 1969, from receipt of this Order and in the meantime, the Order of October
23, 1969, insofar as it orders the sheriff to enforce the writ of execution is hereby
suspended.
It appears however that a copy of this Order was not transmitted to the Sheriff "through
oversight, inadvertence and pressure of work" of the Branch Clerk of Court. 22 So the
Deputy Provincial Sheriff went ahead with the scheduled auction sale and sold the
property levied on to Goulds as the highest bidder. 23 He later submitted the requisite
report to the Court dated November 17, 1969, 24 as well as the "Sheriffs Return of
Service" dated February 13, 1970, 25 in both of which it was stated that execution had
been "partially satisfied." It should be observed that up to this time, February, 1970, Yap
had not bestirred himself to take an appeal from the judgment of August 29, 1969.
On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution on
Gould's ex parte motion therefor. 26 Yap received notice of the Order on June 11. Twelve
(1 2) days later, he filed a "Motion to Set Aside Execution Sale and to Quash Alias Writ of
Execution." 27 As regards the original, partial execution of the judgment, he argued that
—
1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the
judgment sought to be executed not being final and executory;" and
2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules
of Court," i.e., notice by publication in case of execution sale of real property, the pump
and its accessories being immovable because attached to the ground with character of
permanency (Art. 415, Civil Code).
And with respect to the alias writ, he argued that it should not have issued because —
1) "the judgment sought to be executed is null and void" as "it deprived the defendant
of his day in court" and "of due process;"
2) "said judgment is incomplete and vague" because there is no starting point for
computation of the interest imposed, or a specification of the "other expenses incurred
in prosecuting this case" which Yap had also been ordered to pay;
3) "said judgment is defective because it contains no statement of facts but a mere
recital of the evidence; and
4) "there has been a change in the situation of the parties which makes execution unjust
and inequitable" because Yap suffered damages by reason of the illegal execution.
Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order
dated September 16, 1970. Judge Tañada pointed out that the motion had "become
moot and academic" since the decision of August 29, 1969, "received by the defendant
on September 1, 1969 had long become final when the Order for the Issuance of a Writ
of Execution was promulgated on October 15, 1969." His Honor also stressed that —
The defendant's Motion for Reconsideration of the Courts decision was in reality one for
new trial. Regarded as motion for new trial it should allege the grounds for new trial,
provided for in the Rules of Court, to be supported by affidavit of merits; and this the
defendant failed to do. If the defendant sincerely desired for an opportunity to submit
to an amicable settlement, which he failed to do extra judicially despite the ample time
before him, he should have appeared in the pre- trial to achieve the same purpose.
Judge Tañada thereafter promulgated another Order dated September 21, 1970
granting a motion of Goulds for completion of execution of the judgment of August 29,
1969 to be undertaken by the City Sheriff of Cebu. Once more, Yap sought
reconsideration. He submitted a "Motion for Reconsideration of Two Orders" dated
October 13, 1970, 28 seeking the setting aside not only of this Order of September 21,
1970 but also that dated September 16, 1970, denying his motion to set aside execution
dated June 23, 1970. He contended that the Order of September 21, 1970 (authorizing
execution by the City Sheriff) was premature, since the 30-day period to appeal from the
earlier order of September 16, 1970 (denying his motion to set aside) had not yet
expired. He also reiterated his view that his motion for reconsideration dated
September 15, 1969 did not require that it be accompanied by an affidavit of merits.
This last motion was also denied for "lack of merits," by Order dated November 21,
1970. 29
On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal
to the Supreme Court on certiorari only on questions of law, "from the Order ... of
September 16, 1970 ... and from the Order ... of November 21, 1970, ... pursuant to
sections 2 and 3 of Republic Act No. 5440." He filed his petition for review with this
Court on January 5, 1971, after obtaining an extension therefor. 30
The errors of law he attributes to the Court a quo are the following: 31
1) refusing to invalidate the execution pursuant to its Order of October 16, 1969
although the judgment had not then become final and executory and despite its being
incomplete and vague;
2) ignoring the fact that the execution sale was carried out although it (the Court) had
itself ordered suspension of execution on November 6, 1969;
3) declining to annul the execution sale of the pump and accessories subject of the
action although made without the requisite notice prescribed for the sale of
immovables; and
4) refusing to allow the petitioner to prove irregularities in the process of execution
which had resulted in damages to him.
Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His
motion for reconsideration thereof was filed 15 days thereafter, on September 16, 1969.
Notice of the Order denying the motion was received by him on October 14, 1969. The
question is whether or not the motion for reconsideration — which was not verified, or
accompanied by an affidavit of merits (setting forth facts constituting his meritorious
defenses to the suit) or other sworn statement (stating facts excusing his failure to
appear at the pre-trial was pro forma and consequently had not interrupted the running
of the period of appeal. It is Yap's contention that his motion was notpro forma for lack
of an affidavit of merits, such a document not being required by Section 1 (a) of Rule 37
of the Rules of Court upon which his motion was based. This is incorrect.
Section 2, Rule 37 precisely requires that when the motion for new trial is founded on
Section 1 (a), it should be accompanied by an affidavit of merit.
xxx xxx xxx
When the motion is made for the causes mentioned in subdivisions (a) and (b) of the
preceding section, it shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be attached to a motion for the cause
mentioned in subdivision (a) which may be rebutted by counter-affidavits.
xxx xxx xxx 32
Since Yap himself asserts that his motion for reconsideration is grounded on Section 1
(a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable negligence which ordinary
prudence could not have guarded against and by reason of which ... (the) aggrieved
party has probably been impaired in his rights" — this being in any event clear from a
perusal of the motion which theorizes that he had "been impaired in his rights" because
he was denied the right to present evidence of his defenses (discrepancy as to price and
breach of warranty) — it was a fatal omission to fail to attach to his motion an affidavit
of merits, i.e., an affidavit "showing the facts (not conclusions) constituting the valid x x
defense which the movant may prove in case a new trial is granted." 34 The requirement
of such an affidavit is essential because obviously "a new trial would be a waste of the
court's time if the complaint turns out to be groundless or the defense ineffective." 35
In his motion for reconsideration, Yap also contended that since he had expressed a
desire to explore the possibility of an amicable settlement, the Court should have given
him time to do so, instead of declaring him in default and thereafter rendering judgment
by default on Gould's ex parte evidence.
The bona fides of this desire to compromise is however put in doubt by the attendant
circumstances. It was manifested in an eleventh-hour motion for postponement of the
pre-trial which had been scheduled with intransferable character since it had already
been earlier postponed at Yap's instance; it had never been mentioned at any prior time
since commencement of the litigation; such a possible compromise (at least in general
or preliminary terms) was certainly most appropriate for consideration at the pre-trial;
in fact Yap was aware that the matter was indeed a proper subject of a pre-trial agenda,
yet he sought to avoid appearance at said pre-trial which he knew to be intransferable
in character. These considerations and the dilatory tactics thus far attributable to him-
seeking postponements of hearings, or failing to appear therefor despite notice, not
only in the Court of First Instance but also in the City Court — proscribe belief in the
sincerity of his avowed desire to negotiate a compromise. Moreover, the disregard by
Yap of the general requirement that "(n)otice of a motion shall be served by the
applicant to all parties concerned at least three (3) days before the hearing thereof,
together with a copy of the motion, and of any affidavits and other papers
accompanying it," 36 for which no justification whatever has been offered, also militates
against the bona fides of Yap's expressed wish for an amicable settlement. The relevant
circumstances do not therefore justify condemnation, as a grave abuse of discretion, or
a serious mistake, of the refusal of the Trial Judge to grant postponement upon this
proferred ground.
The motion for reconsideration did not therefore interrupt the running of the period of
appeal. The time during which it was pending before the court — from September 16,
1969 when it was filed with the respondent Court until October 14, 1969 when notice of
the order denying the motion was received by the movant — could not be deducted
from the 30-day period of appeal. 37 This is the inescapable conclusion from a
consideration of Section 3 of Rule 41 which in part declares that, "The "time during
which a motion to set aside the judgment or order or for a new trial has been pending
shall be deducted, unless such motion fails to satisfy the requirements of Rule 37. 38
Notice of the judgment having been received by Yap on September 1, 1969, and the
period of appeal therefrom not having been interrupted by his motion for
reconsideration filed on September 16, 1969, the reglementary period of appeal expired
thirty (30) days after September 1, 1969, or on October 1, 1969, without an appeal being
taken by Yap. The judgment then became final and executory; Yap could no longer take
an appeal therefrom or from any other subsequent orders; and execution of judgment
correctly issued on October 15, 1969, "as a matter of right." 39
The next point discussed by Yap, that the judgment is incomplete and vague, is not well
taken. It is true that the decision does not fix the starting time of the computation of
interest on the judgment debt, but this is inconsequential since that time is easily
determinable from the opinion, i.e., from the day the buyer (Yap) defaulted in the
payment of his obligation, 40 on May 31, 1968. 41 The absence of any disposition
regarding his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and despite
notice, which caused the declaration of his default, was a waiver of his right to
controvert the plaintiff s proofs and of his right to prove the averments of his answer,
inclusive of the counterclaim therein pleaded. Moreover, the conclusion in the judgment
of the merit of the plaintiff s cause of action was necessarily and at the same time a
determination of the absence of merit of the defendant's claim of untenability of the
complaint and of malicious prosecution.
Yap's next argument that the water pump had become immovable property by its being
installed in his residence is also untenable. The Civil Code considers as immovable
property, among others, anything "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." 42 The pump does not fit this description. It could be, and
was in fact separated from Yap's premises without being broken or suffering
deterioration. Obviously the separation or removal of the pump involved nothing more
complicated than the loosening of bolts or dismantling of other fasteners.
Yap's last claim is that in the process of the removal of the pump from his house,
Goulds' men had trampled on the plants growing there, destroyed the shed over the
pump, plugged the exterior casings with rags and cut the electrical and conduit pipes;
that he had thereby suffered actual-damages in an amount of not less than P 2,000.00,
as well as moral damages in the sum of P 10,000.00 resulting from his deprivation of the
use of his water supply; but the Court had refused to allow him to prove these acts and
recover the damages rightfully due him. Now, as to the loss of his water supply, since
this arose from acts legitimately done, the seizure on execution of the water pump in
enforcement of a final and executory judgment, Yap most certainly is not entitled to
claim moral or any other form of damages therefor.
WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of
September 16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs
against petitioner.
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case
No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of
the realty tax on its maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of
Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the
City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals
a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting
rates approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains
Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao
City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are
the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked
Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex
"C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex
"G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in
the attached photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for
its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these
machineries which are placed therein, its TPU trucks are made; body constructed; and
same are repaired in a condition to be serviceable in the TPU land transportation
business it operates;
6. That these machineries have never been or were never used as industrial equipments
to produce finished products for sale, nor to repair machineries, parts and the like
offered to the general public indiscriminately for business or commercial purposes for
which petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and
having denied a motion for reconsideration, petitioner brought the case to this Court
assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that
the questioned assessments are valid; and that said tools, equipments or machineries
are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties,
by reason of their being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent
City Assessor's power to assess and levy real estate taxes on machineries is further
restricted by section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which
provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or
cement platforms. They can be moved around and about in petitioner's repair shop. In
the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the
owner of any building or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the requirements of such
trade or industry."
If the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its
sugar and industry, converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central, without them the sugar
central would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery
and equipment installed for carrying on the sugar industry for which it has been
established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must first
be "essential and principal elements" of an industry or works without which such
industry or works would be "unable to function or carry on the industrial purpose for
which it was established." We may here distinguish, therefore, those movable which
become immobilized by destination because they are essential and principal elements in
the industry for those which may not be so considered immobilized because they
are merely incidental, not essential and principal. Thus, cash registers, typewriters, etc.,
usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and
are not and should not be considered immobilized by destination, for these businesses
can continue or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other hand,
machineries of breweries used in the manufacture of liquor and soft drinks, though
movable in nature, are immobilized because they are essential to said industries; but the
delivery trucks and adding machines which they usually own and use and are found
within their industrial compounds are merely incidental and retain their movable
nature.
Similarly, the tools and equipments in question in this instant case are, by their nature,
not essential and principle municipal elements of petitioner's business of transporting
passengers and cargoes by motor trucks. They are merely incidentals — acquired as
movables and used only for expediency to facilitate and/or improve its service. Even
without such tools and equipments, its business may be carried on, as petitioner has
carried on, without such equipments, before the war. The transportation business could
be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil
Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also requires that the
industry or works be carried on in a building or on a piece of land. Thus in the case
of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and
instruments or implements" are found in a building constructed on the land. A sawmill
would also be installed in a building on land more or less permanently, and the sawing is
conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or service
the transportation business, which is not carried on in a building or permanently on a
piece of land, as demanded by the law. Said equipments may not, therefore, be deemed
real property.
Resuming what we have set forth above, we hold that the equipments in question are
not absolutely essential to the petitioner's transportation business, and petitioner's
business is not carried on in a building, tenement or on a specified land, so said
equipment may not be considered real estate within the meaning of Article 415 (c) of
the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the
purposes of the real estate tax. Without costs.
So ordered.
FELS ENERGY, INC., G.R. No. 168557
Petitioner,
-versus-
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS,
Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25,
2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution[2]dated June 20, 2005; the second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision[3] and November 23, 2005 Resolution[4] of the
CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of
prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The
contract, denominated as an Energy Conversion Agreement[5] (Agreement), was for a
period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all
taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality thereof
to which POLAR may be or become subject to or in relation to the performance of their
obligations under this agreement (other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal Income Taxes of its employees and (ii)
construction permit fees, environmental permit fees and other similar fees and charges)
and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.[6]
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The
NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power
barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax,
which likewise covered those due for 1994, amounted to P56,184,088.40 per annum.
FELS referred the matter to NPC, reminding it of its obligation under the Agreement to
pay all real estate taxes. It then gave NPC the full power and authority to represent it in
any conference regarding the real property assessment of the Provincial Assessor.
In a letter[7] dated September 7, 1995, NPC sought reconsideration of the Provincial
Assessors decision to assess real property taxes on the power barges. However, the
motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to
pay the assessment.[8] This prompted NPC to file a petition with the Local Board of
Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration
of the barges as non-taxable items; it also prayed that should LBAA find the barges to be
taxable, the Provincial Assessor be directed to make the necessary corrections.[9]
In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA
that the Department of Finance (DOF) had rendered an opinion[10] dated May 20, 1996,
where it is clearly stated that power barges are not real property subject to real
property assessment.
On August 26, 1996, the LBAA rendered a Resolution[11] denying the petition.
The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in
the amount of P56,184,088.40, for the year 1994.
SO ORDERED.[12]
The LBAA ruled that the power plant facilities, while they may be classified as movable
or personal property, are nevertheless considered real property for taxation purposes
because they are installed at a specific location with a character of permanency. The
LBAA also pointed out that the owner of the bargesFELS, a private corporationis the one
being taxed, not NPC. A mere agreement making NPC responsible for the payment of all
real estate taxes and assessments will not justify the exemption of FELS; such a privilege
can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled
that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals
(CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy
and Warrant by Distraint[13] over the power barges, seeking to collect real property taxes
amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November
14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from
enforcing the disputed assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order[14] lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory
any resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention[15] dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an
Order[16] dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond
to guarantee the payment of real property taxes assessed by the Provincial Assessor (in
the event that the judgment be unfavorable to them). The bonds were duly approved by
the CBAA.
On April 6, 2000, the CBAA rendered a Decision[17] finding the power barges exempt
from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of
the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of
the Province of Batangas is hereby ordered to drop subject property under ARP/Tax
Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll.
The Provincial Treasurer of Batangas is hereby directed to act accordingly.
SO ORDERED.[18]
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to
NPC; since they are actually, directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No. 7160.[19] As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160.
The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS
and NPC.
In a complete volte face, the CBAA issued a Resolution[20] on July 31, 2001 reversing its
earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is
hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of
Batangas is likewise hereby affirmed.
SO ORDERED.[21]
FELS and NPC filed separate motions for reconsideration, which were timely opposed by
the Provincial Assessor. The CBAA denied the said motions in a
Resolution[22] dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No.
67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP
No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution[23] dated February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter
petition who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of
Assessment Appeals are AFFIRMED.
SO ORDERED.[24]
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Courts Resolution[25] of November 8,
2004, for NPCs failure to sufficiently show that the CA committed any reversible error in
the challenged decision. NPC filed a motion for reconsideration, which the Court denied
with finality in a Resolution[26] dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held
that the right to question the assessment of the Provincial Assessor had already
prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA
within the period prescribed by law. Since FELS had lost the right to question the
assessment, the right of the Provincial Government to collect the tax was already
absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of
the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in
a Resolution[27] dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution[28] dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this
Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and
therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt
from real estate tax under Section 234 of the Local Government Code (LGC).
C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not
the same is subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property
tax assessment on the petitioners personal properties is imprescriptible.[29]
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:
I Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.[30]
Considering that the factual antecedents of both cases are similar, the Court ordered
the consolidation of the two cases in a Resolution[31] dated March 8, 2006.
In an earlier Resolution dated February 1, 2006, the Court had required the parties to
submit their respective Memoranda within 30 days from notice. Almost a year passed
but the parties had not submitted their respective memoranda. Considering that
taxesthe lifeblood of our economyare involved in the present controversy, the Court
was prompted to dispense with the said pleadings, with the end view of advancing the
interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-
barred. FELS argues that when NPC moved to have the assessment reconsidered
on September 7, 1995, the running of the period to file an appeal with the LBAA was
tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should
be reckoned from its receipt of the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from
the date of receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a petition under oath in the form
prescribed for the purpose, together with copies of the tax declarations and such
affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS
on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the
date of receipt hereof, appeal to the Board of Assessment Appeals of the province by
filing a petition under oath on the form prescribed for the purpose, together with copies
of ARP/Tax Declaration and such affidavits or documents submitted in support of the
appeal.[32]
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC
opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy
not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then
that the determination made by the respondent Provincial Assessor with regard to the
taxability of the subject real properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.[33]
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-
G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v.
Office of the Ombudsman,[34] where we ruled that under Section 226 of R.A. No
7160,[35] the last action of the local assessor on a particular assessment shall be the
notice of assessment; it is this last action which gives the owner of the property the
right to appeal to the LBAA. The procedure likewise does not permit the property owner
the remedy of filing a motion for reconsideration before the local assessor. The
pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought
their appeals before the LBAA. Unfortunately, despite the advice to this effect contained
in their respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To
allow this procedure would indeed invite corruption in the system of appraisal and
assessment. It conveniently courts a graft-prone situation where values of real property
may be initially set unreasonably high, and then subsequently reduced upon the request
of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off
cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.[36]
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to
the owner or lawful possessor of real property of its revised assessed value, the former
shall no longer have any jurisdiction to entertain any request for a review or
readjustment. The appropriate forum where the aggrieved party may bring his appeal is
the LBAA as provided by law. It follows ineluctably that the 60-day period for making the
appeal to the LBAA runs without interruption. This is what We held in SP 67490 and
reaffirm today in SP 67491.[37]
To reiterate, if the taxpayer fails to appeal in due course, the right of
the local government to collect the taxes due with respect to the taxpayers property
becomes absolute upon the expiration of the period to appeal.[38] It also bears stressing
that the taxpayers failure to question the assessment in the LBAA renders the
assessment of the local assessor final, executory and demandable, thus, precluding the
taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.[39]
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having
been filed out of time; the CBAA and the appellate court were likewise correct in
affirming the dismissal. Elementary is the rule that the perfection of an appeal within
the period therefor is both mandatory and jurisdictional, and failure in this regard
renders the decision final and executory.[40]
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is
barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where
there was a final determination on the issue of prescription), effectively precludes the
claims herein; and that the filing of the instant petition after an adverse judgment in
G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced
since it was not a party to the erroneous petition which the NPC filed in G.R. No.
165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme
Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner
claims that no forum shopping could have been committed since the elements of litis
pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and
necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause nemo debet bis
vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet
to the will and dereliction of individuals and prefer the regalement of the litigious
disposition on the part of suitors to the preservation of the public tranquility and
happiness.[41] As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of
Appeals:[42]
x x x An existing final judgment or decree rendered upon the merits, without fraud or
collusion, by a court of competent jurisdiction acting upon a matter within its authority
is conclusive on the rights of the parties and their privies. This ruling holds in all other
actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction,
touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the
same parties or their privies to litigate anew a question once it has been considered and
decided with finality. Litigations must end and terminate sometime and somewhere.
The effective and efficient administration of justice requires that once a judgment has
become final, the prevailing party should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements:
(1) the former judgment must be final; (2) the court which rendered it had jurisdiction
over the subject matter and the parties; (3) the judgment must be on the merits; and (4)
there must be between the first and the second actions, identity of parties, subject
matter and causes of action. The application of the doctrine of res judicata does not
require absolute identity of parties but merely substantial identity of parties. There is
substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first
case did not implead the latter.[43]
To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for
review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of
FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court
was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the
petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are substantially identical parties as
to warrant the application of res judicata. FELSs argument that it is not bound by the
erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping
exists when, as a result of an adverse judgment in one forum, a party seeks another and
possibly favorable judgment in another forum other than by appeal or special civil action
or certiorari. There is also forum shopping when a party institutes two or more actions
or proceedings grounded on the same cause, on the gamble that one or the other court
would make a favorable disposition.[44]
Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res
judicata may be properly applied herein. Petitioners engaged in forum shopping when
they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116.
Indeed, petitioners went from one court to another trying to get a favorable decision
from one of the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the existence of forum
shopping is the vexation caused to the courts and the parties-litigants by the filing of
similar cases to claim substantially the same reliefs.[45] The rationale against forum
shopping is that a party should not be allowed to pursue simultaneous remedies in two
different fora. Filing multiple petitions or complaints constitutes abuse of court
processes, which tends to degrade the administration of justice, wreaks havoc upon
orderly judicial procedure, and adds to the congestion of the heavily burdened dockets
of the courts.[46]
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such
parties as represent the same interests in both actions, (b) identity of rights asserted
and relief prayed for, the relief being founded on the same facts, and (c) the identity of
the two preceding particulars is such that any judgment rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other.[47]
Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless,
for the peace and contentment of petitioners, we shall shed light on the merits of the
case.
As found by the appellate court, the CBAA and LBAA power barges are real property and
are thus subject to real property tax. This is also the inevitable conclusion, considering
that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error.
Tax assessments by tax examiners are presumed correct and made in good faith, with
the taxpayer having the burden of proving otherwise.[48] Besides, factual findings of
administrative bodies, which have acquired expertise in their field, are generally binding
and conclusive upon the Court; we will not assume to interfere with the sensible
exercise of the judgment of men especially trained in appraising property. Where the
judicial mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.[49] We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et
al.,[50] a power company brought an action to review property tax assessment. On the
citys motion to dismiss, the Supreme Court of New
York held that the barges on which were mounted gas turbine power plants designated
to generate electrical power, the fuel oil barges which supplied fuel oil to the power
plant barges, and the accessory equipment mounted on the barges were subject to real
property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed
place on a river, lake, or coast are considered immovable property. Thus, power barges
are categorized as immovable property by destination, being in the nature of machinery
and other implements intended by the owner for an industry or work which may be
carried on in a building or on a piece of land and which tend directly to meet the needs
of said industry or work.[51]
Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively
used by petitioner NPC, a government- owned and controlled corporation engaged in
the supply, generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As
stipulated under Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the
fixtures, fittings, machinery and equipment on the Site used in connection with the
Power Barges which have been supplied by it at its own cost. POLAR shall operate,
manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR
into electricity.[52]
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find
solace in this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of
the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the
Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.[53]
It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions. [54]
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.[55] The law does not look with favor on tax exemptions and the entity that would seek
to be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.[56] Thus, applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS
is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is
between FELS and NPC and does not bind a third person not privy thereto, in this case,
the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the
local governments deprivation of revenues. The power to tax is an incident of sovereignty and is
unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against
its abuse is to be found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay for it.[57] The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion. This consideration is consistent with the State
policy to guarantee the autonomy of local governments[58] and the objective of the Local
Government Code that they enjoy genuine and meaningful local autonomy to empower them to
achieve their fullest development as self-reliant communities and make them effective partners
in the attainment of national goals.[59]
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the enhancement
of peace, progress, and prosperity of the people.[60]
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-
appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial
court and as set forth by counsel for the parties on appeal, involves the determination
of the nature of the properties described in the complaint. The trial judge found that
those properties were personal in nature, and as a consequence absolved the
defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government
of the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business
was conducted belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements thus used
were clearly personal property, the conflict concerning machines which were placed and
mounted on foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any
amount for said improvements and buildings; also, in the event the party of the second
part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to
the party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant in that action; a writ of execution issued
thereon, and the properties now in question were levied upon as personalty by the
sheriff. No third party claim was filed for such properties at the time of the sales thereof
as is borne out by the record made by the plaintiff herein. Indeed the bidder, which was
the plaintiff in that action, and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other properties described in the
corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill
Co., Inc., has on a number of occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of such persons is the
appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner of
any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph.
We entertain no doubt that the trial judge and appellees are right in their appreciation
of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered
its protest before or at the time of the sale of this property. It must further be pointed
out that while not conclusive, the characterization of the property as chattels by the
appellant is indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this court in the case of
Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or
not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal
on side issues. It is machinery which is involved; moreover, machinery not intended by
the owner of any building or land for use in connection therewith, but intended by a
lessee for use in a building erected on the land by the latter to be returned to the lessee
on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when
so placed by a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the opinion written by Chief
Justice White, whose knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from
the point of view of the rights of Valdes and its nature and character from the point of
view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also attributes immovability
in some cases to property of a movable nature, that is, personal property, because of
the destination to which it is applied. "Things," says section 334 of the Porto Rican Code,
"may be immovable either by their own nature or by their destination or the object to
which they are applicable." Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: "Machinery, vessels, instruments or implements
intended by the owner of the tenements for the industrial or works that they may carry
on in any building or upon any land and which tend directly to meet the needs of the
said industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing — machinery
placed in the plant — it is plain, both under the provisions of the Porto Rican Law and of
the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result
would not be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit.
9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not presumed by the law to have
applied movable property belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It follows that abstractly
speaking the machinery put by the Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to
charge against the lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging to the owner
without compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by
the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that
they had the right to levy on it under the execution upon the judgment in their favor, and the
exercise of that right did not in a legal sense conflict with the claim of Valdes, since as to him the
property was a part of the realty which, as the result of his obligations under the lease, he could
not, for the purpose of collecting his debt, proceed separately against. (Valdes vs. Central
Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco,
as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case
No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate
court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills,
Inc., discounted and assigned several receivables with the former under a Receivable
Purchase Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials inventory as well as
a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to
implement the foreclosure failed to gain entry into private respondent's premises and
was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter
filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch
VI, docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure,
the enforcement of which was however subsequently restrained upon private
respondent's filing of a motion for reconsideration. After several incidents, the lower
court finally issued on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by
herein private respondent, set aside the Orders of the lower court and ordered the
return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that
the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code, the same
being attached to the ground by means of bolts and the only way to remove it from
respondent's plant would be to drill out or destroy the concrete floor, the reason why all
that the sheriff could do to enfore the writ was to take the main drive motor of said
machinery. The appellate court rejected petitioner's argument that private respondent
is estopped from claiming that the machine is real property by constituting a chattel
mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari. It is
contended by private respondent, however, that the instant petition was rendered
moot and academic by petitioner's act of returning the subject motor drive of
respondent's machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the
subject motor drive, it made itself unequivocably clear that said action was without
prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by
the receipt duly signed by respondent's representative. 1 Considering that petitioner has
reserved its right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by such return may
not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties, with
petitioner arguing that it is a personality, while the respondent claiming the contrary,
and was sustained by the appellate court, which accordingly held that the chattel
mortgage constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house stood on a
rented lot to which defendants-appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the property, it does so
when combined with other factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house as personality. Finally, unlike in
the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons assailed the validity of the chattel
mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of estoppel
therefore applies to the herein defendants-appellants, having treated the subject house
as personality.
Examining the records of the instant case, We find no logical justification to exclude the
rule out, as the appellate court did, the present case from the application of the
abovequoted pronouncement. If a house of strong materials, like what was involved in
the above Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree and
no innocent third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by destination
or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court
of Appeals lays stress on the fact that the house involved therein was built on a land
that did not belong to the owner of such house. But the law makes no distinction with
respect to the ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by
the private respondent is indicative of intention and impresses upon the property the
character determined by the parties. As stated in Standard Oil Co. of New York v.
Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement
treat as personal property that which by nature would be real property, as long as no
interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property
but was merely required and dictated on by herein petitioner to sign a printed form of
chattel mortgage which was in a blank form at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the respondent,
the status of the subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental memorandum
in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be
a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of
the new Civil Code, by a proper action in court. There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same. On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates that
one should not benefit at the expense of another. Private respondent could not now
therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent. Moreover,
the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied
upon by said court is not applicable to the case at bar, the nature of the machinery and
equipment involved therein as real properties never having been disputed nor in issue,
and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case
bears more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower court are hereby reinstated, with
costs against the private respondent.
SO ORDERED.

G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON
CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following
appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized
the Municipal Board of Manila to grant a franchise to construct, maintain and operate
an electric street railway and electric light, heat and power system in the City of Manila
and its suburbs to the person or persons making the most favorable bid. Charles M.
Swift was awarded the said franchise on March 1903, the terms and conditions of which
were embodied in Ordinance No. 44 approved on March 24, 1903. Respondent Manila
Electric Co. (Meralco for short), became the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls,
Laguna and is transmitted to the City of Manila by means of electric transmission wires,
running from the province of Laguna to the said City. These electric transmission wires
which carry high voltage current, are fastened to insulators attached on steel towers
constructed by respondent at intervals, from its hydro-electric plant in the province of
Laguna to the City of Manila. The respondent Meralco has constructed 40 of these steel
towers within Quezon City, on land belonging to it. A photograph of one of these steel
towers is attached to the petition for review, marked Annex A. Three steel towers were
inspected by the lower court and parties and the following were the descriptions given
there of by said court:
The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we deeper until it reached the bottom of
the post; at the bottom of the post were two parallel steel bars attached to the leg
means of bolts; the tower proper was attached to the leg three bolts; with two cross
metals to prevent mobility; there was no concrete foundation but there was adobe
stone underneath; as the bottom of the excavation was covered with water about three
inches high, it could not be determined with certainty to whether said adobe stone was
placed purposely or not, as the place abounds with this kind of stone; and the tower
carried five high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As
in the first tower, the ground around one of the four legs was excavate from seven to
eight (8) feet deep and one and a half (1-½) meters wide. There being very little water at
the bottom, it was seen that there was no concrete foundation, but there soft adobe
beneath. The leg was likewise provided with two parallel steel bars bolted to a square
metal frame also bolted to each corner. Like the first one, the second tower is made up
of metal rods joined together by means of bolts, so that by unscrewing the bolts, the
tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to
a depth about two or three inches beyond the outside level of the steel bar foundation.
It was found that there was no concrete foundation. Like the two previous ones, the
bottom arrangement of the legs thereof were found to be resting on soft adobe, which,
probably due to high humidity, looks like mud or clay. It was also found that the square
metal frame supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid
steel towers for real property tax under Tax declaration Nos. 31992 and 15549. After
denying respondent's petition to cancel these declarations, an appeal was taken by
respondent to the Board of Assessment Appeals of Quezon City, which required
respondent to pay the amount of P11,651.86 as real property tax on the said steel
towers for the years 1952 to 1956. Respondent paid the amount under protest, and filed
a petition for review in the Court of Tax Appeals (CTA for short) which rendered a
decision on December 29, 1958, ordering the cancellation of the said tax declarations
and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come
within the term "poles" which are declared exempt from taxes under part II paragraph 9
of respondent's franchise; (2) the steel towers are personal properties and are not
subject to real property tax; and (3) the City Treasurer of Quezon City is held responsible
for the refund of the amount paid. These are assigned as errors by the petitioner in the
brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature and
by whatsoever authority upon the privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee from which taxes and assessments
the grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood
or timber, as typically the stem of a small tree stripped of its branches; also by
extension, a similar typically cylindrical piece or object of metal or the like". The term
also refers to "an upright standard to the top of which something is affixed or by which
something is supported; as a dovecote set on a pole; telegraph poles; a tent pole;
sometimes, specifically a vessel's master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel
bars joined together by an interlacing metal rod. They are called "poles"
notwithstanding the fact that they are no made of wood. It must be noted from
paragraph 9, above quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the character of the electric
current it carries, nor the material or form of which it is made, but the use to which they
are dedicated. In accordance with the definitions, pole is not restricted to a long
cylindrical piece of wood or metal, but includes "upright standards to the top of which
something is affixed or by which something is supported. As heretofore described,
respondent's steel supports consists of a framework of four steel bars or strips which
are bound by steel cross-arms atop of which are cross-arms supporting five high voltage
transmission wires (See Annex A) and their sole function is to support or carry such
wires.
The conclusion of the CTA that the steel supports in question are embraced in the term
"poles" is not a novelty. Several courts of last resort in the United States have called
these steel supports "steel towers", and they denominated these supports or towers, as
electric poles. In their decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that jurisdiction that a transmission tower
or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law
provided that wires shall be constructed upon suitable poles, this term was construed to
mean either wood or metal poles and in view of the land being subject to overflow, and
the necessary carrying of numerous wires and the distance between poles, the statute
was interpreted to include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212
S.W. 222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires
alongside public highways. The steel supports or towers were made of iron or other
metals consisting of two pieces running from the ground up some thirty feet high, being
wider at the bottom than at the top, the said two metal pieces being connected with
criss-cross iron running from the bottom to the top, constructed like ladders and loaded
with high voltage electricity. In form and structure, they are like the steel towers in
question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged
in the generation of hydro-electric power generated from its plant to the Tower of
Oxford and City of Waterbury. These steel towers are about 15 feet square at the base
and extended to a height of about 35 feet to a point, and are embedded in the cement
foundations sunk in the earth, the top of which extends above the surface of the soil in
the tower of Oxford, and to the towers are attached insulators, arms, and other
equipment capable of carrying wires for the transmission of electric power (Connecticut
Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his
death was built for the purpose of supporting a transmission wire used for carrying high-
tension electric power, but claimed that the steel towers on which it is carried were so
large that their wire took their structure out of the definition of a pole line. It was held
that in defining the word pole, one should not be governed by the wire or material of
the support used, but was considering the danger from any elevated wire carrying
electric current, and that regardless of the size or material wire of its individual
members, any continuous series of structures intended and used solely or primarily for
the purpose of supporting wires carrying electric currents is a pole line (Inspiration
Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated
in the petitioner's franchise, should not be given a restrictive and narrow interpretation,
as to defeat the very object for which the franchise was granted. The poles as
contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the
source thereof to its consumers. If the respondent would be required to employ
"wooden poles", or "rounded poles" as it used to do fifty years back, then one should
admit that the Philippines is one century behind the age of space. It should also be
conceded by now that steel towers, like the ones in question, for obvious reasons, can
better effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are
not embraced within the termpoles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law
does not provide for a definition of real property; but Article 415 of the Civil Code does,
by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;
xxx xxx xxx
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.

G.R. No. L-7057 October 29, 1954
MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE
COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies
Inc., from a decision of the Court of Appeals denying an original petition
for certiorari filed by said petitioner against Hon. Potenciano Pecson, Ipo Limestone Co.,
Inc., and Antonio Villarama, the respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from which we
quote:
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of
First Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering
Supplies, Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama,
defendants", for the recovery of the machinery and equipment sold and delivered to
said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon application
ex-parte of the petitioner company, and upon approval of petitioner's bond in the sum
of P15,769.00, on March 13,1953, respondent judge issued an order, commanding the
Provincial Sheriff of Bulacan to seize and take immediate possession of the properties
specified in the order (Appendix I, Answer). On March 19, 1953, two deputy sheriffs of
Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers proceeded
to Bigti, for the purpose of carrying the court's order into effect. Leonardo Contreras,
Manager of the respondent Company, and Pedro Torres, in charge thereof, met the
deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Leopoldo C.
Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the
defendants therein, protesting against the seizure of the properties in question, on the
ground that they are not personal properties. Contending that the Sheriff's duty is
merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the
fact that the equipment could not possibly be dismantled without causing damages or
injuries to the wooden frames attached to them. As Roco insisted in dismantling the
equipment on his own responsibility, alleging that the bond was posted for such
eventuality, the deputy sheriffs directed that some of the supports thereof be cut
(Appendix 2). On March 20, 1953, the defendant Company filed an urgent motion, with
a counter-bond in the amount of P15,769, for the return of the properties seized by the
deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial
Sheriff of Bulacan to return the machinery and equipment to the place where they were
installed at the time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs
returned the properties seized, by depositing them along the road, near the quarry, of
the defendant Company, at Bigti, without the benefit of inventory and without re-
installing hem in their former position and replacing the destroyed posts, which
rendered their use impracticable. On March 23, 1953, the defendants' counsel asked the
provincial Sheriff if the machinery and equipment, dumped on the road would be re-
installed tom their former position and condition (letter, Appendix 4). On March 24,
1953, the Provincial Sheriff filed an urgent motion in court, manifesting that Roco had
been asked to furnish the Sheriff's office with the expenses, laborers, technical men and
equipment, to carry into effect the court's order, to return the seized properties in the
same way said Roco found them on the day of seizure, but said Roco absolutely refused
to do so, and asking the court that the Plaintiff therein be ordered to provide the
required aid or relieve the said Sheriff of the duty of complying with the said order
dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court ordered the
Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment removed
by them in their original condition in which they were found before their removal at the
expense of the Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated
April 15, 1953, praying for an extension of 20 days within which to comply with the
order of the Court (appendix 10) was denied; and on May 4, 1953, the trial court
ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the
repeatedly mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp.
I-IV.)
Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R,
entitled "Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson,
Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the
petition therein filed, it was alleged that, in ordering the petitioner to furnish the
provincial sheriff of Bulacan "with necessary funds, technical men, laborers, equipment
and materials, to effect the installation of the machinery and equipment" in question,
the Court of Firs Instance of Bulacan had committed a grave abuse if discretion and
acted in excess of its jurisdiction, for which reason it was prayed that its order to this
effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to
restrain the enforcement o said order of may 4, 1953. Although the aforementioned
writ was issued by the Court of Appeals, the same subsequently dismissed by the case
for lack of merit, with costs against the petitioner, upon the following grounds:
While the seizure of the equipment and personal properties was ordered by the
respondent Court, it is, however, logical to presume that said court did not authorize the
petitioner or its agents to destroy, as they did, said machinery and equipment, by
dismantling and unbolting the same from their concrete basements, and cutting and
sawing their wooden supports, thereby rendering them unserviceable and beyond
repair, unless those parts removed, cut and sawed be replaced, which the petitioner,
not withstanding the respondent Court's order, adamantly refused to do. The Provincial
Sheriff' s tortious act, in obedience to the insistent proddings of the president of the
Petitioner, Ramon S. Roco, had no justification in law, notwithstanding the Sheriffs'
claim that his duty was ministerial. It was the bounden duty of the respondent Judge to
give redress to the respondent Company, for the unlawful and wrongful acts committed
by the petitioner and its agents. And as this was the true object of the order of March
30, 1953, we cannot hold that same was within its jurisdiction to issue. The ministerial
duty of the Sheriff should have its limitations. The Sheriff knew or must have known
what is inherently right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the
terms of the order. While it may be conceded that this was a question of law too
technical to decide on the spot, it would not have costs the Sheriff much time and
difficulty to bring the letter to the court's attention and have the equipment and
machinery guarded, so as not to frustrate the order of seizure issued by the trial court.
But acting upon the directives of the president of the Petitioner, to seize the properties
at any costs, in issuing the order sought to be annulled, had not committed abuse of
discretion at all or acted in an arbitrary or despotic manner, by reason of passion or
personal hostility; on the contrary, it issued said order, guided by the well known
principle that of the property has to be returned, it should be returned in as good a
condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one
had gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
considering that fact that he acted under the pressure of Ramon S. Roco, and that the
order impugned was issued not by him, but by the respondent Judge, We simply declare
that said Sheriff' act was most unusual and the result of a poor judgment. Moreover, the
Sheriff not being an officer exercising judicial functions, the writ may not reach him,
for certiorari lies only to review judicial actions.
The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the
Petitioner's property until fully paid for and such never became immovable. The
question of ownership and the applicability of Art. 415 of the new Civil Code are
immaterial in the determination of the only issue involved in this case. It is a matter of
evidence which should be decided in the hearing of the case on the merits. The question
as to whether the machinery or equipment in litigation are immovable or not is likewise
immaterial, because the only issue raised before the trial court was whether the
Provincial Sheriff of Bulacan, at the Petitioner's instance, was justified in destroying the
machinery and in refusing to restore them to their original form , at the expense of the
Petitioner. Whatever might be the legal character of the machinery and equipment,
would not be in any way justify their justify their destruction by the Sheriff's and the said
Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to Us for review by writ of certiorari. Upon
examination of the record, We are satisfied, however that the Court of Appeals was
justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is applicable
only to "personal property".
Ordinarily replevin may be brought to recover any specific personal property unlawfully
taken or detained from the owner thereof, provided such property is capable of
identification and delivery; but replevin will not lie for the recovery of real property or
incorporeal personal property. (77 C. J. S. 17) (Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc.,
machinery and equipment in question appeared to be attached to the land, particularly
to the concrete foundation of said premises, in a fixed manner, in such a way that the
former could not be separated from the latter "without breaking the material or
deterioration of the object." Hence, in order to remove said outfit, it became necessary,
not only to unbolt the same, but , also, to cut some of its wooden supports. Moreover,
said machinery and equipment were "intended by the owner of the tenement for an
industry" carried on said immovable and tended." For these reasons, they were already
immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the
Philippines, which are substantially identical to paragraphs 3 and 5 of Article 334 of the
Civil Code of Spain. As such immovable property, they were not subject to replevin.
In so far as an article, including a fixture annexed by a tenant, is regarded as part of the
realty, it is not the subject for personality; . . . .
. . . the action of replevin does not lie for articles so annexed to the realty as to be part
as to be part thereof, as, for example, a house or a turbine pump constituting part of a
building's cooling system; . . . (36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove the property in question,
petitioner's agent and president, Mr. Ramon Roco, insisted "on the dismantling at his
own responsibility," stating that., precisely, "that is the reason why plaintiff posted a
bond ." In this manner, petitioner clearly assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that, pursuant to
Section 5 of Rule 62 of the Rules of Court, the defendant in an action for replevin is
entitled to the return of the property in dispute upon the filing of a counterbond, as
provided therein. In other words, petitioner knew that the restitution of said property to
respondent company might be ordered under said provision of the Rules of Court, and
that, consequently, it may become necessary for petitioner to meet the liabilities
incident to such return.
Lastly, although the parties have not cited, and We have not found, any authority
squarely in point — obviously real property are not subject to replevin — it is well
settled that, when the restitution of what has been ordered, the goods in question shall
be returned in substantially the same condition as when taken (54 C.J., 590-600, 640-
641). Inasmuch as the machinery and equipment involved in this case were duly
installed and affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it follows that
petitioner must also do everything necessary to the reinstallation of said property in
conformity with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against
the petitioner. So ordered.