G.R. No.
L-11658 February 15, 1918 The trial judge, relying upon the terms of article 1473 of the
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 "Compaia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It
included in the mortgage deed the building of strong materials
in which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this
instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the
terms of the mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914,
the "Compaia Agricola Filipina" executed a deed of sale of the
land upon which the building stood to the machinery company,
but this deed of sale, although executed in a public document,
was not registered. This deed makes no reference to the
building erected on the land and would appear to have been
executed for the purpose of curing any defects which might be
found to exist in the machinery company's title to the building
under the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time when
this sale took place, that is to say, the month of December,
1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed
in favor of the machinery company, the mortgagor, the
"Compaia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on
which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor
to pay the amount of the indebtedness secured by the
mortgage, the plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's sale on
or about the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land registry of the
Province of Cavite.
At the time when the execution was levied upon the building,
the defendant machinery company, which was in possession,
filed with the sheriff a sworn statement setting up its claim of
title and demanding the release of the property from the levy.
Thereafter, upon demand of the sheriff, the plaintiff executed
an indemnity bond in favor of the sheriff in the sum of P12,000,
in reliance upon which the sheriff sold the property at public
auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover possession
of the building from the machinery company.
Civil Code, gave judgment in favor of the machinery company,
on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's
certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the
person who may have the first taken possession
thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to
the person who first took possession of it in good
faith, and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real
property, and it must be apparent that the annotation or
inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an
inscription in the registry of real property. By its express terms,
the Chattel Mortgage Law contemplates and makes provision
for mortgages of personal property; and the sole purpose and
object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form prescribed
in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compaia Agricola
Filipina" was real property, and the mere fact that the parties
seem to have dealt with it separate and apart from the land on
which it stood in no wise changed its character as real
property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery company
cannot be sustained on the ground assigned by the trial judge.
We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in
the court below discloses that neither the purchase of the
building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that
the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of
the code, it appearing that the company first took possession of
the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the
sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473
of the Civil Code require "good faith," in express terms, in
relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of
the property on the registry, it must be presumed that good
faith is not an essential requisite of registration in order that it
may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention
of the legislator to base the preferential right secured under this
article of the code upon an inscription of title in bad faith. Such
an interpretation placed upon the language of this section
would open wide the door to fraud and collusion. The public
records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a
public record presupposes the good faith of him who enters
such inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not and
cannot accrue under an inscription "in bad faith," to the benefit
of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of May,
1908, that:
This rule is always to be understood on the basis of
the good faith mentioned in the first paragraph;
therefore, it having been found that the second
purchasers who record their purchase had knowledge
of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art.
1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph,
provides that the title of conveyance of ownership of
the real property that is first recorded in the registry
shall have preference, this provision must always be
understood on the basis of the good faith mentioned
in the first paragraph; the legislator could not have
wished to strike it out and to sanction bad faith, just to
comply with a mere formality which, in given cases,
does not obtain even in real disputes between third
persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th
edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale and
inscribed his title in the land registry, was duly notified that the
machinery company had bought the building from plaintiff's
judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time
of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff
cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of
title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the plaintiff was
not made in good faith, we should not be understood as
questioning, in any way, the good faith and genuineness of the
plaintiff's claim against the "Compaia Agricola Filipina." The
truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their
common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the
estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory
building and in buying it at the sheriff's sale, he considered that
he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that
he thought at that time that he would be able to maintain his
position in a contest with the machinery company. There was
no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action in a
court of law; and if later developments had confirmed his
unfounded hopes, no one could question the legality of the
propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery
company's claim of ownership when he executed the indemnity
bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of
ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must
stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired title
thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon
such inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such
notice of the defects as would have led to its discovery had he
acted with that measure of precaution which may reasonably
be acquired of a prudent man in a like situation. Good faith, or
lack of it, is in its analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to
the conduct and outward acts by which alone the inward
motive may, with safety, be determined. So it is that "the
honesty of intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so
it is that proof of such knowledge overcomes the presumption
of good faith in which the courts always indulge in the absence
of proof to the contrary. "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched, but rather a
state or condition of mind which can only be judged of by
actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt.,
504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann.,
2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10,
17.)
We conclude that upon the grounds herein set forth the
disposing part of the decision and judgment entered in the
court below should be affirmed with costs of this instance
against the appellant. So ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm,
JJ., concur.
Torres, Avancea and Fisher, JJ., took no part.

G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE
JUDGE RODOLFO A. ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether
or not respondent Court erred in denying the Motion to Set
Case for Pre-trial with respect to respondent Remedios Vda.
de Lacsamana as the case had been dismissed on the ground
of improper venue upon motion of co-respondent Philippine
National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the former
registered owner of a parcel of land consisting of 340 square
meters situated in Bamban, Tarlac. In 1963, petitioner
mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the
property was foreclosed on December 16, 1970. Respondent
PNB (Tarlac Branch) was the highest bidder in said foreclosure
proceedings. However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was still in the
alleged possession of petitioner and with the alleged
acquiescence of respondent PNB (Tarlac Branch), and upon
securing a permit from the Municipal Mayor, petitioner
constructed a warehouse on said property. Petitioner declared
said warehouse for tax purposes for which he was issued Tax
Declaration No. 5619. Petitioner then leased the warehouse to
one Hermogenes Sibal for a period of 10 years starting
January 1975.
On July 26, 1978, a Deed of Sale was executed between
respondent PNB (Tarlac Branch) and respondent Lacsamana
over the property. This contract was amended on July 31,
1978, particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her
name (TCT No. 173744) as well as separate tax declarations
for the land and building. 1
On November 22, 1979, petitioner commenced suit for
"Annulment of Deed of Sale with Damages" against herein
respondents PNB and Lacsamana before respondent Court of
First Instance of Rizal, Branch XXXI, Quezon City, essentially
impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner
alleged:
xxx xxx xxx
22. That defendant, Philippine National
Bank, through its Branch Manager ... by
virtue of the request of defendant ...
executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute
Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the
building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the
fact that said building is not owned by the
bank either by virtue of the public auction
sale conducted by the Sheriff and sold to the
Philippine National Bank or by virtue of the
Deed of Sale executed by the bank itself in
its favor on September 21, 1977 ...;
23. That said defendant bank fraudulently
mentioned ... that the sale in its favor should
likewise have included the building,
notwithstanding no legal basis for the same
and despite full knowledge that the
Certificate of Sale executed by the sheriff in
its favor ... only limited the sale to the land,
hence, by selling the building which never
became the property of defendant, they have
violated the principle against 'pactum
commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor
of respondent Lacsamana be declared null and void and that
damages in the total sum of P230,000.00, more or less, be
awarded to him. 2
In her Answer filed on March 4, 1980,-respondent Lacsamana
averred the affirmative defense of lack of cause of action in
that she was a purchaser for value and invoked the principle in
Civil Law that the "accessory follows the principal". 3
On March 14, 1980, respondent PNB filed a Motion to Dismiss
on the ground that venue was improperly laid considering that
the building was real property under article 415 (1) of the New
Civil Code and therefore section 2(a) of Rule 4 should apply. 4
Opposing said Motion to Dismiss, petitioner contended that the
action for annulment of deed of sale with damages is in the
nature of a personal action, which seeks to recover not the title
nor possession of the property but to compel payment of
damages, which is not an action affecting title to real property.
On April 25, 1980, respondent Court granted respondent
PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the
defendant Philippine National Bank dated
March 13, 1980, considered against the
plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said
defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue
considering that the plaintiff's complaint
which seeks for the declaration as null and
void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine
National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July
31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the
 land of the defendant Philippine National untenable. Respondent PNB is an indispensable party as the
Bank situated in the Municipality of Bamban, validity of the Amended Contract of Sale between the former
Province of Tarlac, which warehouse is an and respondent Lacsamana is in issue. It would, indeed, be
immovable property pursuant to Article 415, futile to proceed with the case against respondent Lacsamana
No. 1 of the New Civil Code; and, as such alone.
the action of the plaintiff is a real action
affecting title to real property which, under WHEREFORE, the petition is hereby denied without prejudice
Section 2, Rule 4 of the New Rules of Court, to the refiling of the case by petitioner Antonio Punsalan, Jr. in
must be tried in the province where the the proper forum.
property or any part thereof lies. 5
Costs against petitioner.
In his Motion for Reconsideration of the aforestated Order,
petitioner reiterated the argument that the action to annul does
not involve ownership or title to property but is limited to the SO ORDERED.
validity of the deed of sale and emphasized that the case
should proceed with or without respondent PNB as respondent Teehankee (Chairman), Plana, Vasquez, Relova and
Lacsamana had already filed her Answer to the Complaint and Gutierrez, Jr., JJ., concur.
no issue on venue had been raised by the latter.

On September 1, 1980,.respondent Court denied

reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far

as respondent Lacsamana was concerned, as the issues had
already been joined with the filing of respondent Lacsamana's
Answer.

In the Order of November 10, 1980 respondent Court denied

said Motion to Set Case for Pre-trial as the case was already
dismissed in the previous Orders of April 25, 1980 and
September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due

course.

We affirm respondent Court's Order denying the setting for pre-

trial.

The warehouse claimed to be owned by petitioner is an

immovable or real property as provided in article 415(l) of the
Civil Code. 6 Buildings are always immovable under the
Code. 7 A building treated separately from the land on which it
stood is immovable property and the mere fact that the parties
to a contract seem to have dealt with it separate and apart from
the land on which it stood in no wise changed its character as
immovable property. 8

While it is true that petitioner does not directly seek the

recovery of title or possession of the property in question, his
action for annulment of sale and his claim for damages are
closely intertwined with the issue of ownership of the building
which, under the law, is considered immovable property, the
recovery of which is petitioner's primary objective. The
prevalent doctrine is that an action for the annulment or
rescission of a sale of real property does not operate to efface
the fundamental and prime objective and nature of the case,
which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case

on the ground of improper venue (Section 2, Rule 4) 10, which
was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so

far as respondent Lacsamana is concerned as she had already
filed an Answer, which did not allege improper venue and,
therefore, issues had already been joined, is likewise
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE
JUDGE RODOLFO A. ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether
or not respondent Court erred in denying the Motion to Set
Case for Pre-trial with respect to respondent Remedios Vda.
de Lacsamana as the case had been dismissed on the ground
of improper venue upon motion of co-respondent Philippine
National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the former
registered owner of a parcel of land consisting of 340 square
meters situated in Bamban, Tarlac. In 1963, petitioner
mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the
property was foreclosed on December 16, 1970. Respondent
PNB (Tarlac Branch) was the highest bidder in said foreclosure
proceedings. However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was still in the
alleged possession of petitioner and with the alleged
acquiescence of respondent PNB (Tarlac Branch), and upon
securing a permit from the Municipal Mayor, petitioner
constructed a warehouse on said property. Petitioner declared
said warehouse for tax purposes for which he was issued Tax
Declaration No. 5619. Petitioner then leased the warehouse to
one Hermogenes Sibal for a period of 10 years starting
January 1975.
On July 26, 1978, a Deed of Sale was executed between
respondent PNB (Tarlac Branch) and respondent Lacsamana
over the property. This contract was amended on July 31,
1978, particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her
name (TCT No. 173744) as well as separate tax declarations
for the land and building. 1
On November 22, 1979, petitioner commenced suit for
"Annulment of Deed of Sale with Damages" against herein
respondents PNB and Lacsamana before respondent Court of
First Instance of Rizal, Branch XXXI, Quezon City, essentially
impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner
alleged:
xxx xxx xxx
22. That defendant, Philippine National
Bank, through its Branch Manager ... by
virtue of the request of defendant ...
executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute
Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the
building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the
fact that said building is not owned by the
bank either by virtue of the public auction
sale conducted by the Sheriff and sold to the
Philippine National Bank or by virtue of the
Deed of Sale executed by the bank itself in
its favor on September 21, 1977 ...;
23. That said defendant bank fraudulently
mentioned ... that the sale in its favor should
likewise have included the building,
notwithstanding no legal basis for the same
and despite full knowledge that the
Certificate of Sale executed by the sheriff in
its favor ... only limited the sale to the land,
hence, by selling the building which never
became the property of defendant, they have
violated the principle against 'pactum
commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor
of respondent Lacsamana be declared null and void and that
damages in the total sum of P230,000.00, more or less, be
awarded to him. 2
In her Answer filed on March 4, 1980,-respondent Lacsamana
averred the affirmative defense of lack of cause of action in
that she was a purchaser for value and invoked the principle in
Civil Law that the "accessory follows the principal". 3
On March 14, 1980, respondent PNB filed a Motion to Dismiss
on the ground that venue was improperly laid considering that
the building was real property under article 415 (1) of the New
Civil Code and therefore section 2(a) of Rule 4 should apply. 4
Opposing said Motion to Dismiss, petitioner contended that the
action for annulment of deed of sale with damages is in the
nature of a personal action, which seeks to recover not the title
nor possession of the property but to compel payment of
damages, which is not an action affecting title to real property.
On April 25, 1980, respondent Court granted respondent
PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the
defendant Philippine National Bank dated
March 13, 1980, considered against the
plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said
defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue
considering that the plaintiff's complaint
which seeks for the declaration as null and
void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine
National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July
31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the
land of the defendant Philippine National
Bank situated in the Municipality of Bamban,
Province of Tarlac, which warehouse is an
immovable property pursuant to Article 415,
 No. 1 of the New Civil Code; and, as such
the action of the plaintiff is a real action
affecting title to real property which, under
Section 2, Rule 4 of the New Rules of Court,
must be tried in the province where the
property or any part thereof lies. 5
futile to proceed with the case against respondent Lacsamana
alone.
WHEREFORE, the petition is hereby denied without prejudice
to the refiling of the case by petitioner Antonio Punsalan, Jr. in
the proper forum.

In his Motion for Reconsideration of the aforestated Order, Costs against petitioner.
petitioner reiterated the argument that the action to annul does
not involve ownership or title to property but is limited to the
validity of the deed of sale and emphasized that the case SO ORDERED.
should proceed with or without respondent PNB as respondent
Lacsamana had already filed her Answer to the Complaint and Teehankee (Chairman), Plana, Vasquez, Relova and
no issue on venue had been raised by the latter. Gutierrez, Jr., JJ., concur.

On September 1, 1980,.respondent Court denied

reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far

as respondent Lacsamana was concerned, as the issues had
already been joined with the filing of respondent Lacsamana's
Answer.

In the Order of November 10, 1980 respondent Court denied

said Motion to Set Case for Pre-trial as the case was already
dismissed in the previous Orders of April 25, 1980 and
September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due

course.

We affirm respondent Court's Order denying the setting for pre-

trial.

The warehouse claimed to be owned by petitioner is an

immovable or real property as provided in article 415(l) of the
Civil Code. 6 Buildings are always immovable under the
Code. 7 A building treated separately from the land on which it
stood is immovable property and the mere fact that the parties
to a contract seem to have dealt with it separate and apart from
the land on which it stood in no wise changed its character as
immovable property. 8

While it is true that petitioner does not directly seek the

recovery of title or possession of the property in question, his
action for annulment of sale and his claim for damages are
closely intertwined with the issue of ownership of the building
which, under the law, is considered immovable property, the
recovery of which is petitioner's primary objective. The
prevalent doctrine is that an action for the annulment or
rescission of a sale of real property does not operate to efface
the fundamental and prime objective and nature of the case,
which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case

on the ground of improper venue (Section 2, Rule 4) 10, which
was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so

far as respondent Lacsamana is concerned as she had already
filed an Answer, which did not allege improper venue and,
therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the
validity of the Amended Contract of Sale between the former
and respondent Lacsamana is in issue. It would, indeed, be
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 Yorkvs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the
resolution of this appeal on side issues. It is machinery which is
involved; moreover, machinery not intended by the owner of
any building or land for use in connection therewith, but
intended by a lessee for use in a building erected on the land
by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being
taken to the United States Supreme Court, it was held that
machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the
property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the
opinion written by Chief Justice White, whose knowledge of the
Civil Law is well known, it was in part said:
To determine this question involves fixing the nature
and character of the property from the point of view of
the rights of Valdes and its nature and character from
the point of view of Nevers & Callaghan as a
judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on
the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property, not only land and
buildings, but also attributes immovability in some
cases to property of a movable nature, that is,
personal property, because of the destination to which
it is applied. "Things," says section 334 of the Porto Finding no reversible error in the record, the judgment
Rican Code, "may be immovable either by their own appealed from will be affirmed, the costs of this instance to be
nature or by their destination or the object to which paid by the appellant.
they are applicable." Numerous illustrations are given
in the fifth subdivision of section 335, which is as Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
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.)

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,
Espaa Extension, Quezon City. The findings were as
follows: the ground around one of the four posts was
excavated to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we
deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars
attached to the leg means of bolts; the tower proper
was attached to the leg three bolts; with two cross
metals to prevent mobility; there was no concrete
foundation but there was adobe stone underneath; as
the bottom of the excavation was covered with water
about three inches high, it could not be determined
with certainty to whether said adobe stone was placed
purposely or not, as the place abounds with this kind
of stone; and the tower carried five high voltage wires
without cover or any insulating materials.
The second tower inspected was located in Kamuning
Road, K-F, Quezon City, on land owned by the
petitioner approximate more than one kilometer from
the first tower. As in the first tower, the ground around
one of the four legs was excavate from seven to eight
(8) feet deep and one and a half (1-) meters wide.
There being very little water at the bottom, it was seen
that there was no concrete foundation, but there soft
adobe beneath. The leg was likewise provided with
two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the
second tower is made up of metal rods joined
together by means of bolts, so that by unscrewing the
bolts, the tower could be dismantled and
reassembled.
The third tower examined is located along Kamias
Road, Quezon City. As in the first two towers given
above, the ground around the two legs of the third
tower was excavated to a depth about two or three
inches beyond the outside level of the steel bar
foundation. It was found that there was no concrete
foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be
resting on soft adobe, which, probably due to high
humidity, looks like mud or clay. It was also found that
the square metal frame supporting the legs were not
attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon
City declared the aforesaid steel towers for real property tax
under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal
was taken by respondent to the Board of Assessment Appeals
of Quezon City, which required respondent to pay the amount
of P11,651.86 as real property tax on the said steel towers for
the years 1952 to 1956. Respondent paid the amount under
protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on
December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The motion
for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1)
the steel towers come within the term "poles" which are
declared exempt from taxes under part II paragraph 9 of
respondent's franchise; (2) the steel towers are personal
properties and are not subject to real property tax; and (3) the
City Treasurer of Quezon City is held responsible for the refund
of the amount paid. These are assigned as errors by the
petitioner in the brief.
The tax exemption privilege of the petitioner is quoted
hereunder:
PAR 9. The grantee shall be liable to pay the same
taxes upon its real estate, buildings, plant (not
including poles, wires, transformers, and insulators),
machinery and personal property as other persons
are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time
stated in paragraph nineteen of Part One hereof,
... and shall be in lieu of all taxes and assessments of
whatsoever nature and by whatsoever authority upon
the privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee from
which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484
Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually
cylindrical piece of wood or timber, as typically the stem of a
small tree stripped of its branches; also by extension, a similar
typically cylindrical piece or object of metal or the like". The
term also refers to "an upright standard to the top of which
something is affixed or by which something is supported; as a
dovecote set on a pole; telegraph poles; a tent pole;
sometimes, specifically a vessel's master (Webster's New
International Dictionary 2nd Ed., p. 1907.) Along the streets, in
the City of Manila, may be seen cylindrical metal poles, cubical
concrete poles, and poles of the PLDT Co. which are made of
two steel bars joined together by an interlacing metal rod. They
are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above
quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the
character of the electric current it carries, nor the material or
form of which it is made, but the use to which they are
dedicated. In accordance with the definitions, pole is not
restricted to a long cylindrical piece of wood or metal, but
includes "upright standards to the top of which something is
affixed or by which something is supported. As heretofore
described, respondent's steel supports consists of a framework
of four steel bars or strips which are bound by steel cross-arms
atop of which are cross-arms supporting five high voltage
transmission wires (See Annex A) and their sole function is to
support or carry such wires.
The conclusion of the CTA that the steel supports in question
are embraced in the term "poles" is not a novelty. Several
courts of last resort in the United States have called these steel
supports "steel towers", and they denominated these supports
or towers, as electric poles. In their decisions the words
"towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole
means the same thing.
In a proceeding to condemn land for the use of electric power
wires, in which the law provided that wires shall be constructed
upon suitable poles, this term was construed to mean either
wood or metal poles and in view of the land being subject to
overflow, and the necessary carrying of numerous wires and
the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex)
212 S.W. 222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel
supports or towers used by an association used to convey its
electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and
dangerous electric wires alongside public highways. The steel
supports or towers were made of iron or other metals
consisting of two pieces running from the ground up some
thirty feet high, being wider at the bottom than at the top, the
said two metal pieces being connected with criss-cross iron
running from the bottom to the top, constructed like ladders
and loaded with high voltage electricity. In form and structure,
they are like the steel towers in question. (Salt River Valley
Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an
electric company engaged in the generation of hydro-electric
power generated from its plant to the Tower of Oxford and City
of Waterbury. These steel towers are about 15 feet square at
the base and extended to a height of about 35 feet to a point,
and are embedded in the cement foundations sunk in the
earth, the top of which extends above the surface of the soil in
the tower of Oxford, and to the towers are attached insulators,
arms, and other equipment capable of carrying wires for the
transmission of electric power (Connecticut Light and Power
Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a
certain person met his death was built for the purpose of
supporting a transmission wire used for carrying high-tension
electric power, but claimed that the steel towers on which it is
carried were so large that their wire took their structure out of
the definition of a pole line. It was held that in defining the word
pole, one should not be governed by the wire or material of the
support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of
the size or material wire of its individual members, any
continuous series of structures intended and used solely or
primarily for the purpose of supporting wires carrying electric
currents is a pole line (Inspiration Consolidation Cooper Co. v.
Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No.
484 and incorporated in the petitioner's franchise, should not
be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as
contemplated thereon, should be understood and taken as a
part of the electric power system of the respondent Meralco, for
the conveyance of electric current from the source thereof to its
consumers. If the respondent would be required to employ
"wooden poles", or "rounded poles" as it used to do fifty years
back, then one should admit that the Philippines is one century
behind the age of space. It should also be conceded by now
that steel towers, like the ones in question, for obvious
reasons, can better effectuate the purpose for which the
respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or
towers in question are not embraced within the term poles, the
logical question posited is whether they
constitute real properties, so that they can be subject to a real
property tax. The tax law does not provide for a definition of
real property; but Article 415 of the Civil Code does, by stating
the following are immovable property:
(1) Land, buildings, roads, and constructions of all
kinds adhered to the soil;
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.

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

Concepcion, Reyes, J.B.L., Barrera and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.

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.
personal property, becomes very apparent. Moreover, the case
of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to the case at
bar, the nature of the machinery and equipment involved
therein as real properties never having been disputed nor in
issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect
parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the
Court of Appeals are hereby reversed and set aside, and the
Orders of the lower court are hereby reinstated, with costs
against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and
Escolin JJ., concur.
Abad Santos, J., concurs in the result.

In rejecting petitioner's assertion on the applicability of the G.R. No. L-17870 September 29, 1962
Tumalad doctrine, the Court of Appeals lays stress on the fact
that the house involved therein was built on a land that did not MINDANAO BUS COMPANY, petitioner,
belong to the owner of such house. But the law makes no vs.
distinction with respect to the ownership of the land on which THE CITY ASSESSOR & TREASURER and the BOARD OF
the house is built and We should not lay down distinctions not TAX APPEALS of Cagayan de Oro City,respondents.
contemplated by law.

Binamira, Barria and Irabagon for petitioner.

It must be pointed out that the characterization of the subject Vicente E. Sabellina for respondents.
machinery as chattel by the private respondent is indicative of
intention and impresses upon the property the character
determined by the parties. As stated inStandard Oil Co. of New
York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties
to a contract may by agreement treat as personal property that
which by nature would be real property, as long as no interest LABRADOR, J.:
of third parties would be prejudiced thereby.
This is a petition for the review of the decision of the Court of
Private respondent contends that estoppel cannot apply Tax Appeals in C.T.A. Case No. 710 holding that the petitioner
against it because it had never represented nor agreed that the Mindanao Bus Company is liable to the payment of the realty
machinery in suit be considered as personal property but was tax on its maintenance and repair equipment hereunder
merely required and dictated on by herein petitioner to sign a referred to.
printed form of chattel mortgage which was in a blank form at
the time of signing. This contention lacks persuasiveness. As
Respondent City Assessor of Cagayan de Oro City assessed
aptly pointed out by petitioner and not denied by the
at P4,400 petitioner's above-mentioned equipment. Petitioner
respondent, the status of the subject machinery as movable or
appealed the assessment to the respondent Board of Tax
immovable was never placed in issue before the lower court
Appeals on the ground that the same are not realty. The Board
and the Court of Appeals except in a supplemental
of Tax Appeals of the City sustained the city assessor, so
memorandum in support of the petition filed in the appellate
petitioner herein filed with the Court of Tax Appeals a petition
court. Moreover, even granting that the charge is true, such
for the review of the assessment.
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 In the Court of Tax Appeals the parties submitted the following
proper action in court. There is nothing on record to show that stipulation of facts:
the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. On the other hand, as Petitioner and respondents, thru their respective
pointed out by petitioner and again not refuted by respondent, counsels agreed to the following stipulation of facts:
the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another.
1. That petitioner is a public utility solely engaged in
Private respondent could not now therefore, be allowed to
transporting passengers and cargoes by motor trucks,
impugn the efficacy of the chattel mortgage after it has
over its authorized lines in the Island of Mindanao,
benefited therefrom,
collecting rates approved by the Public Service
Commission;
From what has been said above, the error of the appellate
court in ruling that the questioned machinery is real, not
 2. That petitioner has its main office and shop at
Cagayan de Oro City. It maintains Branch Offices
and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the
respondent as real properties are the following:
(a) Hobart Electric Welder Machine,
appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in
the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in
the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in
the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing
in the attached photograph, marked Annex
"G".
4. That these machineries are sitting on cement or
wooden platforms as may be seen in the attached
photographs which form part of this agreed stipulation
of facts;
5. That petitioner is the owner of the land where it
maintains and operates a garage for its TPU motor
trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein,
its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the
TPU land transportation business it operates;
6. That these machineries have never been or were
never used as industrial equipments to produce
finished products for sale, nor to repair machineries,
parts and the like offered to the general public
indiscriminately for business or commercial purposes
for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for
reconsideration, petitioner brought the case to this Court
assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the questioned
assessments are valid; and that said tools,
equipments or machineries are immovable taxable
real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil Code, and
holding that pursuant thereto the movable equipments
are taxable realties, by reason of their being intended
or destined for use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion
for reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of
Article 415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
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 WHEREFORE, the decision subject of the petition for review is
immobilized by destination because they are essential and hereby set aside and the equipment in question declared not
principal elements in the industry for those which may not be subject to assessment as real estate for the purposes of the
so considered immobilized because they are merely incidental, real estate tax. Without costs.
not essential and principal. Thus, cash registers, typewriters,
etc., usually found and used in hotels, restaurants, theaters, So ordered.
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 Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L.,
comments. Airline companies use forklifts, jeep-wagons, Paredes, Dizon and Makalintal, JJ., concur.
pressure pumps, IBM machines, etc. which are incidentals, not Regala, Concepcion and Barrera JJ., took no part.
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.
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY
ASSESSOR OF PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment
installed by Caltex (Philippines) Inc. in its gas stations located
on leased land.
The machines and equipment consists of underground tanks,
elevated tank, elevated water tanks, water tanks, gasoline
pumps, computing pumps, water pumps, car washer, car
hoists, truck hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery in this
manner:
A gasoline service station is a piece of lot
where a building or shed is erected, a water
tank if there is any is placed in one corner of
the lot, car hoists are placed in an adjacent
shed, an air compressor is attached in the
wall of the shed or at the concrete wall fence.
The controversial underground tank,
depository of gasoline or crude oil, is dug
deep about six feet more or less, a few
meters away from the shed. This is done to
prevent conflagration because gasoline and
other combustible oil are very inflammable.
This underground tank is connected with a
steel pipe to the gasoline pump and the
gasoline pump is commonly placed or
constructed under the shed. The footing of
the pump is a cement pad and this cement
pad is imbedded in the pavement under the
shed, and evidence that the gasoline
underground tank is attached and connected
to the shed or building through the pipe to
the pump and the pump is attached and
affixed to the cement pad and pavement
covered by the roof of the building or shed.
The building or shed, the elevated water
tank, the car hoist under a separate shed,
the air compressor, the underground
gasoline tank, neon lights signboard,
concrete fence and pavement and the lot
where they are all placed or erected, all of
them used in the pursuance of the gasoline
service station business formed the entire
gasoline service-station.
As to whether the subject properties are
attached and affixed to the tenement, it is
clear they are, for the tenement we consider
in this particular case are (is) the pavement
covering the entire lot which was constructed
by the owner of the gasoline station and the
improvement which holds all the properties
under question, they are attached and
affixed to the pavement and to the
improvement.
The pavement covering the entire lot of the
gasoline service station, as well as all the
improvements, machines, equipments and
apparatus are allowed by Caltex
(Philippines) Inc. ...
The underground gasoline tank is attached
to the shed by the steel pipe to the pump, so
with the water tank it is connected also by a
steel pipe to the pavement, then to the
electric motor which electric motor is placed
under the shed. So to say that the gasoline
pumps, water pumps and underground tanks
are outside of the service station, and to
consider only the building as the service
station is grossly erroneous. (pp. 58-60,
Rollo).
The said machines and equipment are loaned by Caltex to gas
station operators under an appropriate lease agreement or
receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and
equipment in good condition as when received, ordinary wear
and tear excepted.
The lessor of the land, where the gas station is located, does
not become the owner of the machines and equipment
installed therein. Caltex retains the ownership thereof during
the term of the lease.
The city assessor of Pasay City characterized the said items of
gas station equipment and machinery as taxable realty. The
realty tax on said equipment amounts to P4,541.10 annually (p.
52, Rollo). The city board of tax appeals ruled that they are
personalty. The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance
Cesar Virata as chairman, Acting Secretary of Justice Catalino
Macaraig, Jr. and Secretary of Local Government and
Community Development Jose Roo, held in its decision of
June 3, 1977 that the said machines and equipment are real
property within the meaning of sections 3(k) & (m) and 38 of
the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, and that the definitions of
real property and personal property in articles 415 and 416 of
the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente
Abad Santos took Macaraig's place) in its resolution of January
12, 1978, denying Caltex's motion for reconsideration, a copy
of which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it
prayed for the setting aside of the Board's decision and for a
declaration that t he said machines and equipment are
personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax
Appeals has exclusive appellate jurisdiction over this case is
not correct. When Republic act No. 1125 created the Tax Court
in 1954, there was as yet no Central Board of Assessment
Appeals. Section 7(3) of that law in providing that the Tax
Court had jurisdiction to review by appeal decisions of
provincial or city boards of assessment appeals had in mind
the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the
Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals and
is, therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the
decision of the Central Board of Assessment Appeals shall
become final and executory after the lapse of fifteen days from
the receipt of its decision by the appellant. Within that fifteen-
day period, a petition for reconsideration may be filed. The
Code does not provide for the review of the Board's decision
by this Court.
Consequently, the only remedy available for seeking a review
by this Court of the decision of the Central Board of
Assessment Appeals is the special civil action of certiorari, the
recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax. This
issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is
due "on real property, including land, buildings, machinery, and
other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.
There shall be levied, assessed and
collected in all provinces, cities and
municipalities an annual ad valorem tax on
real property, such as land, buildings,
machinery and other improvements affixed
or attached to real property not hereinafter
specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition
made to property or an amelioration in its
condition, amounting to more than mere
repairs or replacement of waste, costing
labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new
or further purposes.
m) Machinery shall embrace machines,
mechanical contrivances, instruments,
appliances and apparatus attached to the
real estate. It includes the physical facilities
available for production, as well as the
installations and appurtenant service
facilities, together with all other equipment
designed for or essential to its
manufacturing, industrial or agricultural
purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed owned by
Caltex (as to which it is subject to realty tax) and which fixtures
are necessary to the operation of the gas station, for without
them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its
nature only becomes immobilized when placed in a plant by
the owner of the property or plant but not when so placed by a
tenant, a usufructuary, or any person having only a temporary
right, unless such person acted as the agent of the owner
(Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of
the Civil Code regarding machinery that becomes real property
by destination. In the Davao Saw Mills case the question was
whether the machinery mounted on foundations of cement and
installed by the lessee on leased land should be regarded as
real property forpurposes of execution of a judgment against
the lessee. The sheriff treated the machinery as personal
property. This Court sustained the sheriff's action. (Compare
with Machinery & Engineering Supplies, Inc. vs. Court of
Appeals, 96 Phil. 70, where in a replevin case machinery was
treated as realty).
Here, the question is whether the gas station equipment and
machinery permanently affixed by Caltex to its gas station and
pavement (which are indubitably taxable realty) should be
subject to the realty tax. This question is different from the
issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even
though for some purposes they might be considered personalty
(84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar
phenomenon to see things classed as real property for
purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles within the
meaning of paragraph 9 of its franchise which exempts its
poles from taxation. The steel towers were considered
personalty because they were attached to square metal frames
by means of bolts and could be moved from place to place
when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the
same as tools and equipment in the repair shop of a bus
company which were held to be personal property not subject
to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).
The Central Board of Assessment Appeals did not commit a
grave abuse of discretion in upholding the city assessor's is
imposition of the realty tax on Caltex's gas station and
equipment.
WHEREFORE, the questioned decision and resolution of the
Central Board of Assessment Appeals are affirmed. The
petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE,
INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a
real or immovable property be considered as
personal or movable, a party is estopped from
subsequently claiming otherwise.Hence, such
property is a proper subject of a writ of replevin
obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari
assailing the January 6, 1999 Decision[1] of the
Court of Appeals (CA)[2] in CA-GR SP No. 47332
and its February 26, 1999 Resolution[3] denying
reconsideration. The decretal portion of the CA
Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated
February 18, 1998 and Resolution dated March 31, 1998 in
Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of
preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional
Trial Court (RTC) of Quezon City (Branch
218)[6] issued a Writ of Seizure.[7] The March 18,
1998 Resolution[8] denied petitioners Motion for
Special Protective Order, praying that the deputy
sheriff be enjoined from seizing immobilized or other
real properties in (petitioners) factory in Cainta,
Rizal and to return to their original place whatever
immobilized machineries or equipments he may
have removed.[9]
The Facts
The undisputed facts are summarized by the
Court of Appeals as follows:[10]
On February 13, 1998, respondent PCI Leasing and Finance,
Inc. (PCI Leasing for short) filed with the RTC-QC a complaint
for [a] sum of money (Annex E), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI
Leasing, respondent judge issued a writ of replevin (Annex B)
directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment
of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioners factory, seized one machinery with
[the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special
protective order (Annex C), invoking the power of the court to
control the conduct of its officers and amend and control its
processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the
ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to
be seized [were] immovable as defined in Article 415 of the
Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the
agreement would be prejudicial to innocent third parties. They
further stated that PCI Leasing [was] estopped from treating
these machineries as personal because the contracts in which
the alleged agreement [were] embodied [were] totally sham
and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of
seizure and take possession of the remaining properties. He
was able to take two more, but was prevented by the workers
from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for
certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the
appellate court held that the subject machines were
personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that
the words of the contract are clear and leave no
doubt upon the true intention of the contracting
parties. Observing that Petitioner Goquiolay was an
experienced businessman who was not unfamiliar
with the ways of the trade, it ruled that he should
have realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition would be to
preempt the trial court in ruling upon the case below, since the
merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of
a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein
are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a
matter x x x which respondent court is in the best position to
determine.
 Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the
following issues for our consideration:
A. Whether or not the machineries purchased and imported by
SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or
a lease.[12]
In the main, the Court will resolve whether the
said machines are personal, not immovable,
property which may be a proper subject of a writ of
replevin. As a preliminary matter, the Court will also
address briefly the procedural points raised by
respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to
indicate expressly whether it was being filed under
Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse
is under Rule 45. This conclusion finds support in
the very title of the Petition, which is Petition for
Review on Certiorari.[13]
While Judge Laqui should not have been
impleaded as a respondent,[14] substantial justice
requires that such lapse by itself should not warrant
the dismissal of the present Petition. In this light, the
Court deems it proper to remove, motu proprio, the
name of Judge Laqui from the caption of the present
case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines
used in their factory were not proper subjects of the
Writ issued by the RTC, because they were in fact
real property. Serious policy considerations, they
argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that
writs of replevin are issued for the recovery of
personal property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval
of the bond, the court shall issue an order and the
corresponding writ of replevin describing the personal property
alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil
Code enumerates immovable or real property as
follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or
works;
x x x....................................x x x....................................x x x
In the present case, the machines that were
the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own
land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence,
although each of them was movable or personal
property on its own, all of them have become
immobilized by destination because they are
essential and principal elements in the
industry.[16] In that sense, petitioners are correct in
arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the
Civil Code.[17]
Be that as it may, we disagree with the
submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties
may validly stipulate that a real property be
considered as personal.[18] After agreeing to such
stipulation, they are consequently estopped from
claiming otherwise. Under the principle of estoppel,
a party to a contract is ordinarily precluded from
denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court
upheld the intention of the parties to treat
a house as a personal property because it had been
made the subject of a chattel mortgage. The Court
ruled:
x x x. Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand
by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing
and Finance Corp. v. Wearever Textile Mills[20] also
held that the machinery used in a factory and
essential to the industry, as in the present case, was
a proper subject of a writ of replevin because it was
treated as personal property in a contract. Pertinent
 portions of the Courts ruling are reproduced
hereunder:
x x x. If a house of strong materials, like what was involved in
the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage thereon
as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not
be likewise treated as such. This is really because one who
has so agreed is estopped from denying the existence of the
chattel mortgage.
In the present case, the Lease Agreement
clearly provides that the machines in question are to
be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain,
personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any
manner to what is permanent.
Clearly then, petitioners are estopped from
denying the characterization of the subject
machines as personal property. Under the
circumstances, they are proper subjects of the Writ
of Seizure.
It should be stressed, however, that our
holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement
is good only insofar as the contracting parties are
concerned.[22] Hence, while the parties are bound by
the Agreement, third persons acting in good faith
are not affected by its stipulation characterizing the
subject machinery as personal.[23] In any event,
there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that
the Agreement is a loan and not a
lease.[24] Submitting documents supposedly
showing that they own the subject machines,
petitioners also argue in their Petition that the
Agreement suffers from intrinsic ambiguity which
places in serious doubt the intention of the parties
and the validity of the lease agreement itself.[25] In
their Reply to respondents Comment, they further
allege that the Agreement is invalid.[26]
These arguments are unconvincing. The
validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is
effectively a resolution of the merits of the
case. Hence, they should be threshed out in the
trial, not in the proceedings involving the issuance of
the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the
Court explained that the policy under Rule 60 was
that questions involving title to the subject property
questions which petitioners are now raising --
should be determined in the trial. In that case, the
Court noted that the remedy of defendants under
Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiffs bond. They
were not allowed, however, to invoke the title to the
subject property. The Court ruled:
In other words, the law does not allow the defendant to file a
motion to dissolve or discharge the writ of seizure (or delivery)
on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary
attachment or injunction, and thereby put at issue the matter of
the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should
be ventilated and determined only at the trial on the merits. [28]
Besides, these questions require a
determination of facts and a presentation of
evidence, both of which have no place in a petition
for certiorari in the CA under Rule 65 or in a petition
for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this
case may rely on the Lease Agreement, for nothing
on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in
the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the
parties.
Makati Leasing and Finance Corporation [30] is
also instructive on this point. In that case, the Deed
of Chattel Mortgage, which characterized the
subject machinery as personal property, was also
assailed because respondent had allegedly been
required to sign a printed form of chattel mortgage
which was in a blank form at the time of
signing. The Court rejected the argument and relied
on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact
alone does not render a contract void ab initio, but can only be
a ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper
action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps
were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows
these machineries to be seized, then its workers
would be out of work and thrown into the
streets.[31] They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.
 Petitioners arguments do not preclude the
implementation of the Writ. As earlier discussed, law
and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the
remedy under Section 5 of Rule 60, which allows
the filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to
the sufficiency of the applicants bond, or of the surety or
sureties thereon, he cannot immediately require the return of
the property, but if he does not so object, he may, at any time
before the delivery of the property to the applicant, require the
return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value
of the property as stated in the applicants affidavit for the
delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the
applicant.
WHEREFORE, the Petition is DENIED and the
assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-
Reyes, JJ., concur.
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-
appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R.
No. 27824-R) for the reason that only questions of law are
involved.
This case was originally commenced by defendants-appellants
in the municipal court of Manila in Civil Case No. 43073, for
ejectment. Having lost therein, defendants-appellants appealed
to the court a quo (Civil Case No. 30993) which also rendered
a decision against them, the dispositive portion of which
follows:
WHEREFORE, the court hereby renders
judgment in favor of the plaintiffs and against
the defendants, ordering the latter to pay
jointly and severally the former a monthly
rent of P200.00 on the house, subject-matter
of this action, from March 27, 1956, to
January 14, 1967, with interest at the legal
rate from April 18, 1956, the filing of the
complaint, until fully paid, plus attorney's
fees in the sum of P300.00 and to pay the
costs.
It appears on the records that on 1 September 1955
defendants-appellants executed a chattel mortgage in favor of
plaintiffs-appellees over their house of strong materials located
at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot
Nos. 6-B and 7-B, Block No. 2554, which were being rented
from Madrigal & Company, Inc. The mortgage was registered
in the Registry of Deeds of Manila on 2 September 1955. The
herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable within
one year at 12% per annum. The mode of payment was
P150.00 monthly, starting September, 1955, up to July 1956,
and the lump sum of P3,150 was payable on or before August,
1956. It was also agreed that default in the payment of any of
the amortizations, would cause the remaining unpaid balance
to becomeimmediately due and Payable and
the Chattel Mortgage will be enforceable in
accordance with the provisions of Special
Act No. 3135, and for this purpose, the
Sheriff of the City of Manila or any of his
deputies is hereby empowered and
authorized to sell all the Mortgagor's property
after the necessary publication in order to
settle the financial debts of P4,800.00, plus
12% yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage
was extrajudicially foreclosed, and on 27 March 1956, the
house was sold at public auction pursuant to the said contract.
As highest bidder, plaintiffs-appellees were issued the
corresponding certificate of sale. 3 Thereafter, on 18 April 1956,
plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the
house be vacated and its possession surrendered to them, and
for defendants-appellants to pay rent of P200.00 monthly from
27 March 1956 up to the time the possession is
surrendered. 4 On 21 September 1956, the municipal court
rendered its decision
... ordering the defendants to vacate the
premises described in the complaint;
ordering further to pay monthly the amount of
P200.00 from March 27, 1956, until such
(time that) the premises is (sic) completely
vacated; plus attorney's fees of P100.00 and
the costs of the suit. 5
Defendants-appellants, in their answers in both the municipal
court and court a quo impugned the legality of the chattel
mortgage, claiming that they are still the owners of the house;
but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the
grounds that: (a) the municipal court did not have jurisdiction to
try and decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior possession;
and (b) failure to prove prior demand pursuant to Section 2,
Rule 72, of the Rules of Court. 6
During the pendency of the appeal to the Court of First
Instance, defendants-appellants failed to deposit the rent for
November, 1956 within the first 10 days of December, 1956 as
ordered in the decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for execution, and it
was actually issued on 24 January 1957. However, the
judgment regarding the surrender of possession to plaintiffs-
appellees could not be executed because the subject house
had been already demolished on 14 January 1957 pursuant to
the order of the court in a separate civil case (No. 25816) for
ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of
the supersedeas bond and withdrawal of deposited rentals was
denied for the reason that the liability therefor was disclaimed
and was still being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final disposition of the
appeal. 7
On 7 October 1957, the appellate court of First Instance
rendered its decision, the dispositive portion of which is quoted
earlier. The said decision was appealed by defendants to the
Court of Appeals which, in turn, certified the appeal to this
Court. Plaintiffs-appellees failed to file a brief and this appeal
was submitted for decision without it.
Defendants-appellants submitted numerous assignments of
error which can be condensed into two questions, namely: .
(a) Whether the municipal court from which
the case originated had jurisdiction to
adjudicate the same;
(b) Whether the defendants are, under the
law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year
provided by law for the redemption of the
extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction
of the municipal court from which the case originated, and
consequently, the appellate jurisdiction of the Court of First
Instance a quo, on the theory that the chattel mortgage is
void ab initio; whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent auction sale, are
also void. Thus, the ownership of the house still remained with
defendants-appellants who are entitled to possession and not
plaintiffs-appellees. Therefore, it is argued by defendants-
appellants, the issue of ownership will have to be adjudicated
first in order to determine possession. lt is contended further
that ownership being in issue, it is the Court of First Instance
which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the
chattel mortgage on two grounds, which are: (a) that, their
signatures on the chattel mortgage were obtained through
fraud, deceit, or trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being an
immovable, it can only be the subject of a real estate mortgage
and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First
Instance found defendants-appellants' contentions as not
supported by evidence and accordingly dismissed the
charge, 8 confirming the earlier finding of the municipal court
that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations." 9
It has been held in Supia and Batiaco vs. Quintero and
Ayala 10 that "the answer is a mere statement of the facts which
the party filing it expects to prove, but it is not evidence; 11 and
further, that when the question to be determined is one of title,
the Court is given the authority to proceed with the hearing of
the cause until this fact is clearly established. In the case of Sy
vs. Dalman, 12 wherein the defendant was also a successful
bidder in an auction sale, it was likewise held by this Court that
in detainer cases the aim of ownership "is a matter of defense
and raises an issue of fact which should be determined from
the evidence at the trial." What determines jurisdiction are the
allegations or averments in the complaint and the relief asked
for. 13
Moreover, even granting that the charge is true, fraud or deceit
does not render a contract void ab initio, and can only be a
ground for rendering the contract voidable or annullable
pursuant to Article 1390 of the New Civil Code, by a proper
action in court. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps
were taken to nullify the same. Hence, defendants-appellants'
claim of ownership on the basis of a voidable contract which
has not been voided fails.
It is claimed in the alternative by defendants-appellants that
even if there was no fraud, deceit or trickery, the chattel
mortgage was still null and void ab initio because only personal
properties can be subject of a chattel mortgage. The rule about
the status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre Inc., 15 cited
in Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the
effect that
... it is obvious that the inclusion of the
building, separate and distinct from the land,
in the enumeration of what may constitute
real properties (art. 415, New Civil Code)
could only mean one thing that a building
is by itself an immovable
property irrespective of whether or not said
structure and the land on which it is adhered
to belong to the same owner.
Certain deviations, however, have been allowed for various
reasons. In the case of Manarang and Manarang vs.
Ofilada, 17 this Court stated that "it is undeniable that the
parties to a contract may by agreement treat as personal
property that which by nature would be real property",
citing Standard Oil Company of New York vs. Jaramillo. 18 In
the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following
described personal property."19 The "personal property"
consisted of leasehold rights and a building. Again, in the case
of Luna vs. Encarnacion, 20 the subject of the contract
designated as Chattel Mortgage was a house of mixed
materials, and this Court hold therein that it was a valid Chattel
mortgage because it was so expressly designated and
specifically that the property given as security "is a house of
mixed materials, which by its very nature is considered
personal property." In the later case of Navarro vs.
Pineda, 21 this Court stated that
The view that parties to a deed of chattel
mortgage may agree to consider a house as
 personal property for the purposes of said
contract, "is good only insofar as the
contracting parties are concerned. It is
based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23
April 1958). In a case, a mortgaged house
built on a rented land was held to be a
personal property, not only because the
deed of mortgage considered it as such, but
also because it did not form part of the land
(Evangelists vs. Abad, [CA]; 36 O.G. 2913),
for it is now settled that an object placed on
land by one who had only a temporary right
to the same, such as the lessee or
usufructuary, does not become immobilized
by attachment (Valdez vs. Central Altagracia,
222 U.S. 58, cited in Davao Sawmill Co., Inc.
vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a
rented land belonging to another person, it
may be mortgaged as a personal property as
so stipulated in the document of mortgage.
(Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is
predicated on statements by the owner
declaring his house to be a chattel, a
conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs.
C.N. Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not
only expressly designated as Chattel Mortgage; it specifically
provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage 23 the property
together with its leasehold rights over the lot on which it is
constructed and participation ..." 24Although there is no specific
statement referring to the subject house as personal property,
yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant
to convey the house as chattel, or at least, intended to treat the
same as such, so that they should not now be allowed to make
an inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendats-
appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the
property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty. Finally
unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza
Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the
chattel mortgage, 27 it is the defendants-appellants themselves,
as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel
therefore applies to the herein defendants-appellants, having
treated the subject house as personalty.
(b) Turning to the question of possession and rentals of the
premises in question. The Court of First Instance noted in its
decision that nearly a year after the foreclosure sale the
mortgaged house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor of the land
on which the house stood. For this reason, the said court
limited itself to sentencing the erstwhile mortgagors to pay
plaintiffs a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold) until
14 January 1957 (when it was torn down by the Sheriff), plus
P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they
were entitled to remain in possession without any obligation to
pay rent during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this issue, We
must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel
Mortgage Law, Act No. 1508. 28 Section 14 of this Act allows
the mortgagee to have the property mortgaged sold at public
auction through a public officer in almost the same manner as
that allowed by Act No. 3135, as amended by Act No. 4118,
provided that the requirements of the law relative to notice and
registration are complied with. 29 In the instant case, the parties
specifically stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of Special Act
No. 3135 ... ." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-
mortgagor (defendants-appellants herein) may, at any time
within one year from and after the date of the auction sale,
redeem the property sold at the extra judicial foreclosure sale.
Section 7 of the same Act 32 allows the purchaser of the
property to obtain from the court the possession during the
period of redemption: but the same provision expressly
requires the filing of a petition with the proper Court of First
Instance and the furnishing of a bond. It is only upon filing of
the proper motion and the approval of the corresponding bond
that the order for a writ of possession issues as a matter of
course. No discretion is left to the court. 33 In the absence of
such a compliance, as in the instant case, the purchaser can
not claim possession during the period of redemption as a
matter of right. In such a case, the governing provision is
Section 34, Rule 39, of the Revised Rules of Court 34 which
also applies to properties purchased in extrajudicial foreclosure
proceedings. 35 Construing the said section, this Court stated in
the aforestated case of Reyes vs. Hamada.
In other words, before the expiration of the 1-
year period within which the judgment-debtor
or mortgagor may redeem the property, the
purchaser thereof is not entitled, as a matter
of right, to possession of the same. Thus,
while it is true that the Rules of Court allow
the purchaser to receive the rentals if the
purchased property is occupied by tenants,
he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case
may be, for the amount so received and the
same will be duly credited against the
redemption price when the said debtor or
mortgagor effects the redemption.Differently
stated, the rentals receivable from tenants,
although they may be collected by the
purchaser during the redemption period, do
not belong to the latter but still pertain to the
debtor of mortgagor. The rationale for the
Rule, it seems, is to secure for the benefit of
the debtor or mortgagor, the payment of the
redemption amount and the consequent
return to him of his properties sold at public
auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs.
Espe. 36
Since the defendants-appellants were occupying the house at
the time of the auction sale, they are entitled to remain in
possession during the period of redemption or within one year
from and after 27 March 1956, the date of the auction sale, and
to collect the rents or profits during the said period.
It will be noted further that in the case at bar the period of
redemption had not yet expired when action was instituted in
the court of origin, and that plaintiffs-appellees did not choose
to take possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties to govern
the extrajudicial foreclosure of the chattel mortgage. Neither
was there an allegation to that effect. Since plaintiffs-appellees'
right to possess was not yet born at the filing of the complaint,
there could be no violation or breach thereof. Wherefore, the
original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that
effect. The Supreme Court is clothed with ample authority to
review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision of the
cases. 37
It follows that the court below erred in requiring the mortgagors
to pay rents for the year following the foreclosure sale, as well
as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed
from is reversed and another one entered, dismissing the
complaint. With costs against plaintiffs-appellees.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro,
Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ.,
concur.
G.R. No. L-17898 October 31, 1962
PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A.
ORTIZ, Judge of the Court of First Instance of Agusan,
THE PROVINCIAL SHERIFF OF SURIGAO and GRACE
PARK ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park
Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of
Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court
of Appeals in CA-G.R. No. 26723-R entitled "Pastor D. Ago vs.
The Provincial Sheriff of Surigao, et al." which in part reads:
In this case for certiorari and prohibition with
preliminary injunction, it appears from the records that
the respondent Judge of the Court of First Instance of
Agusan rendered judgment (Annex "A") in open court
on January 28, 1959, basing said judgment on a
compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First
Instance issued a writ of execution.
Petitioner's motion for reconsideration dated October
12, 1959 alleges that he, or his counsel, did not
receive a formal and valid notice of said decision,
which motion for reconsideration was denied by the
court below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge
exceeded in his jurisdiction in rendering the execution
without valid and formal notice of the decision.
A compromise agreement is binding between the
parties and becomes the law between them.
(Gonzales vs. Gonzales G.R. No. L-1254, May 21,
1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-
12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment
based on a compromise agreement is not appealable
and is immediately executory, unless a motion is filed
on the ground fraud, mistake or duress. (De los Reyes
vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No.
L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served
notice of the decision is untenable. The judgment on
the compromise agreement rendered by the court
below dated January 28, 1959, was given in open
court. This alone is a substantial compliance as to
notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court
did not exceed nor abuse its jurisdiction in ordering
the execution of the judgment. The petition
for certiorari is hereby dismissed and the writ of
preliminary injunction heretofore dissolved, with costs
against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957,
petitioner Pastor D. Ago bought sawmill machineries and
equipments from respondent Grace Park Engineer
domineering, Inc., executing a chattel mortgage over said
machineries and equipments to secure the payment of balance
of the price remaining unpaid of P32,000.00, which petitioner
agreed to pay on installment basis.
Petitioner Ago defaulted in his payment and so, in 1958
respondent Grace Park Engineering, Inc. instituted extra-
judicial foreclosure proceedings of the mortgage. To enjoin
said foreclosure, petitioner herein instituted Special Civil Case
No. 53 in the Court of First Instance of Agusan. The parties to
the case arrived at a compromise agreement and submitted
the same in court in writing, signed by Pastor D. Ago and the
Grace Park Engineering, Inc. The Hon. Montano A. Ortiz,
Judge of the Court of First Instance of Agusan, then presiding,
dictated a decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in
the judgment by compromise, so Grace Park Engineering, Inc.
filed with the lower court a motion for execution, which was
granted by the court on August 15, 1959. A writ of execution,
dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting
upon the writ of execution issued by the lower court, levied
upon and ordered the sale of the sawmill machineries and
equipments in question. These machineries and equipments
had been taken to and installed in a sawmill building located in
Lianga, Surigao del Sur, and owned by the Golden Pacific
Sawmill, Inc., to whom, petitioner alleges, he had sold them on
February 16, 1959 (a date after the decision of the lower court
but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale
was set for December 4, 1959, petitioner, on December 1,
1959, filed the petition for certiorari and prohibition with
preliminary injunction with respondent Court of Appeals,
alleging that a copy of the aforementioned judgment given in
open court on January 28, 1959 was served upon counsel for
petitioner only on September 25, 1959 (writ of execution is
dated September 23, 1959); that the order and writ of
execution having been issued by the lower court before
counsel for petitioner received a copy of the judgment, its
resultant last order that the "sheriff may now proceed with the
sale of the properties levied constituted a grave abuse of
discretion and was in excess of its jurisdiction; and that the
respondent Provincial Sheriff of Surigao was acting illegally
upon the allegedly void writ of execution by levying the same
upon the sawmill machineries and equipments which have
become real properties of the Golden Pacific sawmill, Inc., and
is about to proceed in selling the same without prior publication
of the notice of sale thereof in some newspaper of general
circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of
preliminary injunction against the sheriff but it turned out that
the latter had already sold at public auction the machineries in
question, on December 4, 1959, as scheduled. The respondent
Grace Park Engineering, Inc. was the only bidder for
P15,000.00, although the certificate sale was not yet executed.
The Court of Appeals constructed the sheriff to suspend the
issuance of a certificate of sale of the said sawmill machineries
and equipment sold by him on December 4, 1959 until the final
decision of the case. On November 9, 1960 the Court of
Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals
erred (1) in holding that the rendition of judgment on
compromise in open court on January 1959 was a sufficient
notice; and (2) in not resolving the other issues raised before it,
namely, (a) the legality of the public auction sale made by the
sheriff, and (b) the nature of the machineries in question,
whether they are movables or immovables.
The Court of Appeals held that as a judgment was entered by
the court below in open court upon the submission of the
compromise agreement, the parties may be considered as
having been notified of said judgment and this fact constitutes
due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of
the court, and is the fact the petitioner herein was present in
open court was the judgment was dictated, sufficient notice
thereof? The provisions of the Rules of Court decree
otherwise. Section 1 of Rule 35 describes the manner in which
judgment shall be rendered, thus:
SECTION 1. How judgment rendered. All
judgments determining the merits of cases shall be in
writing personally and directly prepared by the judge,
and signed by him, stating clearly and distinctly the
facts and the law on which it is based, filed with the
clerk of the court.
The court of first instance being a court of record, in order that
a judgment may be considered as rendered, must not only be
in writing, signed by the judge, but it must also be filed with the
clerk of court. The mere pronouncement of the judgment in
open court with the stenographer taking note thereof does not,
therefore, constitute a rendition of the judgment. It is the filing
of the signed decision with the clerk of court that constitutes
rendition. While it is to be presumed that the judgment that was
dictated in open court will be the judgment of the court, the
court may still modify said order as the same is being put into
writing. And even if the order or judgment has already been put
into writing and signed, while it has not yet been delivered to
the clerk for filing it is still subject to amendment or change by
the judge. It is only when the judgment signed by the judge is
actually filed with the clerk of court that it becomes a valid and
binding judgment. Prior thereto, it could still be subject to
amendment and change and may not, therefore, constitute the
real judgment of the court.
Regarding the notice of judgment, the mere fact that a party
heard the judge dictating the judgment in open court, is not a
valid notice of said judgment. If rendition thereof is constituted
by the filing with the clerk of court of a signed copy (of the
judgment), it is evident that the fact that a party or an attorney
heard the order or judgment being dictated in court cannot be
considered as notice of the real judgment. No judgment can be
notified to the parties unless it has previously been rendered.
The notice, therefore, that a party has of a judgment that was
being dictated is of no effect because at the time no judgment
has as yet been signed by the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or
judgments be served personally or by registered mail. Section
7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. Final
orders or judgments shall be served either personally
or by registered mail.
In accordance with this provision, a party is not considered as
having been served with the judgment merely because he
heard the judgment dictating the said judgment in open court; it
is necessary that he be served with a copy of the signed
judgment that has been filed with the clerk in order that he may
legally be considered as having been served with the
judgment.
For all the foregoing, the fact that the petitioner herein heard
the trial judge dictating the judgment in open court, is not
sufficient to constitute the service of judgement as required by
the above-quoted section 7 of Rule 2 the signed judgment not
having been served upon the petitioner, said judgment could
not be effective upon him (petitioner) who had not received it. It
follows as a consequence that the issuance of the writ of
execution null and void, having been issued before petitioner
her was served, personally or by registered mail, a copy of the
decision.
The second question raised in this appeal, which has been
passed upon by the Court of Appeals, concerns the validity of
the proceedings of the sheriff in selling the sawmill machineries
and equipments at public auction with a notice of the sale
having been previously published.
The record shows that after petitioner herein Pastor D. Ago
had purchased the sawmill machineries and equipments he
assigned the same to the Golden Pacific Sawmill, Inc. in
payment of his subscription to the shares of stock of said
corporation. Thereafter the sawmill machinery and equipments
were installed in a building and permanently attached to the
ground. By reason of such installment in a building, the said
sawmill machineries and equipment became real estate
properties in accordance with the provision of Art. 415 (5) of
the Civil Code, thus:
ART. 415. The following are immovable property:
Pastor D. Ago from the Grace Park Engineering, Inc., as well
as the sale of the same by the Sheriff of Surigao, are null and
void. Costs shall be against the respondent Grace Park
Engineering, Inc.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,
Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,concur.
Padilla, J., took no part.

xxx xxx xxx

(5) Machinery, receptacles, instruments or

implements tended by the owner of the tenement for
an industry or works which may be carried on in a
building or on a piece of land, and which tend directly [1] Rollo, pp. 177-180.
to meet the needs of the said industry
1. or works;

This Court in interpreting a similar question raised before it in

the case of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683,
held that the installation of the machine and equipment in the
central of the Mabalacat Sugar Co., Inc. for use in connection
with the industry carried by the company, converted the said
machinery and equipment into real estate by reason of their
purpose. Paraphrasing language of said decision we hold that
by the installment of the sawmill machineries in the building of
the Gold Pacific Sawmill, Inc., for use in the sawing of logs
carried on in said building, the same became a necessary and
permanent part of the building or real estate on which the same
was constructed, converting the said machineries and
equipments into real estate within the meaning of Article 415(5)
above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question

valued at more than P15,000.00 appear to have been sold
without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of
Court, which is as follows:

SEC. 16. Notice of sale of property on execution.

Before the sale of property on execution, notice
thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice

particularly describing the property for twenty days in
three public places in the municipality or city where
the property is situated, and also where the property
is to be sold, and, if the assessed value of the
property exceeds four hundred pesos, by publishing a
copy of the notice once a week, for the same period,
in some newspaper published or having general
circulation in the province, if there be one. If there are
newspapers published in the province in both the
English and Spanish languages, then a like
publication for a like period shall be made in one
newspaper published in the English language, and in
one published in the Spanish language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to

be reviewed is hereby set aside and We declare that the
issuance of the writ of execution in this case against the
sawmill machineries and equipments purchased by petitioner