Republic of the Philippines At the time when the execution was levied upon the building, the defendant
levied upon the building, the defendant machinery company,
SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it stood.
The indebtedness secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in satisfaction of the mortgage
was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company, but
this deed of sale, although executed in a public document, was not registered. This deed makes
no reference to the building erected on the land and would appear to have been executed for the
purpose of curing any defects which might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery company went into possession of the
building at or about the time when this sale took place, that is to say, the month of December,
1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company,
the mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the plaintiff upon
the building, separate and apart from the land on which it stood, to secure payment of the balance
of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the
failure of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the building, bought it in at the
sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of the sale
duly registered in the land registry of the Province of Cavite.
which was in possession, filed with the sheriff a sworn statement setting up its claim of title and
demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the
plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon
which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at
the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery
company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of
the machinery company, on the ground that the company had its title to the building registered
prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be
transfer to the person who may have the first taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who presents the
oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot
be given the legal effect of an inscription in the registry of real property. By its express terms, the
Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and
the sole purpose and object of the chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal property executed in the manner and
form prescribed in the statute. The building of strong materials in which the rice-cleaning
machinery was installed by the "Compañia Agricola Filipina" was real property, and the mere fact
that the parties seem to have dealt with it separate and apart from the land on which it stood in no
wise changed its character as real property. It follows that neither the original registry in the chattel
mortgage of the building and the machinery installed therein, not the annotation in that registry of
the sale of the mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on
the ground that the agreed statement of facts in the court below discloses that neither the
purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his
favor was made in good faith, and that the machinery company must be held to be the owner of
the property under the third paragraph of the above cited article of the code, it appearing that the
company first took possession of the property; and further, that the building and the land were sold
to the machinery company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express requirement
as to "good faith" in relation to the "inscription" of the property on the registry, it must be presumed
that good faith is not an essential requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under this article of the code upon
an inscription of title in bad faith. Such an interpretation placed upon the language of this section
would open wide the door to fraud and collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures an inscription therein in bad faith. The
force and effect given by law to an inscription in a public record presupposes the good faith of him
who enters such inscription; and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the
benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference,
this provision must always be understood on the basis of the good faith mentioned in the
first paragraph; the legislator could not have wished to strike it out and to sanction bad
faith, just to comply with a mere formality which, in given cases, does not obtain even in
real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at
the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery
company had bought the building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed
his levy. The execution of an indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no room for doubt in this
regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the
levy and sale the building had already been sold to the machinery company by the judgment
debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of course, the
subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the
same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just
and righteous claims against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover the
amount of his claim from the estate of the common debtor. We are strongly inclined to believe that
in procuring the levy of execution upon the factory building and in buying it at the sheriff's sale, he
considered that he was doing no more than he had a right to do under all the circumstances, and it
is highly possible and even probable that he thought at that time that he would be able to maintain
his position in a contest with the machinery company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a fraud upon the rights of another, in the
ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action in a court of law; and if later
developments had confirmed his unfounded hopes, no one could question the legality of the
propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when
he executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing
further that the machinery company's claim of ownership was well founded, he cannot be said to
have been an innocent purchaser for value. He took the risk and must stand by the
consequences; and it is in this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land or of an
interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor's
title, will not make him an innocent purchaser for value, if afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution which may reasonably be acquired of a
prudent man in a like situation. Good faith, or lack of it, is in its analysis a question of intention; but
in ascertaining the intention by which one is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and outward acts by which alone the inward motive
may, with safety, be determined. So it is that "the honesty of intention," "the honest lawful intent,"
which constitutes good faith implies a "freedom from knowledge and circumstances which ought to
put a person on inquiry," and so it is that proof of such knowledge overcomes the presumption of
good faith in which the courts always indulge in the absence of proof to the contrary. "Good faith,
or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against the
appellant. So ordered.

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.

Torres, Avanceña and Fisher, JJ., took no part.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and
as set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint, with costs against the
plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged
to another person. On the land the sawmill company erected a building which housed the
machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any amount
for said improvements and buildings; also, in the event the party of the second part
should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the properties
now in question were levied upon as personalty by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner of any
building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the expiration or abandonment of
the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent
of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is
well known, it was in part said:
To determine this question involves fixing the nature and character of the property from Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
the point of view of the rights of Valdes and its nature and character from the point of view this instance to be paid by the appellant.
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 Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real)
property, not only land and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of the destination to
which it is applied. "Things," says section 334 of the Porto Rican Code, "may be
immovable either by their own nature or by their destination or the object to which they
are applicable." Numerous illustrations are given in the fifth subdivision of section 335,
which is as follows: "Machinery, vessels, instruments or implements intended by the
owner of the tenements for the industrial or works that they may carry on in any building
or upon any land and which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534,
recapitulating the things which, though in themselves movable, may be immobilized.) So
far as the subject-matter with which we are dealing — machinery placed in the plant — it
is plain, both under the provisions of the Porto Rican Law and of the Code Napoleon, that
machinery which is movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant. Such result would not be accomplished,
therefore, by the placing of machinery in a plant by a tenant or a usufructuary or any
person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2,
p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed.
Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the possession or
enjoyment of property is not presumed by the law to have applied movable property
belonging to him so as to deprive him of it by causing it by an act of immobilization to
become the property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete
immobilization took place because of the express provisions of the lease under which the
Altagracia held, since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the lessor the cost such
machinery, and it was expressly stipulated that the machinery so put in should become a
part of the plant belonging to the owner without compensation to the lessee. Under such
conditions the tenant in putting in the machinery was acting but as the agent of the owner
in compliance with the obligations resting upon him, and the immobilization of the
machinery which resulted arose in legal effect from the act of the owner in giving by
contract a permanent destination to the machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable
property, it follows that they had the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right did not in a legal sense conflict with
the claim of Valdes, since as to him the property was a part of the realty which, as the
result of his obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7057 October 29, 1954
MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE
COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from
a decision of the Court of Appeals denying an original petition for certiorari filed by said petitioner
against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the respondents
herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of
Bulacan to seize and take immediate possession of the properties specified in the order
(Appendix I, Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said
Ramon S. Roco, and a crew of technical men and laborers proceeded to Bigti, for the
purpose of carrying the court's order into effect. Leonardo Contreras, Manager of the
respondent Company, and Pedro Torres, in charge thereof, met the deputy sheriffs, and
Contreras handed to them a letter addressed to Atty. Leopoldo C. Palad, ex-oficio
Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the defendants therein,
protesting against the seizure of the properties in question, on the ground that they are
not personal properties. Contending that the Sheriff's duty is merely ministerial, the
deputy sheriffs, Roco, the latter's crew of technicians and laborers, Contreras and Torres,
went to the factory. Roco's attention was called to the fact that the equipment could not
possibly be dismantled without causing damages or injuries to the wooden frames
attached to them. As Roco insisted in dismantling the equipment on his own
responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs
directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in the amount of
P15,769, for the return of the properties seized by the deputy sheriffs. On the same day,
the trial court issued an order, directing the Provincial Sheriff of Bulacan to return the
machinery and equipment to the place where they were installed at the time of the seizure
(Appendix 3). On March 21, 1953, the deputy sheriffs returned the properties seized, by
depositing them along the road, near the quarry, of the defendant Company, at Bigti,
without the benefit of inventory and without re-installing hem in their former position and
replacing the destroyed posts, which rendered their use impracticable. On March 23,
1953, the defendants' counsel asked the provincial Sheriff if the machinery and
equipment, dumped on the road would be re-installed tom their former position and
condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an urgent
motion in court, manifesting that Roco had been asked to furnish the Sheriff's office with
the expenses, laborers, technical men and equipment, to carry into effect the court's
order, to return the seized properties in the same way said Roco found them on the day of
seizure, but said Roco absolutely refused to do so, and asking the court that the Plaintiff
therein be ordered to provide the required aid or relieve the said Sheriff of the duty of
complying with the said order dated March 20, 1953 (Appendix 5). On March 30, 1953,
the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the machinery
and equipment removed by them in their original condition in which they were found
before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of the
Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which to
comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the
trial court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with
the necessary funds, technical men, laborers, equipment and materials to effect the
repeatedly mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-
IV.)
Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of
Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was
alleged that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with necessary
funds, technical men, laborers, equipment and materials, to effect the installation of the machinery
and equipment" in question, the Court of Firs Instance of Bulacan had committed a grave abuse if
discretion and acted in excess of its jurisdiction, for which reason it was prayed that its order to
this effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the
enforcement o said order of may 4, 1953. Although the aforementioned writ was issued by the
Court of Appeals, the same subsequently dismissed by the case for lack of merit, with costs
against the petitioner, upon the following grounds:
While the seizure of the equipment and personal properties was ordered by the
respondent Court, it is, however, logical to presume that said court did not authorize the
petitioner or its agents to destroy, as they did, said machinery and equipment, by
dismantling and unbolting the same from their concrete basements, and cutting and
sawing their wooden supports, thereby rendering them unserviceable and beyond repair,
unless those parts removed, cut and sawed be replaced, which the petitioner, not
withstanding the respondent Court's order, adamantly refused to do. The Provincial
Sheriff' s tortious act, in obedience to the insistent proddings of the president of the
 Petitioner, Ramon S. Roco, had no justification in law, notwithstanding the Sheriffs' claim
that his duty was ministerial. It was the bounden duty of the respondent Judge to give
redress to the respondent Company, for the unlawful and wrongful acts committed by the
petitioner and its agents. And as this was the true object of the order of March 30, 1953,
we cannot hold that same was within its jurisdiction to issue. The ministerial duty of the
Sheriff should have its limitations. The Sheriff knew or must have known what is
inherently right and inherently wrong, more so when, as in this particular case, the deputy
sheriffs were shown a letter of respondent Company's attorney, that the machinery were
not personal properties and, therefore, not subject to seizure by the terms of the order.
While it may be conceded that this was a question of law too technical to decide on the
spot, it would not have costs the Sheriff much time and difficulty to bring the letter to the
court's attention and have the equipment and machinery guarded, so as not to frustrate
the order of seizure issued by the trial court. But acting upon the directives of the
president of the Petitioner, to seize the properties at any costs, in issuing the order sought
to be annulled, had not committed abuse of discretion at all or acted in an arbitrary or
despotic manner, by reason of passion or personal hostility; on the contrary, it issued said
order, guided by the well known principle that of the property has to be returned, it should
be returned in as good a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44
Phil., 378). If any one had gone beyond the scope of his authority, it is the respondent
Provincial Sheriff. But considering that fact that he acted under the pressure of Ramon S.
Roco, and that the order impugned was issued not by him, but by the respondent Judge,
We simply declare that said Sheriff' act was most unusual and the result of a poor
judgment. Moreover, the Sheriff not being an officer exercising judicial functions, the writ
may not reach him, for certiorari lies only to review judicial actions.
The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of
ownership and the applicability of Art. 415 of the new Civil Code are immaterial in the
determination of the only issue involved in this case. It is a matter of evidence which
should be decided in the hearing of the case on the merits. The question as to whether
the machinery or equipment in litigation are immovable or not is likewise immaterial,
because the only issue raised before the trial court was whether the Provincial Sheriff of
Bulacan, at the Petitioner's instance, was justified in destroying the machinery and in
refusing to restore them to their original form , at the expense of the Petitioner. Whatever
might be the legal character of the machinery and equipment, would not be in any way
justify their justify their destruction by the Sheriff's and the said Petitioner's. (Petitioner's
brief, Appendix A, pp. IV-VII.)
A motion for reconsideration of this decision of the Court of Appeals having been denied ,
petitioner has brought the case to Us for review by writ of certiorari. Upon examination of the
record, We are satisfied, however that the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to
"personal property".
Ordinarily replevin may be brought to recover any specific personal property unlawfully
taken or detained from the owner thereof, provided such property is capable of
identification and delivery; but replevin will not lie for the recovery of real property or
incorporeal personal property. (77 C. J. S. 17) (Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and
equipment in question appeared to be attached to the land, particularly to the concrete foundation
of said premises, in a fixed manner, in such a way that the former could not be separated from the
latter "without breaking the material or deterioration of the object." Hence, in order to remove said
outfit, it became necessary, not only to unbolt the same, but , also, to cut some of its wooden
supports. Moreover, said machinery and equipment were "intended by the owner of the tenement
for an industry" carried on said immovable and tended." For these reasons, they were already
immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines,
which are substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As
such immovable property, they were not subject to replevin.
In so far as an article, including a fixture annexed by a tenant, is regarded as part of the
realty, it is not the subject for personality; . . . .
. . . the action of replevin does not lie for articles so annexed to the realty as to be part as
to be part thereof, as, for example, a house or a turbine pump constituting part of a
building's cooling system; . . . (36 C. J. S. 1000 & 1001)
Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent
and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility," stating
that., precisely, "that is the reason why plaintiff posted a bond ." In this manner, petitioner clearly
assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of
Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return of the
property in dispute upon the filing of a counterbond, as provided therein. In other words, petitioner
knew that the restitution of said property to respondent company might be ordered under said
provision of the Rules of Court, and that, consequently, it may become necessary for petitioner to
meet the liabilities incident to such return.
Lastly, although the parties have not cited, and We have not found, any authority squarely in point
— obviously real property are not subject to replevin — it is well settled that, when the restitution
of what has been ordered, the goods in question shall be returned in substantially the same
condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and equipment
involved in this case were duly installed and affixed in the premises of respondent company when
petitioner's representative caused said property to be dismantled and then removed, it follows that
petitioner must also do everything necessary to the reinstallation of said property in conformity
with its original condition.
Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY.
INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co., Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a
house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in
Caloocan, Rizal, which they purchased on installment basis from the Philippine Realty
Corporation. On November 6, 1951, to enable her to purchase on credit rice from the NARIC,
Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the
Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino
executed an alleged chattel mortgage on the aforementioned house in favor of the surety
company, which encumbrance was duly registered with the Chattel Mortgage Register of Rizal on
December 6, 1951. It is admitted that at the time said undertaking took place, the parcel of land on
which the house is erected was still registered in the name of the Philippine Realty Corporation.
Having completed payment on the purchase price of the lot, the Valinos were able to secure
on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently,
however, or on October 24, 1952, the Valinos, to secure payment of an indebtedness in the
amount of P12,000.00, executed a real estate mortgage over the lot and the house in favor of
Isabel Iya, which was duly registered and annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the
surety company demanded reimbursement from the spouses Valino, and as the latter likewise
failed to do so, the company foreclosed the chattel mortgage over the house. As a result thereof, a
public sale was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the
property was awarded to the surety company for P8,000.00, the highest bid received therefor. The
surety company then caused the said house to be declared in its name for tax purposes (Tax
Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage
over the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said
surety company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming
Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for
the exclusion of the residential house from the real estate mortgage in favor of defendant Iya and
the declaration and recognition of plaintiff's right to ownership over the same in virtue of the award
given by the Provincial Sheriff of Rizal during the public auction held on December 26, 1952.
Plaintiff likewise asked the Court to sentence the spouses Valino to pay said surety moral and
exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed her answer to the
complaint alleging among other things, that in virtue of the real estate mortgage executed by her
co-defendants, she acquired a real right over the lot and the house constructed thereon; that the
auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the foreclosure of
the chattel mortgage on the house was null and void for non-compliance with the form required by
law. She, therefore, prayed for the dismissal of the complaint and anullment of the sale made by
the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as counterclaim,
the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and denied
the others. They, however, prayed for the dismissal of the action for lack of cause of action, it
being alleged that plaintiff was already the owner of the house in question, and as said defendants
admitted this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety
company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the
contract of mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to
pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month, which
indebtedness was payable in 4 years, extendible for only one year; that to secure payment
thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at No.
67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated Insurance and
Surety Co., Inc., was included as a party defendant because it claimed to have an interest on the
residential house also covered by said mortgage; that it was stipulated in the aforesaid real estate
mortgage that default in the payment of the interest agreed upon would entitle the mortgagee to
foreclose the same even before the lapse of the 4-year period; and as defendant spouses had
allegedly failed to pay the interest for more than 6 months, plaintiff prayed the Court to order said
defendants to pay the sum of P12,000.00 with interest thereon at 12% per annum from March 25,
1953, until fully paid; for an additional sum equivalent to 20% of the total obligation as damages,
and for costs. As an alternative in case such demand may not be met and satisfied plaintiff prayed
for a decree of foreclosure of the land, building and other improvements thereon to be sold at
public auction and the proceeds thereof applied to satisfy the demands of plaintiff; that the
Valinos, the surety company and any other person claiming interest on the mortgaged properties
be barred and foreclosed of all rights, claims or equity of redemption in said properties; and for
deficiency judgment in case the proceeds of the sale of the mortgaged property would be
insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building,
arguing that as the lot on which the house was constructed did not belong to the spouses at the
time the chattel mortgage was executed, the house might be considered only as a personal
property and that the encumbrance thereof and the subsequent foreclosure proceedings made
pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant
therefore prayed that said building be excluded from the real estate mortgage and its right over the
same be declared superior to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon, it being
contended that it was already encumbered in favor of the surety company before the real estate
mortgage was executed, a fact made known to plaintiff during the preparation of said contract and
to which the latter offered no objection. As a special defense, it was asserted that the action was
premature because the contract was for a period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and
superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled
that as the Valinos were not yet the registered owner of the land on which the building in question
was constructed at the time the first encumbrance was made, the building then was still a
personality and a chattel mortgage over the same was proper. However, as the mortgagors were
already the owner of the land at the time the contract with Isabel Iya was entered into, the building
was transformed into a real property and the real estate mortgage created thereon was likewise
adjudged as proper. It is to be noted in this connection that there is no evidence on record to
sustain the allegation of the spouses Valino that at the time they mortgaged their house and lot to
Isabel Iya, the latter was told or knew that part of the mortgaged property, i.e., the house, had
previously been mortgaged to the surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel
Iya, although the latter could exercise the right of a junior encumbrance. So the spouses Valino
were ordered to pay the amount demanded by said mortgagee or in their default to have the
parcel of land subject of the mortgage sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages; controversy
arise as to which of these encumbrances should receive preference over the other. The decisive
factor in resolving the issue presented by this appeal is the determination of the nature of the
structure litigated upon, for where it be considered a personality, the foreclosure of the chattel
mortgage and the subsequent sale thereof at public auction, made in accordance with the Chattel
Mortgage Law would be valid and the right acquired by the surety company therefrom would
certainly deserve prior recognition; otherwise, appellant's claim for preference must be granted.
The lower Court, deciding in favor of the surety company, based its ruling on the premise that as
the mortgagors were not the owners of the land on which the building is erected at the time the
first encumbrance was made, said structure partook of the nature of a personal property and could
properly be the subject of a chattel mortgage. We find reason to hold otherwise, for as this Court,
defining the nature or character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties (Art. 415, new
Civil Code) could only mean one thing — that a building is by itself an immovable property
. . . Moreover, and in view of the absence of any specific provision to the contrary, a
building is an immovable property irrespective of whether or not said structure and the
land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, G.R.
Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which
it is constructed belongs to another. To hold it the other way, the possibility is not remote that it
would result in confusion, for to cloak the building with an uncertain status made dependent on the
ownership of the land, would create a situation where a permanent fixture changes its nature or
character as the ownership of the land changes hands. In the case at bar, as personal properties
could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the
structure in question is not one, the execution of the chattel mortgage covering said building is
clearly invalid and a nullity. While it is true that said document was correspondingly registered in
the Chattel Mortgage Register of Rizal, this act produced no effect whatsoever for where the
interest conveyed is in the nature of a real property, the registration of the document in the registry
of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of
strong materials produce no effect as far as the building is concerned (Leung Yee vs. Strong
Machinery Co., 37 Phil., 644). Nor can we give any consideration to the contention of the surety
that it has acquired ownership over the property in question by reason of the sale conducted by
the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by
virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding
the rights of the surety company, over the building superior to that of Isabel Iya and excluding the
building from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to
foreclose not only the land but also the building erected thereon is hereby recognized, and the
proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be applied
to the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any
right that the Associated Insurance and Surety Co., Inc., may have against the spouses Adriano
and Lucia Valino on account of the mortgage of said building they executed in favor of said surety
company. Without pronouncement as to costs. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., and Endencia, JJ., concur.
 Republic of the Philippines (a) Hobart Electric Welder Machine, appearing in the attached photograph,
SUPREME COURT marked Annex "A";
Manila
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex
EN BANC "B";

G.R. No. L-17870 September 29, 1962 (c) Lathe machine with motor, appearing in the attached photograph, marked
Annex "C";
MINDANAO BUS COMPANY, petitioner,
vs. (d) Black and Decker Grinder, appearing in the attached photograph, marked
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Annex "D";
Oro City,respondents.
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked
Binamira, Barria and Irabagon for petitioner. Annex "E";
Vicente E. Sabellina for respondents.
(f) Battery charger (Tungar charge machine) appearing in the attached
LABRADOR, J.: photograph, marked Annex "F"; and

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for
the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
(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;

Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes
by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains
Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur;
Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are
the following:
6. That these machineries have never been or were never used as industrial equipments
to produce finished products for sale, nor to repair machineries, parts and the like offered
to the general public indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner brought the case to this Court assigning the
following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that
the questioned assessments are valid; and that said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an industry.
 3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent
City Assessor's power to assess and levy real estate taxes on machineries is further
restricted by section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the
owner of any building or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the requirements of such
trade or industry."
If the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its
sugar and industry, converted them into real property by reason of their purpose, it cannot
be said that their incorporation therewith was not permanent in character because, as
essential and principle elements of a sugar central, without them the sugar central would
be unable to function or carry on the industrial purpose for which it was established.
Inasmuch as the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has been established
must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they
are essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by destination, for these
businesses can continue or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals,
not essentials, and thus retain their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks and adding machines which
they usually own and use and are found within their industrial compounds are merely incidental
and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting passengers and
cargoes by motor trucks. They are merely incidentals — acquired as movables and used only for
expediency to facilitate and/or improve its service. Even without such tools and equipments, its
business may be carried on, as petitioner has carried on, without such equipments, before the
war. The transportation business could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code
of the Phil.)
Aside from the element of essentiality the above-quoted provision also requires that the industry or
works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or
less permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not
carried on in a building, tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the purposes of the
real estate tax. Without costs.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON
CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric street
railway and electric light, heat and power system in the City of Manila and its suburbs to the
person or persons making the most favorable bid. Charles M. Swift was awarded the said
franchise on March 1903, the terms and conditions of which were embodied in Ordinance No. 44
approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by respondent at intervals,
from its hydro-electric plant in the province of Laguna to the City of Manila. The respondent
Meralco has constructed 40 of these steel towers within Quezon City, on land belonging to it. A
photograph of one of these steel towers is attached to the petition for review, marked Annex A.
Three steel towers were inspected by the lower court and parties and the following were the
descriptions given there of by said court:
The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we deeper until it reached the bottom of the
post; at the bottom of the post were two parallel steel bars attached to the leg means of
bolts; the tower proper was attached to the leg three bolts; with two cross metals to
prevent mobility; there was no concrete foundation but there was adobe stone
underneath; as the bottom of the excavation was covered with water about three inches
high, it could not be determined with certainty to whether said adobe stone was placed
purposely or not, as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in
the first tower, the ground around one of the four legs was excavate from seven to eight
(8) feet deep and one and a half (1-½) meters wide. There being very little water at the
bottom, it was seen that there was no concrete foundation, but there soft adobe beneath.
The leg was likewise provided with two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the second tower is made up of metal rods
joined together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to a
depth about two or three inches beyond the outside level of the steel bar foundation. It
was found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably
due to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the
Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956. Respondent
paid the amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for
short) which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum
of P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the
term "poles" which are declared exempt from taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal properties and are not subject to real property tax; and
(3) the City Treasurer of Quezon City is held responsible for the refund of the amount paid. These
are assigned as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time stated in paragraph nineteen of Part One
hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature and by
whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires,
 transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber,
as typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the
top of which something is affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New
International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen
cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which are made of two
steel bars joined together by an interlacing metal rod. They are called "poles" notwithstanding the
fact that they are no made of wood. It must be noted from paragraph 9, above quoted, that the
concept of the "poles" for which exemption is granted, is not determined by their place or location,
nor by the character of the electric current it carries, nor the material or form of which it is made,
but the use to which they are dedicated. In accordance with the definitions, pole is not restricted to
a long cylindrical piece of wood or metal, but includes "upright standards to the top of which
something is affixed or by which something is supported. As heretofore described, respondent's
steel supports consists of a framework of four steel bars or strips which are bound by steel cross-
arms atop of which are cross-arms supporting five high voltage transmission wires (See Annex A)
and their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is
not a novelty. Several courts of last resort in the United States have called these steel supports
"steel towers", and they denominated these supports or towers, as electric poles. In their decisions
the words "towers" and "poles" were used interchangeably, and it is well understood in that
jurisdiction that a transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or
metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words
and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members, constructed
for the purpose of fastening high voltage and dangerous electric wires alongside public highways.
The steel supports or towers were made of iron or other metals consisting of two pieces running
from the ground up some thirty feet high, being wider at the bottom than at the top, the said two
metal pieces being connected with criss-cross iron running from the bottom to the top, constructed
like ladders and loaded with high voltage electricity. In form and structure, they are like the steel
towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric
power, but claimed that the steel towers on which it is carried were so large that their wire took
their structure out of the definition of a pole line. It was held that in defining the word pole, one
should not be governed by the wire or material of the support used, but was considering the
danger from any elevated wire carrying electric current, and that regardless of the size or material
wire of its individual members, any continuous series of structures intended and used solely or
primarily for the purpose of supporting wires carrying electric currents is a pole line (Inspiration
Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would
be required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then
one should admit that the Philippines is one century behind the age of space. It should also be
conceded by now that steel towers, like the ones in question, for obvious reasons, can better
effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not
embraced within the termpoles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law does not
provide for a definition of real property; but Article 415 of the Civil Code does, by stating the
following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;
xxx xxx xxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph
1, because they do not constitute buildings or constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place. They can not be
included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they
can be separated without breaking the material or causing deterioration upon the object to which
they are attached. Each of these steel towers or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under
paragraph 5, for they are not machineries, receptacles, instruments or implements, and even if
they were, they are not intended for industry or works on the land. Petitioner is not engaged in an
industry or works in the land in which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund
the sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued
that as the City Treasurer is not the real party in interest, but Quezon City, which was not a party
to the suit, notwithstanding its capacity to sue and be sued, he should not be ordered to effect the
refund. This question has not been raised in the court below, and, therefore, it cannot be properly
raised for the first time on appeal. The herein petitioner is indulging in legal technicalities and
niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted that
respondent herein pay the real estate taxes, which respondent paid under protest. Having acted in
his official capacity as City Treasurer of Quezon City, he would surely know what to do, under the
circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.

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.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that
only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal court of Manila in
Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the
court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive
portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and
against the defendants, ordering the latter to pay jointly and severally the former
a monthly rent of P200.00 on the house, subject-matter of this action, from March
27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956,
the filing of the complaint, until fully paid, plus attorney's fees in the sum of
P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants executed a chattel
mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int.
3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were
being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of
Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum. The
mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump
sum of P3,150 was payable on or before August, 1956. It was also agreed that default in the
payment of any of the amortizations, would cause the remaining unpaid balance to
becomeimmediately due and Payable and —
the Chattel Mortgage will be enforceable in accordance with the provisions of
Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or
any of his deputies is hereby empowered and authorized to sell all the
Mortgagor's property after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and
on 27 March 1956, the house was sold at public auction pursuant to the said contract. As highest
bidder, plaintiffs-appellees were issued the corresponding certificate of sale. 3 Thereafter, on 18
April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila,
praying, among other things, that the house be vacated and its possession surrendered to them,
and for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time
the possession is surrendered.4 On 21 September 1956, the municipal court rendered its decision
—
... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they are still the owners of the house; but they
waived the right to introduce evidence, oral or documentary. Instead, they relied on their
memoranda in support of their motion to dismiss, predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and decide the case because (1) the issue involved,
is ownership, and (2) there was no allegation of prior possession; and (b) failure to prove prior
demand pursuant to Section 2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because the subject house
had been already demolished on 14 January 1957 pursuant to the order of the court in a separate
civil case (No. 25816) for ejectment against the present defendants for non-payment of rentals on
the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was disclaimed
and was still being litigated, and under Section 8, Rule 72, rentals deposited had to be held until
final disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive
portion of which is quoted earlier. The said decision was appealed by defendants to the Court of
Appeals which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief
and this appeal was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error which can be condensed into
two questions, namely: .
(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of
the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which
the case originated, and consequently, the appellate jurisdiction of the Court of First Instance a
quo, on the theory that the chattel mortgage is void ab initio; whence it would follow that the
extrajudicial foreclosure, and necessarily the consequent auction sale, are also void. Thus, the
ownership of the house still remained with defendants-appellants who are entitled to possession
and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of
ownership will have to be adjudicated first in order to determine possession. lt is contended further
that ownership being in issue, it is the Court of First Instance which has jurisdiction and not the
municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds,
which are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit,
or trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and,
being an immovable, it can only be the subject of a real estate mortgage and not a chattel
mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants'
contentions as not supported by evidence and accordingly dismissed the charge, 8 confirming the
earlier finding of the municipal court that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere
statement of the facts which the party filing it expects to prove, but it is not evidence;11 and further,
that when the question to be determined is one of title, the Court is given the authority to proceed
with the hearing of the cause until this fact is clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful bidder in an auction sale, it was likewise
held by this Court that in detainer cases the aim of ownership "is a matter of defense and raises
an issue of fact which should be determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to
Article 1390 of the New Civil Code, by a proper action in court. 14 There is nothing on record to
show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same. Hence, defendants-appellants' claim of ownership on the basis of a voidable contract
which has not been voided fails.
It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab initio because only personal properties can
be subject of a chattel mortgage. The rule about the status of buildings as immovable property is
stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15cited in Associated Insurance Surety Co.,
Inc. vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties (art. 415, New
Civil Code) could only mean one thing — that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
Manarang vs. Ofilada,17 this Court stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property", citing Standard
Oil Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and
transferred to the mortgagee by way of mortgage "the following described personal
property." 19 The "personal property" consisted of leasehold rights and a building. Again, in the
case of Luna vs. Encarnacion,20 the subject of the contract designated as Chattel Mortgage was a
house of mixed materials, and this Court hold therein that it was a valid Chattel mortgage because
it was so expressly designated and specifically that the property given as security "is a house of
mixed materials, which by its very nature is considered personal property." In the later case
of Navarro vs. Pineda,21 this Court stated that —
The view that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based, partly, upon the
principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In
a case, a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as such, but also
because it did not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G.
2913), for it is now settled that an object placed on land by one who had only a
temporary right to the same, such as the lessee or usufructuary, does not
become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58,
cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property as so stipulated in the
document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted,
however that the principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him from
 subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G.
5374): 22
In the contract now before Us, the house on rented land is not only expressly designated as
Chattel Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the property together with its leasehold rights over the
lot on which it is constructed and participation ..." 24 Although there is no specific statement
referring to the subject house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they should not now be
allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood
on a rented lot to which defendats-appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the property, it does so when combined
with other factors to sustain the interpretation that the parties, particularly the mortgagors,
intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and
Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and Williamson, 26 wherein third
persons assailed the validity of the chattel mortgage,27 it is the defendants-appellants themselves,
as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The
doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the
subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question. The Court of
First Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged
house had been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the
lessor of the land on which the house stood. For this reason, the said court limited itself to
sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March
1956 (when the chattel mortgage was foreclosed and the house sold) until 14 January 1957 (when
it was torn down by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to remain in
possession without any obligation to pay rent during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508.28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at public
auction through a public officer in almost the same manner as that allowed by Act No. 3135, as
amended by Act No. 4118, provided that the requirements of the law relative to notice and
registration are complied with. 29 In the instant case, the parties specifically stipulated that "the
chattel mortgage will be enforceable in accordance with the provisions of Special Act No. 3135 ...
." 30(Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants
herein) may, at any time within one year from and after the date of the auction sale, redeem the
property sold at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the
purchaser of the property to obtain from the court the possession during the period of redemption:
but the same provision expressly requires the filing of a petition with the proper Court of First
Instance and the furnishing of a bond. It is only upon filing of the proper motion and the approval
of the corresponding bond that the order for a writ of possession issues as a matter of course. No
discretion is left to the court. 33 In the absence of such a compliance, as in the instant case, the
purchaser can not claim possession during the period of redemption as a matter of right. In such a
case, the governing provision is Section 34, Rule 39, of the Revised Rules of Court 34 which also
applies to properties purchased in extrajudicial foreclosure proceedings.35 Construing the said
section, this Court stated in the aforestated case of Reyes vs. Hamada.
In other words, before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the purchaser thereof is
not entitled, as a matter of right, to possession of the same. Thus, while it is true
that the Rules of Court allow the purchaser to receive the rentals if the purchased
property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received
and the same will be duly credited against the redemption price when the said
debtor or mortgagor effects the redemption. Differently stated, the rentals
receivable from tenants, although they may be collected by the purchaser during
the redemption period, do not belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to secure for the benefit of the
debtor or mortgagor, the payment of the redemption amount and the consequent
return to him of his properties sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe.36
Since the defendants-appellants were occupying the house at the time of the auction sale, they
are entitled to remain in possession during the period of redemption or within one year from and
after 27 March 1956, the date of the auction sale, and to collect the rents or profits during the said
period.
It will be noted further that in the case at bar the period of redemption had not yet expired when
action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties
to govern the extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to
that effect. Since plaintiffs-appellees' right to possess was not yet born at the filing of the
complaint, there could be no violation or breach thereof. Wherefore, the original complaint stated
no cause of action and was prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that effect. The Supreme Court is clothed
with ample authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision of the cases. 37
It follows that the court below erred in requiring the mortgagors to pay rents for the year following
the foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor
and Makasiar, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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 Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
amendment to Deed of Absolute Sale executed by the defendant Philippine (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.
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 Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
plaintiff on the land of the defendant Philippine National Bank situated in the concerned as she had already filed an Answer, which did not allege improper venue and,
Municipality of Bamban, Province of Tarlac, which warehouse is an immovable therefore, issues had already been joined, is likewise untenable. Respondent PNB is an
property pursuant to Article 415, No. 1 of the New Civil Code; and, as such the indispensable party as the validity of the Amended Contract of Sale between the former and
action of the plaintiff is a real action affecting title to real property which, under respondent Lacsamana is in issue. It would, indeed, be futile to proceed with the case against
Section 2, Rule 4 of the New Rules of Court, must be tried in the province where respondent Lacsamana alone.
the property or any part thereof lies.5
WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that petitioner Antonio Punsalan, Jr. in the proper forum.
the action to annul does not involve ownership or title to property but is limited to the validity of the
deed of sale and emphasized that the case should proceed with or without respondent PNB as
Costs against petitioner.
respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had
been raised by the latter.
SO ORDERED.
On September 1, 1980,.respondent Court denied reconsideration for lack of merit.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
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
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
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.

Examining the records of the instant case, We find no logical justification to exclude the rule out, SO ORDERED.
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,
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
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 Abad Santos, J., concurs in the result.
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land
on which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable
that the parties to a contract may by agreement treat as personal property that which by nature
would be real property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but was
merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage
which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court and the Court of Appeals
except in a supplemental memorandum in support of the petition filed in the appellate court.
Moreover, even granting that the charge is true, such fact alone does not render a contract void ab
initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the
latter has indubitably benefited from said contract. Equity dictates that one should not benefit at
the expense of another. Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case
of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by
Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex
(Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total capacity of
566,000 barrels. They are used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates welded and assembled on the
spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a
sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum as the top
layer. The bottom of each tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular wall made of concrete,
eighteen inches thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is
not attached to its foundation. It is not anchored or welded to the concrete circular wall. Its bottom
plate is not attached to any part of the foundation by bolts, screws or similar devices. The tank
merely sits on its foundation. Each empty tank can be floated by flooding its dike-inclosed location
with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is enclosed with earthen dikes with electric
steel poles on top thereof and is divided into two parts as the site of each tank. The foundation of
the tanks is elevated from the remaining area. On both sides of the earthen dikes are two separate
concrete steps leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick.
Pipelines were installed on the sides of each tank and are connected to the pipelines of the Manila
Enterprises Industrial Corporation whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and
the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the
pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan,
Batangas, on the basis of an assessment made by the provincial assessor, required Meralco to
pay realty taxes on the two tanks. For the five-year period from 1970 to 1974, the tax and
penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and
penalties as a condition for entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local
Government and Community Development Jose Roño as members) in its decision dated
November 5, 1976 ruled that the tanks together with the foundation, walls, dikes, steps, pipelines
and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a
motion for reconsideration which the Board denied in its resolution of November 25, 1977, a copy
of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision
and resolution. It contends that the Board acted without jurisdiction and committed a grave error of
law in holding that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized as realty by
nature, by incorporation, by destination nor by analogy. Stress is laid on the fact that the tanks are
not attached to the land and that they were placed on leased land, not on the land owned by
Meralco.
This is one of those highly controversial, borderline or penumbral cases on the classification of
property where strong divergent opinions are inevitable. The issue raised by Meralco has to be
resolved in the light of the provisions of the Assessment Law, Commonwealth Act No. 470, and
the Real Property Tax Code, Presidential Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in the Real Property Tax Code which
provides:
Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements — is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
 costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless,
be considered as improvements on the land, enhancing its utility and rendering it useful to the oil
industry. It is undeniable that the two tanks have been installed with some degree of permanence
as receptacles for the considerable quantities of oil needed by Meralco for its operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City,
15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things which should generally be
regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein
Meralco's steel towers were held not to be subject to realty tax, is not in point because in that case
the steel towers were regarded as poles and under its franchise Meralco's poles are exempt from
taxation. Moreover, the steel towers were not attached to any land or building. They were
removable from their metal frames.

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

WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are
affirmed. No costs.

SO ORDERED.

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.

Concepcion, Jr., J., is on leave.

Justice Abad Santos, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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 Roño, 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 for purposes 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.

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.

Concepcion, Jr. and Abad Santos, JJ., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.
PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of
First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses
Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential
Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor
of petitioner bank are null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula
Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the
following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces
containing a total floor area of 263 sq. meters, more or less, generally
constructed of mixed hard wood and concrete materials, under a roofing of cor.
g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE
under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with
an assessed value of P35,290.00. This building is the only improvement of the
lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right
of occupancy on the lot where the above property is erected, and more
particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308,
Olongapo Townsite Subdivision) Ardoin Street, East Bajac-
Bajac, Olongapo City, containing an area of 465 sq. m. more or
less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Duration No. 19595 issued by the
Assessor of Olongapo City with an assessed value of
P1,860.00; bounded on the
NORTH: By No. 6, Ardoin
Street
SOUTH: By No. 2, Ardoin
Street
EAST: By 37 Canda Street,
and
WEST: By Ardoin Street.
All corners of the lot marked by conc.
cylindrical monuments of the Bureau of Lands
as visible limits. ( Exhibit "A, " also Exhibit "1"
for defendant).
Apart from the stipulations in the printed portion of the
aforestated deed of mortgage, there appears a rider typed at
the bottom of the reverse side of the document under the lists of
the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the
event the Sales Patent on the lot applied for by
the Mortgagors as herein stated is released or
issued by the Bureau of Lands, the Mortgagors
hereby authorize the Register of Deeds to hold
the Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on
the Title upon authority from the Secretary of
Agriculture and Natural Resources, which title
with annotation, shall be released in favor of
the herein Mortgage.
From the aforequoted stipulation, it is obvious that the
mortgagee (defendant Prudential Bank) was at the outset aware
of the fact that the mortgagors (plaintiffs) have already filed a
Miscellaneous Sales Application over the lot, possessory rights
over which, were mortgaged to it.
 Exhibit "A" (Real Estate Mortgage) was registered under the
Provisions of Act 3344 with the Registry of Deeds of Zambales
on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from
defendant Prudential Bank in the sum of P20,000.00. To secure
payment of this additional loan, plaintiffs executed in favor of the
said defendant another deed of Real Estate Mortgage over the
same properties previously mortgaged in Exhibit "A." (Exhibit
"B;" also Exhibit "2" for defendant). This second deed of Real
Estate Mortgage was likewise registered with the Registry of
Deeds, this time in Olongapo City, on May 2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales
Patent No. 4776 over the parcel of land, possessory rights over which were
mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration Book of the
Province of Zambales, Original Certificate of Title No. P-2554 was issued in the
name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of
Zambales, on May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant Bank after it became
due, and upon application of said defendant, the deeds of Real Estate Mortgage
(Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the
highest bidder in a public auction sale conducted by the defendant City Sheriff on
April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit
"D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed
by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10,
1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant
petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the
parties were required to submit simultaneously their respective memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents
filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P.
158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE
RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER
ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY
15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.
(Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on
the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court
ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said
provision of law can only mean that a building is by itself an immovable property." (Lopez vs.
Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-
10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of
the improvements thereon, buildings, still a building by itself may be mortgaged apart from the
land on which it has been built. Such a mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if dealt with separately and apart from
the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has
also established that possessory rights over said properties before title is vested on the grantee,
may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3
SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original mortgage deed
on the 2-storey semi-concrete residential building with warehouse and on the right of occupancy
on the lot where the building was erected, was executed on November 19, 1971 and registered
under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.
Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of
which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15,
1972. It is therefore without question that the original mortgage was executed before the issuance
of the final patent and before the government was divested of its title to the land, an event which
takes effect only on the issuance of the sales patent and its subsequent registration in the Office under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to
of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De whatever steps the Government may take for the reversion of the land in its favor.
Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural
Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage executed PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
by private respondent on his own building which was erected on the land belonging to the City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid
government is to all intents and purposes a valid mortgage. but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and
void, without prejudice to any appropriate action the Government may take against private
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be respondents.
noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under
the Public Land Act, or any improvement thereon and therefore have no application to the assailed SO ORDERED.
mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of
Republic Act No. 730, also a restriction appearing on the face of private respondent's title has
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur
likewise no application in the instant case, despite its reference to encumbrance or alienation
before the patent is issued because it refers specifically to encumbrance or alienation on the land
itself and does not mention anything regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on
May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds
of Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed
after the issuance of the sales patent and of the Original Certificate of Title, falls squarely under
the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of
Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be
annotated, without requiring the bank to get the prior approval of the Ministry of Natural Resources
beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of said
mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118,
120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the
doctrine of estoppel give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy (19 Am.
Jur. 802). It is not within the competence of any citizen to barter away what public
policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass
upon any new contract between the parties (Ibid), as in the case at bar. It should not preclude new
contracts that may be entered into between petitioner bank and private respondents that are in
accordance with the requirements of the law. After all, private respondents themselves declare
that they are not denying the legitimacy of their debts and appear to be open to new negotiations
 THIRD DIVISION
G.R. No. 137705 August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,
vs.
PCI LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be considered as
personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision 1 of the
Court of Appeals (CA)2in CA-GR SP No. 47332 and its February 26, 1999 Resolution3 denying
reconsideration. The decretal portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution
dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of
preliminary injunction issued on June 15, 1998 is hereby LIFTED."4
In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch
218)6 issued a Writ of Seizure.7 The March 18, 1998 Resolution8 denied petitioners’ Motion for
Special Protective Order, praying that the deputy sheriff be enjoined "from seizing immobilized or
other real properties in (petitioners’) factory in Cainta, Rizal and to return to their original place
whatever immobilized machineries or equipments he may have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries and equipment to
PCI Leasing after 5 days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s factory,
seized one machinery with [the] word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’), invoking the
power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties [were]
still personal and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties’ agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as personal
because the contracts in which the alleged agreement [were] embodied [were] totally sham and
farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from taking
the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled that
the "words of the contract are clear and leave no doubt upon the true intention of the contracting
parties." Observing that Petitioner Goquiolay was an experienced businessman who was "not
unfamiliar with the ways of the trade," it ruled that he "should have realized the import of the
document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the
case below, since the merits of the whole matter are laid down before us via a petition whose sole
purpose is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in
issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-
blown trial, necessitating presentation of evidence by both parties. The contract is being enforced
by one, and [its] validity is attacked by the other – a matter x x x which respondent court is in the
best position to determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"A. Whether or not the machineries purchased and imported by SERG’S became real property by
virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease."12
In the main, the Court will resolve whether the said machines are personal, not immovable,
property which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will
also address briefly the procedural points raised by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being filed under
Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded
Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds support in
the very title of the Petition, which is "Petition for Review on Certiorari."13
While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires
that such lapse by itself should not warrant the dismissal of the present Petition. In this light, the
Court deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the
present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects of the
Writ issued by the RTC, because they were in fact real property. Serious policy considerations,
they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal
property only.15Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:
"ART. 415. The following are immovable property:
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;
xxx xxx x x x"
In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become "immobilized by destination because they
are essential and principal elements in the industry."16 In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of the
Civil Code.17
Be that as it may, we disagree with the submission of the petitioners that the said machines are
not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be considered
as personal.18After agreeing to such stipulation, they are consequently estopped from claiming
otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from
denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a
personal property because it had been made the subject of a chattel mortgage. The Court ruled:
"x x x. Although there is no specific statement referring to the subject house as personal property,
yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants
could only have meant to convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills20 also
held that the machinery used in a factory and essential to the industry, as in the present case, was
a proper subject of a writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Court’s ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is really because one
who has so agreed is estopped from denying the existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines in question are to be
considered as personal property. Specifically, Section 12.1 of the Agreement reads as follows:21
"12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed
or attached to or embedded in, or permanently resting upon, real property or any building thereon,
or attached in any manner to what is permanent."
Clearly then, petitioners are estopped from denying the characterization of the subject machines
as personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed personal
property pursuant to the Lease Agreement – is good only insofar as the contracting parties are
concerned.22 Hence, while the parties are bound by the Agreement, third persons acting in good
faith are not affected by its stipulation characterizing the subject machinery as personal. 23 In any
event, there is no showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.24 Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity which
places in serious doubt the intention of the parties and the validity of the lease agreement
itself."25 In their Reply to respondent’s Comment, they further allege that the Agreement is
invalid.26
These arguments are unconvincing. The validity and the nature of the contract are the lis mota of
the civil action pending before the RTC. A resolution of these questions, therefore, is effectively a
resolution of the merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy under Rule 60 was
that questions involving title to the subject property – questions which petitioners are now raising --
should be determined in the trial. In that case, the Court noted that the remedy of defendants
under Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiff’s
bond. They were not allowed, however, to invoke the title to the subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to dissolve or discharge the
writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied
upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue
the matter of the title or right of possession over the specific chattel being replevied, the policy
apparently being that said matter should be ventilated and determined only at the trial on the
merits."28
Besides, these questions require a determination of facts and a presentation of evidence, both of
which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in
this Court under Rule 45.29
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing
on record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the
RTC proceedings, which had ironically been instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed
of Chattel Mortgage, which characterized the subject machinery as personal property, was also
assailed because respondent had allegedly been required "to sign a printed form of chattel
mortgage which was in a blank form at the time of signing." The Court rejected the argument and
relied on the Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant
to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same. x x x"
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that "if the Court allows these machineries to be seized, then its workers
would be out of work and thrown into the streets."31 They also allege that the seizure would nullify
all efforts to rehabilitate the corporation.
Petitioners’ arguments do not preclude the implementation of the Writ.1âwphi1 As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicant’s
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to the
applicant, require the return thereof, by filing with the court where the action is pending a bond
executed to the applicant, in double the value of the property as stated in the applicant’s affidavit
for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such
sum to him as may be recovered against the adverse party, and by serving a copy bond on the
applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
 FIRST DIVISION LIST OF MACHINERIES & EQUIPMENT

G.R. No. 120098 October 2, 2001 A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

RUBY L. TSAI, petitioner, Serial Numbers Size of Machines

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R xxx xxx xxx
VILLALUZ, respondents.
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
x---------------------------------------------------------x
xxx xxx xxx
[G.R. No. 120109. October 2, 2001.]
C. Two (2) Circular Knitting Machines made in West Germany.
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
xxx xxx xxx
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.
D. Four (4) Winding Machines.
QUISUMBING, J.:
xxx xxx xxx
1
These consolidated cases assail the decision of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. SCHEDULE "A"
Also assailed is respondent court's resolution denying petitioners' motion for reconsideration.
I. TCT # 372097 - RIZAL
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million
peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As xxx xxx xxx
security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel
Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located II. Any and all buildings and improvements now existing or hereafter to exist on the
therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of above-mentioned lot.
the Real and Chattel Mortgage are quoted below:
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
MORTGAGE mentioned lot located at . . .

(REAL AND CHATTEL) (a) Forty eight sets (48) Vayrow Knitting Machines . . .

xxx xxx xxx (b) Sixteen sets (16) Vayrow Knitting Machines . . .

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the (c) Two (2) Circular Knitting Machines . . .
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and
improvements now existing or which may hereafter exist thereon, situated in . . .
(d) Two (2) Winding Machines . . .
"Annex A"
(e) Two (2) Winding Machines . . .
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications
— continued)
 IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.
xxx xxx xxx3
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was
secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto.
These listed properties were similar to those listed in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,
Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An
Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on
December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the
highest bidder and a Certificate of Sale was issued in its favor on the same date. On December
23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff
issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a
month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no
rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and Chattel Mortgage of November 26,
1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in
the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated December
15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset
Equipment.
The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since
these were not included in the schedules attached to the mortgage contracts. The trial court
decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against
the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects
the personal properties listed in par. 9 of the complaint, and their return to the plaintiff
corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P5,200,000.00 as compensation for the use and possession of the properties in question
from November 1986 to February 1991 and P100,000.00 every month thereafter, with
interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision
dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and
reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to appellees, the judgment appealed from is
hereby AFFIRMED, in all other respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution of April 28,
1995, PBCom and Tsai filed their separate petitions for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR
EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING
THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED
PART OF THE MORTGAGE — DESPITE THE CLEAR IMPORT OF THE EVIDENCE
AND APPLICABLE RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES
OF LITIGATION — FOR WANT OF VALID FACTUAL AND LEGAL BASIS.
V Finally, it asserts that the Court of Appeals erred in assessing damages and attorney's fees
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING
AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE
1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL
PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN
THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF
THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT
THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL
PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED
FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD
FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE
DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE
MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN
LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE
OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned properties in the
foreclosed properties is proper. The secondary issue is whether or not the sale of these properties
to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by
treating the 1981 acquired units of machinery as chattels instead of real properties within their
earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage. 8 Additionally,
Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real
properties.9 Finally, she contends that the Court of Appeals erred in holding against petitioner's
arguments on prescription and laches10 and in assessing petitioner actual damages, attorney's
fees and expenses of litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be
legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement
that the pieces of machinery in question were personal properties have no factual and legal basis.
against PBCom.
In opposition, private respondents argue that the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not part of the foreclosed real properties,
rendering the lease and the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the petitions devoid of
merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not
of fact, unless the factual findings complained of are devoid of support by the evidence on record
or the assailed judgment is based on misapprehension of facts.13 This rule is applied more
stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted machineries" are not covered by, or included in, either
of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2)
the said machineries were not included in the list of properties appended to the Notice of Sale,
and neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted
or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however,
does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at
the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the contract of
Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the
case at bar, both the trial and the appellate courts reached the same finding that the true intention
of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The
pertinent portion of respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels; never
as real properties. Indeed, the 1975 mortgage contract, which was actually real and
chattel mortgage, militates against appellants' posture. It should be noted that the printed
form used by appellant bank was mainly for real estate mortgages. But reflective of the
true intention of appellant PBCOM and appellee EVERTEX was the typing in capital
letters, immediately following the printed caption of mortgage, of the phrase "real and
chattel." So also, the "machineries and equipment" in the printed form of the bank had to
be inserted in the blank space of the printed contract and connected with the word
"building" by typewritten slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there would have been no
necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a
listing of the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely to chattels. The inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the schedule listed only
machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by
the evidence on record, we find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts
the parties from treating it as chattels to secure an obligation under the principle of estoppel. As
far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal
property if there is a stipulation as when it is used as security in the payment of an obligation
where a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage
and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all
properties included therein as immovable, and (2) attached to the said contract a separate "LIST
OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the
parties' intention is to treat these units of machinery as chattels. A fortiori, the contested after-
acquired properties, which are of the same description as the units enumerated under the title
"LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as
the subject mortgages were intended by the parties to involve chattels, insofar as equipment and
machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof
that: "a chattel mortgage shall be deemed to cover only the property described therein and not like
or substituted property thereafter acquired by the mortgagor and placed in the same depository as
the property originally mortgaged, anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been involved in
the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to
include subject machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat
quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a
nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than
EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that she is not
a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a
purchaser in good faith and for value has the burden of proving such assertion. 18 Petitioner Tsai
failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full and fair
price for the same, at the time of purchase, or before he has notice of the claims or interest of
some other person in the property.19 Records reveal, however, that when Tsai purchased the
controverted properties, she knew of respondent's claim thereon. As borne out by the records, she
received the letter of respondent's counsel, apprising her of respondent's claim, dated February
27, 1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim,
she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err
in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties
are located is equally unavailing. This defense refers to sale of lands and not to sale of properties
situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties
stand is in PBCom's name does not automatically make PBCom the owner of everything found
therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent
reason to disturb the consistent findings of both courts below that the case for the reconveyance
of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine
of laches does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim,
respondent company immediately filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by exercising due diligence, could
or should have been done earlier. The doctrine of stale demands would apply only where by
reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights.
Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches
to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation, representing
rentals for the contested units of machinery, the exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid
rentals of the contested properties based on the testimony of John Chua, who testified that the
P100,000.00 was based on the accepted practice in banking and finance, business and
investments that the rental price must take into account the cost of money used to buy them. The
Court of Appeals did not give full credence to Chua's projection and reduced the award to
P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of
proof but must actually be proven with reasonable degree of certainty, premised upon competent
proof or best evidence obtainable of the actual amount thereof.23 However, the allegations of
respondent company as to the amount of unrealized rentals due them as actual damages remain
mere assertions unsupported by documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but
must depend on competent proof and on the best evidence obtainable regarding the actual
amount of loss.24 However, we are not prepared to disregard the following dispositions of the
respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record warranting
the said award of P5,200,000.00, representing monthly rental income of P100,000.00
from November 1986 to February 1991, and the additional award of P100,000.00 per
month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of
Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the
actual damages allegedly sustained by appellees, by way of unrealized rental income of
subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on what is
claimed to be a practice in business and industry. But such a testimony cannot serve as
the sole basis for assessing the actual damages complained of. What is more, there is no
showing that had appellant Tsai not taken possession of the machineries and equipments
in question, somebody was willing and ready to rent the same for P100,000.00 a month.
xxx xxx xxx
Then, too, even assuming arguendo that the said machineries and equipments could
have generated a rental income of P30,000.00 a month, as projected by witness Mamerto
Villaluz, the same would have been a gross income. Therefrom should be deducted or
removed, expenses for maintenance and repairs . . . Therefore, in the determination of
the actual damages or unrealized rental income sued upon, there is a good basis to
calculate that at least four months in a year, the machineries in dispute would have been
idle due to absence of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net unrealized rental income of
P20,000.00 a month, since November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite
to award exemplary damages that the wrongful act must be accompanied by bad faith, 26 and the
guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner.27 As previously
stressed, petitioner Tsai's act of purchasing the controverted properties despite her knowledge of
EVERTEX's claim was oppressive and subjected the already insolvent respondent to gross
disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding
thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of
the financially handicapped respondent, including those properties not covered by or included in
the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with
the RTC that an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the
Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary
damages, their assessment being left to the discretion of the court in accordance with the
circumstances of each case.29 While the imposition of exemplary damages is justified in this case,
equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts
in the assessment of damages must always be exercised with balanced restraint and measured
objectivity. Thus, here the award of exemplary damages by way of example for the public good
should be reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be recovered when
exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees
and expenses of litigation is reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine
Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever
Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and
possession of the properties in question from November 198631 until subject personal properties
are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3)
P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.