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;
x x x x x x x x x
5. Machinery, liquid containers, instruments or implements intended by the owner of
any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of intention
and impresses upon the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil.,
630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side issues.
It is machinery which is involved; moreover, machinery not intended by the owner of any building or
land for use in connection therewith, but intended by a lessee for use in a building erected on the
land by the latter to be returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:
To determine this question involves fixing the nature and character of the property
from the point of view of the rights of Valdes and its nature and character from the
point of view of Nevers & Callaghan as a judgment creditor of the Altagracia
Company and the rights derived by them from the execution levied on the machinery
placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican
Code treats as immovable (real) property, not only land and buildings, but also
attributes immovability in some cases to property of a movable nature, that is,
personal property, because of the destination to which it is applied. "Things," says
section 334 of the Porto Rican Code, "may be immovable either by their own nature
or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows:
"Machinery, vessels, instruments or implements intended by the owner of the
tenements for the industrial or works that they may carry on in any building or upon
any land and which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534,
recapitulating the things which, though in themselves movable, may be immobilized.)
So far as the subject-matter with which we are dealing machinery placed in the
plant it is plain, both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant. Such result would not
be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The
distinction rests, as pointed out by Demolombe, upon the fact that one only having a
temporary right to the possession or enjoyment of property is not presumed by the
law to have applied movable property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the property of another. It follows
that abstractly speaking the machinery put by the Altagracia Company in the plant
belonging to Sanchez did not lose its character of movable property and become
immovable by destination. But in the concrete immobilization took place because of
the express provisions of the lease under which the Altagracia held, since the lease
in substance required the putting in of improved machinery, deprived the tenant of
any right to charge against the lessor the cost such machinery, and it was expressly
stipulated that the machinery so put in should become a part of the plant belonging to
the owner without compensation to the lessee. Under such conditions the tenant in
putting in the machinery was acting but as the agent of the owner in compliance with
the obligations resting upon him, and the immobilization of the machinery which
resulted arose in legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.
x x x x x x x x x
The machinery levied upon by Nevers & Callaghan, that is, that which was placed in
the plant by the Altagracia Company, being, as regards Nevers & Callaghan,
movable property, it follows that they had the right to levy on it under the execution
upon the judgment in their favor, and the exercise of that right did not in a legal
sense conflict with the claim of Valdes, since as to him the property was a part of the
realty which, as the result of his obligations under the lease, he could not, for the
purpose of collecting his debt, proceed separately against. (Valdes vs. Central
Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-
appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J .:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First
Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its
decision in question which will be discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first assignment of alleged error,
is whether or not the lower court erred in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the mortgage deed executed in favor of the
defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar
central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan
secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements,
sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is
necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that
may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co.,
Inc., decided to increase the capacity of its sugar central by buying additional machinery and
equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said
additional machinery and equipment was approximately P100,000. In order to carry out this plan,
B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance
the necessary amount for the purchase of said machinery and equipment, promising to reimburse
him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu
Unjieng e Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit
E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green,
president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green
having been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat
Sugar Co., Inc., purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e
Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment
acquired by said B.A. Green and installed in the sugar central after the execution of the original
mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said
loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and
rents not collected when the obligation falls due, and the amount of any indemnities paid or
due the owner by the insurers of the mortgaged property or by virtue of the exercise of the
power of eminent domain, with the declarations, amplifications, and limitations established by
law, whether the estate continues in the possession of the person who mortgaged it or
whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following
doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND
FIXTURES. It is a rule, established by the Civil Code and also by the Mortgage Law, with
which the decisions of the courts of the United States are in accord, that in a mortgage of
real estate, the improvements on the same are included; therefore, all objects permanently
attached to a mortgaged building or land, although they may have been placed there after
the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law,
and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance
Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be
understood that the machinery and other objects placed upon and used in connection with a
mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that
the improvements, buildings, and machinery that existed thereon were also comprehended,
it is indispensable that the exclusion thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in the
sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as
B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in
the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the
defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said
B.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully
reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became
owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid
containers, instruments or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to
meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar
Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them
into real property by reason of their purpose, it cannot be said that their incorporation therewith was
not permanent in character because, as essential and principal elements of a sugar central, without
them the sugar central would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has been established must
necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said
machinery and equipment as security for the payment of the latter's credit and to refrain from
mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of the incorporation of said machinery and equipment
with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from
giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had
been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the
mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery
and equipment had been incorporated, was transferred thereby, subject to the right of the
defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a
machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the
purpose of carrying out the industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery and equipment to the
mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the
new machinery and equipment has bound himself to the person supplying him the purchase money
to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest
the creditor with ownership of said machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the
appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.





Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10817-18 February 28, 1958
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for
respondent Plaza Theatre, Inc.
FELIX, J .:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-
Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province,
dropped at Lopez' house and invited him to make an investment in the theatre business. It was
intimated that Orosa, his family and close friends were organizing a corporation to be known as
Plaza Theatre, Inc., that would engage in such venture. Although Lopez expressed his unwillingness
to invest of the same, he agreed to supply the lumber necessary for the construction of the proposed
theatre, and at Orosa's behest and assurance that the latter would be personally liable for any
account that the said construction might incur, Lopez further agreed that payment therefor would be
on demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the
lumber which was used for the construction of the Plaza Theatre on May 17, 1946, up to December
4 of the same year. But of the total cost of the materials amounting to P62,255.85, Lopez was paid
only P20,848.50, thus leaving a balance of P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of
679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on
September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid
obligation, the latter and Belarmino Rustia, the president of the corporation, promised to obtain a
bank loan by mortgaging the properties of the Plaza Theatre., out of which said amount of
P41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown to him, however,
as early as November, 1946, the corporation already got a loan for P30,000 from the Philippine
National Bank with the Luzon Surety Company as surety, and the corporation in turn executed a
mortgage on the land and building in favor of said company as counter-security. As the land at that
time was not yet brought under the operation of the Torrens System, the mortgage on the same was
registered on November 16, 1946, under Act No. 3344. Subsequently, when the corporation applied
for the registration of the land under Act 496, such mortgage was not revealed and thus Original
Certificate of Title No. O-391 was correspondingly issued on October 25, 1947, without any
encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to
execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza
Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the creditor, and as the
obligation still remained unsettled, Lopez filed on November 12, 1947, a complaint with the Court of
First Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr.
and Plaza Theater, Inc., praying that defendants be sentenced to pay him jointly and severally the
sum of P41,771.35, with legal interest from the firing of the action; that in case defendants fail to pay
the same, that the building and the land covered by OCT No. O-391 owned by the corporation be
sold at public auction and the proceeds thereof be applied to said indebtedness; or that the 420
shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff
be sold at public auction for the same purpose; and for such other remedies as may be warranted by
the circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said properties
with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that
the materials were delivered to him as a promoter and later treasurer of the corporation, because he
had purchased and received the same on his personal account; that the land on which the movie
house was constructed was not charged with a lien to secure the payment of the aforementioned
unpaid obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned to
plaintiff as collaterals but as direct security for the payment of his indebtedness. As special defense,
this defendant contended that as the 420 shares of stock assigned and conveyed by the assignor
and accepted by Lopez as direct security for the payment of the amount of P41,771.35 were
personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale
thereof at public auction would not be sufficient to cover and satisfy the obligation. It was thus
prayed that he be declared exempted from the payment of any deficiency in case the proceeds from
the sale of said personal properties would not be enough to cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by
alleging that the building materials delivered to Orosa were on the latter's personal account; and that
there was no understanding that said materials would be paid jointly and severally by Orosa and the
corporation, nor was a lien charged on the properties of the latter to secure payment of the same
obligation. As special defense, defendant corporation averred that while it was true that the materials
purchased by Orosa were sold by the latter to the corporation, such transactions were in good faith
and for valuable consideration thus when plaintiff failed to claim said materials within 30 days from
the time of removal thereof from Orosa, lumber became a different and distinct specie and plaintiff
lost whatever rights he might have in the same and consequently had no recourse against the Plaza
Theatre, Inc., that the claim could not have been refectionary credit, for such kind of obligation
referred to an indebtedness incurred in the repair or reconstruction of something already existing
and this concept did not include an entirely new work; and that the Plaza Theatre, Inc., having been
incorporated on October 14, 1946, it could not have contracted any obligation prior to said date. It
was, therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P
5,000 for damages, and such other relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land was already registered under
the Torrens System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or
within the 1-year period after the issuance of the certificate of title, a petition for review of the decree
of the land registration court dated October 18, 1947, which was made the basis of OCT No. O-319,
in order to annotate the rights and interests of the surety company over said properties (Land
Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez,
asserting that the amount demanded by him constituted a preferred lien over the properties of the
obligors; that the surety company was guilty of negligence when it failed to present an opposition to
the application for registration of the property; and that if any violation of the rights and interest of
said surety would ever be made, same must be subject to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after
making an exhaustive and detailed analysis of the respective stands of the parties and the evidence
adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc.,
were jointly liable for the unpaid balance of the cost of lumber used in the construction of
the building and the plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not extend to the land on
which the construction was made, the trial judge took into consideration the fact that when plaintiff
started the delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the
mortgage in favor of Luzon Surety Company was previously registered under Act No. 3344; that the
codal provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits are
preferred could refer only to buildings which are also classified as real properties, upon which said
refection was made. It was, however, declared that plaintiff's lien on the building was superior to the
right of the surety company. And finding that the Plaza Theatre, Inc., had no objection to the review
of the decree issued in its favor by the land registration court and the inclusion in the title of the
encumbrance in favor of the surety company, the court a quo granted the petition filed by the latter
company. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the
amount of P41,771.35 with legal interest and costs within 90 days from notice of said decision; that
in case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at public auction
and the proceeds thereof be applied to the payment of the amount due the plaintiff, plus interest and
costs; and that the encumbrance in favor of the surety company be endorsed at the back of OCT No.
O-391, with notation I that with respect to the building, said mortgage was subject to the
materialman's lien in favor of Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of
therein defendants was joint instead of solidary, and that the lien did not extend to the land, but
same was denied by order the court of December 23, 1952. The matter was thus appealed to the
Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this instance,
plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the materials used
in the construction of a building attaches to said structure alone and does not extend to the land on
which the building is adhered to; and (2) whether the lower court and the Court of Appeals erred in
not providing that the material mans liens is superior to the mortgage executed in favor surety
company not only on the building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the
decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35,
so We will not take up or consider anything on that point. Appellant, however, contends that the lien
created in favor of the furnisher of the materials used for the construction, repair or refection of a
building, is also extended to the land which the construction was made, and in support thereof he
relies on Article 1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:
x x x x x x x x x
5. Credits for refection, not entered or recorded, with respect to the estate upon which the
refection was made, and only with respect to other credits different from those mentioned in
four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building, said
article must be construed as to embrace both the land and the building or structure adhering thereto.
We cannot subscribe to this view, for while it is true that generally, real estate connotes the land and
the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties
1
could mean only one thing
that a building is by itself an immovable property, a doctrine already pronounced by this Court in
the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the
absence of any specific provision of law to the contrary, a building is an immovable property,
irrespective of whether or not said structure and the land on which it is adhered to belong to the
same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives
preference to unregistered refectionary credits only with respect to the real estate upon which the
refection or work was made. This being so, the inevitable conclusion must be that the lien so created
attaches merely to the immovable property for the construction or repair of which the obligation was
incurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of the lumber used in
the construction of the building attaches only to said structure and to no other property of the
obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to
the building for which the credit was made or which received the benefit of refection, the lower court
was right in, holding at the interest of the mortgagee over the land is superior and cannot be made
subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision appealed from is
hereby affirmed, with costs against appellant. It is so ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L. and Endencia, JJ., concur.


Footnotes
1
Article 415 of the new Civil Code (Art. 334 of the old) enumerates what are considered
immovable property, among which are land, buildings, roads and constructions of all kinds
adhered to the soil.

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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 byitself 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
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 Ayala
10
that "the answer is a mere statement of
the facts which the party filing it expects to prove, but it is not evidence;
11
and further, that when the
question to be determined is one of title, the Court is given the authority to proceed with the hearing of the
cause until this fact is clearly established. In the case of Sy vs. Dalman,
12
wherein the defendant was also
a successful bidder in an auction sale, it was likewise held by this Court that in detainer cases the aim of
ownership "is a matter of defense and raises an issue of fact which should be determined from the
evidence at the trial." What determines jurisdiction are the allegations or averments in the complaint and
the relief asked for.
13

Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in court.
14
There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis of a voidable contract which has not been voided
fails.
It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab initio because only personal properties can
be subject of a chattel mortgage. The rule about the status of buildings as immovable property is
stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,
15
cited in Associated Insurance Surety Co., Inc.
vs. Iya, et al.
16
to the effect that
... it is obvious that the inclusion of the building, separate and distinct from the land,
in the enumeration of what may constitute real properties (art. 415, New Civil Code)
could only mean one thing that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
Manarang vs. Ofilada,
17
this Court stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo.
18
In the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following described personal property."
19
The "personal property"
consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion,
20
the subject of
the contract designated as Chattel Mortgage was a house of mixed materials, and this Court hold therein
that it was a valid Chattel mortgage because it was so expressly designated and specifically that the
property given as security "is a house of mixed materials, which by its very nature is considered personal
property." In the later case of Navarro vs. Pineda,
21
this Court stated that
The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a mortgaged
house built on a rented land was held to be a personal property, not only because
the deed of mortgage considered it as such, but also because it did not form part of
the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an
object placed on land by one who had only a temporary right to the same, such as
the lessee or usufructuary, does not become immobilized by attachment (Valdez vs.
Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al.,
61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property as so
stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is predicated on statements by the owner declaring
his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374):
22

In the contract now before Us, the house on rented land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage
23
the property together with its leasehold rights over the lot
on which it is constructed and participation ..."
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.


Footnotes
1 Exhibit "A," page 1, Folder of Exhibits.
2 See paragraph "G," Exhibit "A," supra.
3 Exhibit "B," page 4, Folder of Exhibits.
4 Page 2, Defendants' Record on appeal, page 97, Rollo.
5 Page 20, Id., page 115, Rollo.
6 Now Section 2, Rule 70, Revised Rules of Court, which reads that
"SEC. 2. Landlord, to proceed against tenant only after demand. No landlord, or
his legal representative or assign, shall bring such action against a tenant for failure
to pay rent due or to comply with the conditions of his lease, unless the tenant shall
have failed to pay such rent or comply with such conditions for a period of ... five (5)
days in the case of building, after demand therefor, made upon him personally, or by
serving written notice of such demand upon the person found on the premises, or by
posting such notice on the premises if no persons be found thereon."
7 See CFI order of 20 February 1957, pages 21-25, Defendants' Record on Appeal.
8 Page 31, Defendants' Record on Appeal, page 213, Rollo.
9 See Municipal court decision, pages 17-18, Defendants' Record on Appeal, pages
199-200, Rollo.
10 59 Phil. 320-321.
11 Emphasis supplied.
12 L-19200, 27 February 1958, 22 SCRA 834; See also Aquino vs. Deala, 63 Phil.
582 and De los Reyes vs. Elepao, et al., G.R. No. L-3466, 13 October 1950.
13 See Canaynay vs. Sarmiento, L-1246, 27 August 1947, 79 Phil. 36.
14 Last paragraph, Article 1290, N.C.C., supra.
15 No. L-10817-18, 28 February 1958, 103 Phil. 98.
16 No. L-10827-38, 30 May 1958, 103 Phil. 972.
17 No. L-8133, 18 May 1956, 99 Phil. 109.
18 No. L-20329, 16 March 1923, 44 Phil. 632.
19 Emphasis supplied.
20 No. L-4637, 30 June 1952, 91 Phil. 531.
21 No. L-18456, 30 November 1963, 9 SCRA 631.
22 Emphasis supplied.
23 Emphasis supplied.
24 See paragraph 2 of Exhibit "A," page 1, Folder of Exhibits.
25 Supra.
26 Supra.
27 See Navarro vs. Pineda, supra.
28 Effective 1 August 1906.
29 See Luna vs. Encarnacion, et al., No. L-4637, 30 June 1952, 91 Phil. 531.
30 See paragraph "G," Exhibit "A," supra.
31 Section 6, Act No. 3135, as amended, provides:
"In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor in interest or any judicial creditor
or judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of
the sale; and such redemption shall be governed by the provisions of sections four
hundredand sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act."
(Emphasis supplied) .
32 Section 7, Act No. 3135, as amended, states: .
"In any sale made under the provisions of this Act, the purchaser may petition the
Court of First Instance of the province or place where the property or any part thereof
is situated, to give him possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the requirements of this Act..."
(Emphasis supplied) .
33 See De Gracia vs. San Jose, et al., No. L-6493, 25 March 1954.
34 "SEC. 34. Rents and profits pending redemption. Statement thereof and credit
therefor on redemption. The purchaser, from the time of the sale until a
redemption, and a redemptioner, from the time of his redemption until another
redemption, is entitled to receive the rents of the property sold or the value of the use
and occupation thereof when such property is in possession of a tenant. But when
any such rents and profits have been received by the judgment creditor or purchaser,
or by a redemptioner, or by the assignee or either of them, from property thus sold
preceding such redemption, the amounts of such rents and profits shall be a credit
upon the redemption money to be paid; ..."
35 See Reyes vs. Hamada, No. L-19967, 31 May 1965, 14 SCRA 215; Emphasis
supplied.
36 No. L-16777, 20 April 1961, 1 SCRA 1004.
37 Saura Import & Export Co. vs. Philippine International Surety Co., et al., No. L-
15184, 31 May 1963, 8 SCRA 143, 148; Hernandez vs. Andal, 78 Phil.198, See also
Sec. 7, Rule 51, of the Revised Rules of Court. Cf. Santaells vs.Otto Lange Co., 155
Fed. 719; Mast vs. Superior Drill Co., 154 Fed., 45, Francisco, Rules of Court (1965
Ed), Vol. 3, page 765.












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
aforedscribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court
of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower
court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative.
1
Considering that petitioner has reserved its right to question the propriety
of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted
by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the property,
it does so when combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung
Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as
the appellate court did, the present case from the application of the abovequoted pronouncement. If
a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that
the parties to a contract may by agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable
to the case at bar, the nature of the machinery and equipment involved therein as real properties
never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the
more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed
and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
Abad Santos, J., concurs in the result.

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, Espaa Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a depth
of about eight (8) feet, with an opening of about one (1) meter in diameter, decreased to
about a quarter of a meter as it we deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars attached to the leg means of bolts; the tower
proper was attached to the leg three bolts; with two cross metals to prevent mobility; there
was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with
certainty to whether said adobe stone was placed purposely or not, as the place abounds
with this kind of stone; and the tower carried five high voltage wires without cover or any
insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in the
first tower, the ground around one of the four legs was excavate from seven to eight (8) feet
deep and one and a half (1-) meters wide. There being very little water at the bottom, it
was seen that there was no concrete foundation, but there soft adobe beneath. The leg was
likewise provided with two parallel steel bars bolted to a square metal frame also bolted to
each corner. Like the first one, the second tower is made up of metal rods joined together by
means of bolts, so that by unscrewing the bolts, the tower could be dismantled and
reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to a
depth about two or three inches beyond the outside level of the steel bar foundation. It was
found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers
for real property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's
petition to cancel these declarations, an appeal was taken by respondent to the Board of
Assessment Appeals of Quezon City, which required respondent to pay the amount of P11,651.86
as real property tax on the said steel towers for the years 1952 to 1956. Respondent paid the
amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for short)
which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term
"poles" which are declared exempt from taxes under part II paragraph 9 of respondent's franchise;
(2) the steel towers are personal properties and are not subject to real property tax; and (3) the City
Treasurer of Quezon City is held responsible for the refund of the amount paid. These are assigned
as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said percentage
shall be due and payable at the time stated in paragraph nineteen of Part One hereof, ... and
shall be in lieu of all taxes and assessments of whatsoever nature and by whatsoever
authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee from which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis
supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as
typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the top
of which something is affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New International
Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
which exemption is granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use to which they are
dedicated. In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by which
something is supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not
a novelty. Several courts of last resort in the United States have called these steel supports "steel
towers", and they denominated these supports or towers, as electric poles. In their decisions the
words "towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or
metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an association
used to convey its electric power furnished to subscribers and members, constructed for the purpose
of fastening high voltage and dangerous electric wires alongside public highways. The steel supports
or towers were made of iron or other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the said two metal pieces being
connected with criss-cross iron running from the bottom to the top, constructed like ladders and
loaded with high voltage electricity. In form and structure, they are like the steel towers in question.
(Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric power,
but claimed that the steel towers on which it is carried were so large that their wire took their
structure out of the definition of a pole line. It was held that in defining the word pole, one should not
be governed by the wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material wire of its individual
members, any continuous series of structures intended and used solely or primarily for the purpose
of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v.
Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would be
required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then one
should admit that the Philippines is one century behind the age of space. It should also be conceded
by now that steel towers, like the ones in question, for obvious reasons, can better effectuate the
purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
x x x x x x x x x
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried in a building or on a piece of land,
and which tends directly to meet the needs of the said industry or works;
x x x x x x x x x
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1,
because they do not constitute buildings or constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place. They can not be
included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they
can be separated without breaking the material or causing deterioration upon the object to which
they are attached. Each of these steel towers or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under paragraph
5, for they are not machineries, receptacles, instruments or implements, and even if they were, they
are not intended for industry or works on the land. Petitioner is not engaged in an industry or works
in the land in which the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the
sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as
the City Treasurer is not the real party in interest, but Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he should not be ordered to effect the refund. This
question has not been raised in the court below, and, therefore, it cannot be properly raised for the
first time on appeal. The herein petitioner is indulging in legal technicalities and niceties which do not
help him any; for factually, it was he (City Treasurer) whom had insisted that respondent herein pay
the real estate taxes, which respondent paid under protest. Having acted in his official capacity as
City Treasurer of Quezon City, he would surely know what to do, under the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.
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
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 Roo, held in its decision of June 3, 1977 that the said machines and equipment
are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil Code are not applicable to this
case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal property
not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was
as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax
Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment
appeals had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals and is, therefore, in the same category as
the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt
of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be
filed. The Code does not provide for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adapt it for
new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments,
appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service
facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the Real Property Tax
Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery
that becomes real property by destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by the lessee on leased land should
be regarded as real property forpurposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the
realty tax. This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co.,
119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph
9 of its franchise which exempts its poles from taxation. The steel towers were considered
personalty because they were attached to square metal frames by means of bolts and could be
moved from place to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the
repair shop of a bus company which were held to be personal property not subject to realty tax
(Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding
the city assessor's is imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals
are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr. and Abad Santos, JJ., took no part.


G.R. No. 26278, Sibal v. Valdez et al.,
50 Phil. 512
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
August 4, 1927
G.R. No. 26278
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J .:
The action was commenced in the Court of First Instance of the Province of Tarlac on
the 14th day of December 1924. The facts are about as conflicting as it is possible for
facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal,
deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the
Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J.
Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land
described in the complaint in the third paragraph of the first cause of action; that
within one year from the date of the attachment and sale the plaintiff offered to
redeem said sugar cane and tendered to the defendant Valdez the amount sufficient to
cover the price paid by the latter, the interest thereon and any assessments or taxes
which he may have paid thereon after the purchase, and the interest corresponding
thereto and that Valdez refused to accept the money and to return the sugar cane to the
plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J.
Valdez was attempting to harvest the palay planted in four of the seven parcels
mentioned in the first cause of action; that he had harvested and taken possession of
the palay in one of said seven parcels and in another parcel described in the second
cause of action, amounting to 300 cavans; and that all of said palay belonged to the
plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the defendant
Emiliano J. Valdez his attorneys and agents, restraining them (1) from distributing
him in the possession of the parcels of land described in the complaint; (2) from
taking possession of, or harvesting the sugar cane in question; and (3) from taking
possession, or harvesting the palay in said parcels of land. Plaintiff also prayed that a
judgment be rendered in his favor and against the defendants ordering them to consent
to the redemption of the sugar cane in question, and that the defendant Valdez be
condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by
him in the two parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval of the
bond for P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed
for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and
specifically each and every allegation of the complaint and step up the following
defenses:
(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of
the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of
the preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots
(puntas de cana dulce) palay in said parcels of land, representing a loss to him of
P8,375.20 and that, in addition thereto, he suffered damages amounting to P3,458.56.
He prayed, for a judgment (1) absolving him from all liability under the complaint; (2)
declaring him to be the absolute owner of the sugar cane in question and of the palay
in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of
P11,833.76, representing the value of the sugar cane and palay in question, including
damages.
Upon the issues thus presented by the pleadings the cause was brought on for trial.
After hearing the evidence, and on April 28, 1926, the Honorable Cayetano Lukban,
judge, rendered a judgment against the plaintiff and in favor of the defendants
(1) Holding that the sugar cane in question was personal property and, as such, was
not subject to redemption;
(2) Absolving the defendants from all liability under the complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and
Marcos Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum
of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant was not able to raise
by reason of the injunction, at P4 cavan. 9,439.08
From that judgment the plaintiff appealed and in his assignments of error contends
that the lower court erred:
(1) In holding that the sugar cane in question was personal property and, therefore, not
subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as
parcels 7 and 8, and that the palay therein was planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed to realized
P6,757.40 from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana
dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the
defendant was unable to raise palay on the land, which would have netted him the sum
of P600; and
(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of
P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of
writ of execution in civil case No. 20203 of the Court of First Instance of Manila
(Macondray & Co., Inc. vs. Leon Sibal),levied an attachment on eight parcels of land
belonging to said Leon Sibal, situated in the Province of Tarlac, designated in the
second of attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land,
at the auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93,
having paid for the said parcels separately as follows (Exhibit C, and 2-A):
Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 .....................................................................

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

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

In all other respects, the judgment appealed from is hereby affirmed, with costs. So
ordered.
Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.














Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16513 January 18, 1921
THE UNITED STATES, plaintiff-appellee,
vs.
MANUEL TAMBUNTING, defendant-appellant.
Manuel Garcia Goyena for appellant.
Acting Attorney-General Feria for appellee.
STREET, J .:
This appeal was instituted for the purpose of reversing a judgment of the Court of First Instance of
the city of Manila, finding the accused, Manuel Tambunting, guilty of stealing a quantity of gas
belonging to the Manila Gas Corporation, and sentencing him to undergo imprisonment for two
months and one day, of arresto mayor, with the accessories prescribed by law; to indemnify the said
corporation in the sum of P2, with subsidiary imprisonment in case of insolvency; and to pay the
costs.
The evidence submitted in behalf of the prosecution shows that in January of the year 1918, the
accused and his wife became occupants of the upper floor of the house situated at No. 443, Calle
Evangelista, in the city of Manila. In this house the Manila Gas Corporation had previously installed
apparatus for the delivery of gas on both the upper and lower floors, consisting of the necessary
piping and a gas meter, which last mentioned apparatus was installed below. When the occupants at
whose request this installation had been made vacated the premises, the gas company
disconnected the gas pipe and removed the meter, thus cutting off the supply of gas from said
premises.
Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and
found that gas was being used, without the knowledge and consent of the gas company, for cooking
in the quarters occupied by the defendant and his wife: to effect which a short piece of iron pipe had
been inserted in the gap where the gas meter had formerly been placed, and piece of rubber tubing
had been used to connect the gas pipe of rubber tubing had been used to connect the gas pipe in
kitchen with the gas stove, or plate, used for cooking.
At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he
presently arrived and admitted to the agent to the gas company that he had made the connection
with the rubber tubing between the gas pipe and the stove, though he denied making the connection
below. He also admitted that he knew he was using gas without the knowledge of the company and
that he had been so using it for probably two or three months.
The clandestine use of gas by the accused in the manner stated is thus established in our opinion
beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only remains to consider, first,
whether gas can be the subject to larceny and, secondly, whether the quantity of gas appropriated in
the two months, during which the accused admitted having used the same, has been established
with sufficient certainty to enable the court to fix an appropriate penalty.
Some legal minds, perhaps more academic than practical, have entertained doubt upon the question
whether gas can be the subject of larceny; but no judicial decision has been called to our attention
wherein any respectable court has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175),
this court, speaking through Mr. Justice Torres, said ". . . the right of the ownership of electric current
is secured by article 517 and 518 of the Penal Code; the application of these articles in cases of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed
by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and April 1,
1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of that
country, articles identical with articles 517 and 518 of the code in force in these Islands." These
expressions were used in a case which involved the subtraction and appropriation of electrical
energy and the court held, in accordance with the analogy of the case involving the theft of gas, that
electrical energy could also be the subject of theft. The same conclusion was reached in U.S. vs.
Carlos (21 Phil., 553), which was also a case of prosecution for stealing electricity.
The precise point whether the taking of gas may constitute larceny has never before, so far as the
present writer is aware, been the subject of adjudication in this court, but the decisions of Spanish,
English, and American courts all answer the question in the affirmative. (See U.S. vs. Carlos, 21
Phil., 553, 560.)
In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol. 17, of
Ruling Case Law:
There is nothing in the nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or larger quantity and of being
transported from place to place. Likewise water which is confined in pipes and electricity which is
conveyed by wires are subjects of larceny."
As to the amount and value of the gas appropriated by the accused in the period during which he
admits having used it, the proof is not entirely satisfactory. Nevertheless we think the trial court was
justified in fixing the value of the gas at P2 per month, which is the minimum charge for gas made by
the gas company, however small the amount consumed. That is to say, no person desiring to use
gas at all for domestic purposes can purchase the commodity at a lower rate per month than P2.
There was evidence before the court showing that the general average of the monthly bills paid by
consumers throughout the city for the use of gas in a kitchen equipped like that used by the accused
is from P18 to 20, while the average minimum is about P8 per month. We think that the facts above
stated are competent evidence; and the conclusion is inevitable that the accused is at least liable to
the extent of the minimum charge of P2 per month. The market value of the property at the time and
place of the theft is of court the proper value to be proven (17 R.C.L., p. 66); and when it is found
that the least amount that a consumer can take costs P2 per months, this affords proof that the
amount which the accused took was certainly worth that much. Absolute certainty as to the full
amount taken is of course impossible, because no meter wad used; but absolute certainty upon this
point is not necessary, when it is certain that the minimum that could have been taken was worth a
determinable amount.
It appears that before the present prosecution was instituted, the accused had been unsuccessfully
prosecuted for an infraction of section 504 of the Revised Ordinances of the city of Manila, under a
complaint charging that the accused, not being a registered installer of gas equipment had placed a
gas installation in the house at No. 443, Calle Evangelista. Upon this it is argued for the accused
that, having been acquitted of that charge, he is not now subject to prosecution for the offense of
theft, having been acquitted of the former charge. The contention is evidently not well-founded, since
the two offenses are of totally distinct nature. Furthermore, a prosecution for violation of a city
ordinance is not ordinarily a bar to a subsequent prosecution for the same offense under the general
law of the land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)
The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518 of
the Penal Code, for the gas taken in the course of two months a the rate of P2 per month. There
being no aggravating or attenuating circumstance to be estimated, it results that the proper penalty
is two months and one day of arresto mayor, as fixed by the trial court. The judgment will therefore
be affirmed, with costs against the appellant, it being understood that the amount of the indemnity
which the accused shall pay to the gas company is P4, instead of P2, with subsidiary imprisonment
for one day in case of insolvency. So ordered.
Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.




Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8437 March 23, 1915
THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellee,
vs.
ALDECOA & CO., in liquidation, JOAQUIN IBAEZ DE ALDECOA Y PALET, ZOILO IBAEZ DE
ALDECOA Y PALET, CECILIA IBAEZ DE ALDECOA Y PALET, and ISABEL PALET DE
GABARRO, defendants-appellants.
WILLIAM URQUHART, intervener-appellant.
Antonio Sanz and Chicote and Miranda for appellants.
Hausermann, Cohn and Fisher for appellee.
TRENT, J .:
This action was brought on January 31, 1911, by the plaintiff bank against the above-named
defendants for the purpose of recovering from the principal defendant, Aldecoa & Co., an amount
due from the latter as the balance to its debit in an account current with the plaintiff, and to enforce
the subsidiary liability of the other defendants for the payment of this indebtedness, as partners of
Aldecoa & Co., and to foreclose certain mortgages executed by the defendants to secure the
indebtedness sued upon.
Judgment was entered on the 10th of August, 1912, in favor of the plaintiff and against the
defendants for the sum of P344,924.23, together with interest thereon at the rate of 7 per cent per
annum from the date of the judgment until paid, and for costs, and for the foreclosure of the
mortgages. The court decreed that in the event of there being a deficiency, after the foreclosure of
the mortgages, the plaintiff must resort to and exhaust the property of the principal defendant before
taking out execution against the individual defendants held to be liable in solidumwith the principal
defendant, but subsidiarily. Judgment was also entered denying the relief sought by the intervener.
All of the defendants and the intervener have appealed.
The defendants, Joaquin Ibaez de Alcoa, Zoilo Ibaez de Alcoa, and Cecilia Ibaez de Alcoa, were
born in the Philippine Islands on March 27, 1884, July 4, 1885, and . . . , 1887, respectively, the
legitimate children of Zoilo Ibaez de Alcoa and the defendant, Isabel Palet. Both parents were
native of Spain. The father's domicile was in Manila, and he died here on October 4, 1895. The
widow, still retaining her Manila domicile, left the Philippine Islands and went to Spain in 1897
because of her health, and did not return until the latter part of 1902. the firm of Aldecoa & Co., of
which Zoilo Ibaez de Aldecoa, deceased, had been a member and managing director, was
reorganized in December, 1896, and the widow became one of the general or "capitalistic" partners
of the firm. The three children, above mentioned, appear in the articles of agreement as industrial
partners.
On July 31, 1903, Isabel Palet, the widowed mother of Joaquin Ibaez de Aldecoa and Zoilo Ibaez
de Aldecoa, who were then over the age of 18 years, went before a notary public and executed two
instruments (Exhibits T and U), wherein and whereby she emancipated her two sons, with their
consent and acceptance. No guardian of the person or property of these two sons had ever been
applied for or appointed under or by virtue of the provisions of the Code of Civil Procedure since the
promulgation of the Code in 1901. After the execution of Exhibit T and U, both Joaquin Ibaez de
Aldecoa and Zoilo Ibaez de Aldecoa participated in the management of Aldecoa and Co, as
partners by being present and voting at meetings of the partners of the company upon matters
connected with its affairs.
On the 23rd of February, 1906, the defendant firm of Aldeco and Co. obtained from the bank a credit
in account current up to the sum of P450,000 upon the terms and conditions set forth in the
instrument executed on that date (Exhibit A). Later it was agreed that the defendants, Isabel Palet
and her two sons, Joaquin and Zoilo, should mortgage, in addition to certain securities of Aldecoa
and Co., as set forth in Exhibit A, certain of their real properties as additional security for the
obligations of Aldecoa and Co. So, on March 23, 1906, the mortgage, Exhibit B, was executed
wherein certain corrections in the description of some of the real property mortgaged to the bank by
Exhibit A were made and the amount for which each of the mortgaged properties should be liable
was set forth. These two mortgages, Exhibits A and B, were duly recorded in the registry of property
of the city of Manila on March 23, 1906.
On the 31st day of December, 1906, the firm of Aldecoa and Co. went into liquidation on account of
the expiration of the term for which it had been organized, and the intervener, Urquhart, was duly
elected by the parties as liquidator, and be resolution dated January 24, 1907, he was granted the
authority expressed in that resolution (Exhibit G).
On June 30, 1907, Aldeco and Co. in liquidation, for the purposes of certain litigation about to be
commenced in its behalf, required an injunction bond in the sum of P50,000, which was furnished by
the bank upon the condition that any liability incurred on the part of the bank upon this injunction
bond would be covered by the mortgage of February 23, 1906. An agreement to this effect was
executed by Aldecoa and Co. in liquidation, by Isabel Palet, by Joaquin Ibaez de Aldecoa, who had
then attained his full majority, and by Zoilo Ibaez de Aldecoa, who was not yet twenty-three years
of age. In 1908, Joaquin Ibaez de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de
Aldecoa commenced an action against their mother, Isabel Palet, and Aldecoa and Co., in which the
bank was not a party, and in September of that year procured a judgment of the Court of First
Instance annulling the articles of copartnership of Aldecoa and Co., in so far as they were
concerned, and decreeing that they were creditors and not partners of that firm.
The real property of the defendant Isabel Palet, mortgaged to the plaintiff, corporation by the
instrument of March 23, 1906 (Exhibit B), was, at the instance of the defendant, registered under the
provisions of the Land Registration Act, subject to the mortgage thereon in favor of the plaintiff, by
decree, of the land court dated March 8, 1907.
On the 6th of November, 1906, the defendants, Isabel Palet and her three children, Joaquin Ibaez
de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de Aldecoa, applied to the land court for
the registration of their title to the real property described in paragraph 4 of the instrument of March
23, 1906 (Exhibit B), in which application they stated that the undivided three-fourths of said
properties belonging to the defendants, Isabel Palet, Joaquin Ibaez de Aldecoa, and Zoilo Ibaez
de Aldecoa, were subject to the mortgage in favor of the plaintiff to secure the sum of P203,985.97
under the terms of the instrument dated March 22, 1906. Pursuant to this petition the Court of Land
Registration, by decree dated September 8, 1907, registered the title to the undivided three-fourths
interest therein pertaining to the defendants, Isabel Palet and her two sons, Joaquin and Zoilo, to the
mortgage in favor of the plaintiff to secure the sun of P203,985.97.
On December 22, 1906, Aldecoa and Co., by a public instrument executed before a notary public, as
additional security for the performance of the obligations in favor of the plaintiff under the terms of
the contracts Exhibits A and B, mortgaged to the bank the right of mortgage pertaining to Aldecoa
and Co. upon certain real property in the Province of Albay, mortgaged to said company by one
Zubeldia to secure an indebtedness to that firm. Subsequent to the execution of this instrument,
Zubeldia caused his title to the mortgaged property to be registered under the provisions of the Land
Registration Act, subject to a mortgage of Aldecoa and Co. to secure the sum of P103,943.84 and to
the mortgage of the mortgage right of Aldecoa and Co. to the plaintiff.
As the result of the litigation Aldecoa and Co. and A. S. Macleod, wherein the injunction bond for
P50,000 was made by the bank in the manner and for the purpose above set forth, Aldecoa and Co.
became the owner, through a compromise agreement executed in Manila on the 14th of August,
1907, of the shares of the Pasay Estate Company Limited (referred to in the contract of March 13,
1907, Exhibit V), and on the 30th day of August of that year Urquhart, as liquidator, under the
authority vested in him as such, and in compliance with the terms of the contract of June 13, 1907,
mortgaged to the plaintiff, by way of additional security for the performance of the obligations set
forth in Exhibits A and B, the 312 shares of the Pasay Estate Company, Limited, acquired by
Aldecoa and Co.
On the 31st day of March, 1907, Aldecoa and Co. mortgaged, as additional security for the
performance of those obligations, to the plaintiff the right of mortgage, pertaining to the firm of
Aldecoa and Co., upon certain real estate in that Province of Ambos Camarines, mortgaged to
Aldecoa and Co. by one Andres Garchitorena to secure a balance of indebtedness to that firm of the
sum of P20,280.19. The mortgage thus created in favor of the bank was duly recorded in the registry
of deeds f that province. On the 31st day of March, 1907, Aldecoa and Co. mortgaged as further
additional security for the performance of the obligations set forth in Exhibits A and B, the right of
mortgage pertaining to the firm of Aldecoa and Co. upon other real property in the same province,
mortgaged by the firm of Tremoya Hermanos and Liborio Tremoya, to secure the indebtedness of
that firm to the firm of Aldecoa and Co. of P43,117.40 and the personal debt of the latter of
P75,463.54. the mortgage thus created in favor of the bank was filed for record with the registrar of
deeds of that province.
On the 30th day of January, 1907, Aldecoa and Co. duly authorized the bank to collect from certain
persons and firms, named in the instrument granting this authority, any and all debts owing by them
to Aldecoa and Co. and to apply all amounts so collected to the satisfaction, pro tanto, of any
indebtedness of Aldecoa and Co. to the bank.
By a public instrument dated February 18, 1907, Aldecoa and Co. acknowledged as indebtedness to
Joaquin Ibaez de Aldecoa in the sum of P154,589.20, a like indebtedness to Zoilo Ibaez de
Aldecoa in the sum of P89,177.07. On September 30, 1908, Joaquin, Zoilo, and Cecilia recovered a
judgment in the Court of First Instance of Manila for the payment to them f the sum of P155,127.31,
as the balance due them upon the indebtedness acknowledged in the public instrument dated
February 18, 1907.
On November 30, 1907, Joaquin, Zoilo, and Cecilia instituted an action in the Court of First Instance
of the city of the Manila against the plaintiff bank for the purpose of obtaining a judicial declaration to
the effect that the contract whereby Aldecoa and Co. mortgaged to the bank the shares of the Pasay
Estate Company recovered from Alejandro S. Macleod, was null and void, and for a judgment of that
these shares be sold and applied to the satisfaction of their judgment obtained on September 30,
1908. Judgment was rendered by the lower court in favor of the plaintiffs in that action in accordance
with their prayer, but upon appeal this court reversed that judgment and declared that the mortgage
of the shares of stock in the Pasay Estate Co. to the bank was valid.
In October, 1908, Joaquin and Zoilo Ibaez de Aldecoa instituted an action against the plaintiff bank
for the purpose of obtaining a judgment annulling the mortgages created by them upon their interest
in the properties described in Exhibits A and B, upon the ground that the emancipation buy their
mother was void and of no effect, and that, therefore, they were minors incapable of creating a valid
mortgage upon their real property. The Court of First Instance dismissed the complaint as to Joaquin
upon the ground that he had ratified those mortgages after becoming of age, but entered a judgment
annulling said mortgages with respect to Zoilo. Both parties appealed from this decision and the
case was given registry No. 6889 in the Supreme Court.
1

On the 31st day of December, 1906, on which date the defendant Aldecoa and Co. went into
liquidation, the amount of indebtedness to the bank upon the overdraft created by the terms of the
contract, Exhibit A, was P516,517.98. Neither the defendant Aldecoa and Co., nor any of the
defendants herein, have paid or caused to be paid to the bank the yearly partial payments due under
the terms of the contract, Exhibit A. But from time to time the bank has collected and received from
provincial debtors of Aldecoa and Co. the various sums shown in Exhibit Q, all of which sums so
received have been placed to the credit of Aldecoa and Co. and notice duty given. Also, the bank,
from time to time, since the date upon which Aldecoa and Co. went into liquidation, has received
various other sums from, or for the account of, Aldecoa and Co., all of which have been duly placed
to the credit of that firm, including the sum of P22,552.63, the amount of the credit against one
Achaval, assigned to the bank by Aldecoa and Co. The balance to the credit of the bank on the 31st
day of December, 1911, as shown on the books of Aldecoa and Co., was for the sum of
P416.853.46. It appeared that an error had been committed by the bank in liquidating the interest
charged to Aldecoa and Co., and this error was corrected so that the actual amount of the
indebtedness of Aldecoa and Co. to the plaintiff on the 15th of February, 1912, with interest to
December 10, 1912, the date of the judgment, the amount was P344,924.23.
The trial court found that there was no competent evidence that the bank induced, or attempted to
induce, any customer of Aldecoa and Co. to discontinue business relations with that company. The
court further found that Urquhart had failed to show that he had any legal interest in the matter in
litigation between plaintiff and defendants, or in the success of either of the parties, or an interest
against both, as required by section 121 of the Code of Civil Procedure. No further findings, with
respect to the facts alleged in the complaint of the intervener, were made.
Aldecoa and Co. insist that the court erred:
1. In overruling the defendant's demurrer based upon the alleged ambiguity and vagueness
of the complaint.
2. In ruling that there was no competent evidence that the plaintiff had induced Aldecoa and
Co.'s provincial debtors to cease making consignments to that firm.
3. In rendering a judgment in a special proceeding for the foreclosure of a mortgage, Aldecoa
and Co. not having mortgaged any real estate of any kind within the jurisdiction of the trial
court, and the obligation of the persons who had signed the contract of suretyship in favor of
the bank having been extinguished by operation of law.
The argument on behalf of the defendant in support of its first assignment of error from the complaint
that Aldecoa and Co. authorized the plaintiff bank, by the instrument Exhibit G, to make collections
on behalf of this defendant, and that the complaint failed to specify the amount obtained by the bank
in the exercise of the authority conferred upon it, the complaint was thereby rendered vague and
indefinite. Upon this point it is sufficient to say that the complaint alleges that a certain specific
amount was due from the defendant firm as a balance of its indebtedness to the plaintiff, and this
necessarily implies that there were no credits in favor of the defendant firm of any kind whatsoever
which had not already been deducted from the original obligation.
With respect to the contention set forth in the second assignment of error to the effect that the bank
has prejudiced Aldecoa and Co. by having induced customers of the latter to cease their commercial
relations with this defendant, the ruling of the court that there is no evidence to show that there was
any such inducement is fully supported by the record. It may be possible that some of Aldecoa and
Co.'s customers ceased doing business with that firm after it went into liquidation. This is the
ordinary effect of a commercial firm going consideration, for the reason that it was a well known fact
that Aldecoa and Co. was insolvent. It is hardly probable that the bank, with so large a claim against
Aldecoa and Co. and with unsatisfactory security for the payment of its claim, would have taken any
action whatever which might have had the effect of diminishing Aldecoa and Co.'s ability to
discharge their claim. The contention that the customers of Aldecoa and Co. included in the list of
debtors ceased to make consignments to the firm because they had been advised by the bank that
Aldecoa and Co. had authorized the bank to collect these credits from the defendant's provincial
customers and apply the amounts so collected to the partial discharge of the indebtedness of the
defendant to the bank. Furthermore, the bank was expressly empowered to take any steps which
might be necessary, judicially or extrajudicially, for the collection of these credits. The real reason
which caused the defendant's provincial customers to cease making shipments was due to the fact
that the defendant, being out of funds, could not give its customers any further credit. It is therefore
clear that the bank, having exercised the authority conferred upon it by the company in a legal
manner, is not responsible for any damages which might have resulted from the failure of the
defendant's provincial customers to continue doing business with that firm.
In the third assignments of errors two propositions are insisted upon: (1) that in these foreclosure
proceedings the court was without jurisdiction to render judgment against Aldecoa and Co. for the
reason that firm had mortgaged no real property within the city of Manila to the plaintiff; and (2) that
the mortgages given by this defendant have been extinguished by reason of the fact that the bank
extended the time within which the defendant's provincial debtors might make their payments.
We understand that the bank is not seeking to exercise its mortgages rights upon the mortgages
which the defendant firm holds upon certain real properties in the Provinces of Albay and Ambros
Camarines and to sell these properties at public auction in these proceedings. Nor do we understand
that the judgment of the trial courts directs that this be done. Before that property can be sold the
original mortgagors will have to be made parties. The banks is not trying to foreclose, in this section,
any mortgages on real property executed by Aldecoa and Co. It is true that the bank sought and
obtained a money judgment against that firm, and at the same time and in the same action obtained
a foreclosure judgment against the other defendants. If two or more persons are in solidumthe
debtors mortgage any of their real property situate in the jurisdiction of the court, the creditor, in case
of the solidary debtors in the same suit and secure a joint and several judgment against them, as
well as judgments of foreclosure upon the respective mortgages.
The contention that the extensions granted to Aldecoa and Co.'s debtors, with the consent and
authority of that firm itself, has resulted in extinguishment of the mortgages created by Aldecoa and
Co. or of the mortgages created by partners of that company to secure its liabilities to the bank, is
not tenable. The record shows that all the sureties were represented by Urquhart, the person elected
by them as liquidator of the firm, when he agreed with the bank upon the extensions granted to
those debtors. The authority to grant these extensions was conferred upon the bank by the
liquidator, and he was given authority by all the sureties to authorized the bank to proceed in this
manner.
With respect to the contention that the bank should be required to render an account of collections
made under authority of Exhibit G, it is sufficient to say that the bank has properly accounted for all
amounts collected from the defendant's debtors, and has applied all such amounts to the partial
liquidation of the defendant's debt die to the bank. It is true that the sum for which judgment was
rendered against Aldecoa and Co. is less than the amount originally demanded in the complaint, but
this difference is due to the fact that certain amounts which had been collected from Aldecoa and
Co.'s provincial debtors by the bank were credited to the latter between the date on which the
complaint was filed and the date when the case came on for trial, and the further fact that it was
necessary to correct an entry concerning one of the claims inasmuch as it appears that this claim
had been assigned to the bank absolutely, and not merely for the purposes of collection, as the
bookkeeper of the bank supposed, the result being that instead of crediting Aldecoa and Co. with the
full face value of this claim, the bookkeeper had merely credited from time to time the amounts
collected from this debtor. We, therefore, find no error prejudicial to the rights of this defendant.
Doa Isabel Palt makes the following assignment of errors:
1. That the court erred in failing to hold that her obligation as surety had been extinguished in
accordance with the provisions of article 1851 of the Civil Code.
2. That the court erred in refusing to order for the benefit of this appellant that the property of
Aldecoa and Co. should be exhausted before the plaintiff firm should be entitled to have
recourse to the property of this defendant and appellant for the satisfaction of its judgment.
This appellant does not contend that she is not personally liable in solidum with Aldecoa and Co. for
the liability of the latter firm to the plaintiff in the event that the appeal taken by Aldecoa and Co.
should unsuccessful. We have just held that the judgment appealed from by Aldecoa and Co. should
be affirmed. But Doa Isabel Palet does not contend that her liability as a partner for the obligations
of Aldecoa and Co., although solidary, is subsidiary, and that she is entitled to insist that the property
of Aldecoa and Co. be first applied in its entirety to the satisfaction of the firm's obligations before the
bank shall proceed against her in the execution of its judgment.
The trial court directed that the mortgaged properties, including the properties mortgaged in the
event that Aldecoa and Co. should fail to pay into court the amount of the judgment within the time
designated for that purpose. the court recognized the subsidiary character of the personal liability of
Doa Isabel Palet as a member of the firm of Aldecoa and Co. and decreed that as to any deficiency
which might result after the sale of the mortgaged properties, execution should not issue against the
properties of Doa Isabel Palet until all the property of Aldecoa and Co. shall have been exhausted.
The properties mortgaged by Doa Isabel Palet were so mortgaged not merely as security for the
performance of her own solidary subsidiary obligation as a partner bound for all the debts of Aldecoa
and Co., but for the purpose of securing the direct obligation of the firm itself to the bank. We are,
therefore, of the opinion that the trial court committed no error upon this point.
It is urged on behalf of Doa Isabel Palet that the mortgages executed by her upon her individual
property have been canceled. The ground for this contention is that Aldecoa and Co. undertook by
the contract of February 23, 1906, to discharge its liability to the plaintiff bank at the rate of not less
than P50,000 per annum, and that therefore it was the duty of the bank to sue Aldecoa and Co. as
soon as that firm failed to pay at maturity any one of the partial payments which it had promised to
make, and to apply the proceeds, from the sale of the property of Aldecoa and Co. to the satisfaction
of this indebtedness, and that the fact that the bank failed to do so is equivalent to an extension of
the term of the principal debtor, and that the effect of this extension has been to extinguish the
obligation of this defendant as a surety of Aldecoa and Co. It is also contended that the bank
expressly extended the term within which Aldecoa and Co. was to satisfy its obligation by allowing
Aldecoa and Co. to furnish additional security. Doa Isabel Palet alleges that all these acts were
done without her knowledge or consent.
The extension of the term which, in accordance with the provisions of article 1851 of the Civil Code
produces the extinction of the liability of the surety must of necessity be based on some new
agreement between the creditor and principal debtor, by virtue of which the creditor deprives himself
of his right to immediately bring an action for the enforcement of his claim. The mere failure to bring
an action upon a credit, as soon as the same or any part of its matures, does not constitute an
extension of the term of the obligation.
Doa Isabel Palet is a personal debtor jointly and severally with Aldecoa and Co. for the whole
indebtedness of the latter firm to the bank, and not a mere surety of the performance of the
obligations of Aldecoa and Co. without any solidary liability. It is true that certain additional deeds of
mortgage and pledge were executed by Aldecoa and Co. in favor of the bank as additional security
after Aldecoa and Co. had failed to meet its obligation to pay the first installment due under the
agreement of February 23, 1906, but there is no stipulation whatever in any of these documents or
deeds which can in any way be interpreted in the sense of constituting an extension which would
bind the bank to waiter for the expiration of any new term before suing upon its claim against
Aldecoa and Co. We find nothing in the record showing either directly or indirectly that the bank at
any time has granted any extension in favor of Aldecoa and Co. for the performance of its
obligations. The liquidator of Aldecoa and Co. authorized the bank to grant certain extensions to
some of the provincial debtors of Aldecoa and Co. whose debts were to be paid to the bank under
the authority conferred upon the bank by Aldecoa and Co. There is a marked difference between the
extension of time within which Aldecoa and Co.'s debtors might pay their respective debts, and the
extension of time for the payment of Aldecoa and Co.'s own obligations to the bank. If the bank was
had brought suit on its credit against Aldecoa and Co., for the amount then due, on the day following
the extension of the time of Aldecoa and Co.'s debtors for the payments of their debts, it is evident
that the fact of such extension having been granted could not served in any sense as a defense in
favor of Aldecoa and Co. against the bank's action, although this extension would have been
available to Aldecoa and Co.'s debtors if suit had been brought to enforce their liabilities to Aldecoa
and Co. We must, therefore, conclude that the judgment appealed from, in so far as it relates to
Doa Isabel Palet, must likewise be affirmed.
The intervener, William Urquhart, assigns these errors:
1. The court erred in holding that the proof fails to show a case for intervention within the
meaning of section 121 of the Code of Civil Procedure.
2. The court erred in failing to give preference to the credit of the liquidator Urquhart for his
salary.
The trial court found, as we have said, that Urquhart had failed to show that he had any legal interest
in the matter in litigation between the plaintiffs and the defendants, or in the success of any of the
parties, or any interest against both. The proof upon this branch of the case consists of the following
agreed statement of facts:
Mr. Urquhart is a creditor of Aldecoa and Co. in the sum of P21,000 due him for money
loaned by him to Aldecoa and Co. before they went into liquidation.
Aldecoa and Co., in liquidation, owe Mr. Urquhart the liquidator P14,000 as salary.
Section 121 of the Code of civil Procedure provides that:
A person may, at any period of a trial, upon motion, be permitted by the court to intervene in
an action or proceeding, if he has legal interest in the matter in litigation, or in the success of
either of the parties, or an interest against both.
The intervener is seeking to have himself declared a preferred creditor over the bank. According to
the above- quoted agreed statement of facts, he is a mere creditor of Aldecoa and Co. for the sum of
P21,000, loaned that firm before it went into liquidation. This amount is not evidenced by a public
document, or any document for that matter, nor secured by pledge or mortgage, while the amount
due the bank appears in a public instrument and is also secured by pledges and mortgages on the
property of Aldecoa and Co., out of which the intervener seeks to have his indebtedness satisfied. It
is, therefore, clear that the intervener is not entitled to the relief sought, in so far as the P21,000 is
concerned.
The bank insists that, as the intervener had been in the employ of Aldecoa and Co. for several years
prior to the time that the latter went into liquidation, it cannot be determined what part of the P14,000
is for salary as such employee and what part is for salary as liquidator. We find no trouble in
reaching the conclusion that all of the P14,000 represents Urquhart's salary as liquidator of the firm
of Aldecoa and Co. The agreed statement of facts clearly supports this view. It is there stated that
Aldecoa and Co. in liquidation owed the liquidator P14,000 as salary. The agreement does not say,
nor can it be even inferred from the same, that Aldecoa and Co. owed Urquhart P14,000, or any
other sum for salary as an employee of that firm before it went into liquidation. Under these facts, is
the intervener a preferred creditor over the bank for this amount?
In support of his contention that he should be declared a preferred creditor over the bank for the
P14,000, the appellant cites the decision of the supreme court of Spain of March 16, 1897, and
quotes the following from the syllabus of that case:
That the expense of maintenance of property is bound to affect such persons as have an
interest therein, whether they be the owners or creditors of the property; therefore payment
for this object has preference over any other debt, since such other debts are recoverable to
the extent that the property is preserved and maintained.
There can be no question about the correctness of this ruling of the supreme court of Spain to the
effect that the fees of a receiver, appointed by the court to preserve property in litigation, must be
paid in preference to the claims of creditors. But this is not at all the case under consideration, for
the reason that Urquhart was elected liquidator by the members of the firm of Aldecoa and Co.
Neither do we believe that the contention of the appellant can be sustained under article 1922 of the
Civil Code, which provides that, with regard to specified personal property of the debtor, the
following are preferred:
1. Credits for the construction, repair, preservation, or for the amount of the sale of personal
property which may be in the possession of the debtor to the extent of the value of the same.
The only personal property of Aldecoa and Co. is 16 shares of the stock of the Banco-Espaol-
Filipino; 450 shares of the stock of the Compaia Maritima; 330 shares of the stock of the Pasay
Estate Co., Ltd; and certain claims against debtors of Aldecoa and Co., mentioned in Exhibit G.
The shares of stock in the Banco Espaol-Filipino and the Compaia Maritima were pledged to the
bank before Aldecoa and Co. went into liquidation, so Urquhart had nothing to do with the
preservation of these. The stock of the Pasay Estate co., Ltd., was pledged to the bank on August
30, 1907, on the same day that it came into the possession of Aldecoa and Co. and by the terms of
the pledge the bank was authorized to collect all dividends on the stock and apply the proceeds to
the satisfaction of its claim against Aldecoa and Co. The credits set forth in Exhibit G were assigned
to the bank on January 30, 1907, so, it will be seen, that the Pasay Estate shares were in the
possession of Aldecoa and Co., or its liquidator, only one day. Urquhart had been liquidator twenty-
eight days when the credits, mentioned in Exhibit G, were assigned to the bank. If it could be held
that these two items bring him within the above quoted provisions of article 1922, he could not be
declared a preferred creditor over the bank for the P14,000 salary for the reason that, according to
his own showing, he had been paid for his services as liquidator up to January, 1910. It is the salary
since that date which is now in question. The only property of Aldecoa and Co. which the liquidator
had anything to do with after 1910 was the real estate mortgages on real property cannot be
regarded as personal property, and it is only of personal property that article 1922 speaks.
The judgment appealed from, in so far as it relates to Urquhart, being in accordance with the law and
the merits of the case, is hereby affirmed.
The appellants, Joaquin and Zoilo Ibaez de Aldecoa, make the following assignments of error:
1. The court erred in not sustaining the plea of lis pendens with respect to the validity of
mortgages claimed by the plaintiff, which plea was set up as a special defense by the
defendants Joaquin and Zoilo Ibaez de Aldecoa, and in taking jurisdiction of the case and in
deciding therein a matter already submitted for adjudication and not yet finally disposed of.
2. The court erred in hot sustaining the plea of res adjudicata set up as a special defense by
these defendants with respect to the contention of plaintiff that these defendants are
industrial and general partners of the firm of Aldecoa and Co.
3. The court erred in holding that the defendants Joaquin and Zoilo Ibaez de Aldecoa were
general partners (socios colectivos) of the firm of Aldecoa and Co., and is rendering
judgment against them subsidiarily for the payment of the amount claimed in the complaint.
The basis of the first alleged error is the pendency of an action instituted by the appellants, Joaquin
and Zoilo, in 1908, to have the mortgages which the bank seeks to foreclose in the present action
annulled in so far as their liability thereon is concerned. That action was pending in this Supreme
Court on appeal when the present action was instituted (1911), tried, and decided in the court below.
The principle upon which plea of another action pending is sustained is that the latter action is
deemed unnecessary and vexatious. (Williams vs. Gaston, 148 Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1
R. C. L., sec. 1.) A statement of the rule to which the litigant to its benefits, and which has often met
with approval, is found in Watson vs. Jones (13 Wall., 679, 715; 20 L. ed., 666):
But when the pendency of such a suit is set up to defeat another, the case must be the
same. There must be the same parties, or at least such as represent the same interest, there
must be the same rights asserted, and the same relief prayed for. This relief must be
founded on the same facts, and the title or essential basis of the relief sought must be the
same. The identity in these particulars should be such that if the pending case has already
been disposed of, it could be pleaded in bar as a former adjudication of the same matter
between the same parties.
It will be noted that the cases must be identical in a number of ways. It will be conceded that in so far
as the plea is concerned, the parties are the same in the case at bar as they were in the action to
have the mortgages annulled. Their position is simple reversed, the defendants there being the
plaintiffs here, and vice versa. This fact does not affect the application of the rule. The inquiry must
therefore proceed to the other requisites demanded by the rule. Are the same rights asserted? Is the
same relief prayed for?
The test of identity in these respects is thus stated in 1 Cyc., 28:
A plea of the pendency of a prior action is not available unless the prior action is of such a
character that, had a judgment been rendered therein on the merits, such a judgment would
be conclusive between the parties and could be pleaded in bar of the second action.
This test has been approved, citing the quotation, in Williams vs. Gaston (148 Ala., 214; 42 Sou.,
552); Van Vleck vs. Anderson (136 Iowa, 366; 113 N. W., 853); Wetzstein vs. Mining Co. (28 Mont.,
451; 72 P., 865). It seems to us that unless the pending action, which the appellants refer to, can be
shown to approach the action at bar to this extent, the plea ought to fail.
The former suit is one to annul the mortgages. The present suit is one for the foreclosure of the
mortgages. It may be conceded that if the final judgment in the former action is that the mortgages
be annulled, such an adjudication will deny the right of the bank to foreclose the mortgages. But will
a decree holding them valid prevent the bank from foreclosing them. Most certainly not. In such an
event, the judgment would not be a bar to the prosecution of the present action. The rule is not
predicated upon such a contingency. It is applicable, between the same parties, only when the
judgment to be rendered in the action first instituted will be such that, regardless of which party is
successful, it will amount to res adjudicata against the second action. It has often been held that a
pending action upon an insurance policy to recover its value is not a bar to the commencement of an
action to have the policy reformed. The effect is quite different after final judgment has been
rendered in an action upon the policy. Such a judgment may be pleaded in bar to an action seeking
to reform the policy. The case are collected in the note toNational Fire Insurance Co. vs. Hughes (12
L. R. A., [N. S.], 907). So, it was held in the famous case of Sharon vs. Hill (26 Fed., 337), that the
action brought by Miss hill for the purpose of establishing the genuineness of a writing purporting to
be a declaration of marriage and thereby establishing the relation of husband and wife between the
parties could not be pleaded in abatement of Senator Sharon's action seeking to have the writing
declared false and forged. The court said:
This suit and the action of Sharon vs. Sharon are not brought on the same claim or demand.
The subject matter and the relief sought are not identical. This suit is brought to cancel and
annul an alleged false and forged writing, and enjoin the use of it by the defendant to the
prejudice and injury of the plaintiff, while the other is brought to establish the validity of said
writing as a declaration of marriage, as well as the marriage itself, and also to procure a
dissolution thereof, and for a division of the common property, and for alimony.
Incidentally, it was held in this case that a judgment of the trial court declaring the writing genuine
was not res adjudicata after an appeal had been taken from the judgment of the Supreme Court. So,
in the case ta bar, the fact that the trial court in the former action holds the mortgages invalid as to
one of the herein appellants is not final by reason of the appeal entered by the bank from that
judgment.
Cases are also numerous in which an action for separation has been held not to be a bar to an
action for divorce or vice versa. (Cook vs. Cook, [N. C.], 40 L. R. S., [N. S.], 83, and cases collected
in the note.) In Cook vs. Cook it was held that a pending action for absolute divorce was not a bar to
the commencement of an action for separation. The above authorities are so analogous in principle
to the case at bar that we deem the conclusion irresistible, that the pending action to annul the
liability of the two appellant children on the mortgages cannot operates as a plea in abatement in the
case in hand which seeks to foreclose these mortgages. The subject matter and the relief asked for
are entirely different. The facts do not conform to the rule and it is therefore not applicable.
With reference to the second alleged error, it appears that a certified copy of the judgment entered in
the former case, wherein it was declared that these two appellants, together with their sister Cecilia,
were creditors and partners of Aldecoa and Co., was offered in evidence and marked Exhibit 5. This
evidence was objected to by the plaintiff on the ground that it was res inter alios acta and not
competent evidence against the plaintiff or binding upon it in any way because it was not a party to
that action. This objection was sustained and the proffered evidence excluded. If the evidence had
been admitted, what would be its legal effect? That was an action inpersonam and the bank was not
a party. The judgment is, therefore, binding only upon the parties to the suit and their successors in
interest (sec. 306, Code of Civil Procedure, No. 2).
The question raised by the third assignment of errors will be dealt with in a separate opinion wherein
the appeal of Cecilia Ibaez de Aldecoa will be disposed of.
The appellants whose appeals are herein determined will pay their respective portions of the cost.
So ordered.
Arellano, C. J., Torres and Araullo, JJ., concur.
Moreland, J.. concurs in the result.
Johnson, J., dissents.


TRENT, J .:
In Hongkong and Shanghai Banking Corporation vs. Aldecoa and Co. et al., R. G. No. 8437, just
decided, we said that the correctness of the judgment declaring that the defendants, Joaquin, Zoilo,
and Cecilia Ibaez de Aldecoa, are subsidiarily liable to the bank as industrial partners of Aldecoa
and Co. for the debts of the latter, would be determined in a separate opinion.
The facts are these: Joaquin, Zoilo, and Cecilia Ibaez de Aldecoa were born in the Philippine
Islands, being the legitimate children of Zoilo Ibaez de Aldecoa and Isabel Palet. Both parent were
native of Spain, but domiciled in Manila, where the father died in 1895. At the time of his death the
father was a member and managing director of an ordinary general mercantile partnership known as
Adecoa and Co. In December, 1896, Isabel Palet, for herself and as the parent of her above-named
three children, exercising the patria potestad, entered into a new contract with various persons
whereby the property and good will, together with the liabilities of the firm of which her husband was
a partner, were taken over. The new firm was also an ordinary general mercantile partnership and
likewise denominated Aldecoa and Co. Although having the same name, the new firm was entirely
distinct from the old one and was, in fact, a new enterprise. The widow entered into the new
partnership as a capitalistic partner and caused her three children to appear in the articles of
partnership as industrial partners. At the time of the execution of this new contract Joaquin was
twelve years of age, Zoilo eleven, and Cecilia nine.
Clauses 9 and 12 of the new contract of partnership read:
9. The industrial partners shall bear in proportion to the shares the losses which may result
to the partnership from bad business, but only from the reserve fund which shall be
established, as set forth in the 12th clause, and if the loss suffered shall exhaust said fund
the balance shall fall exclusively upon the partners furnishing the capital.
12. The industrial partner shall likewise contribute 50 per cent of his net profits to the
formation of said reserve fund, but may freely dispose of the other 50 per cent.
The question is presented, Could the mother of the three children legally bind them as industrial
partners of the firm of Aldecoa and Co. under the above facts? If so, are they liable jointly and
severally with all their property, both real and personal, for the debts of the firm? That all industrial
partners of an ordinary general mercantile partnership are liable with all their property, both personal
and real, for all the debts of the firm owing to third parties precisely as a capitalistic partner has long
since been definitely settled in this jurisdiction, notwithstanding provisions to the contrary in the
articles of agreement. (Compaia Maritima vs. Muoz, 9 Phil. Re., 326.)
There are various provisions of law, in force in 1896, which must be considered in determining
whether or not the mother had the power to make her children industrial partners of the new firm
Aldecoa and Co.
Article 5 of the Code of Commerce reads:
Persons under twenty-one years of age and incapacitated persons may continue, through
their guardians, the commerce which their parents or persons from whom the right is derived
may have been engaged in. If the guardians do not have legal capacity to trade, or have
some incompatibility, they shall be under the obligation to appoint one or more factors who
possess the legal qualifications, and we shall take their places in the trade.
As the firm of which it is claimed the children are industrial partners was not a continuation of the
firm of which their deceased father was a member, but was a new partnership operating under its
own articles of agreement, it is clear that article 5, supra, does not sustain the mother's power to
bind her children as industrial partners of the new firm.
Article 4 of the Code of Commerce reads:
The persons having the following conditions shall have legal capacity to customarily engage
in commerce:
1. Those who have reached the age of twenty-one years.
2. Those who are not subject to the authority of a father or mother or to a marital authority.
3. Those who have the free disposition of their property.
The appellant children had not a single one of these qualifications in 1896 when the mother
attempted to enter them as industrial partners of the firm of Aldecoa and Co.
It is claimed that the power of the mother to bind her children as industrial partners is within her
parental authority as defined by the Civil Code. Articles 159 to 166 which compose chapter 3 of the
Civil Code, entitled "Effect of parental authority with regard to the property of the children," defined
the extent of the parental authority over the property of minor children. Article 159 provides that the
father, or, in his absence, the mother, is the legal administrator of the property of this children who
are under their authority. Article 160 gives to such parent the administration and usufruct of property
acquired by the child by its work or industry or for any good consideration. We take it that all the
property possessed by the children at the time the contract of partnership was entered into in 1896
had been acquired by them either by their work or industry or for a good consideration. The children
were at that time under the authority of their mother.
Article 164 reads:
The father, or the mother in a proper case, cannot alienate the real property of the child, the
usufruct or administration of which belongs to them, nor encumber the same, except for
sufficient reasons of utility or necessity, and after authorization from the judge of the
domicile, upon hearing by the department of public prosecution, excepting the provisions
which, with regard to the effects of transfers, the mortgage law establishes.
The mother did not secure judicial approval to enter into the contract of partnership on behalf of her
children. Does member ship in an ordinary general mercantile partnership alienate or encumber the
real property of an industrial partner? Clearly a partner alienates what he contributes to the firm as
capital by transferring its ownership to the firm. But this, in the case of an industrial partner, is
nothing. An industrial partner does not alienate any portion of his property by becoming a member of
such a firm. Therefore, the mother did not violate this prohibition of article 164 in attempting to make
her children industrial partners. But the article in question also prohibited her from encumbering their
real property. This undoubtedly prohibits formal encumbrances such as mortgages, voluntary
easements, usufructuary rights, and others which create specific liens upon specific real property. it
has been held to prohibit the creation of real rights, and especially registrable leases in favor of third
persons. (Res., Aug. 30, 1893.) The same word is used in article 317 of the Civil Code in placing
restrictions upon the capacity of a child emancipated by the concession of the parent to deal with his
own property. In commenting on this latter article, Manresa asks the question, "To what
encumbrances does the code in speaking of emancipated children?" and answers it as follows:
The prohibition against encumbering real property is so explicit . . . that we consider it
unnecessary to enumerate what are the incumbrances to which the law refers. All that
signifies a limitation upon property, such as the creation, modification, or extinction of the
right of usufruct, use, habituation, emphyteusis, mortgages, annuities, easements, pensions
affecting real property, bonds, etc., is, in an express consent of the persons who are
mentioned in the said article 317. (Vol. 2, p. 689.)
In commenting upon the same article, Sanchez Roan says practically the same thing. (Vol. 5, p.
1179.) Neither of these commentators refers to the right of an emancipated child to enter into a
contract of partnership without the parent's consent. The question, in so far as we have been able to
ascertain, does not appear to have ever been discussed, either by the courts or the commentators. It
is significant, however, that a contract of surety is placed by both the above mentioned
commentators among the prohibited contracts. The encumbrance placed upon the real property of a
surety is precisely the same as the encumbrance placed upon the real property of an industrial
partner. That is, prior to judgment on the principal obligation or judgment against the partnership, the
property is not specifically liable, and the creditor has n preferred lien thereon or right thereto by
reason of the bond or partnership contract, as the case may be. After judgment, the property of the
surety or of the industrial partner, both real and personal, is subsidiarily subject to execution. The
evident purpose of both article 164, prohibiting the parent from encumbering the real property of his
child without judicial approval, and of article 317, placing the same prohibition upon the emancipated
child in the absence of the parent's approval, is the same. It is desired that the child's real property
shall be frittered away by hasty and ill-advised contracts entered into by the one having the
administration thereof. Both articles would fail of their purpose if the parent or the child, as the case
might be, could do indirectly what could not be done directly. In other words, there would be little
purpose in prohibiting a formal encumbrance by means of a mortgage, for instance, when a
subsidiary liability by means of a bond or membership in a partnership could as effectually deprive
the child of its real property. This proposition rests upon the theory that the mother could have freely
disposed of the child's personal property in 1896 and that the only recourse open to them would
have been an action against their mother for the value of such property. If this theory be true, the
result would not be changed for the reason that children were either industrial partners or they were
not. If they were, they are liable to the extent of both their real and personal property for the debts of
the firm. If they were not, they are in no way liable. There can be only two kinds or classes of
partners in a firm of this kind, capitalistic and industrial. Both are personally liable to third persons for
the debts of such a firm. To say that the children are industrial partners, but liable only to the extent
of their personal property, would be to place them in a different class of partners. As the mother did
not secure judicial approval, the contract wherein she attempted to make her children industrial
partners, with all the consequences flowing therefrom, was, therefore, defective and that act of itself
in no way made the children liable for the debts of the new firm.
The question remains, Did any of the children validly ratify the contract after acquiring capacity to do
so? Cecilia was never emancipated and there is no evidence indicating that she has ever ratified the
contract by word or deed. She is, therefore, completely exonerated from liability for the debts of
Aldecoa and Co.
The other two children, Joaquin and Zoilo, were emancipated by their mother after they had reached
the age of eighteen and prior to seeking annullment of the contract of partnership had participated by
vote and otherwise in the management of the firm, as is evidenced by Exhibits W, Y, and Z. These
various acts sufficiently show a ratification of the partnership contract and would have the effect of
making the two children industrial partners if they had been of age at that time. Ratification is in the
nature of the contract. It is the adoption of, and assent to be bound by, the act of another. (Words
and Phrases, vol. 7, p. 5930.) From the effect of emancipation it cannot be doubted that the two
children had capacity, with their mother's consent, to enter into a contract of partnership, and, by so
doing, make themselves industrial partners, thereby encumbering their property. Conceding that the
children under these circumstances could enter into such a contract with their mother, her express
consent to the ratification of the contract by the two children does not appear of record. The result
flowing from the ratification being the encumbrance of their property, their mother's express consent
was necessary.
For the foregoing reasons the judgment appealed from, in so far as it holds the three children liable
as industrial partners, is reversed, without costs in so far as this branch of the case is concerned. So
ordered.
Arellano, C. J., Torres and Araullo, JJ., concur.
Moreland, J., concurs in the result.
Johnson, J., dissents.



Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 18520 September 26, 1922
INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, appellee,
vs.
ILDEFONSO RAMIREZ, creditor and appellant.
WILLIAM EDMONDS, assignee.
Lim & Lim for appellant.
Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity & Surety Co.
ROMUALDEZ, J .:
The question at issue in this appeal is, which of the two mortgages here in question must be given
preference? Is it the one in favor of the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez.
The first was declared by the trial court to be entitled to preference.
In the lower court there were three mortgagees each of whom claimed preference. They were the
two above mentioned and Concepcion Ayala. The latter's claim was rejected by the trial court, and
from that ruling she did not appeal.
There is no question as to the priority in time of the mortgage in favor of the Fidelity & Surety Co.
which was executed on March 10, 1919, and registered in due time in the registry of property, that in
favor of the appellant being dated September 22, 1919, and registered also in the registry.
The appellant claims preference on these grounds: (a) That the first mortgage above-mentioned is
not valid because the property which is the subject-matter thereof is not capable of being mortgaged,
and the description of said property is not sufficient; and (b) that the amount due the appellant is a
purchase price, citing article 1922 of the Civil Code in support thereof, and that his mortgage is but a
modification of the security given by the debtor on February 15, 1919, that is, prior to the mortgage
executed in favor of the Fidelity & Surety Co.
As to the first ground, the thing that was mortgaged to this corporation is described in the document
as follows:
. . . his half interest in the drug business known as Antigua Botica Ramirez (owned by Srta.
Dolores del Rosario and the mortgagor herein referred to as the partnership), located at
Calle Real Nos. 123 and 125, District of Intramuros, Manila, Philippine Islands.
With regard to the nature of the property thus mortgaged, which is one-half interest in the business
above described, such interest is a personal property capable of appropriation and not included in
the enumeration of real properties in article 335 of the Civil Code, and may be the subject of
mortgage. All personal property may be mortgaged. (Sec. 2, Act No. 1508.)
The description contained in the document is sufficient. The law (sec. 7, Act No. 1508) requires only
a description of the following nature:
The description of the mortgaged property shall be such as to enable the parties to the
mortgage, or any other person, after reasonable inquiry and investigation, to identify the
same.
Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the Civil Code invoked
by the appellant are not applicable. Neither he, as debtor, nor the debtor himself, is in possession of
the property mortgaged, which is, and since the registration of the mortgage has been, legally in
possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.)
In no way can the mortgage executed in favor of the appellant on September 22, 1919, be given
effect as of February 15, 1919, the date of the sale of the drug store in question. On the 15th of
February of that year, there was a stipulation about a persons security, but not a mortgage upon any
property, and much less upon the property in question.
Moreover, the appellant cannot deny the preferential character of the mortgage in favor of the
Fidelity & Surety Co. because in the very document executed in his favor it was stated that his
mortgage was a second mortgage, subordinate to the one made in favor of the Fidelity & Surety Co.
The judgment appealed from is affirmed with costs against the appellant. So ordered.
Araullo, C.J., Street, Malcolm, Avancea, Villamor, Ostrand and Johns, JJ., concur.







G.R. No. 16513, U.S. v. Tambunting,
41 Phil. 364
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
DECISION
January 18, 1921
G.R. No. 16513
THE UNITED STATES, plaintiff-appellee,
vs.
MANUEL TAMBUNTING, defendant-appellant.
Manuel Garcia Goyena for appellant. Acting Attorney-General Feria for appellee.
STREET, J .:
This appeal was instituted for the purpose of reversing a judgment of the Court of
First Instance of the city of Manila, finding the accused, Manuel Tambunting, guilty
of stealing a quantity of gas belonging to the Manila Gas Corporation, and sentencing
him to undergo imprisonment for two months and one day, of arresto mayor, with the
accessories prescribed by law; to indemnify the said corporation in the sum of P2,
with subsidiary imprisonment in case of insolvency; and to pay the costs.
The evidence submitted in behalf of the prosecution shows that in January of the year
1918, the accused and his wife became occupants of the upper floor of the house
situated at No. 443, Calle Evangelista, in the city of Manila. In this house the Manila
Gas Corporation had previously installed apparatus for the delivery of gas on both the
upper and lower floors, consisting of the necessary piping and a gas meter, which last
mentioned apparatus was installed below. When the occupants at whose request this
installation had been made vacated the premises, the gas company disconnected the
gas pipe and removed the meter, thus cutting off the supply of gas from said premises.
Upon June 2, 1919, one of the inspectors of the gas company visited the house in
question and found that gas was being used, without the knowledge and consent of the
gas company, for cooking in the quarters occupied by the defendant and his wife: to
effect which a short piece of iron pipe had been inserted in the gap where the gas
meter had formerly been placed, and piece of rubber tubing had been used to connect
the gas pipe of rubber tubing had been used to connect the gas pipe in kitchen with the
gas stove, or plate, used for cooking.
At the time this discovery was made, the accused, Manuel Tambunting, was not at
home, but he presently arrived and admitted to the agent to the gas company that he
had made the connection with the rubber tubing between the gas pipe and the stove,
though he denied making the connection below. He also admitted that he knew he was
using gas without the knowledge of the company and that he had been so using it for
probably two or three months.
The clandestine use of gas by the accused in the manner stated is thus established in
our opinion beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only
remains to consider, first, whether gas can be the subject to larceny and, secondly,
whether the quantity of gas appropriated in the two months, during which the accused
admitted having used the same, has been established with sufficient certainty to
enable the court to fix an appropriate penalty.
Some legal minds, perhaps more academic than practical, have entertained doubt upon
the question whether gas can be the subject of larceny; but no judicial decision has
been called to our attention wherein any respectable court has refused to treat it as
such. In U.S. vs. Genato (15 Phil., 170, 175), this court, speaking through Mr. Justice
Torres, said ". . . the right of the ownership of electric current is secured by article 517
and 518 of the Penal Code; the application of these articles in cases of subtraction of
gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed
by the rule laid down in the decisions of the supreme court of Spain of January 20,
1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and
531 of the Penal Code of that country, articles identical with articles 517 and 518 of
the code in force in these Islands." These expressions were used in a case which
involved the subtraction and appropriation of electrical energy and the court held, in
accordance with the analogy of the case involving the theft of gas, that electrical
energy could also be the subject of theft. The same conclusion was reached in U.S. vs.
Carlos (21 Phil., 553), which was also a case of prosecution for stealing electricity.
The precise point whether the taking of gas may constitute larceny has never before,
so far as the present writer is aware, been the subject of adjudication in this court, but
the decisions of Spanish, English, and American courts all answer the question in the
affirmative. (See U.S. vs. Carlos, 21 Phil., 553, 560.)
In this connection it will suffice to quote the following from the topic "Larceny," at
page 34, Vol. 17, of Ruling Case Law:
There is nothing in the nature of gas used for illuminating purposes which renders it
incapable of being feloniously taken and carried away. It is a valuable article of
merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity and of being transported from place to place.
Likewise water which is confined in pipes and electricity which is conveyed by wires
are subjects of larceny."
As to the amount and value of the gas appropriated by the accused in the period
during which he admits having used it, the proof is not entirely satisfactory.
Nevertheless we think the trial court was justified in fixing the value of the gas at P2
per month, which is the minimum charge for gas made by the gas company, however
small the amount consumed. That is to say, no person desiring to use gas at all for
domestic purposes can purchase the commodity at a lower rate per month than P2.
There was evidence before the court showing that the general average of the monthly
bills paid by consumers throughout the city for the use of gas in a kitchen equipped
like that used by the accused is from P18 to 20, while the average minimum is about
P8 per month. We think that the facts above stated are competent evidence; and the
conclusion is inevitable that the accused is at least liable to the extent of the minimum
charge of P2 per month. The market value of the property at the time and place of the
theft is of court the proper value to be proven (17 R.C.L., p. 66); and when it is found
that the least amount that a consumer can take costs P2 per months, this affords proof
that the amount which the accused took was certainly worth that much. Absolute
certainty as to the full amount taken is of course impossible, because no meter wad
used; but absolute certainty upon this point is not necessary, when it is certain that the
minimum that could have been taken was worth a determinable amount.
It appears that before the present prosecution was instituted, the accused had been
unsuccessfully prosecuted for an infraction of section 504 of the Revised Ordinances
of the city of Manila, under a complaint charging that the accused, not being a
registered installer of gas equipment had placed a gas installation in the house at No.
443, Calle Evangelista. Upon this it is argued for the accused that, having been
acquitted of that charge, he is not now subject to prosecution for the offense of theft,
having been acquitted of the former charge. The contention is evidently not well-
founded, since the two offenses are of totally distinct nature. Furthermore, a
prosecution for violation of a city ordinance is not ordinarily a bar to a subsequent
prosecution for the same offense under the general law of the land. (U.S. vs. Garcia
Gavieres, 10 Phil., 694.)
The conclusion is that the accused is properly subject to punishment, under No. 5 of
article 518 of the Penal Code, for the gas taken in the course of two months a the rate
of P2 per month. There being no aggravating or attenuating circumstance to be
estimated, it results that the proper penalty is two months and one day of arresto
mayor, as fixed by the trial court. The judgment will therefore be affirmed, with costs
against the appellant, it being understood that the amount of the indemnity which the
accused shall pay to the gas company is P4, instead of P2, with subsidiary
imprisonment for one day in case of insolvency. So ordered.
Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.







Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15260 August 18, 1920
FAUSTO RUBISO, plaintiff-appellant,
vs.
FLORENTINO RIVERA, ET AL., defendants-appellees.
Canillas and Cardenas for appellant.
M. P. Leuterio for appellees.
VILLAMOR, J .:
About April, 1915, Fausto Rubiso and Florentino Rivera had a litigation concerning the ownership of
the pilot boatValentina. Rivera acquired it on January 4, 1915, from its original owner the Chinaman
Sy Qui, but did not inscribe his title in the mercantile registry according to article 573 of the Code of
Commerce in relation to article 2 of Act No. 1900. Subsequently Rubiso bought said pilot boat in a
sale at public auction for the sum of P55.45 on January 23, 1915, and inscribed his title in the
mercantile registry on March 4th of the same year. The suit was decided by the Court of First
Instance of Manila in favor of the plaintiff Rubiso on September 6, 1915. On the 11th day of said
month the court issued a writ of execution, upon the petition of the plaintiff, in order to proceed, as
said plaintiff alleged, to the salvage of the pilot boat which at that time was stranded in the sitio of
Tingloy, Batangas. The order of execution was stayed upon the filing of a bond for P1,800 by the
defendant Rivera who alleged in support of his objection, that the pilot boat was already salvaged
and had been taken to Maricaban, Batangas. The judgment having been brought to this court by
appeal it was affirmed in a judgment rendered on October 30, 1917 (R.G. N. 11407).
1
The cause
having been sent to the Court of First Instance for the execution of judgment the sheriff of Batangas
who undertook to enforce the writ of execution was able to deliver to the plaintiff Rubiso nothing but
the pilot boat itself in a seriously damaged condition and two useless sails.
Such are the facts which gave rise to the present action for the recovery of the damages in the sum
of P1,200 which the plaintiff and appellant Fausto Rubiso alleges he has suffered by the destruction
and loss of the pilot boat Valentina and its equipment which were caused, according to the
complaint, by the fault and negligence of the defendants Florentino Rivera and others.
The answer having been filed and the trial having taken place, the court rendered judgment in favor
of the defendants without any special pronouncement as to costs. From this judgment the plaintiff
appealed. The motion for new trial having been overruled, the appellant presented the
corresponding bill of exceptions assigning in his brief the following a errors: (a) The finding that there
was not sufficient evidence to establish the amount of the expenses sought to be recovered; (b) the
finding that the pilot boat Valentina had no legal value in August, 1915; (c) in rendering judgment
absolving the defendants in this case; and (d) in overruling the motion for new trial presented by the
plaintiff on the ground that the judgment is against the weight of the evidence.
In a series of uninterrupted decision before and after the promulgation of the Civil Code, the doctrine
has been established that all judgment for damages whether arising from a breach of contract or
resulting from some provision of law, must be based upon satisfactory evidence of the real existence
of the damages alleged to have been suffered. (Sanz vs. Lavin and Bros., 6 Phil., 299.)
Has the existence of the damages sought to be recovered in this case been satisfactorily
established? The court below decided this question of fact adversely to the plaintiff and we are of the
opinion that this findings is sustained by the evidence. Plaintiff declares that in February, 1915, he
visited and examined the pilot boatValentina in the barrio of Tingloy and that on said day he found it
in good condition, and that he saw all of its tackle and rigging; but on cross-examination by the
attorney for the defendants he admitted that on said date he was unable to take possession of the
vessel because the person in charge of it would not permit him even to approach. Estanislao Jili who
accompanied Fausto Rubiso in order to see the pilot boat Valentina in February, 1915, affirms that
they did not go on board the vessel because the person in charge of it would not permit them to do
so. This same witness and Jose Soriano as a witness of the plaintiff state that at that time the boat
was not in a seaworthy condition, because its bottom was damaged and it had no equipments.
If what has been said is not yet sufficient to find that the pretense of the appellant as to his first
assignment of error is unsustainable, we still have the uncontradicted testimony of Juan Velino,
Irineo Martinez and Mariano Villas, witnesses for the defendants, who declared on the seriously
damaged condition of the pilot boat long before its acquisition by the appellant.
Juan Velino declared that in August, 1914, the boat was aground in Dayhagan, Mindoro; it was
somewhat repaired and about November of the same year it sailed from that place and suffered on
the way such damages and troubles that it had to be taken to Tingloy for new repair, some vessels'
tools and equipments having been borrowed from another boat because those of the Valentina had
been destroyed; and the storm destroyed the vessel so much that it could not be taken to the Island
of Maricaban except by means of rafts. To the same effect is the testimony of Irineo Martinez.
Mariano Villas testified that in December, 1914, the Valentina anchored in Tingloy alongside his
vessel and as he was interested in the purchase of this pilot boat, the sale of which was advertised
in Manila, he examined it and then saw that he would not buy it even for P400, because it was
completely destroyed. There can be no doubt as to the competency of this witness to testify on the
question of the price of the pilot boat Valentina because according to him he had ordered the
construction of boats of the same size and condition during that period. The lower court declares in
its judgment that this witness appears to it as sufficiently trustworthy, and we find no basis whatever
on the record to doubt the correctness of the finding of the trial judge who saw and observed him
while he was testifying.
We, therefore, are of the opinion that the finding of the court that there was not sufficient proof to
establish the amount of the defendants' claim is in accordance with the merits of the case.
As to the second error assigned by the appellant it should be noted that, as appears in the record
the pilot boatValentina was stranded in Tingloy since the month of November, 1914, that is, two
months before it had been acquired by the plaintiff at public auction and ten months before the
judgment declaring him to be the owner thereof, was rendered. The appellant, in his first complaint
of April 10, 1915, for the recovery of the pilot boatValentina, affirms that the boat was then in the
same worthless condition in which it was in 1914, and the evidence we have examined in this case
show that in fact in August or September, 1915, it was in the worse of conditions and was utterly
worthless. Without attempting to determine the durability of a boat made of wood stranded for a
period of ten months, as is the case with the boat in question, we are of the opinion, and so declare,
that according to the proofs adduced in this case, the court did not err in declaring in its judgment
that the pilot boatValentina did not have any legal value in August, 1915.
The defendant in his brief interposes the defense of res judicata based upon the judgment of this
court in the action between Fausto Rubiso et al. and Florentino Rivera who are the parties in the
present case.
In that case it was held:
With respect to the indemnification for damages claimed by the plaintiff, besides the fact [that
according to the proceedings taken subsequently to the date on which the judgment
appealed from was rendered, it appears that the pilot boat has already left in good condition
the place where it had been stranded and is at present found anchored in the port of
Maricaban,] the truth is that the record does not offer positive proof of the amount of the
damages caused, and on the other hand it cannot be declared that the defendant had acted
in bad faith for he acquired the vessel previous to its acquisition at public auction by the
plaintiff Rubiso who, for the reason already given, is the true and sole owner of said pilot
boat. (Decision of October 30, 1917, R. G. No. 11407 [Rubiso and Gelito vs. Rivera, 37 Phil.,
72].)
It having been declared in a previous action that the defendant Rivera did not act in bad faith and
that therefore he was not liable for damages, it would be necessary to show in the present case that
the destruction of the boat and the loss of its equipments took place after the final judgment was
rendered in that case and by reason of the fault and negligence of the defendants, which is not the
case here. What appears from the evidence presented by the defendant and uncontradicted by that
presented by the adverse parties, is that from September, 1915, to March 7, 1918, which was the
date of the execution of the judgment of this court affirming that of the lower court, the boat
continued aground in the Island of Maricaban awaiting the final judgment in the action with respect to
ownership and naturally exposed to the action of sea water and the inclemencies of the weather,
things which were beyond the control of the defendant Rivera.
It thus now appears that the damages claimed by the plaintiff are the same damages that he claimed
in the first action. To speak more accurately, the appellant first sued for the recovery of the vessel
and damages in the sum of P1,750. Judgment was rendered as to the first in his favor but against
him as to the second. And now he comes back again claiming damages.
The case now under consideration is analogous to that of Palanca Tanguinlay vs. Quiros (10 Phil.,
360). In that case the question was extensively discussed whether a previous judgment constitutes
an adjudication of the subject-matter of a new suit between the same parties to such extent that it
can not again be tried anew. It was held that according to articles 306 and 307 of the Code of Civil
Procedure, a judgment rendered in an action for the recovery damages for property lost is a bar to
any other action between the same parties for the recovery of the same property or its value. In the
course of the decision the court held:
The American books are full of similar cases, an instance being Hatch vs. Coddington (32
Minn., 92), in which it was held that a former action between the same parties to recover
damages for a wrongful conversion of personal property was a bar to a subsequent suit to
recover possession of the specific property itself, notwithstanding the difference of form and
that the relief sought and the subject-matter of the cause of action were regarded as the
same. Nor is it altogether clear that the law of Spain was different. Seor Manresa, in his
commentary on article 1252 of the Civil Code, cites a decision of the supreme court of 25th
of April, 1900 (vol. 8, p. 555), holding that in a real action a judgment in a former personal
suit between the same parties for indemnity for the use of the same property operated
as cosa juzgada.
From what has been said the judgment appealed from should be, and is hereby, affirmed, with costs
against the appellant. So ordered.
Mapa, C.J., Johnson, Carson, Araullo, Malcolm, Avancea and Moir, JJ., concur.


Footnotes
1
See Rubiso and Gelito vs. Rivera, 37 Phil., 72.


RUBISO V. RIVERA
37 PHIL 72


FACTS:
Rubiso filed a complaint against Rivera for the recovery of a pilot boat. He
alleged that he is the rightful owner of a pilot boat, which was stranded and recovered by
Rivera. The latter refused to return the said boat as he alleged too that he was the owner thereof. It
was known that the original
owners of the boat had secretly sold the pilot boat to Rivera on an earlier date than the sale in a
public auction to Rubiso. Nonetheless, material is the fact that the entry into the customs registry of
the sale of the boat was later than the recording of the sale to Rubiso.


HELD:
The requisite of registration in the registry, of the purchase of the vessel, is
necessary and indispensable in order that the purchasers rights may be
maintained against a third person. Such registration is required both by the Code of
Commerce and Act 1900. It is undeniable, ergo, that Rivera doesnt have a better right than Rubiso
over the pilot boat.

Ships and vessels, whether moved by steam or by sail, partake, to a certain extent of the
nature and conditions of real property, on account of their value and importance in world commerce;
and for this, the provisions of the Code of Commerce are nearly identical with Article 1473 of the CC.



Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.


LABRADOR, J .:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals
on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city
assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following stipulation
of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by
motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by
the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked
Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex
"C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex
"D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex
"E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked
Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for its
TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these
machineries which are placed therein, its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the TPU land transportation business it
operates;
6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes for which petitioner has
never engaged in, to date.1awphl. nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied
a motion for reconsideration, petitioner brought the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on the
sugar industry for which it has been established must necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they
are essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals
and are not and should not be considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments. Airline companies use forklifts,
jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus
retain their movable nature. On the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments, its business may be
carried on, as petitioner has carried on, without such equipments, before the war. The transportation
business could be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code of
the Phil.)
Aside from the element of essentiality the above-quoted provision also requires that the industry or
works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment
in question declared not subject to assessment as real estate for the purposes of the real estate tax.
Without costs.
So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.



Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120098 October 2, 2001
RUBY L. TSAI, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.
QUISUMBING, J .:
These consolidated cases assail the decision
1
of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision
2
of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265.
Also assailed is respondent court's resolution denying petitioners' motion for reconsideration.
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 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 therein as enumerated
in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel
Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx xxx xxx
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements
now existing or which may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications
continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:
Serial Numbers Size of Machines
xxx xxx xxx
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
xxx xxx xxx
C. Two (2) Circular Knitting Machines made in West Germany.
xxx xxx xxx
D. Four (4) Winding Machines.
xxx xxx xxx
SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx xxx xxx
II. Any and all buildings and improvements now existing or hereafter to exist on the above-
mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.
xxx xxx xxx
3

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
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 laches
10
and in assessing petitioner actual damages, attorney's fees
and expenses of litigation, for want of valid factual and legal basis.
11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally
leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the
pieces of machinery in question were personal properties have no factual and legal basis. Finally, it
asserts that the Court of Appeals erred in assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not part of the foreclosed real properties,
rendering the lease and the subsequent sale thereof to Tsai a nullity.
12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of
merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact,
unless the factual findings complained of are devoid of support by the evidence on record or the
assailed judgment is based on misapprehension of facts.
13
This rule is applied more stringently when
the findings of fact of the RTC is affirmed by the Court of Appeals.
14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted machineries" are not covered by, or included in, either of
the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the
said machineries were not included in the list of properties appended to the Notice of Sale, and
neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.
15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or
cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does
not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the
parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the contract of
Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case
at bar, both the trial and the appellate courts reached the same finding that the true intention of
PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent
portion of respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels; never as
real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants' posture. It should be noted that the printed form used
by appellant bank was mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately
following the printed caption of mortgage, of the phrase "real and chattel." So also, the
"machineries and equipment" in the printed form of the bank had to be inserted in the blank
space of the printed contract and connected with the word "building" by typewritten slash
marks. Now, then, if the machineries in question were contemplated to be included in the
real estate mortgage, there would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the machineries covered thereby.
It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the
land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely tochattels. 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 1986
31
until subject personal properties are
restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3)
P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.


Footnotes
1
Rollo, G.R. No. 120098, pp. 23-45.
2
Id. at 23-24.
3
Folder of Exhibits, pp. 5-12.
4
Rollo, G.R. No. 120098, pp. 23-24.
5
Id. at 45.
6
Rollo, G.R. No. 120098, pp. 23-25.
7
Rollo, G.R. No. 120098, pp. 9-10.
8
Rollo, G.R. No. 120098, p. 25.
9
Id., at 33.
10
Id., at 49.
11
Id., at 44.
12
Id., at 133.
13
Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291 SCRA 385, 391-
392 (1998).
14
Manlapaz. Court of Appeals, 147 SCRA 236, 239 (1987).
15
Rollo, G.R No. 120109, pp. 62-63.
16
Rollo, G.R. No. 120098, pp. 68-69.
17
Segura vs. Segura, 165 SCRA 368,375 (1988); Noel vs. Court of Appeals, G.R. No.
59550, 240 SCRA 78,88 (1995).
18
Mathay v. Court of Appeals, 295 SCRA 556, 575 (1998).
19
Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998).
20
Exhibit "U", Folder of Exhibits, p.64.
21
Exhibit "V", Id., at 66.
22
Noel vs. Court of Appeals, 240 SCRA 78,90 (1995).
23
Ace Hailers Corporation v. CA, et al., G.R No. 127934, August 23, 2000, p. 11.
24
Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114 (1997).
25
Rollo G.R. No. 120109, pp. 43-44.
26
"J" Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-584 (1998).
27
Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997).
28
Exhibit "X", Folder of Exhibits, p. 69.
29
Art. 2216. Civil Code. No proof of pecuniary loss is necessary in order that moral,
nominal, temperate liquidated or exemplary damages may be adjudicated. The assessment
of such damages, except liquidated ones, is left to the discretion of the court, according to
the circumstances of each case.
30
Vital-Gozon v. Court of Appeals, 292 SCRA 124, 147 (1998).
31
The time when PBCom leased the disputed properties to Tsai. CA Rollo, p. 34.




Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J .:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to
Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, having a
floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.
San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which was
registered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within which to
pay. Came June 30, defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension, defendant Pineda in a
document entitled "Promise", categorically stated that in the remote event he should fail to make
good the obligation on such date (July 30, 1960), the defendant would no longer ask for further
extension and there would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage contract. In spite of
said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on the
principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First
Cause of Action which states that the defendants unreasonably failed and refuse to pay their
obligation to the plaintiff the truth being the defendants are hard up these days and pleaded
to the plaintiff to grant them more time within which to pay their obligation and the plaintiff
refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to pay
their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated damages;
that the instrument had been registered in the Registry of Property and Motor Vehicles Office, both
of the province of Tarlac; that the only issue in the case is whether or not the residential house,
subject of the mortgage therein, can be considered a Chattel and the propriety of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon Reyes,
to pay jointly and severally and within ninety (90) days from the receipt of the copy of this
decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal sum and interests
are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the warning
that in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent provisions of
Act 3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to the
Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A", immediately
after the lapse of the ninety (90) days above-mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages appended to the complaint is
valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was made
the subject of the chattel mortgage, for the reason that it is erected on a land that belongs to
a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building; the
fact that the land belongs to another is immaterial, it is enough that the house adheres to the land;
that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner of the land, the only criterion
being the union or incorporation with the soil. In other words, it is claimed that "a building is an
immovable property, irrespective of whether or not said structure and the land on which it is adhered
to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since only
movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the mortgage in
question which is the basis of the present action, cannot give rise to an action for foreclosure,
because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838,
May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on
the ground that the house mortgaged was erected on the land which belonged to a third person, but
also and principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed materials of sawali and
wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415 and
416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that under
certain conditions, "a property may have a character different from that imputed to it in said articles.
It is undeniable that the parties to a contract may by agreement, treat as personal property that
whichby nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed materials may be the subject of a
chattel mortgage, in which case, it is considered as between the parties as personal property. ... The
matter depends on the circumstances and the intention of the parties". "Personal property may retain
its character as such where it is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18,
1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to
consider a house as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the principles of estoppel ..." (Evangelista
v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented land, was
held to be a personal property, not only because the deed of mortgage considered it as such, but
also because it did not form part of the land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now
well settled that an object placed on land by one who has only a temporary right to the same, such
as a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another person, it may be
mortgaged as a personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on statements by the
owner declaring his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The
doctrine, therefore, gathered from these cases is that although in some instances, a house of mixed
materials has been considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are not parties to the contract,
and specially in execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property, by the parties
to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of light construction materials: G.I.
sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached permanently to
the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the contract of mortgages
who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala, and Makalintal,
JJ., concur.
NAVARRO V. PINEDA
9 SCRA 631


FACTS:
Pineda and his mother executed real estate and chattel mortgages in favor of Navarro, to secure a
loan they got from the latter. The REM covered a parcel of land owned by the mother while the
chattel mortgage covered a
residential house. Due to the failure to pay the loan, they asked for
extensions to pay for the loan. On the second extension, Pineda executed a PROMISE wherein in
case of default in payment, he wouldnt ask for any additional extension and there would be no need
for any formal demand. In spite of this, they still failed to pay.
Navarro then filed for the foreclosure of the mortgages. The court decided in his favor.

HELD:
Where a house stands on a rented land belonging to another person, it may be the subject
matter of a chattel mortgage as personal property if so stipulated in the document of mortgage, and
in an action by the mortgagee for the foreclosure, the validity of the chattel mortgage cannot be
assailed
by one of the parties to the contract of mortgage.

Furthermore, although in some instances, a house of mixed materials has been considered as a
chattel between the parties and that the validity of
the contract between them, has been recognized, it has been a constant
criterion that with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered as immovable property.






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 of the
Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De 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 by private
respondent on his own building which was erected on the land belonging to the government is to all
intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be 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
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
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 under
the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City
is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid 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 respondents.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Footnotes
* Penned by Judge Domingo D. Panis.
PRUDENTIAL BANK V. PANIS
153 SCRA 390


FACTS:
Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed a
real estate mortgage over a residential building. The mortgage included also the right to occupy the
lot and the information about the sales patent applied for by the spouses for the lot to which the
building stood. After securing the first loan, the spouses secured another
from the same bank. To secure payment, another real estate mortgage was executed over
the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which was later
on mortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and sold in
public auction despite opposition from the spouses. The respondent court held that the REM was
null and void.


HELD:
A real estate mortgage can be constituted on the building erected on the land belonging to another.

The inclusion of building distinct and separate from the land in the Civil Code can only mean
that the building itself is an immovable property.

While it is true that a mortgage of land necessarily includes in the absence
of stipulation of the improvements thereon, buildings, still a building in itself may be mortgaged
by itself apart from the land on which it is built. Such a mortgage would still be considered as a REM
for the building would
still be considered as immovable property even if dealt with separately and apart from the land.

The original mortgage on the building and right to occupancy of the land
was executed before the issuance of the sales patent and before the
government was divested of title to the land. Under the foregoing, it is
evident that the mortgage executed by private respondent on his own
building was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus prohibits
pertinent provisions of the Public Land Act.



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 amendment to Deed of Absolute
Sale executed by the defendant Philippine National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant Philippine
National Bank situated in the Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real
property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in
the province where the property or any part thereof lies.
5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
of sale and emphasized that the case should proceed with or without respondent PNB as
respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had
been raised by the latter.
On September 1, 1980,.respondent Court denied reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined with the filing of respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as
the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave due course.
We affirm respondent Court's Order denying the setting for pre-trial.
The warehouse claimed to be owned by petitioner is an immovable or real property as provided in
article 415(l) of the Civil Code.
6
Buildings are always immovable under the Code.
7
A building treated
separately from the land on which it stood is immovable property and the mere fact that the parties to a
contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed
its character as immovable property.
8

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

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4)
10
, which was timely raised (Section 1, Rule 16)
11
.
Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as
the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone.
WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner
Antonio Punsalan, Jr. in the proper forum.
Costs against petitioner.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Footnotes
1 Exhibits "R" and "U", Original Records.
2 pp. 17-21, Rollo.
3 pp, 22-25, Ibid.
4 pp. 26 -28, Ibid.
5 p. 35, Ibid.
6 ART. 415. The following are immovable property. (1) Land, buildings, roads and
constructions of all kinds adhered to the soil;
x x x
7 3 Manresa 20.
8 Leung Yee vs. Strong Machinery Co., 37 Phil. 644 (1918).
9 Gavieres vs. Sanchez, et a]. 94 Phil. 760, (1954); Torres vs. J.M. Tuason & Co., 12
SCRA 174 (1964); De Jesus vs. Coloso, 1 SCRA 272 (1961)
10 Section 2. Venue in Courts of First Instance.Actions affecting title, to or for
recovery of possession or for partition or condemnation of, or foreclosure of
mortgage on, real property, shall be commenced and tried in the province where the
property or any part thereof Lies (Rule 4, Rules of Court).
11 Section 1. Grounds. Within the time for pleading a motion to dismiss the action
may be made on any of the following grounds:
x x x
c) That venue is improperly laid; (Rule 16)
Republic of the Philippines
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 "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it stood.
The indebtedness secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was registered in the chattel mortgage registry,
and the sale of the property to the machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company, but
this deed of sale, although executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been executed for the
purpose of curing any defects which might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery company went into possession of the
building at or about the time when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company,
the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon the
building, separate and apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of
the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured
judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or
about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the
land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company,
which was in possession, filed with the sheriff a sworn statement setting up its claim of title and
demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the
plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon
which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery
company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the
machinery company, on the ground that the company had its title to the building registered prior to
the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be transfer
to the person who may have the first taken possession thereof in good faith, if it should be
personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall belong to the person who first took possession of
it in good faith, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that the
annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be
given the legal effect of an inscription in the registry of real property. By its express terms, the
Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and
the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel
mortgages," that is to say, mortgages of personal property executed in the manner and form
prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was
installed by the "Compaia Agricola Filipina" was real property, and the mere fact that the parties
seem to have dealt with it separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the
ground that the agreed statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made
in good faith, and that the machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were sold to the machinery
company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"
in express terms, in relation to "possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the language of this section would
open wide the door to fraud and collusion. The public records cannot be converted into instruments
of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who
thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the
sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company
had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company
had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale
to the plaintiff was not made in good faith, we should not be understood as questioning, in any way,
the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." The
truth is that both the plaintiff and the defendant company appear to have had just and righteous
claims against their common debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from
the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly possible and
even probable that he thought at that time that he would be able to maintain his position in a contest
with the machinery company. There was no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.
He may have hoped, and doubtless he did hope, that the title of the machinery company would not
stand the test of an action in a court of law; and if later developments had confirmed his unfounded
hopes, no one could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when he
executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in
this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him
an innocent purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like situation.
Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is
that "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a
"freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is
that proof of such knowledge overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and judgment
entered in the court below should be affirmed with costs of this instance against the appellant. So
ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
Torres, Avancea and Fisher, JJ., took no part.










Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16218 November 29, 1962
ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA,
LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.
Ernesto Parol for defendants-appellees.
MAKALINTAL, J .:
This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the
complaint filed by appellants, upon motion of defendants-appellate on the ground that the action was
within the exclude (original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the same
province.
The complaint alleges in substance that appellants were the owners of the house, worth P200.00,
built on and owned by them and situated in the said municipality Lagangilang; that sometime in
January 1957 appealed forcibly demolished the house, claiming to be the owners thereof; that the
materials of the house, after it was dismantled, were placed in the custody of the barrio lieutenant of
the place; and that as a result of appellate's refusal to restore the house or to deliver the material
appellants the latter have suffered actual damages the amount of P200.00, plus moral and
consequential damages in the amount of P600.00. The relief prayed for is that "the plaintiffs be
declared the owners of the house in question and/or the materials that resulted in (sic) its
dismantling; (and) that the defendants be orders pay the sum of P200.00, plus P600.00 as damages,
the costs."
The issue posed by the parties in this appeal is whether the action involves title to real property, as
appellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A.
296, as amended), whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated
in the order appealed from, since there is no real property litigated, the house having ceased to
exist, and the amount of the demand does exceed P2,000.00 (Sec. 88, id.)
1

The dismissal of the complaint was proper. A house is classified as immovable property by reason of
its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true
regardless of the fact that the house may be situated on land belonging to a different owner. But
once the house is demolished, as in this case, it ceases to exist as such and hence its character as
an immovable likewise ceases. It should be noted that the complaint here is for recovery of
damages. This is the only positive relief prayed for by appellants. To be sure, they also asked that
they be declared owners of the dismantled house and/or of the materials. However, such declaration
in no wise constitutes the relief itself which if granted by final judgment could be enforceable by
execution, but is only incidental to the real cause of action to recover damages.
The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs
are adjudged.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes,
Dizon and Regala, JJ., concur.


Footnotes
1
This amount, cognizable by the Justice of the Peace Court, has been increased to P5,000
in R.A. 2613, enacted August 1, 1959.



BICERRA V. TENEZZA
6 SCRA 648


FACTS:
Bicerras were the owners of a house built on a lot owned by them and
situated in the municipality of Lagangilang. Tenezza forcibly demolished the house, asserting
that they are the rightful owners of the land. Failure
to restore the house and to deliver the materials by the defendants,
plaintiffs were forced to file an action against them for damages as well as praying that the court hold
them as the proper owners of the house. The court dismissed the case for lack of jurisdiction.


ISSUES:
Whether or not the house demolished is still considered an immovable property?


HELD:
A house is classified as immovable property by reason of its adherence to the soil on which it is
built. The classification holds true regardless of the fact that the house may be situated on land
belonging to another owner. But once the house is demolished, it ceases to exist as such and the
hence its character as immovable likewise ceases.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168557 February 16, 2007
FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628 February 16, 2007
NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.
D E C I S I O N
CALLEJO, SR., J .:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which
were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision
1
of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution
2
dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision
3
and
November 23, 2005 Resolution
4
of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed
on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW
diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement
5
(Agreement), was for a period of five years.
Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of the
Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to
or in relation to the performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its
employees and (ii) construction permit fees, environmental permit fees and other similar fees and
charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.
6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered
those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property assessment of
the Provincial Assessor.
In a letter
7
dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors
decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.
8
This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.
9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion
10
dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution
11
denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount ofP56,184,088.40, for the year 1994.
SO ORDERED.
12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency. The LBAA also pointed out that the owner of
the bargesFELS, a private corporationis the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not justify the
exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS.
Finally, the LBAA also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant
by Distraint
13
over the power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order
14
lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention
15
dated August 7, 1998 in the proceedings before
the CBAA. This was approved by the CBAA in an Order
16
dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that
the judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision
17
finding the power barges exempt from real
property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas
is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List
of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby
directed to act accordingly.
SO ORDERED.
18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.
19
As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution
20
on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.
SO ORDERED.
21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution
22
dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution
23
dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-
G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.
SO ORDERED.
24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as
G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition
was, however, denied in this Courts Resolution
25
of November 8, 2004, for NPCs failure to
sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a Resolution
26
dated January 19,
2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of
FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since
FELS had lost the right to question the assessment, the right of the Provincial Government to collect
the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February
5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution
27
dated
November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution
28
dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising
the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment
on the petitioners personal properties is imprescriptible.
29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.
30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution
31
dated March 8, 2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare
involved in the present controversy, the Court was prompted to dispense with the said pleadings,
with the end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995,
the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the
60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on
the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits
or documents submitted in support of the appeal.
32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file
a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination made
by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes subject to appeal before the LBAA.
33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,
34
where we ruled that under Section 226 of R.A. No 7160,
35
the last action of the local
assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals
before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices
of assessment, the owners chose to bring their requests for a review/readjustment before the city
assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then subsequently reduced
upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit
trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.
36

For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or
lawful possessor of real property of its revised assessed value, the former shall no longer have any
jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the
aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the
60-day period for making the appeal to the LBAA runs without interruption. This is what We held in
SP 67490 and reaffirm today in SP 67491.
37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect
the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the
period to appeal.
38
It also bears stressing that the taxpayers failure to question the assessment in
the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.
39

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out
of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory
and jurisdictional, and failure in this regard renders the decision final and executory.
40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the filing
of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was
not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As
to the issue of forum shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it
to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A
conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals
and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the
public tranquility and happiness.
41
As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court
of Appeals:
42

x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by
a court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights
of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.
x x x
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party should
not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter
and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and
the second actions, identity of parties, subject matter and causes of action. The application of the
doctrine of res judicata does not require absolute identity of parties but merely substantial identity of
parties. There is substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first case did not
implead the latter.
43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding
real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as
G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court was the decision of the appellate court in
CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is
binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when,
as a result of an adverse judgment in one forum, a party seeks another and possibly favorable
judgment in another forum other than by appeal or special civil action or certiorari. There is also
forum shopping when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable disposition.
44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after
the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying
to get a favorable decision from one of the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.
45
The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets
of the courts.
46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding particulars is such
that any judgment rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other.
47

Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax
examiners are presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.
48
Besides, factual findings of administrative bodies, which have acquired
expertise in their field, are generally binding and conclusive upon the Court; we will not assume to
interfere with the sensible exercise of the judgment of men especially trained in appraising property.
Where the judicial mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.
49
We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,
50
a power
company brought an action to review property tax assessment. On the citys motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.
51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation,
and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which have
been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into electricity.
52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:
x x x
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power
Barges to convert such Fuel into electricity in accordance with Part A of Article 7.
53

It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions.
54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.
55
The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.
56
Thus, applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption.
The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of
Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited
in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it.
57
The right of local government units to collect taxes due must always be
upheld to avoid severe tax erosion. This consideration is consistent with the State policy to
guarantee the autonomy of local governments
58
and the objective of the Local Government Code
that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the attainment of
national goals.
59

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

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice