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.

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.

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.

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.

G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J .:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo,
register of deeds of the City of Manila, to an original petition of the Standard Oil Company
of New York, seeking a peremptory mandamusto compel the respondent to record in the
proper register a document purporting to be a chattel mortgage executed in the City of
Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of
New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de
Vera, was the lessee of a parcel of land situated in the City of Manila and owner of the
house of strong materials built thereon, upon which date she executed a document in the
form of a chattel mortgage, purporting to convey to the petitioner by way of mortgage both
the leasehold interest in said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by
way of mortgage, the following described personal property, situated in the City
of Manila, and now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of
lease hereinabove referred to, and in and to the premises the subject of the said
lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased
premises.
After said document had been duly acknowledge and delivered, the petitioner caused the
same to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City
of Manila, for the purpose of having the same recorded in the book of record of chattel
mortgages. Upon examination of the instrument, the respondent was of the opinion that it
was not a chattel mortgage, for the reason that the interest therein mortgaged did not
appear to be personal property, within the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable; and it is his
duty to accept the proper fee and place the instrument on record. The duties of a register of
deeds in respect to the registration of chattel mortgage are of a purely ministerial character;
and no provision of law can be cited which confers upon him any judicial or quasi-judicial
power to determine the nature of any document of which registration is sought as a chattel
mortgage.
The original provisions touching this matter are contained in section 15 of the Chattel
Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have been
transferred to section 198 of the Administrative Code, where they are now found. There is
nothing in any of these provisions conferring upon the register of deeds any authority
whatever in respect to the "qualification," as the term is used in Spanish law, of chattel
mortgage. His duties in respect to such instruments are ministerial only. The efficacy of
the act of recording a chattel mortgage consists in the fact that it operates as constructive
notice of the existence of the contract, and the legal effects of the contract must be
discovered in the instrument itself in relation with the fact of notice. Registration adds
nothing to the instrument, considered as a source of title, and affects nobody's rights except
as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating
between real property and personal property for purpose of the application of the Chattel
Mortgage Law. Those articles state rules which, considered as a general doctrine, are law
in this jurisdiction; but it must not be forgotten that under given conditions property may
have character different from that imputed to it in said articles. It is undeniable that the
parties to a contract may by agreement treat as personal property that which by nature
would be real property; and it is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general principle might be considered personal
property. Other situations are constantly arising, and from time to time are presented to
this court, in which the proper classification of one thing or another as real or personal
property may be said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of
this Court, but acting at that time in the capacity of Judge of the fourth branch of the Court
of First Instance of the Ninth Judicial District, in the City of Manila; and little of value can
be here added to the observations contained in said ruling. We accordingly quote
therefrom as follows:
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor
continued:
Based principally upon the provisions of section quoted the Attorney-General of
the Philippine Islands, in an opinion dated August 11, 1909, held that a register of
deeds has no authority to pass upon the capacity of the parties to a chattel
mortgage which is presented to him for record. A fortiori a register of deeds can
have no authority to pass upon the character of the property sought to be
encumbered by a chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be held ineffective as
against third parties, but this is a question to be determined by the courts of justice
and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court
held that where the interest conveyed is of the nature of real, property, the placing of the
document on record in the chattel mortgage register is a futile act; but that decision is not
decisive of the question now before us, which has reference to the function of the register
of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass upon the point
whether the interests conveyed in the instrument now in question are real or personal; and
we declare it to be the duty of the register of deeds to accept the estimate placed upon the
document by the petitioner and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from the date of the
notification hereof, the respondent shall interpose a sufficient answer to the petition, the
writ of mandamus will be issued, as prayed, but without costs. So ordered.
Araullo, C.J., Malcolm, Avancea, Ostrand, Johns, and Romualdez, JJ., concur.

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.



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.



G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

AQUINO, J .:
In this special civil action of certiorari, Meralco Securities Industrial Corporation assails
the decision of the Central Board of Assessment Appeals (composed of the Secretary of
Finance as chairman and the Secretaries of Justice and Local Government and Community
Development as members) dated May 6, 1976, holding that Meralco Securities' oil pipeline
is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the Petroleum Act
of 1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila a
pipeline system consisting of cylindrical steel pipes joined together and buried not less
than one meter below the surface along the shoulder of the public highway. The portion
passing through Laguna is about thirty kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with
a maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil measure
sixteen inches by forty-eight feet with a maximum capacity of 100,000 barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so as to
preclude breakage or damage thereto and prevent leakage or seepage of the oil. The valves
are welded to the pipes so as to make the pipeline system one single piece of property from
end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be
cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating them out
of the ground where they are buried. In points where the pipeline traversed rivers or
creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are permanently
attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved from one
place to another as shown in the permit issued by the Secretary of Public Works and
Communications which permit provides that the government reserves the right to require
the removal or transfer of the pipes by and at the concessionaire's expense should they be
affected by any road repair or improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of
Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-6537,
San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Bian and 15806-
15810, Calamba, containing the assessed values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals of
Laguna composed of the register of deeds as chairman and the provincial auditor as
member. That board in its decision of June 18, 1975 upheld the assessments (pp. 47-49,
Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, composed of Acting Secretary of Finance Pedro M. Almanzor
as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local
Government and Community Development Jose Roo as members, ruled that the pipeline
is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27, 1976.
Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which took effect
on June 1, 1974, provides that the Board's decision becomes final and executory after the
lapse of fifteen days from the date of receipt of a copy of the decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of Assessment
Appeals (70 O.G. 10085), a party may ask for the reconsideration of the Board's decision
within fifteen days after receipt. On September 7, 1976 (the eleventh day), Meralco
Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos abstained)
denied the motion in a resolution dated December 2, 1976, a copy of which was received
by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977, Meralco Securities
filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the Board
acted within its jurisdiction and did not gravely abuse its discretion and Meralco Securities
was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to
review the decision of the Central Board of Assessment Appeals and because no judicial
review of the Board's decision is provided for in the Real Property Tax Code, Meralco
Securities' recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a superior
court to an inferior court, board or officer exercising judicial or quasi-judicial functions
whereby the record of a particular case is ordered to be elevated for review and correction
in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power there is an
underlying power in the courts to scrutinize the acts of such agencies on questions of law
and jurisdiction even though no right of review is given by the statute (73 C.J.S. 506, note
56).
"The purpose of judicial review is to keep the administrative agency within its jurisdiction
and protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See. 165).
The review is a part of the system of checks and balances which is a limitation on the
separation of powers and which forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising quasi-
judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary or
capricious (Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA
139, 158; San Miguel Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64
SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities' pipeline is
subject to realty tax, reasoned out that the pipes are machinery or improvements, as
contemplated in the Assessment Law and the Real Property Tax Code; that they do not fall
within the category of property exempt from realty tax under those laws; that articles 415
and 416 of the Civil Code, defining real and personal property, have no application to this
case; that even under article 415, the steel pipes can be regarded as realty because they are
constructions adhered to the soil and things attached to the land in a fixed manner and that
Meralco Securities is not exempt from realty tax under the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is not real
property within the meaning of article 415. This contention is not sustainable under the
provisions of the Assessment Law, the Real Property Tax Code and the Civil 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. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in the
earth, carrying with it the right to the use of the soil in which it is placed (Note 21[10],54
C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all kinds
adhered to the soil and 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.
The pipeline system in question is indubitably a construction adhering to the soil (Exh. B,
p. 39, Rollo). It is attached to the land in such a way that it cannot be separated therefrom
without dismantling the steel pipes which were welded to form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil,
it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are not the
steel pipes but the pipeline system as a whole. Meralco Securities has apparently two
pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax purposes
(Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of
Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed.
2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it from the
payment of realty taxes. The alleged exemption is predicated on the following provisions
of that law which exempt Meralco Securities from local taxes and make it liable for taxes
of general application:
ART. 102. Work obligations, taxes, royalties not to be changed. Work
obligations, special taxes and royalties which are fixed by the provisions
of this Act or by the concession for any of the kinds of concessions to
which this Act relates, are considered as inherent on such concessions
after they are granted, and shall not be increased or decreased during the
life of the concession to which they apply; nor shall any other special
taxes or levies be applied to such concessions, nor shall 0concessionaires
under this Act be subject to any provincial, municipal or other local
taxes or levies;nor shall any sales tax be charged on any petroleum
produced from the concession or portion thereof, manufactured by the
concessionaire and used in the working of his concession. All such
concessionaires, however, shall be subject to such taxes as are of
general application in addition to taxes and other levies specifically
provided in this Act.
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general
application. This argument is untenable because the realty tax has always been imposed by
the lawmaking body and later by the President of the Philippines in the exercise of his
lawmaking powers, as shown in section 342 et seq. of the Revised Administrative Code,
Act No. 3995, Commonwealth Act No. 470 and Presidential Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city, municipality
and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax
is imposed by the municipal or city council by virtue of the Local Tax Code, Presidential
Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining
the holding of the provincial assessor and the local board of assessment appeals that
Meralco Securities' pipeline system in Laguna is subject to realty tax.
WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Justice Abad Santos, Concepcion, Jr., JJ., took no part.

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

Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 .....................................................................

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

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

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

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.

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.

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.

VALDES v. CENTRAL ALTAGRACIA, 225 U.S. 58 (1912)
225 U.S. 58
RAMON VALDES, Appt.,
v.
CENTRAL ALTAGRACIA, Incorporated, and Nevers & Callaghan.
No. 193.
CENTRAL ALTAGRACIA, Incorporated, Appt.,
v.
RAMON VALDES, George B. Ackerson and
No. 193 and 196. the Firm Name of Nevers & Callaghan.
No. 196.
No. 193 and 196.
Submitted March 6, 1912.
Decided May 27, 1912.
[225 U.S. 58, 59] Messrs. F. Kingsbury Curtis, Hugo Kohlmann, and Martin Travieso, Jr., for
Valdes.
Messrs. N. B. K. Pettingill and Frederick L. Cornwell for Central Altagracia.
Mr. Francis H. Dexter for Nevers & Callaghan.
Mr. Chief Justice White delivered the opinion of the court:
These cases were consolidated below, tried together, a like statement of facts was made applicable to
both, and the court disposed of them in one opinion. We shall do likewise. Stating only things
deemed to be essential as shown by the pleadings and documents annexed to them and the finding of
facts made below, the case is this: Joaquin Sanchez owned in Porto Rico a tract of land of about 22
acres (cuerdas) on which was a sugar house containing a mill for crushing cane and an evaporating
apparatus for manufacturing the juice of the cane into sugar. All of the machinery was antiquated and
of a limited capacity. The establishment was known as the Central Altagracia, and Sanchez, while
not a cane grower, carried on the business of a central,-that is, of acquiring cane grown by others and
manufacturing it into sugar at his factory. On the 18th day of January, 1905, Sanchez leased his land
and plant to Salvador Castello for a period of ten years. The lease gave to the tenant (Castello), the
right to install in the plant 'such machinery as he may deem convenient, which said machinery, at the
end[225 U.S. 58, 60] of the years mentioned (the term of the lease) shall become the exclusive
property' of the lessor, Sanchez. The tenant was given one year in which to begin the work of
repairing and improving the plant, and it was provided that 'upon the expiration of this term, if the
necessary improvements shall not have been begun by him (Castello), then this contract shall be null
and void, and no cause of action shall accrue to any of the contracting parties by reason thereof.'
Further agreeing on the subject of the improved machinery which was to be placed in the plant, the
contract provided: 'Upon the expiration of the term agreed on under this contract, any improvement
or machinery installed in the said central shall remain for the benefit of Don Joaquin Sanchez, and
Don Salvador Castello shall have no right to claim anything for the improvements made.' The rental
was thus provided for: 'After each crop such profits as may be produced by the Central Altagracia
shall be distributed and twenty-five per cent (25%) thereof shall be immediately paid to Don Joaquin
Sanchez as equivalent for the rental of said central and of the twenty-two (22) cuerdas of land
surrounding the same. The remaining seventy-five per cent ( 75%) shall belong to Don Salvador
Castello, who may interest therein whomsoever he may wish, either for the whole or part thereof.' It
was stipulated, however, that in fixing the profits no charge should be made for repairs of the
existing machinery or for new machinery put in, as the entire cost of these matters was to be borne
by the lessee, Castello. The lease provided, moreover, that in case of the death of Sanchez the
obligations of the contract should be binding on his heirs, and in the case of the death of Castello, his
brother, Gerardo Castello, should take his place 'and be a contracting party if he so desired.
Otherwise the plantation, in such a condition at it may be at his death, shall immediately pass into the
possession of its owner, Don Joaquin Sanchez.' In June, [225 U.S. 58, 61] 1905, by a supplementary
contract, the lease was extended without change of its terms and conditions for an additional period
of ten years, making the total term twenty years. Although executed under private signature, this
lease, conformably to the laws of Porto Rico, was produced before, a notary and made authentic, and
in such form was duly registered on the public records, as required by the Porte Rican laws.
On the 1st day of July, 1905, Salvador and Gerardo Castello transferred all their rights acquired
under the lease, as above stated, to Frederick L. Cornwell for 'the corporation to be organized under
the name of Central Altagracia, of which he is the trustee.' This transfer bound the corporation to all
the obligations in favor of the original lessor, Sanchez, provided that the corporation should issue to
Castello a certain number of paid-up shares of its capital stock and a further number of shares as the
output of sugar from the plant increased as the result of its enlarged capacity consequent upon the
improvement of the machinery by the corporation. The lease further provided for the employment of
Castello as superintendent at a salary, for a substitution of Gerardo Castello, in the event of the
absence or death of his brother Salvador, and, for this reason, it is to be assumed Gerardo made
himself a party to the transfer of the lease. This transfer of the lease to the corporation was never put
upon the public records. The corporation was organized under the laws of the state of Maine, and
under the transfer took charge of the plant. The season for grinding cane and the manufacture of
sugar in Porto Rico usually commences 'about the month of December of each year, and terminates
in the months of May, June, or July of the year following, according to the amount of cane to be
ground.' Central factories in Porto Rico usually 'make contracts with the people (colonos) growing
cane, so that growers of cane will deliver the same to be ground, and such contracts [225 U.S. 58,
62] are usually made and entered into in the months of June, July, and August.' In other words, on
the termination of one grinding season, in the months of June or July, it is usual in the ensuing
August to make new contracts for the cane to be delivered in the following grinding season, which,
as we have said, commences in December. The contract transferring the lease to the Central
Altagracia, Incorporated, was made in July, 1905, at the end, therefore, of the grinding season of that
year. To what extent the corporation contracted for cane to be delivered to it for grinding during the
season of 1905-06, which began in December, 1905, does not appear. It is inferable, however, that
the corporation began the work of installing new machinery to give the plant a larger capacity within
the year stipulated in the lease from Sanchez to Castello. We say this because it is certain that in the
fall of 1906 (October) the corporation borrowed from the commercial firm of Nevers & Callaghan in
New York city, the sum of twenty-five thousand dollars ($25,000) to enable the corporation to pay
for new and enlarged machinery which it had ordered, and which was placed in the factory in time to
be used in the grinding season of 1906-07, which began in December, 1906. While such grinding
season was progressing, on April 11, 1907, the corporation, through its president, under the authority
of its board of directors, sold to one Ramon Valdes all its rights acquired under the lease transferred
by Castello. This transfer expressly included all the machinery previously placed by the corporation
in the sugar house, as well as machinery which might be thereafter installed during the term of
redemption hereafter to be referred to, and which, it was declared, conformably to the original lease,
'shall be a part of said factory for the manufacture of sugar.' The consideration for the sale was stated
in the contract to be 'thirty-five thousand dollars ($ 35,000) received by the corporation, twenty-five
thousand four hundred dol- [225 U.S. 58, 63] lars ($25,400) whereof had been paid prior to this act
(of sale), and to its entire satisfaction, and the balance of nine thousand six hundred dollars ($9,600)
shall be turned over to the vendor corporation by Senor Valdes immediately upon being required to
do so by the former.' This sale was made subject to a right to redeem the property within a year on
paying Valdes the entire amount of his debt. There was a stipulation that Valdes assumed all the
obligations of the lease transferred by Castello to the company.
The undoubted purpose was not to interfere with the operation of the plant by the corporation, since
there was a provision in the contract binding Valdes to lease the property to the corporation pending
the period of redemption. This sale was passed in Porto Rico before a notary public, but was never
put upon the public records. At the time it was made there was a very considerable sum unpaid on
the debt of Nevers & Callaghan. This fact, joined with the period when the sale with the right to
redeem was made, that is, the approaching end of the sugar-making season of 1906 and 1907,
coupled with other facts to which we shall hereafter make reference, all tend to establish that at that
time, either because insufficient capital had been put into the venture, or because the business had
been carried on at a loss, the affairs of the corporation were embarrassed, if it was not insolvent. A
short while before the commencement of the grinding season of 1907-1908, in October, 1907, in the
city of New York, the corporation, through its president, declaring himself to be authorized by the
board of directors, sanctioned by a vote of the stockholders, apparently made an absolute sale of all
the rights of the corporation under the lease, and all its title to the machinery which the corporation
had put into the plant. This sale was declared to be for a consideration of sixty-five thousand
($65,000) dollars which the company acknowledged to have received from Valdes, first, by the
payment of the thirty- [225 U.S. 58, 64] five ($35,000) dollars cash, as stated in the previous sale
made subject to the equity of redemption, and thirty thousand ($30,000) dollars which 'the company
has received afterwards in cash from Valdes.' There was a provision in the contract to the effect that
as the purpose of the previous contract of sale, which had been made subject to the equity of
redemption, was accomplished by the new sale, the previous sale was declared to be no longer
operative.
A few days afterwards, likewise in the city of New York (on November 2, 1907), Valdes sold to the
company all the rights which he had acquired from it by the previous sale, the price being sixty-five
thousand ($65,000) dollars, payable in instalments falling due in the years 1908, 1909, 1910, and
1911, respectively. This transfer was put in the form of a conditional sale which reserved the title in
Valdes until the payment of the deferred price, and upon the stipulation that any default by the
corporation entitled Valdes ipso facto to take possession of the property. Neither this act of sale from
Valdes to the corporation nor the one made by the corporation to Valdes were ever put upon the
public records.
Prior to the making of the sales just stated, or about that time, the corporation defaulted in the
payment of a note held by Nevers & Callaghan for a portion of the money which they had loaned the
corporation under the circumstances which we have previously stated, and that firm sued in the court
below the corporation to recover the debt.
The grinding season of 1907-1908 commenced in December, 1907, and was obviously not a
successful one, for the debt of Nevers & Callaghan was not paid, and in May, 1908, a judgment was
recovered by them against the corporation for about $17,000, with interest, and in the same month
execution was issued and levied upon the machinery in the sugar house. Previous to, or not long
subsequent to, the time Nevers & Cal- [225 U.S. 58, 65] laghan commenced their suit, the precise
date not being stated in the record, the heirs of Sanchez, the original lessor, brought a suit in the court
below against the corporation. The nature of the suit and the relief sought is not disclosed, but it is
inferable from the facts stated that the suit either sought to recover the property on the ground that
there was no power in Castello to transfer the lease, or upon the ground of default in the conditions
as to payment of profits as rental which the lease stipulated. It would seem also at about the same
time either one or both of the Castellos brought a suit against the company, presumably upon the
theory that there had been a default in the obligations assumed in their favor by the corporation at the
time it took the transfer of the lease. In the meanwhile also, probably as the result of the want of
success of the corporation, discord arose between its stockholders, and a suit growing out of that
state of things was brought in the lower court.
This litigation was commenced in June, 1908, by the bringing by Valdes of an action at law in the
court below to recover the plant on the ground that, by the default in paying one of the instalments of
the price stated in the conditional sale, the right to the relief prayed had arisen. On the same day
Valdes commenced a suit in equity against the corporation in aid of the suit at law. The bill alleged
the default of the corporation, the bringing of the suit at law, the confusion in the affairs of the
corporation, the judgment and levy of the execution by Nevers and Callaghan, and the threat to sell
the machinery under such execution; the refusal of the corporation to deliver possession of the
property, the waste and destruction of the value of the property which would result if there was no
one representing the corporation having power to contract for cane to be delivered during the next
grinding season, etc., etc. The prayer was for the appointment of a receiver to take charge of the
property, with au- [225 U.S. 58, 66] thority to carry on the same, make the necessary contracts for
cane for the future, it being prayed that the receiver should be empowered to issue receiver's
certificates to the extent necessary to the accomplishment of the purposes which the bill had in view.
On the same day a bill was filed on behalf of the corporation against Valdes. This bill atacked the
sale made to Valdes and by him to the corporation. It was charged that the price stated to have been
paid by Valdes as a consideration of the conditional sale was fictitious, and that the only sum he had
advanced at that time was the $35,000 which it was the purpose to secure by means of the sale with
the equity of redemption. That at that time Valdes exacted as a consideration for his loan that he be
made a director and vice president of the company. The bill then stated that, it having become
evident in the following autumn that the corporation would require more money to increase its plant,
to pay off the sum due Nevers & Callaghan, and for the operation of the plant, Valdes agreed to
advance the money if he were made president of the company at a stipulated salary, given a bonus in
the stock of the company, and upon the condition that the papers be executed embodying the socalled
sale of the company to Valdes and the practically simultaneous conditional sale by Valdes to the
company. The bill then alleged that Valdes, having thus become the president of the company, failed
to carry out his agreement to advance the money, failed to provide for the debt of Nevers &
Callaghan, mismanaged the affairs of the property in many alleged particulars, and did various acts
to the prejudice of the company and to his own wrongful enrichment, which it is unnecessary to
recapitulate. The necessity of contracting for cane during the contract season, in order that the plant
might continue during the next operating season to be a going concern, and the waste and loss which
would otherwise [225 U.S. 58, 67] be occasioned, were fully alleged. Valdes and the firm of Nevers
& Callaghan and the individual members of that firm were made defendants. The prayer was for the
appointment of a receiver and with power to carry on the business of the central, with power, for that
purpose, to contract for cane for the coming season, with authority to issue receiver's certificates for
the purpose of borrowing the money which might be required.
The judge, being about to leave Porto Rico for a brief period, declined to appoint a permanent
receiver, but named a temporary one to keep the property together until a further hearing could be
had, interference in the meanwhile with the custodian being enjoined. Shortly thereafter creditors of
the corporation intervened and joined in the prayer made by both of the complainants for the
appointment of a receiver. In July the two suits were by order consolidated, and after a hearing a
receiver was appointed and authority given him to continue the property as a going concern and to
borrow a limited amount of money on receiver's certificates, if necessary, to secure contracts for cane
for the coming crop season. The execution of the Nevers & Callaghan judgment was stayed pending
an appeal which had been taken to this court. The only difference which seems to have arisen
concerning the appointment of the receiver grew out of the fact that a prayer of the Central
Altagracia, asking the court to appoint as receiver Mr. Pettingill, a member of the bar and one of the
counsel of the corporation, and who was also its treasurer, was denied. Despite this, the fair inference
is that the ultimate action of the court was not objected to by anyone, because of the hope that the
result of a successful operation of the plant during the coming crop season might ameliorate the
affairs of the corporation, and thus prevent further controversies. We say this, not only because of the
conduct of the parties prior to the order appointing the receiver, but because, [225 U.S. 58, 68] after
that order, the solicitors of the Altagracia Company and Valdes put a stipulation of record that until
the following October no steps whatever should be taken in the proceedings, and not even then
unless the attorneys for both parties should be in Porto Rico.
The hope of a beneficial result from the operation of the plant by the receiver proved delusive. As a
result of such operation there was a considerable loss represented by outstanding receiver's
certificates, with no means of paying except out of the property. Obviously, for this reason, the
record contains a statement that on July 12, 1909, a conference was had between the court and all
parties concerned, to determine what steps should be taken to meet the situation. It appears that at
that conference the counsel representing the heirs of Sanchez and of Nevers & Callaghan stated their
opposition to a continuance of the receivership.
On July 17, 1909, the court placed a memorandum on the files, indicating its purpose to bring the
litigation, receivership, etc., to an end, and to cause 'immediate issue to be raised on the pleadings for
that purpose.' This memorandum was entitled in all the pending causes concerning the property. It
directed that demurrers which had been filed in the consolidated cause of Valdes against the
corporation and of the corporation against Valdes be overruled, and the defendants were required to
answer on or before Monday, July 26, in order that upon the following day, the 27th of July, the
issues raised might be tried before the court without the intervention of a master. It was provided in
the order, however, that nothing in this direction should prevent the parties from filing such
additional pleadings as it is deemed necessary for the protection of their rights by way of cross bill or
amendment, etc. To make the order efficacious it was declared that nothing would be done in the suit
of the heirs of Sanchez against Castello and the Altagracia, [225 U.S. 58, 69] which was pending on
appeal, and that a demurrer filed to the suit of Castello against the central would be overruled; that
the demurrer in the suit at law of Valdes would remain in abeyance to await the final action of the
court on the trial of all the issues in the equity causes, and that a stay of the Nevers & Callaghan
execution would be also disposed of when the equity cases came to be decided. This order was
followed by a memorandum opinion filed on July the 21st, stating very fully the position of the
respective suits, the necessity for action in order to preserve the property from waste, and reiterating
the view that whatever might be the rights of the Central Altagracia or of Valdes under the lease,
those rights would be subordinate to the ultimate determination of the suit brought by the heirs of
Sanchez. To the action of the court, as above stated, no objection appears to have been made. On the
contrary, between the time of that order and the perior fixed for the commencement of a hearing, the
Central Altagracia, Valdes, and Nevers & Callaghan modified their pleadings to the extent deemed
by them necessary to present for trial the issues upon which they relied. In the case of the Central
Altagracia this was done by filing, on July 22, an amended bill of complaint in its suit against
Valdes, and on July 26 its answer in the suit of Valdes. The acceptance by Valdes of the terms of the
order was shown by an answer filed to the bill in the suit of the company and the cross bill in the
same cause; and Nevers & Callaghan manifested their acquiescence by obtaining leave to make
themselves parties, and asserting their rights by cross bill and answers, which it is unnecessary to
detail.
When the consolidated cause was called for trial on the morning of July 27, the counsel for the
Central Altagracia moved a continuance in order to take the testimony of certain witnesses in
Philadelphia and New York for the purpose of proving some of the allegations of the complaint [225
U.S. 58, 70] as to the wrongdoing of Valdes in administering the affairs of the corporation. This
application was supported by the affidavit of Mr. Pettingill, the counsel of the corporation. The
record states that the request for continuance was opposed by all the other counsel, and the
application was denied. In doing so the court stated: 'That the matter has been pending for more than
a year, and that counsel had full notice of the court's intention to press the matters to issue and trial,
and that it is not disposed to delay matters at this time, when the admissions of the pleadings are so
broad that the proofs available here in Porto Rico are probably sufficient, and the amended complaint
already on file in suit No. 565,-Valdes v. Central Altagracia,-and the answer thereto and the answer
recently filed in suit No. 564,-Central Altagracia v. Valdes [5 Porto Rico Fed. Rep. 155],-as well as
the cross bill also recently filed in suit No. 465, make so many allegations and admissions as that the
real issue between the parties can be plainly seen, and that, in the opinion of the court, enough proof
is available here in Porto Rico.' The court thereupon declared that the Altagracia Company might by
the next day, if it so desired, file exceptions to the answer in suit 565 and an answer to the cross
complaint; indeed, that the corporation might, if it wished, treat them as filed, and proceed with the
cause and file them at any convenient time thereafter. Thereupon the record states: 'Said counsel for
the Central Altagracia stated that he desired time to file exceptions to the answer and an answer to
the cross bill in suit No. 565; and the court granted until the morning of July 28 for such purpose.
Later in the day of July 27, one of the counsel for Valdes having requested the court to postpone the
hearing of the cause until the morning of the 29th, because of an unexpected professional
engagement elsewhere, the request was communicated by the court to the other counsel in the cause.'
Thereupon the record again recites: 'Messrs. Pettingill & [225 U.S. 58, 71] Cornwell, attorneys for
the Central Altagracia, stated that they withdrew any statement they have hitherto made in the cause
in that regard, and desired to be understood that they would not except to the answer in suit No. 565,
or plead or answer to the cross bill therein, save and except within the time which they contended the
rules governing this court of equity gave them, and would stand upon what they considered their
rights in that regard.' When the court assembled the next day, on the morning of the 28th, a statement
concerning the occurrence of the previous day as to the continuance, etc., just reviewed, was read by
the court in the presence of all the counsel, whereupon the record recites: 'N. B. Pettingill, counsel
for the Central Altagracia, in response to the same, stated that he objected to proceeding to take any
evidence in any of the causes at that time, or the testimony of any witnesses, because the same was
not at issue or in condition for the taking of evidence, and objected to the taking of such evidence
until the issues of said causes are made up in accordance with the rules of practice applicable to
equity causes.' The record further recites: 'Which objection was overruled by the court on the ground
that the action called for thereby is not necessary. That the bill was amended within three days; an
answer was immediately filed to it and a cross bill also filed, the said cross bill making only the same
claims as were made in suit No. 563 at law, and that any way the issue could be tried on the bill and
answer in both suits.' . . . This ruling of the court having been excepted to, the trial proceeded from
day to day, the counsel for the Central Altagracia taking no part in the same, and virtually treating
the proceedings as though they did not concern that corporation.
In substance, the court decided: First, that as the result of the contracts between Valdes and the
Central Altagracia, he was not the owner of the rights of that corporation under the lease, or of the
machinery which [225 U.S. 58, 72] had been placed in the sugar house by the Altagracia Company,
or of the other assets of the corporation, but that he was merely a secured creditor. The sum of the
secured debt was fixed after making allowances for some not very material credits which the
corporation was held to be entitled to. Second, that the judgment in favor of Nevers & Callaghan was
valid, and that that firm, by virtue of its execution and levy upon the machinery, had a prior right to
Valdes. Third, the sums due to various creditors of the corporation were fixed and the equities or
priorities were classified as follows: (a) Taxes due by the corporation and the sum of the receiver's
certificates and certain costs; (b) the judgment of Nevers & Callaghan; and (c) the debt of Valdes; (d)
debts due the other creditors. Without going into details it suffices to say that for the purpose of
enforcing these conclusions the decree directed a sale of all the rights of the Central Altagracia in
and to the lease, machinery, contract, etc., and imposed the duty upon Valdes, if he became the
purchaser, to pay enough cash to discharge the costs, taxes, receiver's certificates, and the claim of
Nevers & Callaghan.
These appeals were then prosecuted, the one by the Central Altagracia and the other by Valdes. We
shall endeavor as briefly as may be to dispose of the contentions relied upon to secure a reversal.
1. The Central Altagracia appeal.-The alleged errors insisted on in behalf of that company relate to
the asserted arbitrary action of the court in forcing the cause to trial without affording the time which
it is insisted the corporation was entitled to under the equity rules applicable to the subject; and,
second, the refusal of the court to grant a continuance upon the affidavit as to the absence of material
witnesses.
We think all the contentions on this subject are demonstrated to be devoid of merit by the statement
of the case which we have made. In the first place, it is mani- [225 U.S. 58, 73] fest from that
statement that the proceeding leading up to the appointment of a receiver and the power given to
administer the property was largely the result of the assent of the corporation. In the second place,
when the unsuccessful financial issue of the receivership had become manifest, we think the
statement makes it perfectly clear that the steps taken by the court for the purpose of bringing the
case to a speedy conclusion, and thus avoiding the further loss which would result to all interests
concerned, were also acquiesced in by all the parties in interest who complied with the terms of that
order and took advantage of the rights which it conferred. We think also the statement makes it
apparent that the refusal on the part of the corporation to proceed with the trial, upon the theory that
the time to plead allowed by the equity rules had not elapsed, was the result of a change of view
because of the action of the court in refusing the continuance on account of the absent witnesses,-a
change of front which was inconsistent with the rights which the corporation had exercised in accord
with the order setting the cause for trial, and with the rights of all the other parties to the cause which
had arisen from that order and from the virtual approval of it, or at least acquiescence in it, by all
concerned.
Considering the assignments of error in so far as they relate alone to overruling of the application for
continuance, based upon the absence of witnesses, it suffices to say that the elementary rule is that
the granting of a continuance of the cause was peculiarly within the sound discretion of the court
below,-a discretion not subject to be reviewed on appeal except in case of such clear error as to
amount to a plain abuse springing from an arbitrary exercise of power. Instead of coming within this
latter category, we think the facts as to the refusal to continue and the conduct of the parties make it
clear that there was not only no abuse but a just exercise of discretion. [225 U.S. 58, 74] 2. As to
the Appeal of Valdes.-Two propositions are relied upon: First, that error was committed in treating
Valdes merely as a secured creditor, and in not holding him to be the absolute owner of the rights
and property alleged to have been transferred by the so-called conditional sale. Second, that in any
event error was committed in awarding to Nevers & Callaghan priority over Valdes.
The first proposition is supported by a reference to the Porto Rican Code and decisions of the
Supreme Court of Spain and the opinions of Spanish law writers. But the contention is not relevant,
and the authorities cited to sustain it are inapposite to the case to be here decided, because the
argument rests upon an imaginary premise; that is, that the ruling of the court below denied that right
under the Spanish law to make a conditional sale, or held that such a sale if made would not have the
effect which the argument insists it was entitled to. This is true because the action of the court was
solely based upon a premise of fact; viz., that under the circumstances of the case, and in view of the
prior sale with the equity of redemption, the cancelation of that sale, and the transfer made by the
corporation to Valdes, and the immediate transfer of the same rights by him to the corporation in the
form of a conditional sale, the failure to register any of the contracts, and the relation of Valdes to the
corporation at the time the contracts were made, it resulted that whatever might be the mere form, in
substance and effect no conditional sale was made, but a mere contract was entered into which the
parties intended to be a mere security to Valdes for money advanced and to be advanced by him.
This being the case, it is manifest that it is wholly irrelevant to argue that error was committed in not
applying the assumed principles of the Porto Rican and Spanish law governing in the case of a
conditional sale, when the ruling which the court made proceeded upon the conclusion that there was
no conditional sale. [225 U.S. 58, 75] The contention that, under the Porto Rican law, the form was
controlling because proof of the substance was not admissible, seems not to have been raised below,
but, if it had been, is obviously without merit, as the case as presented involved not a controversy
alone between the parties to the contract, but the effect and operation of the contract upon third
parties, the creditors of the corporation. The contention is additionally without merit, since it
assumes that the mere form of the contract excluded the power of creditors to inquire into its reality
and substance, even although the contract was never inscribed upon the public records so as to bind
third parties. That its character was such as to require inscription we shall in a few moments
demonstrate in coming to consider the second proposition; that is, upon the hypothesis that Valdes
was but a secured creditor, was error committed in subordinating his claim to the prior claim of
Nevers & Callaghan under their judgment and execution?
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 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 5th subdivision of article 335, which is as
follows: 'Machinery, vessels, instruments, or [225 U.S. 58, 76] implements intended by the owner
of the tenements for the industry 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 Napoleon,
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, 164; Laurent, Tit. 5,
No. 447; and decisions quoted in Fuzier-Herman ed. Code Napoleon, under article 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 of 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. [225 U.S. 58,
77] 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. It is true, says Aubry and Rau, vol. 2, 164, 2, p. 12, that 'the
immobilization with which the article is concerned can only arise from an act of the owner himself or
his representative. Hence the objects which are dedicated to the use of a piece of land or a building
by a lessee cannot be considered as having become immovable by destination except in the case
where they have been applied for account of the proprietor, or in execution of an obligation imposed
by the lease.' It follows that the machinery placed by the corporation in the plant, by the fact of its
being so placed, lost its character as a movable, and became united with and a part of the plant as an
immovable by destination. It also follows that as to Valdes, who claimed under the lease, and who
had expressly assumed the obligations of the lease, the machinery, for all the purposes of the exercise
of his rights, was but a part of the real estate,-a conclusion which cannot be avoided without saying
that Valdes could at one and the same time assert the existence in himself of rights, and yet repudiate
the obligations resulting from the rights thus asserted.
Nevers & Callaghan were creditors of the corporation. They were not parties to nor had they legal
notice of the lease and its conditions from which alone it arose that machinery put in the premises by
the Altagracia became immovable property. The want of notice arose from the failure to record the
transfer from Castello to the Altagracia, or from the Altagracia to Valdes, and from Valdes
apparently conditionally back to the corporation,-a clear result of 613 of the Civil Code of Porto
Rico, providing, 'The titles of ownership or of other real rights relating [225 U.S. 58, 78] to
immovables which are not properly inscribed or annotated in the registry of property shall not be
prejudicial to third parties.' It is not disputable that the duty to inscribe the lease by necessary
implication resulted from the general provisions of article 2 of the mortgage law of Porto Rico, as
stated in paragraphs 1, 2, and 3 thereof, and explicitly also arose from the express requirement of
paragraph 6, relating to the registry of 'contracts for the lease of real property for a period exceeding
six years. . . .' It is true that, in a strict sense, the contracts between Castello and the Altagracia
Company and with Valdes were not contracts of lease, but for the transfer of a contract of that
character. But such a transfer was clearly a contract concerning real rights to immovable property
within the purview of article 613 of the Civil Code, just previously quoted. Especially is this the case
in view of the stipulations of the lease as to the immobilization of movable property placed in the
plant, and the other obligations imposed upon the lessee. 'The sale which a lessee makes to a third
person to whom he transfers his right of lease is the sale of an immovable right, and not simply a sale
of a movable one.' See numerous decisions of the courts of France, beginning with the decision on
February 2, 1842, of the court of cassation (Journal du Palais[225 U.S. 58, 1842] vol. 1, 171). See
also numerous authorities collected under the heading above stated in paragraph 21, under articles
516, 517, and 518 of the Code Napoleon. Fuzier-Herman ed. of that Code, p. 643.
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 [225 U.S. 58, 79] of his obligations under the lease, he could
not, for the purpose of collecting his debt, proceed separately against.
As a matter of precaution we say that nothing we have said affects the rights, whatever they may be,
of the heirs of Sanchez, the original lessor.
Affirmed.

G.R. No. 137705 August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,
vs.
PCI LEASING AND FINANCE, INC., respondent.
D E C I S I O N
PANGANIBAN, J .:
After agreeing to a contract stipulating that a real or immovable property be considered as
personal or movable, a party is estopped from subsequently claiming otherwise. Hence,
such property is a proper subject of a writ of replevin obtained by the other contracting
party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision
1
of
the Court of Appeals (CA)
2
in CA-GR SP No. 47332 and its February 26, 1999
Resolution
3
denying reconsideration. The decretal portion of the CA Decision reads as
follows:
"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED.
The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED."
4

In its February 18, 1998 Order,
5
the Regional Trial Court (RTC) of Quezon City (Branch
218)
6
issued a Writ of Seizure.
7
The March 18, 1998 Resolution
8
denied petitioners
Motion for Special Protective Order, praying that the deputy sheriff be enjoined "from
seizing immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to
return to their original place whatever immobilized machineries or equipments he may
have removed."
9

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:
10

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for
short) filed with the RTC-QC a complaint for [a] sum of money (Annex E), with an
application for a writ of replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued
a writ of replevin (Annex B) directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word that he [would] return for the other
machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex C),
invoking the power of the court to control the conduct of its officers and amend and
control its processes, praying for a directive for the sheriff to defer enforcement of the writ
of replevin.
"This motion was opposed by PCI Leasing (Annex F), on the ground that the properties
[were] still personal and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped
from treating these machineries as personal because the contracts in which the alleged
agreement [were] embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was prevented
by the workers from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also
ruled that the "words of the contract are clear and leave no doubt upon the true intention of
the contracting parties." Observing that Petitioner Goquiolay was an experienced
businessman who was "not unfamiliar with the ways of the trade," it ruled that he "should
have realized the import of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling
upon the case below, since the merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion
on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised
herein are proper subjects of a full-blown trial, necessitating presentation of evidence by
both parties. The contract is being enforced by one, and [its] validity is attacked by the
other a matter x x x which respondent court is in the best position to determine."
Hence, this Petition.
11

The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"A. Whether or not the machineries purchased and imported by SERGS became real
property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.
"12

In the main, the Court will resolve whether the said machines are personal, not immovable,
property which may be a proper subject of a writ of replevin. As a preliminary matter, the
Court will also address briefly the procedural points raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being
filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds
support in the very title of the Petition, which is "Petition for Review on Certiorari."
13

While Judge Laqui should not have been impleaded as a respondent,
14
substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In
this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui
from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects
of the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.
15
Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court
shall issue an order and the corresponding writ of replevin describing the personal property
alleged to be wrongfully detained and requiring the sheriff forthwith to take such property
into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:
"ART. 415. The following are immovable property:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;
x x x x x x x x x"
In the present case, the machines that were the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become "immobilized by
destination because they are essential and principal elements in the industry."
16
In that
sense, petitioners are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.
17

Be that as it may, we disagree with the submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.
18
After agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,
19
the Court upheld the intention of the parties to treat
a house as a personal property because it had been made the subject of a chattel mortgage.
The Court ruled:
"x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills
20
also held that the machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above Tumalad case,
may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines in question are
to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:
21

"12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any manner to what is
permanent."
Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the
Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the
contracting parties are concerned.
22
Hence, while the parties are bound by the Agreement,
third persons acting in good faith are not affected by its stipulation characterizing the
subject machinery as personal.
23
In any event, there is no showing that any specific third
party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.
24
Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity
which places in serious doubt the intention of the parties and the validity of the lease
agreement itself."
25
In their Reply to respondents Comment, they further allege that the
Agreement is invalid.
26

These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions, therefore,
is effectively a resolution of the merits of the case. Hence, they should be threshed out in
the trial, not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,
27
the Court explained that the policy under Rule 60
was that questions involving title to the subject property questions which petitioners are
now raising -- should be determined in the trial. In that case, the Court noted that the
remedy of defendants under Rule 60 was either to post a counter-bond or to question the
sufficiency of the plaintiffs bond. They were not allowed, however, to invoke the title to
the subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint or of
the grounds relied upon therefor, as in proceedings on preliminary attachment or
injunction, and thereby put at issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits."
28

Besides, these questions require a determination of facts and a presentation of evidence,
both of which have no place in a petition for certiorari in the CA under Rule 65 or in a
petition for review in this Court under Rule 45.
29

Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed
it first only in the RTC proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation
30
is also instructive on this point. In that case,
the Deed of Chattel Mortgage, which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly been required "to sign a
printed form of chattel mortgage which was in a blank form at the time of signing." The
Court rejected the argument and relied on the Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court.
There is nothing on record to show that the mortgage has been annulled. Neither is it
disclosed that steps were taken to nullify the same. x x x"
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that "if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets."
31
They also allege that the
seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ.1wphi 1 As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners
for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately require the
return of the property, but if he does not so object, he may, at any time before the delivery
of the property to the applicant, require the return thereof, by filing with the court where
the action is pending a bond executed to the applicant, in double the value of the property
as stated in the applicants affidavit for the delivery thereof to the applicant, if such
delivery be adjudged, and for the payment of such sum to him as may be recovered against
the adverse party, and by serving a copy bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

G.R. No. 137705 August 22, 2000
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,
vs.
PCI LEASING AND FINANCE, INC., respondent.
D E C I S I O N
PANGANIBAN, J .:
After agreeing to a contract stipulating that a real or immovable property be considered as
personal or movable, a party is estopped from subsequently claiming otherwise. Hence,
such property is a proper subject of a writ of replevin obtained by the other contracting
party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision
1
of
the Court of Appeals (CA)
2
in CA-GR SP No. 47332 and its February 26, 1999
Resolution
3
denying reconsideration. The decretal portion of the CA Decision reads as
follows:
"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED.
The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED."
4

In its February 18, 1998 Order,
5
the Regional Trial Court (RTC) of Quezon City (Branch
218)
6
issued a Writ of Seizure.
7
The March 18, 1998 Resolution
8
denied petitioners
Motion for Special Protective Order, praying that the deputy sheriff be enjoined "from
seizing immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to
return to their original place whatever immobilized machineries or equipments he may
have removed."
9

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:
10

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for
short) filed with the RTC-QC a complaint for [a] sum of money (Annex E), with an
application for a writ of replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued
a writ of replevin (Annex B) directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word that he [would] return for the other
machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex C),
invoking the power of the court to control the conduct of its officers and amend and
control its processes, praying for a directive for the sheriff to defer enforcement of the writ
of replevin.
"This motion was opposed by PCI Leasing (Annex F), on the ground that the properties
[were] still personal and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped
from treating these machineries as personal because the contracts in which the alleged
agreement [were] embodied [were] totally sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was prevented
by the workers from taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also
ruled that the "words of the contract are clear and leave no doubt upon the true intention of
the contracting parties." Observing that Petitioner Goquiolay was an experienced
businessman who was "not unfamiliar with the ways of the trade," it ruled that he "should
have realized the import of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling
upon the case below, since the merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion
on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised
herein are proper subjects of a full-blown trial, necessitating presentation of evidence by
both parties. The contract is being enforced by one, and [its] validity is attacked by the
other a matter x x x which respondent court is in the best position to determine."
Hence, this Petition.
11

The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"A. Whether or not the machineries purchased and imported by SERGS became real
property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.
"12

In the main, the Court will resolve whether the said machines are personal, not immovable,
property which may be a proper subject of a writ of replevin. As a preliminary matter, the
Court will also address briefly the procedural points raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being
filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds
support in the very title of the Petition, which is "Petition for Review on Certiorari."
13

While Judge Laqui should not have been impleaded as a respondent,
14
substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In
this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui
from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects
of the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.
15
Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court
shall issue an order and the corresponding writ of replevin describing the personal property
alleged to be wrongfully detained and requiring the sheriff forthwith to take such property
into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:
"ART. 415. The following are immovable property:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;
x x x x x x x x x"
In the present case, the machines that were the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become "immobilized by
destination because they are essential and principal elements in the industry."
16
In that
sense, petitioners are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.
17

Be that as it may, we disagree with the submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.
18
After agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,
19
the Court upheld the intention of the parties to treat
a house as a personal property because it had been made the subject of a chattel mortgage.
The Court ruled:
"x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills
20
also held that the machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above Tumalad case,
may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage."
In the present case, the Lease Agreement clearly provides that the machines in question are
to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:
21

"12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any manner to what is
permanent."
Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the
Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the
contracting parties are concerned.
22
Hence, while the parties are bound by the Agreement,
third persons acting in good faith are not affected by its stipulation characterizing the
subject machinery as personal.
23
In any event, there is no showing that any specific third
party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.
24
Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity
which places in serious doubt the intention of the parties and the validity of the lease
agreement itself."
25
In their Reply to respondents Comment, they further allege that the
Agreement is invalid.
26

These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions, therefore,
is effectively a resolution of the merits of the case. Hence, they should be threshed out in
the trial, not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,
27
the Court explained that the policy under Rule 60
was that questions involving title to the subject property questions which petitioners are
now raising -- should be determined in the trial. In that case, the Court noted that the
remedy of defendants under Rule 60 was either to post a counter-bond or to question the
sufficiency of the plaintiffs bond. They were not allowed, however, to invoke the title to
the subject property. The Court ruled:
"In other words, the law does not allow the defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint or of
the grounds relied upon therefor, as in proceedings on preliminary attachment or
injunction, and thereby put at issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits."
28

Besides, these questions require a determination of facts and a presentation of evidence,
both of which have no place in a petition for certiorari in the CA under Rule 65 or in a
petition for review in this Court under Rule 45.
29

Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed
it first only in the RTC proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation
30
is also instructive on this point. In that case,
the Deed of Chattel Mortgage, which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly been required "to sign a
printed form of chattel mortgage which was in a blank form at the time of signing." The
Court rejected the argument and relied on the Deed, ruling as follows:
"x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court.
There is nothing on record to show that the mortgage has been annulled. Neither is it
disclosed that steps were taken to nullify the same. x x x"
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that "if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets."
31
They also allege that the
seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ.1wphi 1 As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners
for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately require the
return of the property, but if he does not so object, he may, at any time before the delivery
of the property to the applicant, require the return thereof, by filing with the court where
the action is pending a bond executed to the applicant, in double the value of the property
as stated in the applicants affidavit for the delivery thereof to the applicant, if such
delivery be adjudged, and for the payment of such sum to him as may be recovered against
the adverse party, and by serving a copy bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.


G.R. No. 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.

G.R. No. L-19527 March 30, 1963
RICARDO PRESBITERO, in his capacity as Executor of the Testate Estate of
EPERIDION PRESBITERO,petitioner,
vs.
THE HON. JOSE F. FERNANDEZ, HELEN CARAM NAVA, and the
PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, respondents.
San Juan, Africa and Benedicto and Hilado and Hilado for petitioner.
Paredes, Poblador, Cruz and Nazareno and Manuel Soriano for respondents.
REYES, J.B.L., J .:
Petition for a writ of certiorari against the Court of First Instance of Negros Occidental.
It appears that during the lifetime of Esperidion Presbitero, judgment was rendered against
him by the Court of Appeals on October 14, 1959, in CA-G.R. No. 20879,
... to execute in favor of the plaintiff, within 30 days from the time this judgment
becomes final, a deed of reconveyance of Lot No. 788 of the cadastral survey of
Valladolid, free from all liens and encumbrances, and another deed of
reconveyance of a 7-hectare portion of Lot No. 608 of the same cadastral survey,
also free from all liens and encumbrances, or, upon failure to do so, to pay to the
plaintiff the value of each of the said properties, as may be determined by the
Court a quo upon evidence to be presented by the parties before it. The defendant
is further adjudged to pay to the plaintiff the value of the products received by
him from the 5-hectare portion equivalent to 20 cavans of palay per hectare every
year, or 125 cavans yearly, at the rate of P10.00 per cavan, from 1951 until
possession of the said 5-hectare portion is finally delivered to the plaintiff with
legal interest thereon from the time the complaint was filed; and to pay to the
plaintiff the sum of P1,000.00 by way of attorney's fees, plus costs.
This judgment, which became final, was a modification of a decision of the Court of First
Instance of Negros Occidental, in its Civil Case No. 3492, entitled "Helen Caram Nava,
plaintiff, versus Esperidion Presbitero, defendant."
Thereafter, plaintiff's counsel, in a letter dated December 8, 1959, sought in vain to
amicably settle the case through petitioner's son, Ricardo Presbitero. When no response
was forthcoming, said counsel asked for, and the court a quo ordered on June 9, 1960, the
issuance of a partial writ of execution for the sum of P12,250.00. On the following day,
June 10, 1960, said counsel, in another friendly letter, reiterated his previous suggestion
for an amicable settlement, but the same produced no fruitful result. Thereupon, on June
21, 1960, the sheriff levied upon and garnished the sugar quotas allotted to plantation audit
Nos. 26-237, 26-238, 26-239, 26-240 and 26-241 adhered to the Ma-ao Mill District and
"registered in the name of Esperidion Presbitero as the original plantation-owner",
furnishing copies of the writ of execution and the notice of garnishment to the manager of
the Ma-ao Sugar Central Company, Bago, Negros Occidental, and the Sugar Quota
Administration at Bacolod City, but without presenting for registration copies thereof to
the Register of Deeds.
Plaintiff Helen Caram Nava (herein respondent) then moved the court, on June 22, 1960,
to hear evidence on the market value of the lots; and after some hearings, occasionally
protracted by postponements, the trial court, on manifestation of defendant's willingness to
cede the properties in litigation, suspended the proceedings and ordered him to segregate
the portion of Lot 608 pertaining to the plaintiff from the mass of properties belonging to
the defendant within a period to expire on August 24, 1960, and to effect the final
conveyance of the said portion of Lot 608 and the whole of Lot 788 free from any lien and
encumbrance whatsoever. Because of Presbitero's failure to comply with this order within
the time set forth by the court, the plaintiff again moved on August 25, 1960 to declare the
market value of the lots in question to be P2,500.00 per hectare, based on uncontradicted
evidence previously adduced. But the court, acting on a prayer of defendant Presbitero, in
an order dated August 27, 1960, granted him twenty (20) days to finalize the survey of Lot
608, and ordered him to execute a reconveyance of Lot 788 not later than August 31, 1960.
Defendant again defaulted; and so plaintiff, on September 21, 1960, moved the court for
payment by the defendant of the sum of P35,000.00 for the 14 hectares of land at
P2,500.00 to the hectare, and the court, in its order dated September 24, 1960, gave the
defendant until October 15, 1960 either to pay the value of the 14 hectares at the rate given
or to deliver the clean titles of the lots. On October 15, 1960, the defendant finally
delivered Certificate of Title No. T-28046 covering Lot 788, but not the title covering Lot
608 because of an existing encumbrance in favor of the Philippine National Bank. In view
thereof, Helen Caram Nava moved for, and secured on October 19, 1960, a writ of
execution for P17,500.00, and on the day following wrote the sheriff to proceed with the
auction sale of the sugar quotas previously scheduled for November 5, 1960. The sheriff
issued the notice of auction sale on October 20, 1960.
On October 22, 1960, death overtook the defendant Esperidion Presbitero.
Proceedings for the settlement of his estate were commenced in Special Proceedings No.
2936 of the Court of First Instance of Negros Occidental; and on November 4, 1960, the
special administrator, Ricardo Presbitero, filed an urgent motion, in Case No. 3492, to set
aside the writs of execution, and to order the sheriff to desist from holding the auction sale
on the grounds that the levy on the sugar quotas was invalid because the notice thereof was
not registered with the Register of Deeds, as for real property, and that the writs, being for
sums of money, are unenforceable since Esperidion Presbitero died on October 22, 1960,
and, therefore, could only be enforced as a money claim against his estate.
This urgent motion was heard on November 5, 1960, but the auction sale proceeded on the
same date, ending in the plaintiff's putting up the highest bid for P34,970.11; thus, the
sheriff sold 21,640 piculs of sugar quota to her.
On November 10, 1960, plaintiff Nava filed her opposition to Presbitero's urgent motion of
November 4, 1960; the latter filed on May 4, 1961 a supplement to his urgent motion; and
on May 8 and 23, 1961, the court continued hearings on the motion, and ultimately denied
it on November 18, 1961.
On January 11, 1962, plaintiff Nava also filed an urgent motion to order the Ma-ao Sugar
Central to register the sugar quotas in her name and to deliver the rentals of these quotas
corresponding to the crop year 1960-61 and succeeding years to her. The court granted this
motion in its order dated February 3, 1962. A motion for reconsideration by Presbitero was
denied in a subsequent order under date of March 5, 1962. Wherefore, Presbitero instituted
the present proceedings for certiorari.
A preliminary restraining writ was thereafter issued by the court against the respondents
from implementing the aforesaid orders of the respondent Judge, dated February 3, 1960
and March 5, 1962, respectively. The petition further seeks the setting aside of the sheriff's
certificate of sale of the sugar quotas made out in favor of Helen Caram Nava, and that she
be directed to file the judgment credit in her favor in Civil Case No. 3492 as a money
claim in the proceedings to settle the Estate of Esperidion Presbitero.
The petitioner denies having been personally served with notice of the garnishment of the
sugar quotas, but this disclaimer cannot be seriously considered since it appears that he
was sent a copy of the notice through the chief of police of Valladolid on June 21, 1960, as
certified to by the sheriff, and that he had actual knowledge of the garnishment, as shown
by his motion of November 4, 1960 to set aside the writs of execution and to order the
sheriff to desist from holding the auction sale.
Squarely at issue in this case is whether sugar quotas are real (immovable) or personal
properties. If they be realty, then the levy upon them by the sheriff is null and void for lack
of compliance with the procedure prescribed in Section 14, Rule 39, in relation with
Section 7, Rule 59, of the Rules of Court requiring "the filing with the register of deeds a
copy of the orders together with a description of the property . . . ."
In contending that sugar quotas are personal property, the respondent, Helen Caram Nava,
invoked the test formulated by Manresa (3 Manresa, 6th Ed. 43), and opined that sugar
quotas can be carried from place to place without injury to the land to which they are
attached, and are not one of those included in Article 415 of the Civil Code; and not being
thus included, they fall under the category of personal properties:
ART. 416. The following are deemed to be personal property:
x x x x x x x x x
4. In general, all things which can be transported from place to place without
impairment of the real property to which they are fixed.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
Respondent likewise points to evidence she submitted that sugar quotas are, in fact,
transferred apart from the plantations to which they are attached, without impairing,
destroying, or diminishing the potentiality of either quota or plantation. She was sustained
by the lower court when it stated that "it is a matter of public knowledge and it is universal
practice in this province, whose principal industry is sugar, to transfer by sale, lease, or
otherwise, sugar quota allocations from one plantation to any other" and that it is "specious
to insist that quotas are improvements attaching to one plantation when in truth and in fact
they are no longer attached thereto for having been sold or leased away to be used in
another plantation". Respondent would add weight to her argument by invoking the role
that sugar quotas play in our modern social and economic life, and cites that the Sugar
Office does not require any registration with the Register of Deeds for the validity of the
sale of these quotas; and, in fact, those here in question were not noted down in the
certificate of title of the land to which they pertain; and that Ricardo Presbitero had leased
sugar quotas independently of the land. The respondent cites further that the U.S.-
Philippine Trade Relations Act, approved by the United States Congress in 1946, limiting
the production of unrefined sugar in the Philippines did not allocate the quotas for said
unrefined sugar among lands planted to sugarcane but among "the sugar producing mills
and plantation OWNERS", and for this reason Section 3 of Executive Order No. 873,
issued by Governor General Murphy, authorizes the lifting of sugar allotments from one
land to another by means only of notarized deeds.
While respondent's arguments are thought-provoking, they cannot stand against the
positive mandate of the pertinent statute. The Sugar Limitation Law (Act 4166, as
amended) provides
SEC. 9. The allotment corresponding to each piece of land under the provisions of
this Act shall be deemed to be an improvement attaching to the land entitled
thereto ....
and Republic Act No. 1825 similarly provides
SEC. 4. The production allowance or quotas corresponding to each piece of land under the
provisions of this Act shall be deemed to be an improvement attaching to the land entitled
thereto ....
And Executive Order No. 873 defines "plantation" as follows:
(a) The term 'plantation' means any specific area of land under sole or undivided
ownership to which is attached an allotment of centrifugal sugar.
Thus, under express provisions of law, the sugar quota allocations are accessories to land,
and can not have independent existence away from a plantation, although the latter may
vary. Indeed, this Court held in the case ofAbelarde vs. Lopez, 74 Phil. 344, that even if a
contract of sale of haciendas omitted "the right, title, interest, participation, action (and)
rent" which the grantors had or might have in relation to the parcels of land sold, the sale
would include the quotas, it being provided in Section 9, Act 4166, that the allotment is
deemed an improvement attached to the land, and that at the time the contract of sale was
signed the land devoted to sugar were practically of no use without the sugar allotment.
As an improvement attached to land, by express provision of law, though not physically so
united, the sugar quotas are inseparable therefrom, just like servitudes and other real rights
over an immovable. Article 415 of the Civil Code, in enumerating what are immovable
properties, names
10. Contracts for public works, and servitudes and other real rights over
immovable property. (Emphasis supplied)
It is by law, therefore, that these properties are immovable or real, Article 416 of the Civil
Code being made to apply only when the thing (res) sought to be classified is not included
in Article 415.
The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th Congress)
allows transfers of sugar quotas does not militate against their immovability. Neither does
the fact that the Sugar Quota Office does not require registration of sales of quotas with the
Register of Deeds for their validity, nor the fact that allocation of unrefined sugar quotas is
not made among lands planted to sugarcane but among "the sugar producing mills and
plantation OWNERS", since the lease or sale of quotas are voluntary transactions, the
regime of which, is not necessarily identical to involuntary transfers or levies; and there
cannot be a sugar plantation owner without land to which the quota is attached; and there
can exist no quota without there being first a corresponding plantation.
Since the levy is invalid for non-compliance with law, it is impertinent to discuss the
survival or non-survival of claims after the death of the judgment debtor, gauged from the
moment of actual levy. Suffice it to state that, as the case presently stands, the writs of
execution are not in question, but the levy on the quotas, and, because of its invalidity, the
levy amount to no levy at all. Neither is it necessary, or desirable, to pass upon the
conscionableness or unconscionableness of the amount produced in the auction sale as
compared with the actual value of the quotas inasmuch as the sale must necessarily be also
illegal.
As to the remedial issue that the respondents have presented: that certiorari does not lie in
this case because the petitioner had a remedy in the lower court to "suspend" the auction
sale, but did not avail thereof, it may be stated that the latter's urgent motion of November
4, 1960, a day before the scheduled sale (though unresolved by the court on time), did ask
for desistance from holding the sale.
WHEREFORE, the preliminary injunction heretofore granted is hereby made permanent,
and the sheriff's certificate of sale of the sugar quotas in question declared null and void.
Costs against respondent Nava.
Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and Regala, JJ., concur.
Makalintal, J., took no part.

G.R. No. 6295 September 1, 1911
THE UNITED STATES, plaintiff-appellee,
vs.
IGNACIO CARLOS, defendant-appellant.
A. D. Gibbs for appellant.
Acting Attorney-General Harvey for appellee.
PER CURIAM:
The information filed in this case is as follows:
The undersigned accuses Ignacio Carlos of the crime of theft, committed as
follows:
That on, during, and between the 13th day of February, 1909, and the 3d day of
March, 1910, in the city of Manila, Philippine Islands, the said Ignacio Carlos,
with intent of gain and without violence or intimidation against the person or
force against the thing, did then and there, willfully, unlawfully, and feloniously,
take, steal , and carry away two thousand two hundred and seventy-three (2,273)
kilowatts of electric current, of the value of nine hundred and nine (909) pesos
and twenty (20) cents Philippine currency, the property of the Manila Electric
Railroad and Light Company, a corporation doing business in the Philippine
Islands, without the consent of the owner thereof; to the damage and prejudice of
the said Manila Electric Railroad and Light Company in the said sum of nine
hundred and nine (909) pesos and twenty (20) cents Philippine currency, equal to
and equivalent of 4,546 pesetas Philippine currency. All contrary to law.
(Sgd.) L. M.
SOUTWORTH,
Prosecuting Attorney.
Subscribed and sworn to before me this 4th day of March, 1910, in the city of
Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city
of Manila.
(Sgd.) CHARLES S.
LOBINGIER,
Judge, First Instance.
A preliminary investigation has heretofore been conducted in this case, under my
direction, having examined the witness under oath, in accordance with the
provisions of section 39 of Act No. 183 of the Philippine Commission, as
amended by section 2 of Act No. 612 of the Philippine Commission.
(Sgd) L. M.
SOUTHWORTH,
Prosecuting Attorney.
Subscribed and sworn to before me this 4th day of March, 1910, in the city of
Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city
of Manila.
(Sgd.) CHARLES
LOBINGIER,
Judge, First Instance.
A warrant for the arrest of the defendant was issued by the Honorable J. C. Jenkins on the
4th of March and placed in the hands of the sheriff. The sheriff's return shows that the
defendant gave bond for his appearance. On the 14th of the same month counsel for the
defendant demurrer to the complaint on the following grounds:
1 That the court has no jurisdiction over the person of the accused nor of the
offense charged because the accused has not been accorded a preliminary
investigation or examination as required by law and no court, magistrate, or other
competent authority has determined from a sworn complaint or evidence adduced
that there is probable cause to believe that a crime has been committed, or that
this defendant has committed any crime.
2 That the facts charged do not constitute a public offense.
The demurrer was overruled on the same day and the defendant having refused to plead, a
plea of not guilty was entered by direction of the court for him and the trial proceeded.
After due consideration of all the proofs presented and the arguments of counsel the trial
court found the defendant guilty of the crime charged and sentenced him to one year eight
months and twenty-one days' presidio correccional, to indemnify the offended party, The
Manila Electric Railroad and Light Company, in the sum of P865.26, to the corresponding
subsidiary imprisonment in case of insolvency and to the payment of the costs. From this
judgment the defendant appealed and makes the following assignments of error:
I.
The court erred in overruling the objection of the accused to the jurisdiction of the
court, because he was not given a preliminary investigation as required by law,
and in overruling his demurrer for the same reason.
II.
The court erred in declaring the accused to be guilty, in view of the evidence
submitted.
III.
The court erred in declaring that electrical energy may be stolen.
IV.
The court erred in not declaring that the plaintiff consented to the taking of the
current.
V.
The court erred in finding the accused guilty of more than one offense.
VI.
The court erred in condemning the accused to pay P865.26 to the electric
company as damages.
Exactly the same question as that raised in the first assignment of error, was after a through
examination and due consideration, decided adversely to appellant's contention in the case
of U. S. vs. Grant and Kennedy (18 Phil. Rep., 122). No sufficient reason is presented why
we should not follow the doctrine enunciated in that case.
The question raised in the second assignment of error is purely one fact. Upon this point
the trial court said:
For considerably more than a year previous to the filing of this complaint the
accused had been a consumer of electricity furnished by the Manila Electric
Railroad and Light Company for a building containing the residence of the
accused and three other residences, and which was equipped, according to the
defendant's testimony, with thirty electric lights. On March 15, 1909, the
representatives of the company, believing that more light was being used than
their meter showed, installed an additional meter (Exhibit A) on a pole outside of
defendant's house, and both it and the meter (Exhibit B) which had been
previously installed in the house were read on said date. Exhibit A read 218
kilowatt hours; Exhibit B, 745 kilowatt hours. On March 3, 1910 each was read
again, Exhibit A showing 2,718 kilowatt hours and Exhibit B, 968. It is
undisputed that the current which supplied the house passed through both meters
and the city electrician testifies that each meter was tested on the date of the last
reading and was "in good condition." The result of this registration therefore is
that while the outsider meter (Exhibit A) showed a consumption in defendant's
building of 2,500 kilowatt hours of electricity, this inside meter (Exhibit B)
showed but 223 kilowatt hours. In other words the actual consumption, according
to the outside meter, was more than ten times as great as that registered by the one
inside. Obviously this difference could not be due to normal causes, for while the
electrician called by the defense (Lanusa) testifies to the possibility of a
difference between two such meters, he places the extreme limit of such
difference between them 5 per cent. Here, as we have seen, the difference is more
than 900 per cent. Besides, according to the defendant's electrician, the outside
meter should normally run faster, while according to the test made in this case the
inside meter (Exhibit B) ran the faster. The city electrician also testifies that the
electric current could have been deflected from the inside meter by placing
thereon a device known as a "jumper" connecting the two outside wires, and there
is other testimony that there were marks on the insulation of the meter Exhibit B
which showed the use of such a device. There is a further evidence that the
consumption of 223 kilowatt hours, registered by the inside meter would not be a
reasonable amount for the number of lights installed in defendant's building
during the period in question, and the accused fails to explain why he should have
had thirty lights installed if he needed but four or five.
On the strength of this showing a search warrant was issued for the examination
of defendant's premises and was duly served by a police officer (Hartpence). He
was accompanied at the time by three employees of the Manila Electric Railroad
and Light Company, and he found there the accused, his wife and son, and
perhaps one or two others. There is a sharp conflict between the several spectators
on some points but on one there is no dispute. All agree that the "jumper" (Exhibit
C) was found in a drawer of a small cabinet in the room of defendant's house
where the meter was installed and not more than 20 feet therefrom. In the absence
of a satisfactory explanation this constituted possession on defendant's part, and
such possession, under the Code of Civil Procedure, section 334 (10), raises the
presumption that the accused was the owner of a device whose only use was to
deflect the current from the meter.
Is there any other "satisfactory explanation" of the "jumper's" presence? The only
one sought to be offered is the statement by the son of the accused, a boy of
twelve years, that he saw the "jumper" placed there by the witness Porter, an
employee of the Light Company. The boy is the only witness who so testifies and
Porter himself squarely denies it. We can not agree with counsel for the defense
that the boy's interest in the outcome of this case is less than that of the witness
for the prosecution. It seems to us that his natural desire to shield his father would
far outweight any interest such an employee like Porter would have and which, at
most, would be merely pecuniary.
There is, however, one witness whom so far as appears, has no interest in the
matter whatsoever. This is officer Hartpence, who executed the search warrant.
He testifies that after inspecting other articles and places in the building as he and
the other spectators, including the accused, approached the cabinet in which the
"jumper" was found, the officer's attention was called to the defendant's
appearance and the former noticed that the latter was becoming nervous. Where
the only two witnesses who are supposed to know anything of the matter thus
contradict each other this item of testimony by the officer is of more than ordinary
significance; for if, as the accused claims, the "jumper" was placed in the cabinet
for the first time by Porter there would be no occasion for any change of
demeanor on the part of the accused. We do not think that the officer's declination
to wait until defendant should secure a notary public shows bias. The presence of
such an official was neither required nor authorized by law and the very efficacy
of a search depends upon its swiftness.
We must also agree with the prosecuting attorney that the attending circumstances
do not strengthen the story told by the boy; that the latter would have been likely
to call out at the time he saw the "jumper" being placed in the drawer, or at least
directed his father's attention to it immediately instead of waiting, as he says, until
the latter was called by the officer. Finally, to accept the boy's story we must
believe that this company or its representatives deliberately conspired not merely
to lure the defendant into the commission of a crime but to fasten upon him a
crime which he did not commit and thus convict an innocent man by perjured
evidence. This is a much more serious charge than that contained in the complaint
and should be supported by very strong corroborating circumstances which we do
not find here. We are, accordingly, unable to consider as satisfactory defendant's
explanation of the "jumper's" presence.
The only alternative is the conclusion that the "jumper" was placed there by the
accused or by some one acting for him and that it was the instrument by which the
current was deflected from the matter Exhibit B and the Light Company deprived
of its lawful compensation.
After a careful examination of the entire record we are satisfied beyond peradventure of a
doubt that the proofs presented fully support the facts as set forth in the foregoing finding.
Counsel for the appellant insists that the only corporeal property can be the subject of the
crime of larceny, and in the support of this proposition cites several authorities for the
purpose of showing that the only subjects of larceny are tangible, movable, chattels,
something which could be taken in possession and carried away, and which had some,
although trifling, intrinsic value, and also to show that electricity is an unknown force and
can not be a subject of larceny.
In the U. S. vs. Genato (15 Phi. Rep., 170) the defendant, the owner of the store situated at
No. 154 Escolta, Manila, was using a contrivance known as a "jumper" on the electric
meter installed by the Manila Electric Railroad and the Light Company. As a result of the
use of this "jumper" the meter, instead of making one revolution in every four seconds,
registered one in seventy-seven seconds, thereby reducing the current approximately 95
per cent. Genato was charged in the municipal court with a violation of a certain ordinance
of the city of Manila, and was sentenced to pay a fine of P200. He appealed to the Court of
First Instance, was again tried and sentenced to pay the same fine. An appeal was taken
from the judgment of the Court of First Instance to the Supreme Court on the ground that
the ordinance in question was null and void. It is true that the only question directly
presented was of the validity of the city ordinance. The court, after holding that said
ordinance was valid, said:
Even without them (ordinances), the right of ownership of electric current is
secured by articles 517 and 518 of the Penal Code; the application of these
articles in case 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 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.
Article 517 of the Penal Code above referred to reads as follows:
The following are guilty of larceny:
(1) Those who with intent of gain and without violence or intimidation against the
person, or force against things, shall take another's personal property without the
owner's consent.
And article 518 fixes the penalty for larceny in proportion to the value of the personal
property stolen.
It is true that electricity is no longer, as formerly, regarded by electricians as a fluid, but its
manifestation and effects, like those of gas, may be seen and felt. The true test of what is a
proper subject of larceny seems to be not whether the subject is corporeal, but whether it is
capable of appropriation by another than the owner.
It is well-settled that illuminating gas may be the subject of larceny, even in the absence of
a statute so providing. (Decisions of supreme court of Spain, January 20, 1887, and April
1, 1897, supra; also (England) Queen vs. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234;
Queen vs. White, 3 C. & K., 363, 6 Cox C. C., 213; Woods vs. People, 222 III., 293, 7 L.
R. A., 520; Commonwealth vs. Shaw, 4 Allen (Mass), 308; State vs. Wellman, 34 Minn.,
221, N. W. Rep., 385, and 25 Cyc., p. 12, note 10.)
In the case of Commonwealth vs. Shaw, supra, the court, speaking through Chief Justice
Bigelow, said:
There is nothing in the nature of gas used for illuminating purposes which renders
it incapable of being feloniously taken and carried away. It is a valuable article of
merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity, and of being transported from place to
place. In the present case it appears that it was the property of the Boston Gas
Light Company; that it was in their possession by being confined in conduits and
tubes which belonged to them, and that the defendant severed a portion of that
which was in the pipes of the company by taking it into her house and there
consuming it. All this being proved to have been done by her secretly and with
intent to deprive the company of their property and to appropriate it to her own
use, clearly constitutes the crime of larceny.
Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other
personal property and is capable of appropriation by another. So no error was committed
by the trial court in holding that electricity is a subject of larceny.
It is urged in support of the fourth assignment of error that if it be true that the appellant
did appropriate to his own use the electricity as charged he can not be held guilty of
larceny for any part of the electricity thus appropriated, after the first month, for the reason
that the complaining party, the Manila Electric Road and Light Company, knew of this
misappropriation and consented thereto.
The outside meter was installed on March 15, 1909, and read 218 kilowatt hours. On the
same day the inside meter was read and showed 745 kilowatt hours. Both meters were
again read on March 3, 1910, and the outside one showed 2,718 kilowatt hours while the
one on the inside only showed 968, the difference in consumption during this time being
2,277 kilowatt hours. The taking of this current continued over a period of one year, less
twelve days. Assuming that the company read both meters at the end of each month; that it
knew the defendant was misappropriating the current to that extent; and that t continued to
furnish the current, thereby giving the defendant an opportunity to continue the
misppropriation, still, we think, that the defendant is criminally responsible for the taking
of the whole amount, 2,277 kilowatt hours. The company had a contract with the defendant
to furnish him with current for lighting purposes. It could not stop the misappropriation
without cutting off the current entirely. It could not reduce the current so as to just furnish
sufficient for the lighting of two, three, or five lights, as claimed by the defendant that he
used during the most of this time, but the current must always be sufficiently strong to
furnish current for the thirty lights, at any time the defendant desired to use them.
There is no pretense that the accused was solicited by the company or any one else to
commit the acts charged. At most there was a mere passive submission on the part of the
company that the current should be taken and no indication that it wished it to be taken,
and no knowledge by the defendant that the company wished him to take the current, and
no mutual understanding between the company and the defendant, and no measures of
inducement of any kind were employed by the company for the purpose of leading the
defendant into temptation, and no preconcert whatever between him and company. The
original design to misappropriate this current was formed by the defendant absolutely
independent of any acts on the part of the company or its agents. It is true, no doubt, as a
general proposition, that larceny is not committed when the property is taken with the
consent of its owner. It may be difficult in some instances to determine whether certain
acts constitute, in law, such "consent." But under the facts in the case at bar it is not
difficult to reach a conclusion that the acts performed by the plaintiff company did not
constitute a consent on its part the defendant take its property. We have been unable to find
a well considered case holding contrary opinion under similar facts, but, there are
numerous cases holding that such acts do not constitute such consent as would relieve the
taker of criminal responsibility. The fourth assignment of error is, therefore, not well
founded.
It is also contended that since the "jumper" was not used continuously, the defendant
committed not a single offense but a series of offenses. It is, no doubt, true that the
defendant did not allow the "jumper" to remain in place continuously for any number of
days as the company inspected monthly the inside meter. So the "jumper" was put on and
taken off at least monthly, if not daily, in order to avoid detection, and while the "jumper"
was off the defendant was not misappropriating the current. The complaint alleged that the
defendant did on, during, and between the 13th day of February, 1909, and the 3d of
March, 1910. willfully, unlawfully, and feloniously take, steal, and carry away 2,277
kilowatts of electric current of the value of P909. No demurrer was presented against this
complaint on the ground that more than one crime was charged. The Government had no
opportunity to amend or correct this error, if error at all. In the case of U. S. vs. Macaspac
(12 Phil. Rep., 26), the defendant received from one Joquina Punu the sum of P31.50, with
the request to deliver it to Marcelina Dy-Oco. The defendant called upon Marcelina, but
instead of delivering the said amount she asked Marcelina for P30 in the name of Joaquina
who had in no way authorized her to do so. Marcelina gave her P30, believing that
Joaquina had sent for it. Counsel for the defendant insisted that the complaint charged his
client with two different crimes ofestafa in violation of section 11 of General Orders, No.
58. In disposing of this question this court said:
The said defect constitutes one of the dilatory pleas indicated by section 21, and
the accused ought to have raised the point before the trial began. Had this been
done, the complaint might have been amended in time, because it is merely a
defect of form easily remedied. . . . Inasmuch as in the first instance the accused
did not make the corresponding dilatory plea to the irregularity of the complaint,
it must be understood that has waived such objection, and is not now entitled to
raise for the first time any question in reference thereto when submitting to this
court her assignment of errors. Apart from the fact that the defense does not
pretend that any of the essential rights of the accused have been injured, the
allegation of the defect above alluded to, which in any case would only affect
form of the complaint, can not justify a reversal of the judgment appealed from,
according to the provisions of section 10 of General Orders, No. 58.
In the case at bar it is not pointed out wherein any of the essential rights of the defendant
have been prejudiced by reason of the fact that the complaint covered the entire period. If
twelve distinct and separate complaints had been filed against the defendant, one for each
month, the sum total of the penalties imposed might have been very much greater than that
imposed by the court in this case. The covering of the entire period by one charge has been
beneficial, if anything, and not prejudicial to the rights of the defendant. The prosecuting
attorney elected to cover the entire period with one charge and the accused having been
convicted for this offense, he can not again be prosecuted for the stealing of the current at
any time within that period. Then, again, we are of the opinion that the charge was
properly laid. The electricity was stolen from the same person, in the same manner, and in
the same place. It was substantially one continuous act, although the "jumper" might have
been removed and replaced daily or monthly. The defendant was moved by one impulse to
appropriate to his own use the current, and the means adopted by him for the taking of the
current were in the execution of a general fraudulent plan.
A person stole gas for the use of a manufactory by means of pipe, which drew off
the gas from the main without allowing it to pass through the meter. The gas from
this pipe was burnt every day, and turned off at night. The pipe was never closed
at this junction with the main, and consequently always remained full of gas. It
was held, that if the pipe always remained full, there was, in fact, a continuous
taking of the gas and not a series of separate talkings. It was held also that even if
the pipe had not been kept full, the taking would have been continuous, as it was
substantially all one transaction. (Regina vs. Firth, L. R., 1 C. C., 172; 11 Cox C.
C., 234. Cited on p. 758 of Wharton's Criminal Law, vol. 1, 10th ed.)
The value of the electricity taken by the defendant was found by the trial court to be
P865.26. This finding is fully in accordance with the evidence presented. So no error was
committed in sentencing the defendant to indemnify the company in this amount, or to
suffer the corresponding subsidiary imprisonment in case of insolvency.
The judgment being strictly in accordance with the law and the merits of the case, same is
hereby affirmed, with costs against the appellant.
Arellano, C.J., Torres, Mapa and Carson, JJ.


Separate Opinions
MORELAND, J ., dissenting:
I feel myself compelled to dissent because, in my judgment, there is no evidence before
this court, and there was none before the court below, establishing the most essential
element of the crime of larceny, namely, the takingwithout the consent of the owner. As I
read the record, there is no evidence showing that the electricity alleged to have been
stolen was taken without the consent of the complaining company. The fact is that there
was not a witness who testified for the prosecution who was authorized in law, or who
claimed to be authorized in fact, to testify as to whether or not the alleged taking of the
electricity was without the consent of the company or, even that said company had not
been paid for all electricity taken. Not one of them was, as a matter of law, competent to
either of those facts. Not one of them was an officer of the company. The leading witness
for the people, Kay, was only an inspector of electric lights. Another, McGeachim was an
electrical engineer in the employ of the company. Another, Garcia, was an electrician of
the company. These witness all confined their testimony to technical descriptions of
meters, their nature and function, of electric light wires, the writing of defendant's house,
the placing of a meter therein, the placing of the meter outside of the house in order to
detect, by comparing the readings of the two, whether the accused was actually using more
electricity than the house meter registered, the discovery that more electricity was being
used than said meter registered, and of the finding of a "jumper" in defendant's possession.
One of these witnesses testified also that he had suspected for a long time that the accused
was "stealing" electricity and that later he was "positive of it."
In order to sustain a charge of larceny under section 517 of Penal Code, it is necessary to
prove that there was a taking without the consent of the owner. This is unquestioned. The
question is: Has the prosecution proved that fact? Has it proved that the electricity alleged
to have been stolen was used without the consent of the company? Has it proved that the
accused did not have a right to use electricity whether it went through the meter or not?
Has it proved, even, that the accused did not have a right to use a "jumper?" Has it been
proved that the company has not been fully paid for all the electricity which defendant
used, however obtained? Not one of these facts has been proved. The only way to
determine those questions was to ascertain the relations which existed between the accused
and the company at the time the electricity alleged to have been stolen was used by the
accused. There was certainly some relation, some contract, either express or implied,
between the company and the accused or the company would not have been supplying him
the electric current. What was that relation, that contract? No one can possibly tell by
reading the record. There is not a single word in all the evidence even referring to it. Not
one of the people's witnesses mentioned it. Not one of them, very likely, knew what it
really was. The relation which a corporation bears to private persons for whom they are
rendering service is determined by the corporation itself through the acts of its officials,
and not by its employees. While an employee might, as the act of a servant, have caused
the contract between the company and the accused to be signed by the accused, it was
nevertheless a contract determined and prepared by the company through its officers and
not one made by the employee; and unless the employee actually knew the terms of the
contract signed by the accused, either by having read it, if in writing, or by having heard it
agreed upon, if verbal, he would not be competent to testify to its terms except rendered so
by admission of the party to be charged by it. It nowhere appears that any of the witnesses
for the prosecution had any knowledge whatever of the terms of the contract between the
company and the accused. It does not appear that any of them had ever seen it or heard it
talked about by either party thereto. The company has offered no testimony whatever on
the matter. The record is absolutely silent on that point.
This being true, how can we say that the accused committed a crime? How can we say that
a given act is criminal unless we know the relation of the parties to whom the act refers?
Are we to presume an act wrong when it may be right? Are we to say that the accused
committed a wrong when we do not know whether he did or not? If we do not know the
arrangements under which the company undertook to furnish electricity to the defendant,
how do we know that the accused has not lived up to them? If we do not know their
contract, how do we know that the accused violated it?
It may be urged that the very fact that a meter was put in by the company is evidence that
it was for the company's protection. This may be true. But is it not just as proper to
presume that it was put in for defendant's protection also? Besides, it does not appear that
the company really put in the matter, nor does not appear that the company really put in
the meter, nor does it even appear to whom it belonged. No more does it appear on whose
application it was put in. The witness who installed the meter in defendant's house did not
say to whom it belonged and was unable to identify the one presented by the prosecution
on the trial as the one he installed. But however these things may be, courts are not
justified in "assuming" men into state prison. The only inferences that courts are justified
in drawing are those springing from facts which are not only proved but which are of
themselves sufficient to warrant the inference. The mere fact, it is a fact, that the company
placed a meter in defendant's house is not sufficient to sustain the conclusion in a criminal
case that the defendant did not have the right to use electricity which did not have the right
to use electricity which did not pass through the meter. Much less would it warrant the
inference that, in so using electricity, the defendant feloniously and criminally took, sole,
and carried it awaywithout the consent of the company. An accused is presumed innocent
until contrary is proved. His guilt must be established beyond a reasonable doubt. It is
incumbent on the state to prove every fact which is essential to the guilt of the accused,
and to prove every such fact as though the whole issue rested on it. The evidence of the
prosecution must exclude every reasonable hypothesis of innocence as with his guilt, he
can not be convicted.
But what was the necessity of all this uncertainty? What was the force which prevented the
company from proving clearly and explicitly the contract between itself and the accused?
What prevented it from proving clearly, explicitly, and beyond all cavil that the electricity
was taken (used) without its consent? Why did not some competent official testify? Why
did the company stand by wholly silent? Why did it leave its case to be proved by servants
who were competent to testify, and who did actually testify, so far as legal evidence goes,
only in relation to technical matters relating to meters and electric currents? Why did the
prosecution place upon this court the necessity of deducing and inferring and concluding
relative to the lack of consent of the company when a single word from the company itself
would have avoided that necessity? We have only one answer to all these questions: We do
not know.
In the case of Bubster vs. Nebraska (33 Neb., 663), the accused was charged with the
larceny of buggy of the value of $75. He was found guilty. On appeal the judgment of
conviction was reversed, the court saying:
There are two serious objections to this verdict. First, the owner of the buggy,
although apparently within reach of the process of the court, was not called as a
witness. Her son-in-law, who resided with her, testifies that he did not give his
consent, and very freely testifies that his mother-in-law did not. She was within
reach of the process of the court and should have been called as a witness to prove
her nonconsent.
The rule is very clearly stated in note 183, volume 1, Philips on Evidence (4th
Am. ed.). A conviction of larceny ought not to be permitted or sustained unless it
appears that the property was taken without the consent of the owner, and the
owner himself should be called, particularly in a case like that under
consideration, when the acts complained of may be consistent with the utmost
goodfaith. There is a failure of proof therefore on this point.
In the case of State vs. Moon (41 Wis., 684), the accused was charged with the larceny of a
mare. He was convicted. On appeal the court reversed the judgment of conviction, saying:
In State vs. Morey (2 Wis., 494) it was held that in prosecutions of lacerny, if the
owner of the property alleged to have been stolen is known, and his attendance as
a witness can be procured, his testimony that the property was taken from him
without his consent is indispensable to a conviction. This is upon the principle
that his testimony is the primary and the best evidence that the property was taken
without his consent, and hence, that secondary evidence of the fact cannot be
resorted to, until the prosecution shows it inability, after due diligence, to procure
the attendance of the owner.
In volume 1, Phillips on Evidence (5th Am., ed., note 183 sec. 635), the author says:
In all cases, and especially in this, the lacerny itself must be proved by the
evidence the nature of the case admits. . . . This should be by the testimony of the
owner himself if the property was taken from his immediate possession, or if from
the actual possession of another, though a mere servant or child of the owner, that
the immediate possession was violated, and this, too, without the consent of the
person holding it. Where nonconsent is an essential ingredient in the offense, as it
is here, direct proof alone, from the person whose nonconsent is necessary, can
satisfy the rule. You are to prove a negative, and the very person who can swear
directly to the necessary negative must, if possible, always be produced. (Citing
English authorities.) Other and inferior proof cannot be resorted to till it be
impossible to procure this best evidence. If one person be dead who can swear
directly to the negative, and another be alive who can yet swear to the same thing,
he must be produced. In such cases, mere presumption, prima facie or
circumstantial evidence is secondary in degree, and cannot be used until all the
sources of direct evidence are exhausted.
I quote these authorities not because I agree with the doctrine as therein set forth. I quote
them because there is a principle inherent in the doctrine laid down which is recognized by
all courts as having value and effect. It is this: Failure to call an available witness
possessing peculiar knowledge concerning facts essential to a party's case, direct or
rebutting, or to examine such witness as to facts covered by his special knowledge,
especially if the witness be naturally favorable to the party's contention, relying instead
upon the evidence of witnesses less familiar with the matter, gives rise to an inference,
sometimes denominated a strong presumption of law, that the testimony of such
uninterrogated witness would not sustain the contention of the party. Where the party
himself is the one who fails to appear or testify, the inference is still stronger. The
nonappearance of a litigant or his failure to testify as to facts material to his case and as to
which he has especially full knowledge creates an inference that he refrains from
appearing or testifying because the truth, if made to appear, would not aid his contention;
and, in connection with an equivocal statement on the other side, which if untrue could be
disapproved by his testimony, often furnishes strong evidence of the facts asserted. As to
this proposition the authorities are substantially uniform. They differ only in the cases to
which the principles are applied. A substantially full list of the authorities is given in 16
Cyclopedia of Law and Procedure (pp. 1062 to 1064, inclusive) from which the rules as
stated above are taken.
This court has recognized the value of this principle and has permitted it strongly to
influence its view of the evidence in certain cases. In the case of United
States vs. Magsipoc (20 Phil. Rep., 604) one of the vital facts which the prosecution was
required to establish in order to convict the accused was that a certain letter which the
accused alleged he mailed to his daughter, who was attending a boarding school in Iloilo,
and which the daughter testified she had received, had not really been sent by the accused
and received by the daughter but, instead, had been purloined by him from the post-office
after he had duly placed it therein and after it had been taken into custody and control of
the postal authorities. It was conceded that the directress of the boarding school which the
daughter was at the time attending knew positively whether the daughter was at the time
attending knew positively whether the daughter had received the letter in question or not.
This court held that, in weighing the evidence, it would take into consideration the failure
of the prosecution to produce the directress of the school as a witness in the case, she being
the only person, apart from the daughter herself, who really knew the fact.
Another those cases was that of U. S. vs. Casipong (20 Phil. Rep., 178) charged with
maintaining a concubine outside his home with public scandal. To prove the scandalous
conduct charged and its publicity, the prosecution introduced testimony, not of witnesses
in the vicinity where the accused resided and where the scandal was alleged to have
occurred, but those from another barrio. No Witness living in the locality where the public
scandal was alleged to have occurred was produced. This court, in the decision of that case
on appeal, allowed itself, in weighing the evidence of the prosecution, to be strongly
influenced by the failure to produce as witnesses persons who, if there had really been
public scandal, would have been the first, if not the only ones, to know it. The court said:
In this case it would have been easy to have submitted abundant evidence that
Juan Casipong forsook his lawful wife and lived in concubinage in the village of
Bolocboc with his paramour Gregoria Hongoy, for there would have been an
excess of witnesses to testify regarding the actions performed by the defendants,
actions not of isolated occurrence but carried on for many days in slight of
numerous residents scandalized by their bad example. But it is impossible to
conclude from the result of the trial that the concubinage with scandal charged
against the defendants has been proved, and therefore conviction of the alleged
concubine Gregoria Hongoy is not according to law.
In the case at bar the question of the consent of the company to the us of the electricity was
the essence of the charge. The defendant denied that he had taken the electricity without
the consent of the company. The prosecution did not present any officer of the corporation
to offset this denial and the company itself, although represented on the trial by its own
private counsel, did not produce a single witness upon that subject.
In the case of Standard Oil Co. vs. State (117 Tenn., 618), the court (p.672) said:
But the best evidence of what his instructions to Holt were and the information he
had of the transaction at the time was made were the letters which he wrote to
Holt directing him to go to Gallatin, and the daily and semi-weekly reports made
to him by Holt and Rutherford of what was done there, which were not produced,
although admitted to be then in his possession. He was aware of the value of such
evidence, as he produced a copy of his letter to Holt, condemning the transaction,
as evidence in behalf of the plaintiffs in error. The presumption always is that
competent and pertinent evidence within the knowledge or control of a party
which he withholds is against his interest and insistence. (Dunlap vs. Haynes, 4
Heisk., 476; Kirby vs.Tallmadge, 160 U. S., 379, 16 Sup. Ct., 349, 40 L. ed., 463;
Pacific Constr. Co. vs. B. W. Co., 94 Fed,, 180, 36 C. C. A., 153)
In the case of Succession of Drysdale (127 La., 890), the court held:
When a will presented for probate is attacked on the ground that it is a forgery,
and there are pertinent facts relating to the will in the possession of the proponent,
and he repeatedly fails to testify when his testimony could clear up many clouded
and doubtful things, his failure to testify casts suspicion upon the will, especially
when the one asking for the probate of the will is a principal legatee.
In the case of Belknap vs. Sleeth (77 Kan., 164), the court (p. 172) said:
What effect should such conduct have in the consideration of a case, where the
successful party thus living beyond the jurisdiction of the court has refused to
testify in a material matter in behalf of the opposing party? It must be conceded
that the benefit of all reasonable presumptions arising from his refusal should be
given to the other party. The conduct of a party in omitting to produce evidence
peculiarly within his knowledge frequently affords occasion for presumptions
against him. (Kirby vs. Tallmadge, 160 U. S., 379, 16 Sup. Ct., 349, 14 L. Ed.,
463.) This rule has been often applied where a party withholds evidence within
his exclusive possession and the circumstances are such as to impel an honest
man to produce the testimony. In this case the witness not only failed but refused
to testify concerning material matters that must have been within his knowledge.
In the case of Heath vs. Waters (40 Mich., 457), it was held that:
It is to be presumed that when a witness refuses to explain what he can explain,
the explanation would be to his prejudice.
In case of Frick vs. Barbour (64 Pa. St., 120, 121), the court said:
It has been more than once said that testimony in a case often consists in what is
not proved as well as in what is proved. Where withholding testimony raises a
violent presumption that a fact not clearly proved or disproved exists, it is not
error to allude to the fact of withholding, as a circumstance strengthening the
proof. That was all that was done here.
In the case of Funda vs. St. Paul City Railway Co. (71 Minn., 438), the court held:
The defendant having omitted to call its motorman as a witness, although within
reach and available, the court was, under the circumstances, justified in
instructing the jury that, in weighing the effect of the evidence actually
introduced, they were at liberty to presume that the testimony of the motorman, if
introduced, would not have been favorable to the cause of defendant.
In the case of Gulf, C. & S. F. Ry. Co. vs. Ellis (54 Fed. Rep., 481), the circuit court of
appeals held that:
Failure to produce the engineer as a witness to rebut the inferences raised by the
circumstancial evidence would justify the jury in assuming that his evidence,
instead of rebutting such inference, would support them.
In Wigmore on Evidence (vol. 1, sec. 285), it is said:
The consciousness indicated by the conduct may be, not an indefinite one
affecting the weakness of the cause at large, but a specific one concerning the
defects of a particular element in the cause. The failure to bring before the
tribunal some circumstances, document, or witness, when either the party himself
or his opponent claims that the facts would thereby be elucidated, serves to
indicate, as the most natural inference, that the party fears to do so, and this fear is
some evidence that circumstances or document or witness, if brought, would have
exposed facts unfavorable to the party. These inferences, to be sure, cannot fairly
be made except upon certain conditions; and they are also open always to
explanation by circumstances which make some other hypothesis a more natural
one than the party's fear of exposure. But the propriety of such an inference in
general is not doubted. The nonproduction of evidence that would naturally have
been produced by an honest and therefore fearless claimant permits the inference
that its tenor is unfavorable to the party's cause. . . .
Continuing this same subject the same author says:
At common law the party-opponent in a civil case was ordinarily privileged from
taking the stand (post, sec. 2217); but he was also disqualified; and hence the
question could rarely arise whether his failure to testify could justify any
inference against him. But since the general abolition of both of the privilege and
the disqualification (post, secs. 2218, 577), the party has become both competent
and compellable like other witnesses; and the question plainly arises whether his
conduct is to be judged by the same standards of inference. This question
naturally be answered in the affirmative. . . . (See Aragon Coffee Co., vs. Rogers,
105 Va., 51.)
As I stated at the outset, I have been unable to find in the record of this case any proof of
legal value showing or tending to show that the electricity alleged to have been stolen was
taken or used without the consent of the company. The defendant, therefore, should be
acquitted.
There are other reasons why I cannot agree to the conviction of the accused. Even though
the accused to be found to have committed the acts charged against him, it stands
conceded in this case that there is a special law passed particularly and especially to meet
cases of this very kind, in which the offense is mentioned by name and described in detail
and is therein made a misdemeanor and punished as such. It is undisputed and admitted
that heretofore and ever since said act was passed cases such as the one at bar have
uniformly and invariably been cognized and punished under said act; and that this is the
first attempt ever made in these Islands to disregard utterly the plain provisions of this act,
and to punish this class of offenses under the provisions of Penal Code relating to larceny.
The applicability of those provisions is, to say the very least, extremely doubtful, even
admitting that they are still in force. Even though originally applicable, these provisions
must now be held to be repealed by implication, at least so far as the city of Manila is
concerned, by the passage of the subsequent act defining the offense in question and
punishing it altogether differently.
Moreover, I do not believe that electricity, in the for in which it was delivered to the
accused, is susceptible of being stolen under the definition given by the law of these
Islands to the crime of larceny.
Concisely, then, I dissent because (a) this court, by its decision in this case, has, in my
judgment, disregarded the purpose of the Legislature, clearly expressed; because (b) it has
applied a general law, of at least very doubtful application, to a situation completely dealt
with, and admittedly so by a later statute conceived and enacted solely and expressly to
cover that very situation; because (c) the court makes such application in spite of the fact
that, under the general law, if it is applicable, the crime in hand is a felony while under the
later statute it is only a misdemeanor; because (d), in my judgment, the court modifies the
definition given by the Legislature to the crime of lacerny, which has been the same and
has received the same interpretation in this country and in Spain for more than two
centuries; because (e) the decision disregards, giving no importance to a positive statute
which is not only the last expression of the legislative will on the particular subject in
hand, but was admittedly passed for the express purpose of covering the very situation to
which the court refuses to apply it. While the statute referred to is an act of the Municipal
Board of the city of Manila, this court has held in a recent case that said board was
authorized by the legislature to pass it. Therefore it is an Act of the Legislature of the
Philippine Islands.
In this dissent I shall assert, and, I think, demonstrate three propositions, to wit:
First. That an electric current is not a tangible thing, a chattel, but is a condition, a state in
which a thing or chattel finds itself; and that a condition or state can not be stolen
independently of the thing or chattel of which it is a condition or state. That it
is chattels which are subjects of lacerny and not conditions.
Second. That, even if an electric current is a tangible thing, a chattel, and capable of being
stolen, in the case at bar no electric current was taken by the defendant, and therefore none
was stolen. The defendant simply made use of the electric current, returning to the
company exactly the same amount that he received.
Third. That, even if an electric current is a tangible thing, a chattel, and capable of being
stolen, the contract between the company and the defendant was one for use and not
for consumption; and all the defendant is shown to have done, which is all he could
possibly have done, was to make use of a current of electricity and not to take or consume
electricity itself .
I shall therefore maintain that there is no lacerny even though the defendant committed all
the acts charged against him.
In discussing the question whether, under the law of the Philippine Islands, an electric
current is the subject of larceny, I shall proceed upon the theory, universally accepted to-
day, that electricity is nothing more or less thanenergy. As Mr. Meadowcroft says in his A
B C of Electricity, indorsed by Mr. Edison, "electricity is a form of energy, or force, and is
obtained by transforming some other form of energy into electrical energy."
In this I do not forget the theory of the "Electron" which is now being quietly investigated
and studied, which seems to tend to the conclusion that there is no difference between
energy and matter, and that all matter is simply a manifestation of energy. This theory is
not established, has not been announced by any scientist as proved, and would probably
have no effect on the present discussion if it were.
Based on this accepted theory I draw the conclusion in the following pages that electricity
is not the subject of larceny under the law of the Philippine Islands.
Partida 3, title 29, law 4, thus defines "cosas muebles:"
The term muebles is applied to all the things that men can move from one place to
another, and all those that can naturally move themselves: those that men can
move from one place to another are such as cloths, books, provisions, wine or oil,
and all other things like them; and those that can naturally move themselves are
such as horses, mules, and the other beast, and cattle, fowls and other similar
things.
Partida 5 title 5, law 29, contains the following:
But all the other things which are muebles and are not annexed to the house or do
not appeartain thereto belong to the vendor and he can take them away and do
what he likes with them: such are the wardrobes, casks and the jars not fixed in
the ground, and other similar things.
Article 517 of the Penal Code, in that portion defining larceny, as charged against the
accused in the case at bar, reads:
ART. 517. The following are guilty of theft:
1. Those who, with intent of gain and without violence or intimidation against the
person or force against things, shall take another's personal property (cosas
muebles) without the owner's consent.
This article of the Penal Code, as is seen, employs precisely the words defined in the
Partidas. The definition of the word is clear in the law as written. It is also clear in the law
as interpreted. I have not been able to find a writer on Spanish or Roman criminal law who
does not say clearly and positively that the only property subject to lacerny is tangible
movable chattels, those which occupy space, have three dimensions, have a separate and
independent existence of their own apart from everything else, and can be manually
seized and carried from one place to another. This was the unquestioned theory of the
Roman criminal law and it is the undoubted and unquestioned theory of the Spanish
criminal law. Nor do I find a writer or commentator on the Spanish or Roman Civil Law
who does not define a cosa mueble in the same way.
One of the leading commentators of Spain on criminal law writes thus concerning the
property subject to robbery and lacerny:
Personal property belonging to another. If robbery consists in the taking of a
thing for the purpose and by the means indicated in the article in question, it
follows from the very nature of this class of crimes, that only personal or movable
property can be the subject thereof, because none but such property can be the
subject of the correctatio of the Romans; "Furtum since contrectatione non fiat,"
says Ulpian. The abstraction, the rapine, the taking, and all the analogous terms
and expressions used in the codes, imply the necessity that the things abstracted
or taken can be carried from one place to another. Hence the legal maxim: Real
property "non contractantur, sed invaduntur." (6 Groizard, p. 47)
The act of taking is what constitutes the contrectatio and the invito domino which
all the great ancient and modern jurists consider as the common ingredient (in
addition to the fraudulent intention of gain), of the crimes of robbery and theft.
From what has been said it follows that the taking, the act of taking without
violence or intimidation to the persons, or force upon the things, for the purpose
of gain and against the will of the owner, is what determines the nature of the
crime of theft as defined in paragraph 1 of this section. (6 Groizard, pp. 261, 262.)
The material act of taking is, therefore, an element of the crime which cannot be
replaced by any other equivalent element. From this principle important
consequences follow which we need not now stop to consider for the reason that
in speaking of the crime of robbery we have already discussed the subject at great
length. Immovable and incorporeal things cannot be the subject of the theft for
the reason that in neither the one or the other is it possible to effect
the contrectatio, that is to say, the material act of laying hands on them for the
purpose of removing the same, taxing the same or abstracting the same. Hence the
legal maxims: "Furtum non committitur in rebus immobilibus and Res
incorporales nec tradi possideri possunt, ita contectavit nec aufferri." (6
Groizard, p. 266.)
Criticising an opinion of the supreme court of Spain which held that illuminating gas was a
subject of lacerny, the same writer says:
The owner of a certain store who had entered into a contract with a gas company
whereby he substantially agreed to pay for the consumption of the amount of gas
which passed through a meter, surreptitiously placed a pipe which he connected
with the branch from the main pipe before it reached the meter and used the same
for burning more lights than those for which he actually paid. The supreme court
of Madrid convicted the defendant of the crime of estafa but the supreme court of
Spain reversed the judgment, holding that he should be convicted of theft. The
only reason which the supreme court had for so deciding was that the owner of
the store had taken personal property belonging to another without the latter's
consent, thereby committing the crime not of estafa but of consummated theft.
But in our judgment, considering the sense and import of the section under
consideration, it cannot be properly said that the owner of the store took the gas
because in order to do this it would have been necessary that the said fluid were
capable of being taken or transported, in other words, that the contrectatio, the
meaning of which we have already sufficiently explained, should have taken
place.
Gas is not only intangible and therefore impossible of being the subject
of contrectatio, of being seized, removed, or transported from one place to
another by the exercise of the means purely natural which man employs in taking
possession of property belonging to another, but, by reason of its nature, it is
necessary that it be kept in tank, or that it be transmitted through tubes or pipes
which by reason of their construction, or by reason of the building to which the
same may be attached, partake of the nature of immovable property. There is no
means, therefore, of abstracting gas from a tank, from a tunnel or from a pipe
which conveys the fluid to a building, for the purpose of being consumed therein,
unless the receptacle containing the same is broken, or the tank or pipe bored, and
other tubes or pipes are connected therewith at the point of the opening or fracture
by means of which the gas can conveyed to a place different from that for which
it was originally intended.
This exposition, interpretation, if you choose to call it such, has a further
foundation in our old laws which have not been changed but rather preserved in
the definition of movable an immovable property given by the Civil Code.
According to Law, I Title XVII, Partida II, personal property means those things
which live and move naturally by themselves, and those which are neither living
nor can naturally move, but which may be removed; and Law IV, Title XXIX,
Partida III, defines personal property as that which man can move or take from
one place to another, and those things which naturally by themselves can move.
Finally, corporeal things, according to Law I, Title III, Partida III, are those which
may be the subject of possession with the assistance of the body, and incorporeal
those which cannot be physically seized, and cannot be properly possessed. From
these definitions it follows that unless we do violence to the plain language of
these definitions, it would be impossible to admit that gas is a corporeal thing,
and much less that it is movable property. (6 Groizard, pp. 268, 269.)
If the holding that gas, which is unquestionably a physical entity having a separate and
independent existence and occupying space, has approached the verge of unstealable
property so closely that the ablest of Spain commentators believes that there is grave
danger of the complete destruction of the ancient legislative definition of stealable
property by judicial interpretation, what would be said in regard to a decision holding that
an electric current is a subject of lacerny?
It may be well to add just here, although it may be somewhat out of its regular order, what
the author above quoted regards was the crime actually committed in the case he was
discussing. He says:
For us, for the reasons hereinbefore set out, it would be more in harmony with the
principles and legal texts which determine the nature of the crimes of theft
and estafa, to assign the latter designation to the fraudulent act which he have
heretofore examined and which substantially consists in the alteration, by means
of a fraudulent method, of the system established by an agreement to supply a
store with illuminating gas and to determine the amount consumed for lighting
and heating and pay its just value. We respect, however, the reasons to the
contrary advanced in the hope that the supreme court in subsequent judgments
will definitely fix the jurisprudence on the subject.
Nor can the abusive use of a thing determine the existence of the crime under
consideration. A bailee or pledgee who disposes of the thing, bail or pledge
entrusted to his custody for his own benefit is not guilty of lacerny for the reason
that both contracts necessarily imply the voluntary delivery of the thing by the
owner thereof and a lawful possession of the same prior to the abusive use of it.
Not even a denial of the existence of the bailment or contract of pledge with of
gain constitutes the crime of lacerny for the reason that the material act of taking
possession of the property without the consent of the owner is lacking. (6
Groizard, p. 269.)
That under the Roman and Spanish law property to be the subject of lacerny must be
a tangible chattel which has a separate independent existence of its own apart from
everything else, which has three dimensions an occupies space so that it may of
itself be bodily seized and carried away, is not an open question. That that was also the
doctrine of the common law is equally beyond question.
In the consideration of this case the great difficulty lies in confusing the appearance with
the thing, in confounding the analogy with the things analogous. It is said that the analogy
between electricity and real liquids or gas is absolutely complete; that liquids and gases
pass through pipes from the place of manufacture to the place of use; and the electric
current, in apparently the same manner, passes through a wire from the plant to the lamp;
that it is measured by a meter like liquids and gas; that it can be diverted or drawn from the
wire in which the manufacturer has placed it, to the light in the possession of another; that
a designing and unscrupulous person may, by means of a wire surreptiously and criminally
transfer from a wire owned by another all the electricity which it contains precisely as he
might draw molasses from a barrel for his personal use. And the question is triumphantly
put, "how can you escape the inevitable results of this analogy?" The answer is that
it is an analogy and nothing more. It is an appearance. The wire from which the electricity
was drawn has lost nothing. It is exactly the same entity. It weighs the same, has just as
many atoms, arranged in exactly the same way, is just as hard and just as durable. It
exactly the same thing as it was before it received the electricity, at the time it had it, and
after it was withdrawn from it. The difference between a wire before and after the removal
of the electricity is simply a difference ofcondition. Being charged with electricity it had
a quality or condition which was capable of being transferred to some other body and, in
the course of that transfer, of doing work or performing service. A body in an elevated
position is in a condition different from a body at sea level or at the center of the earth. It
has the quality of being able to do something, to perform some service by the mere change
of location. It has potential energy, measured by the amount of work required to elevated
it. The weight or monkey of a pile driver is the same weight when elevated 50 feet in air as
it is when it lies on top of the pile 50 feet below, but it has altogether a different quality.
When elevated it is capable of working for man by driving a pile. When lying on top of the
pile, or at sea level, it has no such quality. The question is, "can you steal that quality?"
Two pile drivers, owned by different persons, are located near each other. The one owner
has, by means of his engine and machinery, raised his weight to its highest elevation, ready
to deliver a blow. While this owner is absent over night the owner of the other pile driver,
surreptiously and with evil design and intent, unlocks the weight and, by means of some
mechanical contrivance, takes advantage of its fall in such a way that the energy thus
produced raised the weight of his own pile driver to an elevation of forty feet, where it
remains ready, when released, to perform service for him. What has happened? Exactly the
same thing, essentially, as happened when the electric charge of one battery is transferred
to another. The condition which was inherent in the elevated weight was transferred to the
weight which was not elevated; that is, the potential energy which was a condition or
quality of the elevated weight was by a wrongful act transferred to another. But was
that condition or quality stolen in the sense that it was a subject of lacerny as that crime is
defined the world over? Would the one who stole the battery after it had been elevated to
the ceiling, or the weight of the pile driver after it had been elevated 50 feet in the air, be
guilty of a different offense than if he stole those chattels before such elevation? Not at all.
The weight elevated had more value, in a sense, than one not elevated; and the quality of
elevation is considered only in fixing value. It has nothing whatever to do with
the nature of the crime committed. It is impossible to steal a quality or conditionapart from
the thing or chattel of which it is a quality or condition of a thing affects the value of the
thing. It is impossible to steal value. The thing, the chattel is that which is stolen. Its
quality or condition is that which, with other circumstances, goes to make the value.
A mill owner has collected a large amount of water in a dam at such an elevation as to be
capable of running his mill for a given time. A neighboring mill owner secretly introduces
a pipe in the dam and conveys the water to his own mill, using it for his own benefit. He
may have stolen the water, but did he steal the head, the elevation of the water above the
wheel? The fact that the water had a head made it more valuable and that fact would be
taken into consideration in fixing the penalty which ought to be imposed for the offense;
but it has nothing whatever to do with determining the nature of the offense of which the
man would be charged.
Larceny cannot be committed against qualities or conditions. It is committed solely against
chattels, tangible things. A given chattel is a compromise result of all its properties,
qualities, or conditions. None of the qualities which go make up the complete thing is the
subject of larceny. One cannot steal from a roof the quality of shedding rain, although he
may bore it full of holes and thus spoil that quality; and this, no matter how much he might
be benefit thereby himself. If, in a country where black horses were very dear and white
horses very cheap, one, by a subtle process, took from a black horse the quality of being
black and transferred that quality to his own horse, which formerly was white, thereby
greatly increasing its value and correspondingly decreasing the value of the other horse
which by the process was made white, would he be guilty of larceny? Would he be guilty
of larceny who, with intent to gain, secretly and furtively and with the purpose of
depriving the true owner of his property, took from a bar of steal belonging to another the
quality of being hard, stiff and unyielding and transferred that quality to a willow wand
belonging to himself? Is he guilty of larceny who, with intent to defraud and to benefit
himself correspondingly, takes from a copper wire belonging to another the quality of
being electrified and transfers that quality to an electric light? An electric current is either a
tangible thing, a chattel of and by itself, with a perfect, separate and independent
existence, or else it is a mere quality, property or condition of some tangible
thing orchattel which does have such an existence. The accepted theory to-day is, and it is
that which must control, that electricity is not a tangible thing or chattel, that it has no
qualities of its own, that it has no dimensions, that it is imponderable, impalpable,
intangible, invisible, unweighable, weightless, colorless, tasteless, odorless, has no form,
no mass, cannot be measured, does not occupy space, and has no separate existence. It is,
must be, therefore, simply a quality, a condition, a property of some tangible thing or
chattel which has all or most of those qualities which electricity has not. Being merely
the quality of a thing and not the thing itself , it cannot be the subject of larceny.
To repeat" As we know it, electricity is nothing more or less than a condition of matter. It
has no existence apart from the thing of which it is condition. In other words, it has no
separate, independent existence. It is immaterial, imponderable, impalpable, intangible,
invisible, weightless and immeasurable, is tasteless, odorless, and colorless. It has no
dimensions and occupies no space. It is the energy latent in a live herself is the power
potential in the arm of a laborer. It is the force stored in the wound-up spring. It is
an agency, not a "cosa mueble." It is a movement and not a chattel. It is energy and not a
body. It is what the laborer expends and not what he produces. It is strength striped by an
unknown process from arms of men and atoms of coal, collected and marshalled at a given
place under the mysterious leash of metal, ready to spring like a living servant to the work
of its master. It is not a chattel, it is life. It is as incapable of being stolen, by itself, as the
energy latent in a live horse. It is as impossible to steal an electric current as it is to steal
the energy hidden in a wound-up watch spring. One may steal the horse and with it the
energy which is a quality of the horse. One may steal a watch and with it the energy which
is a property of the wound-up. But can we say that one can steal the energy in the watch
spring separate from the spring itself, or electricity apart from the wire of which it is a
quality or condition?
A laborer was stored up in his muscles the capacity to do a day's work. He has potential
energy packed away in little cells or batteries all through his body. With the proper
mechanism he can enter a room which it is desired to light with electricity and, by using
the stored-up energy of his body on the mechanism, light the room by transforming the
energy of his muscles into the electricity which illuminates the room. We have, then, a
laborer who, by moving his hands and arms in connection with the appropriate machinery,
is able to light the room in which he is at the time. What causes the light? The energy in
the laborer's muscles is transformed into light by means of the intermediate phenomenon
known as electricity. As a concrete result, we have the energy in the laborer's muscles
transmuted into light. Now, is the energy passing through the wire, more capable of being
stolen than the energy in the muscles of the laborer? Or is the light or heat any more or less
a subject of larceny than the electric current of which they are a manifestation? Could the
energy which performed the day's work be stolen? Could the electric current which lighted
the room be stolen apart from the wire of which it was a quality? One might kidnap the
laborer and with him the energy which constitutes his life; but can we say that the energy,
of itself, is the subject of separate larceny? But, it the laborer's energy cannot be stolen
while it resides in and is a quality of his arm, can the same energy any more be stolen
when it resides in and is a quality of a wire in the form of electricity? If so, just where is
the dividing line, where is the point at which this kinetic energy ceases to be incapable of
being separately stolen and becomes a subject to theft? Is it at the crank by which the
laborer turns the machine? Is it at the armature, the conductor, the fields coils, the field
magnet, the commutator, the brushes, the driving pulley, or the belt tightener? Is it where
the current enters what is called the electric-light wire, or is it where it enters the bulb or
arc and produces the light? In other words, at what point does the untealable laborer's
energy become stealable electric energy?
An electric-light wire placed in a house for the purpose of furnishing light for the same has
its precise counterpart in a laborer placed therein for the same purpose. Like the laborer, it
is filled with energy which will, when released, perform the service intended. The wire is
simply a means of transmitting the energy of the laborer's muscles, and that stored in tons
of coal which he handles, from the electric plant or factory to the house where the light is
produced. The wire simply avoids the necessity of the laborer being in the very house
where he produces the light. Instead of being there, he, by means of the so-called electric-
light wire, is located at a distance, but produces the light in exactly the same way,
transmitting his energy for that purpose. The wire stands in exactly the same relation to the
person in whose house it is put as would a laborer who had been sent to that house to
render services. The energy may be diverted from the purpose for which it was intended,
or a wrong account given of theamount of work performed by that energy; but it is
impossible to steal, take and carry the energy away. One cannot steal days' works; and that
is all an electric current is. One may use those days' works in hoeing corn when it has been
agreed that they shall be used in picking cotton; but that is not larceny of the days' works,
as larceny has been defined by the jurisprudence of every country, Or, one may report to
the owner of those days' works that he had used three of them when in reality he used
thirty and pay him accordingly, but that is not larceny of the twenty-seven.
But, it is argued, the illustration is not a fair one; energy in a laborer's arm or in the
muscles of a horse or in a wound-up spring is, so far as its capability of being stolen is
concerned, quite different from energy which has been separated from the arms of the
laborer or the muscles of the horse and driven through a wire; from such wire electricity
may be drawn like water from a barrel; and while it is impossible to steal the energy of a
man or a horse because it would destroy the life of the animal, an entirely different
question is presented when the energy has actually been separated from those animals and
confined in a wire.
This argument has several fundamental defects. In the first place, it assumes the whole
question at issue. By asserting that electricity is separable from the object of which it is a
quality or state is to assume that electricity is a material thing, which the real question to
be resolved. In the second place, if electricity is in the real sense of that term, separable
from the object to which it belongs, then it must be admitted that it is capable of separate
and independent existence apart from any other object. This is not so. It is not only
admitted but contended by every scientist who has touched this subject that electricity is
incapable of an independent existence apart from some given material object. In the third
place, this argument overlooks the fact, even if we assume that it can be separated, that the
thing when separated is not the same thing that it was before separation; in other words,
when the so-called separation occurs there is not only a transference of energy from the
horse to the battery but there is also a transformation. In the horse it is muscular energy. In
the wire it is electrical energy. In the horse it is potential. In the wire kinetic. It is not the
same thing in the wire that it was in the horse. In the fourth place, the argument makes the
stealability of a thing depend not on its nature but on where it is located. This is an
assumption wholly unwarranted and impossible under the law. To say that whether or not a
thing is stealable depends not on its nature but on where it is located is absurd. A diamond
ring in a burglar-proof safe is as much a subject of larceny, under the definition of the law,
as if it lay in an open showcase. If energy is stealable at all, and it must be remembered
that I am proceeding, as we must necessarily proceed upon the accepted theory that
electricity is nothing more or less than energy, it is so by reason of its nature and by reason
of its residing in a battery rather than in a horse; and if it is stealable by virtue of
its nature it can be stolen from the horse as well as from the battery or wire. A thing is
subject to larceny because, and only because, it is a cosa mueble, not because it is inside a
horse, a wire or a safe. If it is a cosa mueble it is the subject of larceny although it be
located on the moon; and if it is not a cosa mueble it is not subject to lacerny although it be
placed in a den of thieves. The difficulty or ease of getting at a thing has nothing whatever
to do with its stealability. In the fifth place, this argument overlooks the very important
fact, to be dealt with more at length later, that the electric current used by the accused was
returned to the company, after use, absolutely undiminished in quantity.
What, then, is the difference between corn, for example, and an electric current? It is this.
One is a cosa mueblewhile the other is not; one is produced by a wholly different
process from the other and from wholly different materials, if we may call materials those
changes which result in the immaterial thing called an electric current; in the case of corn
we deal not with the quality or energy of corn, but with corn as a composite and concrete
result of all its qualities and uses; we deal with a tangible thing, a chattel, and not with
a condition or quality of a tangible thing; we deal with things instead of ideas, with
things which exist separate and independent and which do not depend, as does electricity,
wholly upon some body not only for the capability of manifesting its existence, but also
for very existence itself ; because we deal with something which changes its form but never
its nature as a physical entity. It is always a chattel, a tangible thing, a cosa mueble.
On the other hand, in the case of the electric current we deal not with a thing, a chattel
a cosa mueble, but with acondition or quality, a property of a cosa mueble; with an idea
which always, before it has any significance of meaning whatever, associates itself with an
entity, a body or chattel, as a characteristic or quality of such body or chattel; with lines of
force which are merely and solely a quality, a property, a characteristic of the magnet,
instead of which grains of corn which are absolute entities, independent of and apart from
everything else, and not merecharacteristic or qualities of some entity of body which does
not exist as an absolute physical entity in itself; with the horse and the violet and not
their perfume; with the lily and not its beauty; with the clouds and not their color; with
entities and not accidents; with realities and not the imponderable,
impalpable ideas and qualities which make up the reality.
As he already been said, the difficulty in the elucidation of the question comes from the
confusion of qualities withthings, of appearances with realities. Apparently an electric
current does things. It produces phenomena. It, therefore, appears to be something. But it
must not be forgotten that many times appearances are deceitful. They do not always
insure realities. It is not judicial to say that, because a thing looks so, it is so. It is not
judicial to say that, simply because it looks as if one committed larceny, therefore he
is guilty of larceny. Before we may legallyconvict one of larceny, we must know exactly
what he did. Justice is not founded on guess work nor on appearances. Men's right are
preserved by definitions, and definitions are founded on facts, not fancies, on realities, not
appearances. Because, when one taps an electrically charged wire belonging to another
and, by means of a contrivance, transfers the charge to his own uses, it looks as if he
was stealing something, is not sufficient to convict him of larceny. We must first know
what larceny is, as well as what an electric current is, and what is meant by its use in
producing light. To know what larceny is we must know what legislators and judges
during the development of jurisprudence have always said and agreed it is. In other words,
we must know itsdefinition. It approaches tyranny to convict one of murder when is
actually guilty of homicide only. Yet the only thing which separates the two crimes is a
definition. It is wrong to convict one of robbery who is guilty only of larceny. Yet these
two crimes are distinguished only by a definition. If, as in the case at bar, whether or not
one is declared a felon and is sent to prison for one year eight months and twenty-one
days, is forever disqualified from holding public office and of exercising the right of
suffrage, or whether, instead, he is declared guilty of a misdemeanor simply and punished
lightly with no accompanying disqualifications, depends upon whether he has committed
larceny as defined by the Penal Code or whether he has merely violated a city ordinance,
the question whether he actually committed larceny or not begins to assume importance. It
assumes importance not only to him but to society as well. If a court to-day palpably
modifies a definition in order to convict an offender of larceny, how can society be assured
that tomorrow the same court will not modify some other definition to convict a citizen of
treason? When definitions are destroyed no man is secure in his person or his property.
When men act on appearances instead of realities justice will be shortlived. A whale looks
like a fish, acts like a fish, swims like a fish and lives all its life in the water like a fish. But
it is not a fish. It is an animal. It is air-breathing, warm-blooded, and viviparous, and
suckles its young. Now, if whether or not a whale is a fish or an animal is the potent factor
determining whether a man goes to state prison as a felon with all the deplorable
consequences resulting, or whether he is lightly sentenced as a mere misdemeanant, is it
not of the supremest importance to determine whether a whale is a fish or an animal? I am
informed that it used to be a common sight in The New York Zoological Gardens to see
Mr. Crowley, the large and extremely intelligent chimpanzee, dressed in faultless attire, sit
at the table and take his food and wine like a gentleman. Children believed him to be a
man; and many intelligent grown people honestly believed that he was as much man as
chimpanzee. But if the officials of the city of New York had been indicted for kidnapping,
based upon the seizure and forcible detention of Mr. Crowley, would it not have been of
the most solemn importance to them to throw away appearances and determine accurately
what Mr. Crowley really was? And in case of doubt as to what he was, could they not
justly have demanded the benefit of that doubt?
So, where one who diverted an electric current has been accused by reason thereof of the
crime of larceny, which crime, it being admitted, can be committed only against tangible
things, chattels, is it not of the very greatest importance to determine what an electric
current is, that is, whether it is a tangible thing, a chattel, or not and what is the nature and
meaning of the process by which it transforms itself into electric light? And in case of
doubt as what it is, cannot the accused justly demand the benefit of that doubt? To convict
one of larceny it is not sufficient to show merely that a wrongful act has been done; but it
must appear that a wrongful act of a particular kind has been committed. To constitute
larceny it must be proved that the wrongful act was committed against chattels,
against tangible things, which were seized upon and asported by the one accused. In the
case at bar it has not been shown that the accused laid unlawful hands upon and asported a
tangible thing, a chattel, una cosa mueble. The very least that the prosecution must
necessarily admit is that no one knows what electricity really is. That being so, it seems to
me to be a contradiction of terms to say that larceny, which must admittedly be committed
against a known thing, can be committed against a thing absolutely unknown. At least it
would seem that there is a grave doubt about the definition of larceny covering wrongful
acts relative to an electric current; and by reason of that doubt the conviction ought not to
be sustained. And if it is true, as I have herein attempted to show, that, under the prevailing
and generally accepted theory, electricity is nothing more or less than a condition, a
quality, a property of some tangible thing, some chattel or body, then, certainly, the charge
of larceny must fall, as that crime can be committed only against the thing and not against
a quality of the thing.
Although the only question in this case is whether electricity is such a tangible thing, as
can, under the definition of lacerny contained in the Penal Code, be the subject of lacerny,
nevertheless the court dismissed that question substantially without discussion, the only
reference thereto being the following:
I is true that electricity is no longer, as formerly, regarded by electricians as a
fluid, but its manifestations and effects, like those of gas, may be seen and felt.
The true test of what is a proper subject of lacerny seems to be not whether the
subject is incorporeal, but whether it is capable of appropriation by another than
the owner.
xxx xxx xxx
Electricity, the same as gas, is a valuable article of merchandise, bought and sold
like other personal property and is capable of appropriation by another. So no
error was committed by the trial court in holding that electricity is a subject of
lacerny.
The statement fail to touch the essential question involved and is wholly beside the point
for the following reasons, lying aside for the moment the nature of the act which the
accused actually committed, assuming that he committed the act described by the
witnesses for the prosecution:
In the first place, as I understand the law , the statement is not quite correct that, in the
Philippine Islands, "the true test of what is a proper subject of lacerny seems to be not
whether the subject is corporeal or incorporeal, but whether it is capable of appropriation,"
unless the word "appropriation" has the same meaning as the word "taking"used in the
article of the Penal Code defining larceny. If the court intended to use the word
"appropriation" in the sense of "taking," then its use was unnecessary and may be
misleading. If it did not so intend, then the rule of law laid down by the court is not as I
understand the law to be. An appropriation in addition to or different from thetaking is not
an essential of lacerny anywhere. Wharton says that "lacerny id is the fraudulent taking
and carrying away of a thing without claim of right, with the intention of converting it to a
use other than that of the owner and without his consent." Article 517 of the Penal Code
provides that they shall be guilty of lacerny "who . . . take (toman) (not appropriate)
another's cosas muebles (movable chattels) without the owner's consent." Unless,
therefore, the word "appropriation" is used in the same sense as "taking," the paragraph in
the court's decision above quoted does not contain a correct statement of the law. If it
means the same thing then the use of the word in no way enlightens the situation; for it is
just as difficult to determine whether a cosa mueble can be appropriatedas it is to
determine whether it can be taken. The question before us is whether or not electricity is
such a cosa mueble that it can be taken under the law of lacerny. To substitute in that
problem the word "appropriation" for the word "taking" does not laid in its solution in the
slightest degree when it is admitted that the word substituted means exactly the same thing
as the word in the place of which it was substituted.
An illustration will serve further to show the fallacy inherent in the statement quoted: Let
us suppose that the Penal Code defined larceny thus: "Any person who, with intent to gain,
takes from another his cake without his consent shall be guilty of lacerny." Let us suppose
that some one should then defined the subject of lacerny as anything, corporeal or
incorporeal, which can be "appropriated." It would be obvious that such definition would
be erroneous, for the reason that, while pie is as capable of being "appropriated" as cake,
still, under the terms of the law, lacerny cannot be committed against pie. So that where
the statute prescribes that the only thing subject to larceny is a cosa mueble and the
definition of the subject of larceny is claimed to be anything that can be "appropriated," the
answer at once is that such definition is inaccurate under the law as it may be too broad.
There may be some things which can be "appropriated" that are not cosas muebles.
In the second place, the quoted paragraph from the court's decision contains another error
in the statement of the law. I am of the opinion that, under the common law, and I am sure
under the Spanish law, the statement that "the true test of what is a proper subject of
larceny seems to be not whether the subject is corporeal or incorporeal . . ." is not accurate.
Professor Beale, of Harvard, says in his article on larceny that
At common law the only subjects of larceny were tangible, movable chattels;
something which could be taken in possession and carried away, and which had
some, although trifling, intrinsic value. Any substance which has length, breadth,
and thickness may be the subject of larceny. . . . A chose in action being in its
essence intangible could not be the subject of larceny at common law and the
paper evidence of the chose in action was considered merged with it.
Wharton says:
Choses in action, including bonds and notes of all classes according to the
common law are not the subject of larceny, being mere rights of action, having no
corporeal existence; . . . .
I have already quoted at length from writers on the Spanish and Roman law to show that
only tangible, corporealchattels can be the subject of larceny.
In the third place, by entirely begging the question, it leaves the whole proposition of
whether electricity is a subject of larceny not only unsolved but wholly untouched. As we
have already seen, the word "appropriation" nowhere appears in subdivision 1 of the Penal
Code in connection with larceny. But if it were there used in connection with such crime, it
would necessarily refer entirely to a cosa mueble as that is the only thing under that article
which is the subject of larceny and, therefore of "appropriation." So that, before we can
possibly know whether a thing is capable of appropriation or not under the Penal Code, we
must know whether that thing is or is not a cosa mueble, as that, as we have said, is the
only thing that can be taken or appropriated in committing the crime of larceny. But, as is
readily seen, that brings us right back to the question we started with, What is a cosa
mueble? It is more than apparent, therefore, that the quoted paragraph adds nothing
whatever to the discussion.
In the fourth place, the word "appropriation" in the paragraph quoted is there used with a
complete misapprehension of its meaning as found in the article of the Civil Code from
which it is taken. Articles 334 and 335 of the Civil Code seek to divide all property
capable of appropriation into classes. They read:
ART. 334. Son bienes immuebles:
1. Las tierras, edificios, caminos y construcciones de todo genero adheridas al
suelo.
xxx xxx xxx
This article has ten subdivision dealing with all kinds of real property. It is not necessary to
quote it all at this time.
The English of the part quoted is as follows:
ART. 334. Real property consists of
1. Lands, buildings, roads, and constructions of all kinds adherent to the soil.
xxx xxx xxx
ART. 335. Se reputan bienes muebles los susceptibles de apropiacion no
comprendidos en el capitulo anterior, y en general todos los que se pueden
transportar de un punto a otro sin menoscabo de la cosa immueble a que
estuvieron unidos.
This article in English is as follows:
ART. 335. Personal property is considered anything susceptible of appropriation
and not included in the foregoing chapter, and, in general, all that which can be
carried from one place to another without damage to the real estate to which it
may be attached.
As is seen from the terms of the articles, two expressions are used in defining "bienes
muebles," one of elimination and other of description. The clause of elimination provides
that all property subject to appropriation shall be personal property except that property
described in article 334. But this description was found to be too broad. It included too
much; and it was, therefore, necessary to make use of a limiting or restricting clause in
connection with the exclusion clause. To that the article further provided that appropriable
property shall be, "in general, all property which can be carried from one place to
another." Under this restricting clause, then, property to bepersonal property must be not
only property not included in article 334 but also property which can be transported from
one place to another. It must fulfill two requirements instead of one. Besides, under the
Spanish law, real property is as much subject to appropriation as personal property. The
word in Spanish seems to be broader than its legal use in English.
From the foregoing it is plain that property to be personal property must not only be
susceptible of appropriation, which the court in the quoted paragraph claims is the only
requirement, but it must also be capable of being of itself manually seized and transported
from one place to another.
This presents the fourth reason why I say that the proposition laid down by the court in the
quoted paragraph is laid down under a complete misapprehension of the definition of una
cosa mueble.
And finally, the word "appropriate" which the court has used is found in subdivision 2 of
article 517 of the Penal Code. It provides that those are guilty of larceny, "who, finding a
thing (una cosa mueble) lost and knowing its owner, appropriate it with intent to gain."
The signification which the word here has is quite different from that of the word "take"
(toman) used in the first subdivision, being considerably limited in its reach. As used here
it is very like "convert." There is no removal from the possession of the owner, as in the
first paragraph. In the Penal Code the word "taking" means something more than
"appropriation." It means a removal from the possession of the owner a transportation
or asportation of the thing from one place to another from the possession of the owner
to the possession of the theft; while "appropriation" means, rather, the making use of the
converting of the property after the taking is complete, or without any "taking" at all.
Under the Spanish law, while real estate is not, of course, subject to asportation, to
"taking," and, therefore, not the subject of larceny, it is subject to "appropriation." In the
same way while electricity is, under the Spanish and Roman laws, wholly incapable of
seizure and asportation, of the manual "taking" the trespass essential to larceny,
it may possibly, in one or another sense of the word, be subject to appropriation." If at one
extreme of the scale of things, namely, real estate, the thing is too tangible to be stolen, is
it not logical to expect that at the opposite extreme the thing, electricity, for example, may
be found too intangible to be stolen?
We have seen that, in all the history of Roman and Spanish jurisprudence, the crime of
larceny has been confined to tangible things, to chattels, which have an independent
existence of their own; which have three dimensions; which occupy space; which are
capable of having a trespass committed against themselves; which can be, of themselves
and alone, taken physically into possession and carried away (asported).
We have that the fact that electricity is not such a thing is admitted by all.
And we have asked the question, "How, then, can the charge of larceny be sustained?"
But let as assume, for the sake of argument, that electricity is a tangible thing, like water,
for instance. Still the crime committed, if any, is not lacerny. Let us modify the illustration
already given of the surreptitious removal by A of water stored in a dam by B for milling
purposes. Let us suppose that B has built a reservoir on an elevated portion of his farm for
the storage of water for irrigating purposes. He has built ditches or conduits from the
reservoir to every part of his farm to carry the water to the places needed. During the dry
season while B is engaged in irrigating his lands A surreptitiously and with intent to gain,
constructs a small mill upon one of the conduits and utilizes the rapid fall and swift flow of
the water to operate his mill. For many months A thus takes advantages of B's conduit and
water and enriches himself by reason thereof. Did A commit the crime larceny? The water,
every drop of it, after being used by A, went to its work of irrigating the lands of B,
pausing only long enough to turn the water wheel of A's mill. Certainly then, no water was
stolen. A simply made use of the "head," the fall of the water. If anything was stolen it was
the "head," the elevation of the water, the energy developed by its passage from high to
low ground. This is precisely what happens when an electric current passes through an
electric bulb or arc and produces light. Whether the current operates one light of one
hundred, the volume, the amperage, of the current, that is, the quantity of it, if we may use
the term (and it must be remembered that I am assuming electricity to be a tangible thing
and will speak accordingly) remains exactly the same. The volume or quantity of the
electricity is just the same when it comes out of the hundredth light as it was when it
entered the first. While there is a difference between the current as it comes from the last
light and as it entered the first, it is simply one of condition, or state. All of
the electricity is still there. Like the water; it has simply lost its "head," its energy. It has
been deprived of its pressure, of its electro-motive force; but it is the same old electricity,
in the same old quantity. So that, when the accused in the case at bar, by means of a
"jumper," burned thirty lights, instead of the three for which he paid the company, he was
not stealing electricity. Exactly as much electricity went back into the company's wire after
serving the twenty-seven lights for which he did not pay as came out of that wire in the
first place. The defendant took nothing; he used something. In larceny there must be
a taking. Here there is only a use. Electricity is a utility, not a thing. The company, in the
cease at bar, lost no more than did the owner of the irrigation system in the example
heretofore given. As no water was taken, so no electricity was taken. The same amount of
water remained to the owner after its use by A. The same amount of electricity remained to
the company after its use by the defendant.
The well-known Italian author, Avv. Umberto Pipia, in his very able work entitled "L'
Electricita nel Diritto" puts the question thus (translation of Mr. Percy R. Angell, Manila,
1911):
From the point of view of the jurist can electricity be stolen? A person connects a
deflecting wire to the main conduit of electricity; he thus makes a secondary
circuit in which he introduces a resistance and profits by the electro-motive power
which is developed, to supply his lamps or put his motor in movement. In such
case can we apply article 402 of the Penal Code, which provides that whoever
takes possession of movable property of another in order to derive profit thereby,
taking it from the place where he finds it without the consent of the owner, is
punished with reclusion up to three years?
The author then refers to the decisions of certain course of Europe which hold that
electricity is stealable, and continues:
The Roman court of cassation has lost sight of that fundamental principle of
interpretation of law (a principle which it ought to have had well in mind before
applying to a new manifestations of force legislative provisions enacted in view
of totally different cases) by which penal laws do not extend beyond the cases and
the times in them expressed. Nulla poena sine lege, is the rule in terms of penal
law, unless we wish to bring about a deplorable confusion of powers, and the
judiciary desires to usurp the authority of the legislator. If in the written laws
gaps or breaks are encountered, it is the duty of the court to point them out to the
legislator, to the end that he take the necessary measures; but it is not lawful for
him by analogous interpretation to apply a penal provision where such has not
been explicitly enacted.
In the unanimous opinion of jurist, two elements are necessary to constitute the
crime of theft, legally speaking; the first is the taking possession of the personal
(movable) property of another, contrectatio, and the taking away of the thing
from the place where it is found without the consent of the person to whom it
belongs, ablatio.
Now we have conclusively shown that electric current is not a thing, but a state, a
vibration following certain converging waves. It can not therefore be taken
possession of as the personal property of another. A person who unlawfully uses
electric current for his personal enjoyment places himself in a state of unlawful
enjoyment of a utility, but he does not take possession of personal property. It was
a grave error, that of the court of cassation, in holding electric current to be a
thing imprisoned in wires, and composed of particles that can be subtracted. In
connecting a second circuit one does not subtract electric current; not a particle of
electric energy enters into the possession of the so-called thief ; the same amount
in amperes that was found and derived on connecting the second circuit, is found
at the end of this circuit. The current has only suffered a diminution of potential;
while continuing to be of the same volume, it becomes less adapted for the use
intended, because having overcome a resistance, it has lost in potential, its
electro-motive power.
. . . It leaves the circuit in the same amount in which it entered. Only its power for
work has diminished. Not a single particle or molecule of electric current is taken
by such abusive use, only the state of undulation. The movement that first follows
the principal, and then the second circuit, and by these undulations the so-called
thief illegally derives benefit. But the extraordinary provisions of crime are not
applicable to all illegal actions.
Another powerful argument in favor of my position is this: That in no case of
usurpation, the using of things protected by law (diritto) that are not material
things , do we speak of theft. To repress abuses the legislator has been obliged to
establish special provisions of law, but has explicitly recognized those relating to
theft to be inapplicable. A trade-mark, trade-name, modello de fabrica, a
scientific or artistic work, undoubtedly constitute objects of law similar to things;
form the contents of various juridical relations; have more or less economic value;
pertain to the patrimony of the person who has produced them or brought them
into being. If a third person makes use of the trade-mark or trade-name, the
scientific work or artistic production of another, nobody denies that he takes
possession of a utility that does not belong to him; that by the very illegal act he
derives profit, and at the same time diminishes the patrimony of the person having
legitimate rights herein. But with all that, it has never occurred to anyone to bring
an action for theft against the usurper of the firm name, the counterfeit of the
trade-mark or the plagiarist. The legislator, desiring to protect this new species of
property, has provided special repressive measures; but in their absence, the
courts can not apply the actio furti, because it is not applicable to cases and
conditions other than those provided for.
If this be so, why different conceptions on the score of electricity? Here likewise,
there is no subtraction of personal property, but the illegal use of an advantage, of
the right pertaining to another, which remain however unchanged. Hence the legal
solution should be the same.
The second and not less essential condition of theft is that of the ablatio, the
necessity of taking the thing from the place where it is found. But here we have
nothing of that; the current is deviated from its course, true, but it returns to the
place where it was undiminished. The statement in the foregoing decision that
there are particles transportable from place to place is exact; the undulation is in
itself, it has its own efficiency, but it is neither taken away nor subtracted. It has
been justly said that all that is done is to erect a bridge over which the undulations
of the particles are transported in the wire attached, but nothing corporeal passes
from one wire to another, since not one of the vibrating particles moves with the
current which flows through the connected wire.
Consequently, in whatever aspect the question is considered the presumption of
theft grows less. In fine, although there be a usurpation of a utility to the prejudice
of another, it should not be held to constitute theft, because that is the vulgar, not
the legal conception. That in civil and commercial law we may resort to
analogous interpretation, and that, in the absence of special provisions we should
apply the rules which govern similar matters and analogous cases, there is no
doubt. The courts can not refuse to say what the law is (dire ie diritto) nor dismiss
the litigants on the pretext that the law had made no provision for their case; and
it is from this concept that electricity, as a rule, in the various relations where it
constitutes the object, is considered to be a thing, with all the attributes of such.
But the penal law is restrictive; under certain aspects it is exceptional. Here we
have to do with limitations and restrictions on the most sacred rights of persons,
the right to liberty, the right to honor. And these rights can not be abridged
without definite and explicit provisions of the law. Where these are lacking we
can pray, as I do, that they be supplied, but a decision in such case is an arbitrary
act (arbitro), not justice: nulla poena sine lege.
xxx xxx xxx
So on the wrongful use of electric current; profit is derived from its high potential
which is produced by the work and expenditure of money on the part of the
furnishing company; the current is returned exactly as it was delivered except it
has lost a certain amount of electromotive power that was illegally
(antigiuridicamente) employed to overcome the resistance introduced by the third
party.
xxx xxx xxx
. . . Penal law must be strictly construed (e di interpretazione restrittiva). It
punishes the contractatio of a movable thing which is taken from the place where
it is found without the consent of the owner. In the proposition under discussion,
we have not to do with movable things, there is no true transporting to another
place; therefore the figura giuridica of theft is wanting.
It can not be doubted that by movable things is meant even liquids and fluids,
because these are material, concrete, and corporeal things, but their physical
external manifestations can not affect the juridical relation . But in our case there
is not a thing, fluid or liquid; there is a state of undulation, of movement, which
one uses illegally, assuming however the obligation to indemnify for all the
damages resulting from his illicit action, but there is no theft, any more than there
would be where a person applied a pulley to the shaft of an engine in order to put
his own machinery in motion, so far as there would be no appropriation. The
current which injuriously traverse the lamp or electric motor is not appropriated
or destroyed by the person who uses it; it flows out from the lights and continues
its course in the circuit undiminished in intensity; it has only lost part of its power,
because, having encountered a resistance, it has developed certain energy to
overcome it, energy which has produced light, traction, or mechanical work.
Nor may it be said that electricity would then be deprived of any legal protection.
Do we not have articles 1511 et seq. of the Civil Code that provide for fraud? Is
there not the civil crime and quasi crime? To protect electric energy is it
necessary to imprison one who uses it antigiuridicamente, while the letter of the
law does not consent? In any case it is known that adducere inconveniens non est
solvere argumentum. As in the laws of our country provision is made for the
illegal use of a firm name, trade-mark and works of genius (l' ingegno); in
England, where provision has been made for the matter we are discussing they
have enacted a law imposing severe penalties upon persons who illegally use
electric energy, and I am of the first to applaud them. But let there be laws, not
merely judicial opinion (arbitria di interpretati).
Nor does it avail to urge that when we have to do with benefits that are useful to
man, which serve his ends, that he can appropriate, these benefits are considered
as things in the eyes of the law. But it is necessary to make a distinction. From the
standpoint of the civil law, they are, because a wide and analogous construction is
permissible and permitted; but from that of the penal law, they are not, because
such construction is expressly forbidden by article 4 of the preliminary provisions
of the Civil Code.
If a trade-mark is not a benefit to man, in what does it serve him? Is not a literary
or artistic production such? Does not the counterfeiter illegally appropriate such
benefits? But if it is required to inflict criminal penalties upon him, a special law
must be enacted; the provisions relative to theft can be applied in his case.
xxx xxx xxx
Nor is it a conclusive argument to say that the manufacturer spends large sums of
money and erects costly machinery to generate the electricity, and when others
steal it from him, such action, according to juridical conscience and social morals,
constitutes theft.
Let us suppose an individual acquires a ticket of admission, and enters a hall
where there is being produced a play of some sort. He, on the strength of the legal
negotiation with the impresario and the acquisition of the ticket has a right to the
most ample enjoyment that his optical and acoustic senses are able to realize. But
he arranges a phonograph and a cinematograph, and surreptitiously fixes and
appropriates part of the acoustic and visual enjoyment that does not belong to
him, takes it outside of the theater and later avails himself thereof to his benefit by
reproducing the harmony of the sounds and the optical illusion of the scene. Is he
liable for theft?
From the standpoint of the doctrine I am combating, he is. The impresario has
sacrificed money or work to produce the spectacle. Our friend has the right to
enjoy it to the limit of the capacity of his organs of vision and hearing, but beyond
that. By means of suitable instruments he has caught up the sounds, movements,
and colors for the purpose of gain, and he commits a theft because there enter
the correctatio and theablatio.
From the point of view of the law he is not. He would be held to reimburse the
impresario for all damages, but he can not be called a thieft, nor be punished as
such. The sounds and forms of light are states, not things; therefore they can not
form subjects of theft.
And if this is so, the same conclusion must be reached with respect to electricity.
The supreme court of the German Empire, sitting at Leipsic, October 20, 1896, in a
decision holding that electricity was not a subject of larceny, said:
The court below found that the act did not constitute theft or unlawful
appropriation, because electricity is not to be considered a thing within the
meaning of paragraph 242 of the Penal Code, and because by things the law
means portions of material nature; that corporeal existence is an essential
ingredient of the thing. Even the Penal Code starts from this principle. Incorporeal
things, as for example rights, intellectual products and machine power are not
subjects of theft. The same must be said of electricity. Experts say that the science
is not yet determined. We well know what must be done to produce electric
energy, but we do not comprehend these vital operations, any more than we
understand what is that makes the muscles of the human arm capable of exerting
force. In the conclusions of the Court of First Instance there is no error of law.
That court starts from the principle that the corporal existence of the thing must
be the essential element to come within the meaning of article 242. This
assumption is not based upon the precepts of the Civil Code, but, rather, upon the
idea which is at the bottom of the Penal Code, namely, the movable and
independent thing, which presupposes the corporeality of the object. If then,
under articles 242 and 245, the condition precedent to the commission of larceny
is that the object of theft or unlawful appropriation be a piece or portion of
material substance in either a solid or liquid state, or in form of gas, the Court of
First Instance committed no error in finding there was neither theft nor illegal
appropriation. Whether or not the notation of a thing, in the sense of the penal
laws, requires something corporeal, is a question of law; but the question whether
electricity is a substance, a corporeal thing, or a force, a movement of a minute
particles, is a question of fact that can not be decided by the rules of law, but by
physical research alone. The consideration of the great importance of electricity in
commercial life and the place awaiting it among the vital conveniences and the
fact of its having commercial value, is not an argument to prove that electricity is
a corporeal thing, because the quality of being a vital convenience and having
commercial value does not constitute a necessary standard of corporelity, since
force, operations, intellectual products are vital conveniences (beni) and have
commercial value. When, in the jurisprudence of the day the need for penal laws
for punishment of unjust appropriation of electric current becomes apparent, the
legislator should provide them. The courts can not be called upon to supply the
lack of legal provisions by analogous applications of rules not made to fit the
circumstance. In penal law the principle nulla poena sine is supreme.
These authorities fully support my contention that electricity is not stealable under the
provisions of the Spanish Penal Code. They also support the proposition that even if
electricity is a tangible thing, like water, and therefore stealable, the crime, if any,
committed by the defendant in this case is not larceny, because the company had just as
much electricity after the illegal act as it had before. In other words, it has lost no
electricity. Having lost no electricity it can not charge anyone with stealing it. If a
thousand lights were burned, no more electricity would be consumed than if one light were
burned, just as, no more water is consumed in running a thousand water wheels placed one
below another than in running one. Just as much water flows over the thousandth wheel as
flowed over the first. In the same manner there is just as much electricity flowing out of
the thousandth light as flowed into the first. Just as in using the water, nothing is consumed
but the head, the quantity of water remaining the same, so, in using electricity, nothing is
consumed but the head (the pressure, the potential, the electro-motive force), theelectricity
itself remaining undiminished. No electricity was taken. It was used and then returned to
its owner.
For a clear understanding of this problem, and a logical and philosophical, as well as legal,
solution thereof, we must never, for a moment, forget the fact that the real contract
between the company and the defendant was one to furnish labor and services; a lease, if
you please, of an agency, a contract of precisely the same nature as one by which the
company lets to the defendant the use of one of the company's workmen to turn by hand, in
the defendant's own house, an electrical machine and thereby produce light for defendant's
use. This is the crux of the whole question. While no contract was proved we know of
necessity, from the principles which underlie and govern electric lighting, that the contract
must have been as above stated. If the defendant should require the laborer thus placed in
his house to work overtime and should not pay the company therefor, thus taking
advantage of the situation, there would be no larceny. To be sure, the defendant would
return the workman to the company fatigued and reduced in strength by reason of the
overtime he had required him to put in, but it would be the same workman which he had
received. It is this which shows the absurdity of the claim that the defendant in this case is
guilty of larceny. The company never intended to sell the workman to the defendant and
the defendant never expected to buy him. It was the use that was the basis of the contract.
In exactly the same manner the company never intended to sell electricity to the defendant
and the defendant never intended to buy electricity. The basis of the contract was
the use of electricity. Just as the laborer was returned by defendant to the company
fatigued and reduced in strength by reason of the overtime which the defendant had
wrongfully and illegally required him to put in, so the current of electricity was returned
by the defendant to the company fatigued and reduced in strength by reason of the lights
which the defendant had wrongfully and illegally caused it to supply; and just as,
notwithstanding the reduction in strength, it was the same identical workman returned that
was sent out, so the electric current returned to the company after the illegal use by
defendant was the same identical current which the company had furnished him. Where
then, is the foundation for the charge of larceny?
Let us now see what are the results of the holding of the court that electricity is subject to
larceny.
The Spanish Law of the Philippine Islands has not been changed by any legislative
enactment. A cosa mueble is the same now as it was in the days of the Partidas. No
legislature has changed the law of larceny as it came from the jurisprudence of Rome and
Spain. Nor has any legislature touched the law of the personal chattel to give it a new
definition or one which changes its ancient signification. Its present definition is the same
as that given by Sanchez Roman, Pacheco, Scaevola, Manresa, and Groizard as drawn
form the decrees of kings and acts of legislatures. That definition having been framed by
the lawmaking power of Spain, from the Partidas down to the Penal Code, it ought not to
be changed by any agency short of the lawmaking power of the United States. The
substance and nature of crime ought not to be changed by courts in a country where crimes
are purely statutory. It has the appearance of a usurpation of the functions of the
lawmaking body, an unwarrantable assumption of the legislative attributes.
The holding of the court in this case is, in effect, an amendment to the Penal Code. It has
changed materially the definition of a cosa mueble and, therefore, of the crime of larceny,
as made by the lawmaking bodies of Spain and the United States. I do not assert that the
courts have not the right to determine whether a given set of facts do or do not fulfill the
definition of a given crime. What I do say is that the very greatest care should be exercised
in cases which may involved as a consequence of their decision the changing of the scope
of the substantive law of crime. The fact, admitted by all, that whether the phenomenon
which we call electricity really is a "cosa mueble," under the accepted definition of that
word, is open to doubt, should give us pause. Before holding that electricity is a cosa
mueble, the fact whether it is or not ought to be substantially free from doubt, This is
particularly true in a country where crimes are purely statutory, and in which, therefore,
the legislature is presumed to have had in mind in framing its definition of "cosas
muebles" only such chattels, or those of the same nature, as were known to the legislature
at the time it acted. At the time the Penal Code became operative substantially nothing was
known by those who created if of the phenomenon, electricity. It is more than clear that at
the time of the enactment of the laws relating to larceny, of which article 517 of the Penal
Code is a reproduction, nothing whatever was known of that phenomenon. We have,
therefore, no means of knowing what would have been the legislative action in relation
thereto. The legislative authorities of those times might have treated it as substantially
every other legislative body has treated it that has touched the question; namely, as a thing
separate and distinct from chattels, and unlawful acts affecting it and its use as crimes
distinct from the crimes against tangible property, such as robbery and larceny. In this
jurisdiction the legislature is the only authority for the definition of the crime. Where a
new situation arises by virtue of discoveries which reveal agencies never known before,
and whose real nature is unknown even to the discoverers the legislature is the body to
take the initiative in determining the position of such agencies among the affairs of men,
unless they clearly fall within a class already established and defined; and it appears that
some legislative bodies have done that very thing and have passed special laws touching
the place which should be given electricity in the civil and criminal law. This was done
here by the passage of the ordinance of the city of Manila. The fact that legislatures in
many jurisdictions have enacted special laws relative to electricity is the very clearest
proof that there was the gravest doubt among learned men of the applicability of existing
laws to acts committed against the rights of producers of electricity. The legislature of the
Islands having acted through the council of the city of Manila and by such action made
illegal acts against the producers of electricity a special crime wholly distinct from larceny,
such act should be conclusive on this court as to the legislative intent.
Section 649 of the Revised Ordinance of the city of Manila provides in part:
No person shall, for any purpose whatsoever, use or enjoy the benefits of any
device by means of which he may fraudulently obtain any current of electricity or
any telephone or telegraph service; and the existence in any building or premises
of any such device shall, in the absence of satisfactory explanation, be deemed
sufficient evidence of such use by the person benefiting thereby.
This section was enacted under the authority of the Legislature of the Philippine Islands, as
was section 930 of said ordinances, by the terms of which one was violates the provisions
of section 649 "shall be punished by a fine of not more than two hundred pesos or by
imprisonment for not more than six months, or both such fine and imprisonment, in the
discretion of the court, for each offense."
Articles 517 and 518 of the Penal Code read in part as follows:
ART. 517. The following are guilty of theft:
1. Those who, with intent of gain and without violence or intimidation against the
person or force against the things, shall take another's personal property (cosa
mueble) without the owner's consent.
xxx xxx xxx
ART. 518. Those guilty of theft shall be punished:
1. With the penalty of presidio correccional in its medium and maximum degrees
if the value of the stolen property should exceed 6,250 pesetas.
2. With the penalty of presidio correccional in its minimum and medium degrees
should it not exceed 6,250,pesetas and be more than 1,250 pesetas.
3. With arresto mayor in its medium degree to presidio correccional in its
minimum degree should it not exceed 1,250 pesetas and be more than
250 pesetas.
4. With arresto mayor to its fullest extent should it be more than 25 but not
exceed 250 pesetas.
5. With arresto mayor in its minimum and medium degrees if it should not
exceed 25 pesetas; if exceeding 25 and not more than 65 pesetas, a theft of
nutritious grains, fruits, or wood shall be punished with a fine of room 325 to
500 pesetas.
Under subdivision 2 of the article last quoted, which is the paragraph under which the
accused is punished in the case at bar, the penalty prescribed is from six months and one
day to four years and two months. The accused in this case was actually sentenced to one
year eight months and twenty-one days of presidio correccional, to indemnify the
company in the sum of P865.26, to the corresponding subsidiary imprisonment in case of
failure to pay said sum, and to the accessory penalties provided by law.
Having before us these two laws, we may now see to what untoward and unfortunate
results the majority opinion leads us in holding that a person who commits a crime against
an electric current can be punished under either, or both, of two different statutes. As we
have seen already there is, relatively speaking, an enormous difference in the penalties
prescribed by said law. That imposed by the ordinance of the city of Manila can not in any
event exceed six months' imprisonment and a fine of P200; while that provided in the
Penal Code may be as severe as four years and two months imprisonment, with indemnity
equal to the value of the property stolen, with corresponding subsidiary imprisonment in
case of nonpayment. To this must be added all those accessory penalties prescribed by the
code, such as suspension from any public office, profession or trade, and from the right the
suffrage. To me it is wholly unbelievable that, under the circumstances of this case and the
nature of the offense itself, it was the intention of the legislative authority to permit the
concurrent existence of two laws, both in force, punishing the same crime with penalties
which bear no relation to each other and which are widely different in severity. Note what
results from such a holding. Prosecution under the ordinance must be in the municipal
court. Prosecution under the Penal Code may be in the municipal court or it may be and
generally must be, as in this case, in the Court of First Instance. But it is certain that, under
the ordinance, every case may be prosecuted in the municipal court, whatever the value of
the electricity taken; or, if the value is sufficient, the prosecution may be brought in the
Court of First Instance. The selection of the court is left to the complaint. This means that
thecomplaint is able to say within certain limits what punishment shall be inflicted; for, if
he desires that the accused shall be lightly punished he will bring the action in the
municipal court, which he always can do if he wish, and if he desires to punish him very
severely he will bring it in the Court of First Instance, which he can generally do if he
cares to. It is incoceivable that the legislature intended that such a condition should exist. It
is in violation of every sense of fairness, is against every rule of statutory construction, and
is clearly inimical to public policy. To assert that the complaining in which he shall
prosecute the accused but also, in effect, the crime of which he shall be charged, as the
decision in this case holds in effect, is to assert a proposition, the bare statement of which
is its own completest refutation.
For these reasons the judgment of conviction should be reversed.

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.

G.R. No. L-42091 November 2, 1935
GONZALO CHUA GUAN, plaintiff-appellant,
vs.
SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G.
SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively
of the same, defendants-appellees.
Buenaventura C. Lopez for appellant.
Domingo L. Vergara for appellees.
BUTTE, J .:
This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an
action for a writ of mandamus. The case is remarkable for the following reason: that the
parties entered into a stipulation in which the defendants admitted all of the allegations of
the complaint and the plaintiff admitted all of the special defenses in the answer of the
defendants, and on this stipulation they submitted the case for decision.
The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly
organized under the laws of the Philippine Islands with principal office in Cabanatuan,
Nueva Ecija, and that the individual defendants are the president, secretary and treasurer
respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of
5,894 shares of the capital stock of the said corporation represented by nine certificates
having a par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of
Manila, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of
P20,000 due on or before June 19, 1932. The said certificates of stock were delivered with
the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the
office of the register of deeds of Manila on June 23, 1931, and in the office of the said
corporation on September 30, 1931.
On November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage
to the plaintiff and the assignment was registered in the office of the register of deeds in
the City of Manila on December 28, 1931, and in the office of the said corporation on
January 4, 1932.
The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity,
the plaintiff foreclosed said mortgage and delivered the certificates of stock and copies of
the mortgage and assignment to the sheriff of the City of Manila in order to sell the said
shares at public auction. The sheriff auctioned said 5,894 shares of stock on December 22,
1932, and the plaintiff having been the highest bidder for the sum of P14,390, the sheriff
executed in his favor a certificate of sale of said shares.
The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco
to the proper officers of the corporation for cancellation and demanded that they issue new
certificates in the name of the plaintiff. The said officers (the individual defendants)
refused and still refuse to issue said new shares in the name of the plaintiff.
The prayer is that a writ of mandamus be issued requiring the defendants to transfer the
said 5,894 shares of stock to the plaintiff by cancelling the old certificates and issuing new
ones in their stead.
The special defenses set up in the answer are as follows: that the defendants refuse to
cancel the said certificates standing in the name of Gonzalo H. Co Toco on the books of
the corporation and to issue new ones in the name of the plaintiff because prior to the date
when the plaintiff made his demand, to wit, February 4, 1933, nine attachments had been
issued and served and noted on the books of the corporation against the shares of Gonzalo
H. Co Toco and the plaintiff objected to having these attachments noted on the new
certificates which he demanded. These attachments noted on the books of the corporation
against the shares of Gonzalo H. Co Toco are as follows:
MISSING PAGES: 475-477.
It will be noted that the first eight of the said writs of attachment were served on the
corporation and noted on its records before the corporation received notice from the
mortgagee Chua Chiu of the mortgage of said shares dated June 18, 1931. No question is
raised as to the validity of said mortgage or of said writs of attachment and the sole
question presented for decision is whether the said mortgage takes priority over the said
writs of attachment.
It is not alleged that the said attaching creditors had actual notice of the said mortgage and
the question therefore narrows itself down to this: Did the registration of said chattel
mortgage in the registry of chattel mortgages in the office of the register of deeds of
Manila, under date of July 23, 1931, give constructive notice to the said attaching
creditors?
In passing, let it be noted that the registration of the said chattel mortgage in the office of
the corporation was not necessary and had no legal effect. (Monserrat vs. Ceron, 58 Phil.,
469.) The long mooted question as to whether or not shares of a corporation could be
hypothecated by placing a chattel mortgage on the certificate representing such shares we
now regard as settled by the case of Monserrat vs. Ceron, supra. But that case did not deal
with any question relating to the registration of such a mortgage or the effect of such
registration. Nothing appears in the record of that case even tending to show that the
chattel mortgage there involved was ever registered anywhere except in the office of the
corporation, and there was no question involved there as to the right of priority among
conflicting claims of creditors of the owner of the shares.
The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496, contains the
following provision:
SEC. 4. A chattel mortgage shall not be valid against any person except the
mortgagor, his executors or administrators, unless the possession of the property
is delivered to and retained by the mortgagee or unless the mortgage is recorded
in the office of the register of deeds of the province in which the mortgagor
resides at the time of making the same, or, if he resides the Philippine Islands, in
the province in which the property is situated: Provided, however, That if the
property is situated in a different province from that in which the mortgagor
resides, the mortgage shall be recorded in the office of the register of deeds of
both the province in which the mortgagor resides and that in which the property is
situated, and for the purposes of this Act the City of Manila Shall be deemed to be
a province.
The practical application of the Chattel Mortgage Law to shares of stock of a corporation
presents considerable difficulty and we have obtained little aid from the decisions of other
jurisdictions because that form of mortgage is ill suited to the hypothecation of shares of
stock and has been rarely used elsewhere. In fact, it has been doubted whether shares of
stock in a corporation are chattels in the sense in which that word is used chattel mortgage
statutes. This doubt is reflected in our own decision in the case of Fua Cun vs. Summers
and China Banking Corporation (44 Phil., 705), in which we said:
". . . an equity in shares of stock is of such an intangible character that it is somewhat
difficult to see how it can be treated as a chattel and mortgaged in such a manner that the
recording of the mortgage will furnish constructive notice to third parties. . . ."And we held
that the chattel mortgage there involved: "at least operated as a conditional equitable
assignment." In that case we quoted the following from Spalding vs. Paine's Adm'r. (81
Ky., 416), with regard to a chattel mortgage of shares of stock:
"These certificates of stock are in the pockets of the owner, and go with him
where he may happen to locate, as choses in action, or evidence of his right,
without any means on the part of those with whom he proposes to deal on the
faith of such a security of ascertaining whether or not this stock is in pledge or
mortgaged to others. He finds the name of the owner on the books of the company
as a subscriber of paid-up stock, amounting to 180 shares, with the certificates in
his possession, pays for these certificates their full value, and has the transfer to
him made on the books of the company, thereby obtaining a perfect title. What
other inquiry is he to make, so as to make his investment certain and secure?
Where is he to look, in order to ascertain whether or not this stock has been
mortgaged? The chief office of the company may be at one place today and at
another tomorrow. The owner may have no fixed or permanent abode, and with
his notes in one pocket and his certificates of stock in the other the one
evidencing the extent of his interest in the stock of the corporation, the other his
right to money owing him by his debtor, we are asked to say that the mortgage is
effectual as to the one and inoperative as to the other."
But the case of Fua Cun vs. Summers and China Banking Corporation, supra, did not
decide the question here presented and gave no light as to the registration of a chattel
mortgage of shares of stock of a corporation under the provisions of section 4 of the
Chattel Mortgage Law, supra.
Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage which
shall be effective against third persons. First, the possession of the property mortgage must
be delivered to and retained by the mortgagee; and, second, without such delivery the
mortgage must be recorded in the proper office or offices of the register or registers of
deeds. If a chattel mortgage of shares of stock of a corporation may validly be made
without the delivery of possession of the property to the mortgagee and the mere
registration of the mortgage is sufficient to constructive notice to third parties, we are
confronted with the question as to the proper place of registration of such a mortgage.
Section 4 provides that in such a case the mortgage resides at the time of making the same
or, if he is a non-resident, in the province in which the property is situated; and it also
provides that if the property is situated in a different province from that in which the
mortgagor resides the mortgage shall be recorded both in the province of the mortgagor's
residence and in the province where the property is situated.
If with respect to a chattel mortgage of shares of stock of a corporation, registration in the
province of the owner's domicile should be sufficient, those who lend on such security
would be confronted with the practical difficulty of being compelled not only to search the
records of every province in which the mortgagor might have been domiciled but also
every province in which a chattel mortgage by any former owner of such shares might be
registered. We cannot think that it was the intention of the legislature to put this almost
prohibitive impediment upon the hypothecation of shares of stock in view of the great
volume of business that is done on the faith of the pledge of shares of stock as collateral.
It is a common but not accurate generalization that the situs of shares of stock is at the
domicile of the owner. The term situs is not one of fixed of invariable meaning or usage.
Nor should we lose sight of the difference between the situs of the shares and the situs of
the certificates of shares. The situs of shares of stock for some purposes may be at the
domicile of the owner and for others at the domicile of the corporation; and even
elsewhere. (Cf. Vidal vs. South American Securities Co., 276 Fed., 855; Black Eagle Min.
Co. vs. Conroy, 94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7
Fed. [2d]. 158.) It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but the domicile of the
corporation which is decisive. (Fletcher, Cyclopedia of the Law of Private Corporations,
vol. 11, paragraph 5106. Cf. sections 430 and 450, Code of Civil Procedure.)
By analogy with the foregoing and considering the ownership of shares in a corporation as
property distinct from the certificates which are merely the evidence of such ownership, it
seems to us a reasonable construction of section 4 of Act No. 1508 to hold that the
property in the shares may be deemed to be situated in the province in which the
corporation has its principal office or place of business. If this province is also the
province of the owner's domicile, a single registration sufficient. If not, the chattel
mortgage should be registered both at the owner's domicile and in the province where the
corporation has its principal office or place of business. In this sense the property
mortgaged is not the certificate but the participation and share of the owner in the assets of
the corporation.
Apart from the cumbersome and unusual method of hypothecating shares of stock by
chattel mortgage, it appears that in the present state of our law, the only safe way to
accomplish the hypothecation of share of stock of a Philippine corporation is for the
creditor to insist on the assignment and delivery of the certificate and to obtain the transfer
of the legal title to him on the books of the corporation by the cancellation of the certificate
and the issuance of a new one to him. From the standpoint of the debtor this may be
unsatisfactory because it leaves the creditor as the ostensible owner of the shares and the
debtor is forced to rely upon the honesty and solvency of the creditor. Of course, the mere
possession and retention of the debtor's certificate by the creditor gives some security to
the creditor against an attempted voluntary transfer by the debtor, provided the by-laws of
the corporation expressly enact that transfers may be made only upon the surrender of the
certificate. It is to be noted, however, that section 35 of the Corporation Law (Act No.
1459) enacts that shares of stock "may be transferred by delivery of the certificate
endorsed by the owner or his attorney in fact or other person legally authorized to make
the transfer." The use of the verb "may" does not exclude the possibility that a transfer may
be made in a different manner, thus leaving the creditor in an insecure position even
though he has the certificate in his possession. Moreover, the shares still standing in the
name of the debtor on the books of the corporation will be liable to seizure by attachment
or levy on execution at the instance of other creditors. (Cf. Uy Piaoco vs.McMicking, 10
Phil., 286, and Uson vs. Diosomito, 61 Phil., 535.) This unsatisfactory state of our law is
well known to the bench and bar. (Cf. Fisher, The Philippine Law of Stock Corporations,
pages 163-168.) Loans upon stock securities should be facilitated in order to foster
economic development. The transfer by endorsement and delivery of a certificate with
intention to pledge the shares covered thereby should be sufficient to give legal effect to
that intention and to consummate the juristic act without necessity for registration.l awphil.net
We are fully conscious of the fact that our decisions in the case of Monserrat vs.
Ceron, supra, and in the present case have done little perhaps to ameliorate the present
uncertain and unsatisfactory state of our law applicable to pledges and chattel mortgages of
shares of stock of Philippine corporations. The remedy lies with the legislature.
In view of the premises, the attaching creditors are entitled to priority over the defectively
registered mortgage of the appellant and the judgment appealed from must be affirmed
without special pronouncement as to costs in this instance.
1

Malcolm, Villa-Real, Imperial, and Goddard, JJ., concur.