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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.
DIGEST:
FACTS:
Respondent Manuel Tambunting and his wife became the occupants of the upper
floor of a house situated in Manila.
In the house, the Manila Gas Corporation had previously installed apparatus for
the delivery of gas on both the upper and lower floors.
When the occupants who requested for the installation vacated the premises, the
gas company disconnected the gas pipe, removed the meter, thus cutting off the
gas supply from the said premises.
Then one day, while Tambunting was away, an inspector of the gas company
discovered that the gas was being used for cooking in quarters of the respondent,
without the knowledge and consent of the gas company.
Tambunting admitted that he was using the gas without the knowledge and
consent of the company for 2-3 months but denied making the connection where
the meter used to be installed.
Later, the gas company sued Tambunting for stealing a quantity of gas belonging
to the Manila Gas Corporation.
The lower court convicted Tambunting of the offense charged.

ISSUE: 1. Whether the taking of gas may constitute larceny (theft or robberry) though it
has never been the subject of adjudication in court.
2. 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.
HELD: YES.

Gas has character of personal property, thus, it may be subject of theft or robbery.
o 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.
2. 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.
i. 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.

G.R. No. 155076

February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner, vs.HON. ZEUS C.


ABROGAR, Presiding Judge of the Regional Trial Court, Makati
City, Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision 1 of the
Court of Appeals (CA) in CA-G.R. SP No. 68841 affirming the Order
issued by Judge Zeus C. Abrogar, Regional Trial Court (RTC), Makati
City, Branch 150, which denied the "Motion to Quash (With Motion to
Defer Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of
a legislative franchise to render local and international
telecommunication services under Republic Act No. 7082. 2 Under
said law, PLDT is authorized to establish, operate, manage, lease,
maintain and purchase telecommunication systems, including
transmitting, receiving and switching stations, for both domestic and
international calls. For this purpose, it has installed an estimated 1.7
million telephone lines nationwide. PLDT also offers other services as
authorized by Certificates of Public Convenience and Necessity
(CPCN) duly issued by the National Telecommunications Commission
(NTC), and operates and maintains an International Gateway Facility
(IGF). The PLDT network is thus principally composed of the Public
Switch Telephone Network (PSTN), telephone handsets and/or
telecommunications equipment used by its subscribers, the wires and
cables linking said telephone handsets and/or telecommunications
equipment, antenna, the IGF, and other telecommunications
equipment which provide interconnections.3
1avvphil.net

PLDT alleges that one of the alternative calling patterns that


constitute network fraud and violate its network integrity is that which
is known as International Simple Resale (ISR). ISR is a method of
routing and completing international long distance calls using
International Private Leased Lines (IPL), cables, antenna or air wave
or frequency, which connect directly to the local or domestic
exchange facilities of the terminating country (the country where the

call is destined). The IPL is linked to switching equipment which is


connected to a PLDT telephone line/number. In the process, the calls
bypass the IGF found at the terminating country, or in some
instances, even those from the originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd.
(Baynet) which sells "Bay Super Orient Card" phone cards to people
who call their friends and relatives in the Philippines. With said card,
one is entitled to a 27-minute call to the Philippines for about 37.03
per minute. After dialing the ISR access number indicated in the
phone card, the ISR operator requests the subscriber to give the PIN
number also indicated in the phone card. Once the callers identity
(as purchaser of the phone card) is confirmed, the ISR operator will
then provide a Philippine local line to the requesting caller via the IPL.
According to PLDT, calls made through the IPL never pass the toll
center of IGF operators in the Philippines. Using the local line, the
Baynet card user is able to place a call to any point in the Philippines,
provided the local line is National Direct Dial (NDD) capable. 5
PLDT asserts that Baynet conducts its ISR activities by utilizing an
IPL to course its incoming international long distance calls from
Japan. The IPL is linked to switching equipment, which is then
connected to PLDT telephone lines/numbers and equipment, with
Baynet as subscriber. Through the use of the telephone lines and
other auxiliary equipment, Baynet is able to connect an international
long distance call from Japan to any part of the Philippines, and make
it appear as a call originating from Metro Manila. Consequently, the
operator of an ISR is able to evade payment of access, termination or
bypass charges and accounting rates, as well as compliance with the
regulatory requirements of the NTC. Thus, the ISR operator offers
international telecommunication services at a lower rate, to the
damage and prejudice of legitimate operators like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its
ISR activities: lines, cables, and antennas or equipment or device
capable of transmitting air waves or frequency, such as an IPL and
telephone lines and equipment; computers or any equipment or
device capable of accepting information applying the prescribed
process of the information and supplying the result of this process;
modems or any equipment or device that enables a data terminal

equipment such as computers to communicate with other data


terminal equipment via a telephone line; multiplexers or any
equipment or device that enables two or more signals from different
sources to pass through a common cable or transmission line;
switching equipment, or equipment or device capable of connecting
telephone lines; and software, diskettes, tapes or equipment or
device used for recording and storing information. 7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT
telephone lines/numbers.8 Based on the Traffic Study conducted on
the volume of calls passing through Baynets ISR network which
bypass the IGF toll center, PLDT incurred an estimated monthly loss
of P10,185,325.96.9 Records at the Securities and Exchange
Commission (SEC) also revealed that Baynet was not authorized to
provide international or domestic long distance telephone service in
the country. The following are its officers: Yuji Hijioka, a Japanese
national (chairman of the board of directors); Gina C. Mukaida, a
Filipina (board member and president); Luis Marcos P. Laurel, a
Filipino (board member and corporate secretary); Ricky Chan Pe, a
Filipino (board member and treasurer); and Yasushi Ueshima, also a
Japanese national (board member).
Upon complaint of PLDT against Baynet for network fraud, and on the
strength of two search warrants10 issued by the RTC of Makati,
Branch 147, National Bureau of Investigation (NBI) agents searched
its office at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City
on November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd
D. Lacson and Rolando J. Villegas were arrested by NBI agents while
in the act of manning the operations of Baynet. Seized in the
premises during the search were numerous equipment and devices
used in its ISR activities, such as multiplexers, modems, computer
monitors, CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of
accounts, parabolic antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation
and issued a Resolution11 on January 28, 2000, finding probable
cause for theft under Article 308 of the Revised Penal Code and
Presidential Decree No. 40112 against the respondents therein,
including Laurel.

On February 8, 2000, State Prosecutor Calo filed an Information with


the RTC of Makati City charging Matsuura, Miyake, Lacson and
Villegas with theft under Article 308 of the Revised Penal Code. After
conducting the requisite preliminary investigation, the State
Prosecutor filed an Amended Information impleading Laurel (a
partner in the law firm of Ingles, Laurel, Salinas, and, until November
19, 1999, a member of the board of directors and corporate secretary
of Baynet), and the other members of the board of directors of said
corporation, namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson
and Villegas, as accused for theft under Article 308 of the Revised
Penal Code. The inculpatory portion of the Amended Information
reads:
On or about September 10-19, 1999, or prior thereto, in Makati City,
and within the jurisdiction of this Honorable Court, the accused,
conspiring and confederating together and all of them mutually
helping and aiding one another, with intent to gain and without the
knowledge and consent of the Philippine Long Distance Telephone
(PLDT), did then and there willfully, unlawfully and feloniously take,
steal and use the international long distance calls belonging to PLDT
by conducting International Simple Resale (ISR), which is a method
of routing and completing international long distance calls using lines,
cables, antennae, and/or air wave frequency which connect directly to
the local or domestic exchange facilities of the country where the call
is destined, effectively stealing this business from PLDT while using
its facilities in the estimated amount of P20,370,651.92 to the
damage and prejudice of PLDT, in the said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer
Arraignment)" on the ground that the factual allegations in the
Amended Information do not constitute the felony of theft under
Article 308 of the Revised Penal Code. He averred that the Revised
Penal Code, or any other special penal law for that matter, does not
prohibit ISR operations. He claimed that telephone calls with the use
of PLDT telephone lines, whether domestic or international, belong to
the persons making the call, not to PLDT. He argued that the caller
merely uses the facilities of PLDT, and what the latter owns are the
telecommunication infrastructures or facilities through which the call

is made. He also asserted that PLDT is compensated for the callers


use of its facilities by way of rental; for an outgoing overseas call,
PLDT charges the caller per minute, based on the duration of the call.
Thus, no personal property was stolen from PLDT. According to
Laurel, the P20,370,651.92 stated in the Information, if anything,
represents the rental for the use of PLDT facilities, and not the value
of anything owned by it. Finally, he averred that the allegations in the
Amended Information are already subsumed under the Information
for violation of Presidential Decree (P.D.) No. 401 filed and pending in
the Metropolitan Trial Court of Makati City, docketed as Criminal Case
No. 276766.
The prosecution, through private complainant PLDT, opposed the
motion,14 contending that the movant unlawfully took personal
property belonging to it, as follows: 1) intangible telephone services
that are being offered by PLDT and other telecommunication
companies, i.e., the connection and interconnection to their telephone
lines/facilities; 2) the use of those facilities over a period of time; and
3) the revenues derived in connection with the rendition of such
services and the use of such facilities.15
The prosecution asserted that the use of PLDTs intangible telephone
services/facilities allows electronic voice signals to pass through the
same, and ultimately to the called partys number. It averred that such
service/facility is akin to electricity which, although an intangible
property, may, nevertheless, be appropriated and be the subject of
theft. Such service over a period of time for a consideration is the
business that PLDT provides to its customers, which enables the
latter to send various messages to installed recipients. The service
rendered by PLDT is akin to merchandise which has specific value,
and therefore, capable of appropriation by another, as in this case,
through the ISR operations conducted by the movant and his coaccused.
The prosecution further alleged that "international business calls and
revenues constitute personal property envisaged in Article 308 of the
Revised Penal Code." Moreover, the intangible telephone
services/facilities belong to PLDT and not to the movant and the other
accused, because they have no telephone services and facilities of
their own duly authorized by the NTC; thus, the taking by the movant

and his co-accused of PLDT services was with intent to gain and
without the latters consent.
The prosecution pointed out that the accused, as well as the movant,
were paid in exchange for their illegal appropriation and use of
PLDTs telephone services and facilities; on the other hand, the
accused did not pay a single centavo for their illegal ISR operations.
Thus, the acts of the accused were akin to the use of a "jumper" by a
consumer to deflect the current from the house electric meter, thereby
enabling one to steal electricity. The prosecution emphasized that its
position is fortified by the Resolutions of the Department of Justice in
PLDT v. Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v.
Elton John Tuason, et al. (I.S. No. 2000-370) which were issued on
August 14, 2000 finding probable cause for theft against the
respondents therein.
On September 14, 2001, the RTC issued an Order 16 denying the
Motion to Quash the Amended Information. The court declared that,
although there is no law that expressly prohibits the use of ISR, the
facts alleged in the Amended Information "will show how the alleged
crime was committed by conducting ISR," to the damage and
prejudice of PLDT.
Laurel filed a Motion for Reconsideration 17 of the Order, alleging that
international long distance calls are not personal property, and are
not capable of appropriation. He maintained that business or revenue
is not considered personal property, and that the prosecution failed to
adduce proof of its existence and the subsequent loss of personal
property belonging to another. Citing the ruling of the Court in United
States v. De Guzman,18 Laurel averred that the case is not one with
telephone calls which originate with a particular caller and terminates
with the called party. He insisted that telephone calls are considered
privileged communications under the Constitution and cannot be
considered as "the property of PLDT." He further argued that there is
no kinship between telephone calls and electricity or gas, as the latter
are forms of energy which are generated and consumable, and may
be considered as personal property because of such characteristic.
On the other hand, the movant argued, the telephone business is not
a form of energy but is an activity.

In its Order19 dated December 11, 2001, the RTC denied the movants
Motion for Reconsideration. This time, it ruled that what was stolen
from PLDT was its "business" because, as alleged in the Amended
Information, the international long distance calls made through the
facilities of PLDT formed part of its business. The RTC noted that the
movant was charged with stealing the business of PLDT. To support
its ruling, it cited Strochecker v. Ramirez,20 where the Court ruled that
interest in business is personal property capable of appropriation. It
further declared that, through their ISR operations, the movant and
his co-accused deprived PLDT of fees for international long distance
calls, and that the ISR used by the movant and his co-accused was
no different from the "jumper" used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the
Order of the RTC. He alleged that the respondent judge gravely
abused his discretion in denying his Motion to Quash the Amended
Information.21 As gleaned from the material averments of the
amended information, he was charged with stealing the international
long distance calls belonging to PLDT, not its business. Moreover, the
RTC failed to distinguish between the business of PLDT (providing
services for international long distance calls) and the revenues
derived therefrom. He opined that a "business" or its revenues cannot
be considered as personal property under Article 308 of the Revised
Penal Code, since a "business" is "(1) a commercial or mercantile
activity customarily engaged in as a means of livelihood and typically
involving some independence of judgment and power of decision; (2)
a commercial or industrial enterprise; and (3) refers to transactions,
dealings or intercourse of any nature." On the other hand, the term
"revenue" is defined as "the income that comes back from an
investment (as in real or personal property); the annual or periodical
rents, profits, interests, or issues of any species of real or personal
property."22
Laurel further posited that an electric companys business is the
production and distribution of electricity; a gas companys business is
the production and/or distribution of gas (as fuel); while a water
companys business is the production and distribution of potable
water. He argued that the "business" in all these cases is the
commercial activity, while the goods and merchandise are the
products of such activity. Thus, in prosecutions for theft of certain

forms of energy, it is the electricity or gas which is alleged to be


stolen and not the "business" of providing electricity or gas. However,
since a telephone company does not produce any energy, goods or
merchandise and merely renders a service or, in the words of PLDT,
"the connection and interconnection to their telephone lines/facilities,"
such service cannot be the subject of theft as defined in Article 308 of
the Revised Penal Code.23
He further declared that to categorize "business" as personal property
under Article 308 of the Revised Penal Code would lead to absurd
consequences; in prosecutions for theft of gas, electricity or water, it
would then be permissible to allege in the Information that it is the
gas business, the electric business or the water business which has
been stolen, and no longer the merchandise produced by such
enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in Piltel
v. Mendoza,25 where it was ruled that the Revised Penal Code,
legislated as it was before present technological advances were even
conceived, is not adequate to address the novel means of "stealing"
airwaves or airtime. In said resolution, it was noted that the
inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The
Anti-Telecommunications Fraud of 1997" to deter cloning of cellular
phones and other forms of communications fraud. The said bill "aims
to protect in number (ESN) (sic) or Capcode, mobile identification
number (MIN), electronic-international mobile equipment identity
(EMEI/IMEI), or subscriber identity module" and "any attempt to
duplicate the data on another cellular phone without the consent of a
public telecommunications entity would be punishable by law." 26 Thus,
Laurel concluded, "there is no crime if there is no law punishing the
crime."
On August 30, 2002, the CA rendered judgment dismissing the
petition.27 The appellate court ruled that a petition for certiorari under
Rule 65 of the Rules of Court was not the proper remedy of the
petitioner. On the merits of the petition, it held that while business is
generally an activity
which is abstract and intangible in form, it is nevertheless considered
"property" under Article 308 of the Revised Penal Code. The CA

opined that PLDTs business of providing international calls is


personal property which may be the object of theft, and cited United
States v. Carlos28 to support such conclusion. The tribunal also cited
Strochecker v. Ramirez,29 where this Court ruled that one-half interest
in a days business is personal property under Section 2 of Act No.
3952, otherwise known as the Bulk Sales Law. The appellate court
held that the operations of the ISR are not subsumed in the charge
for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending
that THE COURT OF APPEALS ERRED IN RULING THAT THE
PERSONAL PROPERTY ALLEGEDLY STOLEN PER THE
INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE
CALLS" BUT THE "BUSINESS OF PLDT."
THE COURT OF APPEALS ERRED IN RULING THAT THE TERM
"BUSINESS" IS PERSONAL PROPERTY WITHIN THE MEANING
OF ART. 308 OF THE REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to
nullify an interlocutory order of the trial court which was issued with
grave abuse of discretion amounting to excess or lack of jurisdiction.
In support of his petition before the Court, he reiterates the
arguments in his pleadings filed before the CA. He further claims that
while the right to carry on a business or an interest or participation in
business is considered property under the New Civil Code, the term
"business," however, is not. He asserts that the Philippine
Legislature, which approved the Revised Penal Code way back in
January 1, 1932, could not have contemplated to include international
long distance calls and "business" as personal property under Article
308 thereof.
In its comment on the petition, the Office of the Solicitor General
(OSG) maintains that the amended information clearly states all the
essential elements of the crime of theft. Petitioners interpretation as
to whether an "international long distance call" is personal property
under the law is inconsequential, as a reading of the amended
information readily reveals that specific acts and circumstances were

alleged charging Baynet, through its officers, including petitioner, of


feloniously taking, stealing and illegally using international long
distance calls belonging to respondent PLDT by conducting ISR
operations, thus, "routing and completing international long distance
calls using lines, cables, antenna and/or airwave frequency which
connect directly to the local or domestic exchange facilities of the
country where the call is destined." The OSG maintains that the
international long distance calls alleged in the amended information
should be construed to mean "business" of PLDT, which, while
abstract and intangible in form, is personal property susceptible of
appropriation.31 The OSG avers that what was stolen by petitioner
and his co-accused is the business of PLDT providing international
long distance calls which, though intangible, is personal property of
the PLDT.32
For its part, respondent PLDT asserts that personal property under
Article 308 of the Revised Penal Code comprehends intangible
property such as electricity and gas which are valuable articles for
merchandise, brought and sold like other personal property, and are
capable of appropriation. It insists that the business of international
calls and revenues constitute personal property because the same
are valuable articles of merchandise. The respondent reiterates that
international calls involve (a) the intangible telephone services that
are being offered by it, that is, the connection and interconnection to
the telephone network, lines or facilities; (b) the use of its telephone
network, lines or facilities over a period of time; and (c) the income
derived in connection therewith. 33
PLDT further posits that business revenues or the income derived in
connection with the rendition of such services and the use of its
telephone network, lines or facilities are personal properties under
Article 308 of the Revised Penal Code; so is the use of said
telephone services/telephone network, lines or facilities which allow
electronic voice signals to pass through the same and ultimately to
the called partys number. It is akin to electricity which, though
intangible property, may nevertheless be appropriated and can be the
object of theft. The use of respondent PLDTs telephone network,
lines, or facilities over a period of time for consideration is the
business that it provides to its customers, which enables the latter to
send various messages to intended recipients. Such use over a

period of time is akin to merchandise which has value and, therefore,


can be appropriated by another. According to respondent PLDT, this
is what actually happened when petitioner Laurel and the other
accused below conducted illegal ISR operations. 34
The petition is meritorious.
The issues for resolution are as follows: (a) whether or not the
petition for certiorari is the proper remedy of the petitioner in the
Court of Appeals; (b) whether or not international telephone calls
using Bay Super Orient Cards through the telecommunication
services provided by PLDT for such calls, or, in short, PLDTs
business of providing said telecommunication services, are proper
subjects of theft under Article 308 of the Revised Penal Code; and (c)
whether or not the trial court committed grave abuse of discretion
amounting to excess or lack of jurisdiction in denying the motion of
the petitioner to quash the amended information.
On the issue of whether or not the petition for certiorari instituted by
the petitioner in the CA is proper, the general rule is that a petition for
certiorari under Rule 65 of the Rules of Court, as amended, to nullify
an order denying a motion to quash the Information is inappropriate
because the aggrieved party has a remedy of appeal in the ordinary
course of law. Appeal and certiorari are mutually exclusive of each
other. The remedy of the aggrieved party is to continue with the case
in due course and, when an unfavorable judgment is rendered, assail
the order and the decision on appeal. However, if the trial court
issues the order denying the motion to quash the Amended
Information with grave abuse of discretion amounting to excess or
lack of jurisdiction, or if such order is patently erroneous, or null and
void for being contrary to the Constitution, and the remedy of appeal
would not afford adequate and expeditious relief, the accused may
resort to the extraordinary remedy of certiorari. 35 A special civil action
for certiorari is also available where there are special circumstances
clearly demonstrating the inadequacy of an appeal. As this Court held
in Bristol Myers Squibb (Phils.), Inc. v. Viloria:36
Nonetheless, the settled rule is that a writ of certiorari may be granted
in cases where, despite availability of appeal after trial, there is at
least a prima facie showing on the face of the petition and its annexes

that: (a) the trial court issued the order with grave abuse of discretion
amounting to lack of or in excess of jurisdiction; (b) appeal would not
prove to be a speedy and adequate remedy; (c) where the order is a
patent nullity; (d) the decision in the present case will arrest future
litigations; and (e) for certain considerations such as public welfare
and public policy.37
In his petition for certiorari in the CA, petitioner averred that the trial
court committed grave abuse of its discretion amounting to excess or
lack of jurisdiction when it denied his motion to quash the Amended
Information despite his claim that the material allegations in the
Amended Information do not charge theft under Article 308 of the
Revised Penal Code, or any offense for that matter. By so doing, the
trial court deprived him of his constitutional right to be informed of the
nature of the charge against him. He further averred that the order of
the trial court is contrary to the constitution and is, thus, null and void.
He insists that he should not be compelled to undergo the rigors and
tribulations of a protracted trial and incur expenses to defend himself
against a non-existent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly every act
or omission constituting an offense38 and must allege facts
establishing conduct that a penal statute makes criminal; 39 and
describes the property which is the subject of theft to advise the
accused with reasonable certainty of the accusation he is called upon
to meet at the trial and to enable him to rely on the judgment
thereunder of a subsequent prosecution for the same offense. 40 It
must show, on its face, that if the alleged facts are true, an offense
has been committed. The rule is rooted on the constitutional right of
the accused to be informed of the nature of the crime or cause of the
accusation against him. He cannot be convicted of an offense even if
proven unless it is alleged or necessarily included in the Information
filed against him.
As a general prerequisite, a motion to quash on the ground that the
Information does not constitute the offense charged, or any offense
for that matter, should be resolved on the basis of said allegations
whose truth and veracity are hypothetically committed; 41 and on

additional facts admitted or not denied by the prosecution. 42 If the


facts alleged in the Information do not constitute an offense, the
complaint or information should be quashed by the court. 43
We have reviewed the Amended Information and find that, as
mentioned by the petitioner, it does not contain material allegations
charging the petitioner of theft of personal property under Article 308
of the Revised Penal Code. It, thus, behooved the trial court to quash
the Amended Information. The Order of the trial court denying the
motion of the petitioner to quash the Amended Information is a patent
nullity.
On the second issue, we find and so hold that the international
telephone calls placed by Bay Super Orient Card holders, the
telecommunication services provided by PLDT and its business of
providing said services are not personal properties under Article 308
of the Revised Penal Code. The construction by the respondents of
Article 308 of the said Code to include, within its coverage, the
aforesaid international telephone calls, telecommunication services
and business is contrary to the letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is
founded on the tenderness of the law for the rights of individuals and
on the plain principle that the power of punishment is vested in
Congress, not in the judicial department. It is Congress, not the
Court, which is to define a crime, and ordain its punishment. 44 Due
respect for the prerogative of Congress in defining crimes/felonies
constrains the Court to refrain from a broad interpretation of penal
laws where a "narrow interpretation" is appropriate. The Court must
take heed to language, legislative history and purpose, in order to
strictly determine the wrath and breath of the conduct the law
forbids.45 However, when the congressional purpose is unclear, the
court must apply the rule of lenity, that is, ambiguity concerning the
ambit of criminal statutes should be resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond
the fair meaning of the language used; and may not be held to
include offenses other than those which are clearly described,
notwithstanding that the Court may think that Congress should have
made them more comprehensive.47 Words and phrases in a statute

are to be construed according to their common meaning and


accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous,
indeed, to carry the principle that a case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime
not enumerated in the statute because it is of equal atrocity, or of
kindred character with those which are enumerated. 48 When
interpreting a criminal statute that does not explicitly reach the
conduct in question, the Court should not base an expansive reading
on inferences from subjective and variable understanding. 49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person
who, with intent to gain but without violence, against or intimidation of
persons nor force upon things, shall take personal property of another
without the latters consent.
The provision was taken from Article 530 of the Spanish Penal Code
which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en
las personas ni fuerza en las cosas, toman las cosas muebles ajenas
sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal
(animus furandi) personal property, meaning the intent to deprive
another of his ownership/lawful possession of personal property
which intent is apart from and concurrently with the general criminal
intent which is an essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following
elements: (a) the taking of personal property; (b) the said property
belongs to another; (c) the taking be done with intent to gain; and (d)
the taking be accomplished without the use of violence or intimidation
of person/s or force upon things.51
One is apt to conclude that "personal property" standing alone,
covers both tangible and intangible properties and are subject of theft

under the Revised Penal Code. But the words "Personal property"
under the Revised Penal Code must be considered in tandem with
the word "take" in the law. The statutory definition of "taking" and
movable property indicates that, clearly, not all personal properties
may be the proper subjects of theft. The general rule is that, only
movable properties which have physical or material existence and
susceptible of occupation by another are proper objects of theft. 52 As
explained by Cuelo Callon: "Cosa juridicamente es toda sustancia
corporal, material, susceptible de ser aprehendida que tenga un valor
cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only
those movable properties which can be taken and carried from the
place they are found are proper subjects of theft. Intangible properties
such as rights and ideas are not subject of theft because the same
cannot be "taken" from the place it is found and is occupied or
appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de
hurto. La sustraccin de cosas inmuebles y la cosas incorporales (v.
gr., los derechos, las ideas) no puede integrar este delito, pues no es
posible asirlas, tomarlas, para conseguir su apropiacin. El Codigo
emplea la expresin "cosas mueble" en el sentido de cosa que es
susceptible de ser llevada del lugar donde se encuentra, como
dinero, joyas, ropas, etctera, asi que su concepto no coincide por
completo con el formulado por el Codigo civil (arts. 335 y 336). 54
Thus, movable properties under Article 308 of the Revised Penal
Code should be distinguished from the rights or interests to which
they relate. A naked right existing merely in contemplation of law,
although it may be very valuable to the person who is entitled to
exercise it, is not the subject of theft or larceny.55 Such rights or
interests are intangible and cannot be "taken" by another. Thus, right
to produce oil, good will or an interest in business, or the right to
engage in business, credit or franchise are properties. So is the credit
line represented by a credit card. However, they are not proper
subjects of theft or larceny because they are without form or
substance, the mere "breath" of the Congress. On the other hand,
goods, wares and merchandise of businessmen and credit cards
issued to them are movable properties with physical and material

existence and may be taken by another; hence, proper subjects of


theft.
There is "taking" of personal property, and theft is consummated
when the offender unlawfully acquires possession of personal
property even if for a short time; or if such property is under the
dominion and control of the thief. The taker, at some particular
amount, must have obtained complete and absolute possession and
control of the property adverse to the rights of the owner or the lawful
possessor thereof.56 It is not necessary that the property be actually
carried away out of the physical possession of the lawful possessor
or that he should have made his escape with it. 57 Neither asportation
nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough. 58
The essence of the element is the taking of a thing out of the
possession of the owner without his privity and consent and without
animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent
persons without any felonious intent, as well as any mechanical
device, such as an access device or card, or any agency, animate or
inanimate, with intent to gain. Intent to gain includes the unlawful
taking of personal property for the purpose of deriving utility,
satisfaction, enjoyment and pleasure.60
We agree with the contention of the respondents that intangible
properties such as electrical energy and gas are proper subjects of
theft. The reason for this is that, as explained by this Court in United
States v. Carlos61 and United States v. Tambunting, 62 based on
decisions of the Supreme Court of Spain and of the courts in England
and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical
energy may be taken, carried away and appropriated. In People v.
Menagas,63 the Illinois State Supreme Court declared that electricity,
like gas, may be seen and felt. 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. 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. Electrical energy may,


likewise, be taken and carried away. It is a valuable commodity,
bought and sold like other personal property. It may be transported
from place to place. There is nothing in the nature of gas used for
illuminating purposes which renders it incapable of being feloniously
taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple, 64 the Court
of Appeals of New York held that electric energy is manufactured and
sold in determinate quantities at a fixed price, precisely as are coal,
kerosene oil, and gas. It may be conveyed to the premises of the
consumer, stored in cells of different capacity known as an
accumulator; or it may be sent through a wire, just as gas or oil may
be transported either in a close tank or forced through a pipe. Having
reached the premises of the consumer, it may be used in any way he
may desire, being, like illuminating gas, capable of being transformed
either into heat, light, or power, at the option of the purchaser. In
Woods v. People,65 the Supreme Court of Illinois declared that 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.
Gas and electrical energy should not be equated with business or
services provided by business entrepreneurs to the public. Business
does not have an exact definition. Business is referred as that which
occupies the time, attention and labor of men for the purpose of
livelihood or profit. It embraces everything that which a person can be
employed.66 Business may also mean employment, occupation or
profession. Business is also defined as a commercial activity for gain
benefit or advantage.67 Business, like services in business, although
are properties, are not proper subjects of theft under the Revised
Penal Code because the same cannot be "taken" or "occupied." If it
were otherwise, as claimed by the respondents, there would be no
juridical difference between the taking of the business of a person or
the services provided by him for gain, vis--vis, the taking of goods,
wares or merchandise, or equipment comprising his business. 68 If it
was its intention to include "business" as personal property under
Article 308 of the Revised Penal Code, the Philippine Legislature

should have spoken in language that is clear and definite: that


business is personal property under Article 308 of the Revised Penal
Code.69
We agree with the contention of the petitioner that, as gleaned from
the material averments of the Amended Information, he is charged of
"stealing the international long distance calls belonging to PLDT" and
the use thereof, through the ISR. Contrary to the claims of the OSG
and respondent PLDT, the petitioner is not charged of stealing
P20,370,651.95 from said respondent. Said amount of
P20,370,651.95 alleged in the Amended Information is the aggregate
amount of access, transmission or termination charges which the
PLDT expected from the international long distance calls of the
callers with the use of Baynet Super Orient Cards sold by Baynet Co.
Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the
taking of personal property without the consent of the owner thereof,
the Philippine legislature could not have contemplated the human
voice which is converted into electronic impulses or electrical current
which are transmitted to the party called through the PSTN of
respondent PLDT and the ISR of Baynet Card Ltd. within its
coverage. When the Revised Penal Code was approved, on
December 8, 1930, international telephone calls and the transmission
and routing of electronic voice signals or impulses emanating from
said calls, through the PSTN, IPL and ISR, were still non-existent.
Case law is that, where a legislative history fails to evidence
congressional awareness of the scope of the statute claimed by the
respondents, a narrow interpretation of the law is more consistent
with the usual approach to the construction of the statute. Penal
responsibility cannot be extended beyond the fair scope of the
statutory mandate.70
Respondent PLDT does not acquire possession, much less,
ownership of the voices of the telephone callers or of the electronic
voice signals or current emanating from said calls. The human voice
and the electronic voice signals or current caused thereby are
intangible and not susceptible of possession, occupation or
appropriation by the respondent PLDT or even the petitioner, for that
matter. PLDT merely transmits the electronic voice signals through its

facilities and equipment. Baynet Card Ltd., through its operator,


merely intercepts, reroutes the calls and passes them to its toll
center. Indeed, the parties called receive the telephone calls from
Japan.
In this modern age of technology, telecommunications systems have
become so tightly merged with computer systems that it is difficult to
know where one starts and the other finishes. The telephone set is
highly computerized and allows computers to communicate across
long distances.71 The instrumentality at issue in this case is not
merely a telephone but a telephone inexplicably linked to a
computerized communications system with the use of Baynet Cards
sold by the Baynet Card Ltd. The corporation uses computers,
modems and software, among others, for its ISR. 72
The conduct complained of by respondent PLDT is reminiscent of
"phreaking" (a slang term for the action of making a telephone system
to do something that it normally should not allow by "making the
phone company bend over and grab its ankles"). A "phreaker" is one
who engages in the act of manipulating phones and illegally markets
telephone services.73 Unless the phone company replaces all its
hardware, phreaking would be impossible to stop. The phone
companies in North America were impelled to replace all their
hardware and adopted full digital switching system known as the
Common Channel Inter Office Signaling. Phreaking occurred only
during the 1960s and 1970s, decades after the Revised Penal Code
took effect.
The petitioner is not charged, under the Amended Information, for
theft of telecommunication or telephone services offered by PLDT.
Even if he is, the term "personal property" under Article 308 of the
Revised Penal Code cannot be interpreted beyond its seams so as to
include "telecommunication or telephone services" or computer
services for that matter. The word "service" has a variety of meanings
dependent upon the context, or the sense in which it is used; and, in
some instances, it may include a sale. For instance, the sale of food
by restaurants is usually referred to as "service," although an actual
sale is involved.74 It may also mean the duty or labor to be rendered
by one person to another; performance of labor for the benefit of
another.75 In the case of PLDT, it is to render local and international

telecommunications services and such other services as authorized


by the CPCA issued by the NTC. Even at common law, neither time
nor services may be taken and occupied or appropriated. 76 A service
is generally not considered property and a theft of service would not,
therefore, constitute theft since there can be no caption or
asportation.77 Neither is the unauthorized use of the equipment and
facilities of PLDT by the petitioner theft under the aforequoted
provision of the Revised Penal Code.78
If it was the intent of the Philippine Legislature, in 1930, to include
services to be the subject of theft, it should have incorporated the
same in Article 308 of the Revised Penal Code. The Legislature did
not. In fact, the Revised Penal Code does not even contain a
definition of services.
If taking of telecommunication services or the business of a person, is
to be proscribed, it must be by special statute 79 or an amendment of
the Revised Penal Code. Several states in the United States, such as
New York, New Jersey, California and Virginia, realized that their
criminal statutes did not contain any provisions penalizing the theft of
services and passed laws defining and penalizing theft of telephone
and computer services. The Pennsylvania Criminal Statute now
penalizes theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for
himself or for another which he knows are available only for
compensation, by deception or threat, by altering or tampering with
the public utility meter or measuring device by which such services
are delivered or by causing or permitting such altering or tampering,
by making or maintaining any unauthorized connection, whether
physically, electrically or inductively, to a distribution or transmission
line, by attaching or maintaining the attachment of any unauthorized
device to any cable, wire or other component of an electric, telephone
or cable television system or to a television receiving set connected
to a cable television system, by making or maintaining any
unauthorized modification or alteration to any device installed by a
cable television system, or by false token or other trick or artifice to
avoid payment for the service.

In the State of Illinois in the United States of America, theft of labor or


services or use of property is penalized:
(a) A person commits theft when he obtains the temporary use of
property, labor or services of another which are available only for hire,
by means of threat or deception or knowing that such use is without
the consent of the person providing the property, labor or services.
In 1980, the drafters of the Model Penal Code in the United States of
America arrived at the conclusion that labor and services, including
professional services, have not been included within the traditional
scope of the term "property" in ordinary theft statutes. Hence, they
decided to incorporate in the Code Section 223.7, which defines and
penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he
knows are available only for compensation, by deception or threat, or
by false token or other means to avoid payment for the service.
"Services" include labor, professional service, transportation,
telephone or other public service, accommodation in hotels,
restaurants or elsewhere, admission to exhibitions, use of vehicles or
other movable property. Where compensation for service is ordinarily
paid immediately upon the rendering of such service, as in the case
of hotels and restaurants, refusal to pay or absconding without
payment or offer to pay gives rise to a presumption that the service
was obtained by deception as to intention to pay; (2) A person
commits theft if, having control over the disposition of services of
others, to which he is not entitled, he knowingly diverts such services
to his own benefit or to the benefit of another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated
its decision in Lund v. Commonwealth, 80 declaring that neither time
nor services may be taken and carried away and are not proper
subjects of larceny, the General Assembly of Virginia enacted Code
No. 18-2-98 which reads:
Computer time or services or data processing services or information
or data stored in connection therewith is hereby defined to be
property which may be the subject of larceny under 18.2-95 or
18.2-96, or embezzlement under 18.2-111, or false pretenses under

18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of
Alabama of 1975 penalizes theft of services:
"A person commits the crime of theft of services if: (a) He intentionally
obtains services known by him to be available only for compensation
by deception, threat, false token or other means to avoid payment for
the services "
In the Philippines, Congress has not amended the Revised Penal
Code to include theft of services or theft of business as felonies.
Instead, it approved a law, Republic Act No. 8484, otherwise known
as the Access Devices Regulation Act of 1998, on February 11, 1998.
Under the law, an access device means any card, plate, code,
account number, electronic serial number, personal identification
number and other telecommunication services, equipment or
instrumentalities-identifier or other means of account access that can
be used to obtain money, goods, services or any other thing of value
or to initiate a transfer of funds other than a transfer originated solely
by paper instrument. Among the prohibited acts enumerated in
Section 9 of the law are the acts of obtaining money or anything of
value through the use of an access device, with intent to defraud or
intent to gain and fleeing thereafter; and of effecting transactions with
one or more access devices issued to another person or persons to
receive payment or any other thing of value. Under Section 11 of the
law, conspiracy to commit access devices fraud is a crime. However,
the petitioner is not charged of violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to
any liability for violation of any provisions of the Revised Penal Code
inclusive of theft under Rule 308 of the Revised Penal Code and
estafa under Article 315 of the Revised Penal Code. Thus, if an
individual steals a credit card and uses the same to obtain services,
he is liable of the following: theft of the credit card under Article 308 of
the Revised Penal Code; violation of Republic Act No. 8484; and
estafa under Article 315(2)(a) of the Revised Penal Code with the
service provider as the private complainant. The petitioner is not
charged of estafa before the RTC in the Amended Information.

Section 33 of Republic Act No. 8792, Electronic Commerce Act of


2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine
and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or
interference in a computer system/server or information and
communication system; or any access in order to corrupt, alter, steal,
or destroy using a computer or other similar information and
communication devices, without the knowledge and consent of the
owner of the computer or information and communications system,
including the introduction of computer viruses and the like, resulting
on the corruption, destruction, alteration, theft or loss of electronic
data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00) and a
maximum commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
assailed Orders of the Regional Trial Court and the Decision of the
Court of Appeals are REVERSED and SET ASIDE. The Regional
Trial Court is directed to issue an order granting the motion of the
petitioner to quash the Amended Information.
SO ORDERED.
DIGEST

FACTSLaurel was charged with Theft under Art. 308 of


the RPC for allegedly taking, stealing, and using PLDT's
international long distance calls by conducting
International Simple Resale (ISR) a method of outing
and completing international long-distance calls using
lines, cables, antennae, and/or air wave frequency which
connect directly to the local/domestic exchange facilities
of the country where the call is destined. PLDT alleged
that this service was stolen from them using their own
equipment and caused damage to them amounting to

P20,370,651.92.PLDT alleges that the international calls


and business of providing telecommunication or
telephone service are personal properties capable of
appropriation and can be objects of theft.
ISSUEWON Laurel's act constitutes Theft
HELDArt.308, RPC: Theft is committed by any person
who, with intent to gain but without violence against, or
intimidation of persons nor force upon things, shall take
personal property of another without the latters
consent.
Elements of Theft under Art.308, RPC:
1.
2.
3.
4.
5.

There be taking of Personal Property;


Said Personal Property belongs to another;
Taking be done with Intent to Gain;
Taking be done without the owners consent;
No violence against, or intimidation of, persons or
force upon things
Personal Property anything susceptible of
appropriation and not included in Real Property
Thus, the term personal property as used in Art.308,
RPC should be interpreted in the context of the Civil
Code's definition of real and personal property.
Consequently, any personal property, tangible or
intangible, corporeal or incorporeal, capable of
appropriation may be the subject of theft (*US v Carlos;
US v Tambunting; US v Genato*), so long as the same is
not included in the enumeration of Real Properties under
the Civil Code.

The only requirement for personal property to capable of


theft, is that it be subject to appropriation.
Art. 416 (3) of the Civil Code deems Forces of
Nature which are brought under the control of science,
as Personal Property.
The appropriation of forces of nature which are brought
under control by science can be achieved by tampering
with any apparatus used for generating or measuring
such forces of nature, wrongfully redirecting such forces
of nature from such apparatus, or using any device to
fraudulently obtain such forces of nature.
In the instant case, the act of conducting ISR operations
by illegally connecting various equipment or apparatus
to PLDTs telephone system, through which petitioner is
able to resell or re-route international long distance calls
using PLDTs facilities constitute Subtraction.
Moreover, interest in business should be classified as
personal property since it is capable of appropriation,
and not included in the enumeration of real properties.
Therefore, the business of providing telecommunication
or telephone service are personal property which can be
the object of theft under Art. 308 of the RPC. The act of
engaging in ISR is an act of subtraction penalized
under the said article.
While international long-distance calls take the form of
electrical energy and may be considered as personal
property, the said long-distance calls do not belong to
PLDT since it could not have acquired ownership over

such calls. PLDT merely encodes, augments, enhances,


decodes and transmits said calls using its complex
communications infrastructure and facilities.
Since PLDT does not own the said telephone calls, then it
could not validly claim that such telephone calls were
taken without its consent.
What constitutes Theft is the use of the PLDT's
communications facilities without PLDT's consent. The
theft lies in the unlawful taking of the telephone services
& businesses.
The Amended Information should be amended to show
that the property subject of the theft were services and
business of the offended party.

G.R. No. L-41643

July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant, vs.CU UNJIENG E


HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE
COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE
SHERIFF OF PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.Araneta, Zaragoza and Araneta


for appellees Cu Unjieng e Hijos.No appearance for the other
appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the
judgment of the Court of First Instance of Manila, dismissing said
plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as
committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the
first assignment of alleged error, is whether or not the lower court
erred in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the
mortgage deed executed in favor of the defendants Cu Unjieng e
Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat
Sugar Co., Inc., owner of the sugar central situated in Mabalacat,
Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan
secured by a first mortgage constituted on two parcels and land "with
all its buildings, improvements, sugar-cane mill, steel railway,
telephone line, apparatus, utensils and whatever forms part or is
necessary complement of said sugar-cane mill, steel railway,
telephone line, now existing or that may in the future exist is said
lots."
On October 5, 1926, shortly after said mortgage had been
constituted, the Mabalacat Sugar Co., Inc., decided to increase the
capacity of its sugar central by buying additional machinery and
equipment, so that instead of milling 150 tons daily, it could produce
250. The estimated cost of said additional machinery and equipment
was approximately P100,000. In order to carry out this plan, B.A.
Green, president of said corporation, proposed to the plaintiff, B.H.
Berkenkotter, to advance the necessary amount for the purchase of
said machinery and equipment, promising to reimburse him as soon
as he could obtain an additional loan from the mortgagees, the herein

defendants Cu Unjieng e Hijos. Having agreed to said proposition


made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter,
on October 9th of the same year, delivered the sum of P1,710 to B.A.
Green, president of the Mabalacat Sugar Co., Inc., the total amount
supplied by him to said B.A. Green having been P25,750.
Furthermore, B.H. Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said
credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the
additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co.,
Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000
offering as security the additional machinery and equipment acquired
by said B.A. Green and installed in the sugar central after the
execution of the original mortgage deed, on April 27, 1927, together
with whatever additional equipment acquired with said loan. B.A.
Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged property or by virtue of
the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate
continues in the possession of the person who mortgaged it or
whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos
(12 Phil., 690), cited with approval in the case of Cea vs. Villanueva
(18 Phil., 538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES
IMPROVEMENTS AND FIXTURES. It is a rule, established by the
Civil Code and also by the Mortgage Law, with which the decisions of
the courts of the United States are in accord, that in a mortgage of
real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land,
although they may have been placed there after the mortgage was

constituted, are also included. (Arts. 110 and 111 of the Mortgage
Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in
the matter of Royal Insurance Co. vs. R. Miller, liquidator, and
Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC.
In order that it may be understood that the machinery and other
objects placed upon and used in connection with a mortgaged estate
are excluded from the mortgage, when it was stated in the mortgage
that the improvements, buildings, and machinery that existed thereon
were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and
equipment claimed by him in the sugar central of the Mabalacat
Sugar Company, Inc., was not permanent in character inasmuch as
B.A. Green, in proposing to him to advance the money for the
purchase thereof, made it appear in the letter, Exhibit E, that in case
B.A. Green should fail to obtain an additional loan from the
defendants Cu Unjieng e Hijos, said machinery and equipment would
become security therefor, said B.A. Green binding himself not to
mortgage nor encumber them to anybody until said plaintiff be fully
reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money
obtained as loan from the plaintiff-appellant by B.A. Green, as
president of the Mabalacat Sugar Co., Inc., the latter became owner
of said machinery and equipment, otherwise B.A. Green, as such
president, could not have offered them to the plaintiff as security for
the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection
with any industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar industry, converted them into

real property by reason of their purpose, it cannot be said that their


incorporation therewith was not permanent in character because, as
essential and principal elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment
installed for carrying on the sugar industry for which it has been
established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff
B.H. Berkenkotter to hold said machinery and equipment as security
for the payment of the latter's credit and to refrain from mortgaging or
otherwise encumbering them until Berkenkotter has been fully
reimbursed therefor, is not incompatible with the permanent character
of the incorporation of said machinery and equipment with the sugar
central of the Mabalacat Sugar Co., Inc., as nothing could prevent
B.A. Green from giving them as security at least under a second
mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff
and appellant after they had been permanently incorporated with
sugar central of the Mabalacat Sugar Co., Inc., and while the
mortgage constituted on said sugar central to Cu Unjieng e Hijos
remained in force, only the right of redemption of the vendor
Mabalacat Sugar Co., Inc., in the sugar central with which said
machinery and equipment had been incorporated, was transferred
thereby, subject to the right of the defendants Cu Unjieng e Hijos
under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold:
(1) That the installation of a machinery and equipment in a mortgaged
sugar central, in lieu of another of less capacity, for the purpose of
carrying out the industrial functions of the latter and increasing
production, constitutes a permanent improvement on said sugar
central and subjects said machinery and equipment to the mortgage
constituted thereon (article 1877, Civil Code); (2) that the fact that the
purchaser of the new machinery and equipment has bound himself to
the person supplying him the purchase money to hold them as
security for the payment of the latter's credit, and to refrain from
mortgaging or otherwise encumbering them does not alter the

permanent character of the incorporation of said machinery and


equipment with the central; and (3) that the sale of the machinery and
equipment in question by the purchaser who was supplied the
purchase money, as a loan, to the person who supplied the money,
after the incorporation thereof with the mortgaged sugar central, does
not vest the creditor with ownership of said machinery and equipment
but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in
all its parts, with costs to the appellant. So ordered.
DIGEST:
Facts:
On 26 April 1926, the Mabalacat Sugar Company obtained from Cu Unjieng e Hijos, a loan
secured by a first mortgage constituted on 2 parcels of land "with all its buildings, improvements,
sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is a
necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that
may in the future exist in said lots.
On 5 October 1926, the Mabalacat Sugar Company decided to increase the capacity of its sugar
central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it
could produce 250. Green proposed to the Berkenkotter, to advance the necessary amount for
the purchase of said machinery and equipment, promising to reimburse him as soon as he could
obtain an additional loan from the mortgagees, Cu Unjieng e Hijos, and that in case Green should
fail to obtain an additional loan from Cu Unjieng e Hijos, said machinery and equipment would
become security therefore, said Green binding himself not to mortgage nor encumber them to
anybody until Berkenkotter be fully reimbursed for the corporation's indebtedness to him.
Having agreed to said proposition made in a letter dated 5 October 1926, Berkenkotter, on 9
October 1926, delivered the sum of P1,710 to Green, the total amount supplied by him to Green
having been P25,750. Furthermore, Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat
Sugar Co., Inc., purchased the additional machinery and equipment.
On 10 June 1927, Green applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering
as security the additional machinery and equipment acquired by said Green and installed in the
sugar central after the execution of the original mortgage deed, on 27 April 1927, together with
whatever additional equipment acquired with said loan. Green failed to obtain said loan. Hence,
above mentioned mortgage was in effect.
Issue:
Are the additional machines also considered mortgaged?
Held:

Article 1877 of the Civil Code provides that mortgage includes all natural accessions,
improvements, growing fruits, and rents not collected when the obligation falls due, and the
amount of any indemnities paid or due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the declarations, amplifications, and
limitations established by law, whether the state continues in the possession of the person who
mortgaged it or whether it passes into the hands of a third person.
It is a rule, that in a mortgage of real estate, the improvements on the same are included;
therefore, all objects permanently attached to a mortgaged building or land, although they may
have been placed there after the mortgage was constituted, are also included.
Article 334, paragraph 5, of the Civil Code gives the character of real property to machinery, liquid
containers, instruments or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to
meet the requirements of such trade or industry. The installation of a machinery and equipment in
a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the
industrial functions of the latter and increasing production, constitutes a permanent improvement
on said sugar central and subjects said machinery and equipment to the mortgage constituted
thereon.

G.R. No. L-41506

March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant, vs.


FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO.,
defendants. JOSE COROMINAS, in his capacity as assignee of
the estate of the insolvent Francisco Jarque, appellee.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for
appellant.D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:

First of all the reason why the case has been decided by the court in
banc needs explanation. A motion was presented by counsel for the
appellant in which it was asked that the case be heard and
determined by the court sitting in banc because the admiralty
jurisdiction of the court was involved, and this motion was granted in
regular course. On further investigation it appears that this was error.
The mere mortgage of a ship is a contract entered into by the parties
to it without reference to navigation or perils of the sea, and does not,
therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John
Jay [1854], 17 How., 399.)
Coming now to the merits, it appears that on varying dates the
Philippine Refining Co., Inc., and Francisco Jarque executed three
mortgages on the motor vessels Pandan and Zaragoza. These
documents were recorded in the record of transfers and
incumbrances of vessels for the port of Cebu and each was therein
denominated a "chattel mortgage". Neither of the first two mortgages
had appended an affidavit of good faith. The third mortgage
contained such an affidavit, but this mortgage was not registered in
the customs house until May 17, 1932, or within the period of thirty
days prior to the commencement of insolvency proceedings against
Francisco Jarque; also, while the last mentioned mortgage was
subscribed by Francisco Jarque and M. N. Brink, there was nothing to
disclose in what capacity the said M. N. Brink signed. A fourth
mortgage was executed by Francisco Jarque and Ramon Aboitiz on
the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the
thirty-day period before the institution of insolvency proceedings.
These proceedings were begun on June 2, 1932, when a petition was
filed with the Court of First Instance of Cebu in which it was prayed
that Francisco Jarque be declared an insolvent debtor, which soon
thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order the
foreclosure of the mortgages, but on the contrary sustained the
special defenses of fatal defectiveness of the mortgages. In so doing
we believe that the trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code

of Commerce, article 585.) Similarly under the common law, vessels


are personal property although occasionally referred to as a peculiar
kind of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep.,
1000; Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E.,
924.) Since the term "personal property" includes vessels, they are
subject to mortgage agreeably to the provisions of the Chattel
Mortgage Law. (Act No. 1508, section 2.) Indeed, it has heretofore
been accepted without discussion that a mortgage on a vessel is in
nature a chattel mortgage. (McMicking vs. Banco Espaol-Filipino
[1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.)
The only difference between a chattel mortgage of a vessel and a
chattel mortgage of other personalty is that it is not now necessary for
a chattel mortgage of a vessel to be noted n the registry of the
register of deeds, but it is essential that a record of documents
affecting the title to a vessel be entered in the record of the Collector
of Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917],
37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on
a vessel is generally like other chattel mortgages as to its requisites
and validity. (58 C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing what shall
be deemed sufficient to constitute a good chattel mortgage, includes
the requirement of an affidavit of good faith appended to the
mortgage and recorded therewith. The absence of the affidavit
vitiates a mortgage as against creditors and subsequent
encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil.,
216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial
Sheriff of Occidental Negros [1923], 46 Phil., 753.) As a consequence
a chattel mortgage of a vessel wherein the affidavit of good faith
required by the Chattel Mortgage Law is lacking, is unenforceable
against third persons.
In effect appellant asks us to find that the documents appearing in the
record do not constitute chattel mortgages or at least to gloss over
the failure to include the affidavit of good faith made a requisite for a
good chattel mortgage by the Chattel Mortgage Law. Counsel would
further have us disregard article 585 of the Code of Commerce, but
no reason is shown for holding this article not in force. Counsel would
further have us revise doctrines heretofore announced in a series of
cases, which it is not desirable to do since those principles were

confirmed after due liberation and constitute a part of the commercial


law of the Philippines. And finally counsel would have us make rulings
on points entirely foreign to the issues of the case. As neither the
facts nor the law remains in doubt, the seven assigned errors will be
overruled.
Judgment affirmed, the costs of this instance to be paid by the
appellant.
DIGEST:

FACTS:
Plaintiff Philippine Refining Co. and defendant Jarque
executed three mortgages on the motor vessels Pandan and
Zargazo. The documents were recorded as transfer and
encumbrances of the vessels for the port of Cebu and each
was denominated a chattel mortgage.

The first two mortgages did not have an affidavit of good


faith. A fourth mortgage was executed by Jarque and Ramon
Aboitiz over motorship Zaragoza and was entered in the
Chattel Mortgage Registry on May 12, 1932, within the
period of 30 days prior to the foreclosure/institution of the
insolvency proceedings.

Jose Curaminas filed with the CFI of Cebu a petition praying


that Francisco Jarque be declared an insolvent debtor. This
was granted and Jarques properties were then assigned to
Curaminas.

A problem arose when Judge Jose Hontiveros declined to


order the foreclosure of the mortgages, and instead, ruled
that they were defective because they did not have
affidavits of good faith.

ISSUE:
6.
7.

Whether or not the mortgages of the vessels are


governed by the Chattel Mortgage Law
Whether or not an affidavit of good faith is needed to
enforce achattel mortgage on a vessel

RULING:
Yes. Personal property includes vessels. They are subject to
the provisions of the Chattel Mortgage Law. The Chattel
Mortgage Law says that a good chattel mortgage includes an
affidavit of good faith. The absence of such affidavit makes
mortgage unenforceable against creditors and subsequent
encumbrances. The judge was correct.
Note: A mortgage on a vessel is generally like other chattel
mortgages. The only difference between a chattel mortgage
of a vessel and a chattel mortgage of other personalty is that
the first must be noted in the registry of the register of
deeds.

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,
photograph, marked Annex "G".

appearing

in

the

attached

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.n t

The Court of Tax Appeals having sustained the respondent city


assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following
errors:
1. The Honorable Court of Tax Appeals erred in upholding

respondents' contention that the questioned assessments are valid;


and that said tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article
415 of the New Civil Code, and holding that pursuant thereto the
movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention
that the respondent City Assessor's power to assess and levy real
estate taxes on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for
reconsideration.
Respondents contend that said equipments, tho movable, are
immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by


the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are
placed on wooden or cement platforms. They can be moved around
and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of
such trade or industry."

If the installation of the machinery and equipment in question in the


central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar and industry, converted them
into real property by reason of their purpose, it cannot be said that
their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as
the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has
been established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of
the law must first be "essential and principal elements" of an industry
or works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable
which become immobilized by destination because they are essential
and principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not
essential and principal. Thus, cash registers, typewriters, etc., usually
found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by
destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On
the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found
within their industrial compounds are merely incidental and retain
their movable nature.
Similarly, the tools and equipments in question in this instant case
are, by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals acquired as movables
and used only for expediency to facilitate and/or improve its service.
Even without such tools and equipments, its business may be carried

on, as petitioner has carried on, without such equipments, before the
war. The transportation business could be carried on without the
repair or service shop if its rolling equipment is repaired or serviced in
another shop belonging to another.
The law that governs the determination of the question at issue is as
follows:
Art. 415. The following are immovable property:
xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by


the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works; (Civil Code of the
Phil.)
Aside from the element of essentiality the above-quoted provision
also requires that the industry or works be carried on in a building or
on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng,
supra, the "machinery, liquid containers, and instruments or
implements" are found in a building constructed on the land. A
sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on
in a building or permanently on a piece of land, as demanded by the
law. Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments
in question are not absolutely essential to the petitioner's
transportation business, and petitioner's business is not carried on in
a building, tenement or on a specified land, so said equipment may
not be considered real estate within the meaning of Article 415 (c) of
the Civil Code.
WHEREFORE, the decision subject of the petition for review is
hereby set aside and the equipment in question declared not subject
to assessment as real estate for the purposes of the real estate tax.

Without costs.
So ordered.
DIGEST:

Facts: Petitioner is a public utility company engaged in the transport


of passengers and cargo by motor vehicles in Mindanao with main
offices in Cagayan de Oro (CDO). Petitioner likewise owned a land
where it maintains a garage, a repair shop and blacksmith or
carpentry shops. The machineries are placed thereon in wooden and
cement platforms. The City Assessor of CDO then assessed a
P4,400 realty tax on said machineries and repair equipment.
Petitioner appealed to the Board of Tax Appeals but it sustained the
City Assessor's decision, while the Court of Tax Appeals (CTA)
sustained the same.
Note: This is merely a case digest to aid in remembering the
important points of a case. It is still advisable for any student of law to
read the full text of assigned cases.
Issue: Whether or not the machineries and equipments are
considered immobilized and thus subject to a realty tax
Held: The Supreme Court decided otherwise and held that said
machineries and equipments are not subject to the assessment of
real estate tax.
Said equipments are not considered immobilized as they are merely
incidental, not esential and principal to the business of the petitioner.
The transportation business could be carried on without repair or
service shops of its rolling equipment as they can be repaired or
services in another shop belonging to another

[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO


T. GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE, INC.,
respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real
or immovable property be considered as personal or
movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper
subject of a writ of replevin obtained by the other
contracting party.
The Case
Before us is a Petition for Review on Certiorari
assailing the January 6, 1999 Decision[1] of the Court
of Appeals (CA)[2] in CA-GR SP No. 47332 and its

February
26,
1999
Resolution[3]
denying
reconsideration. The decretal portion of the CA
Decision reads as follows:
WHEREFORE, premises considered, the assailed Order
dated February 18, 1998 and Resolution dated March 31,
1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED.
The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional
Trial Court (RTC) of Quezon City (Branch 218)[6]
issued a Writ of Seizure.[7] The March 18, 1998
Resolution[8] denied petitioners Motion for Special
Protective Order, praying that the deputy sheriff be
enjoined from seizing immobilized or other real
properties in (petitioners) factory in Cainta, Rizal and
to return to their original place whatever immobilized
machineries or equipments he may have removed.[9]
The Facts
The undisputed facts are summarized by the
Court of Appeals as follows:[10]
On February 13, 1998, respondent PCI Leasing and
Finance, Inc. (PCI Leasing for short) filed with the RTC-QC a
complaint for [a] sum of money (Annex E), with an
application for a writ of replevin docketed as Civil Case No.
Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI
Leasing, respondent judge issued a writ of replevin (Annex
B) directing its sheriff to seize and deliver the machineries
and equipment to PCI Leasing after 5 days and upon the
payment of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff


proceeded to petitioners factory, seized one machinery with
[the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special
protective order (Annex C), invoking the power of the court
to control the conduct of its officers and amend and control
its processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the
ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought
to be seized [were] immovable as defined in Article 415 of
the Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the
agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from
treating these machineries as personal because the
contracts in which the alleged agreement [were] embodied
[were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ
of seizure and take possession of the remaining properties.
He was able to take two more, but was prevented by the
workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action
for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the

appellate court held that the subject machines were


personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that
the words of the contract are clear and leave no
doubt upon the true intention of the contracting
parties. Observing that Petitioner Goquiolay was an
experienced businessman who was not unfamiliar
with the ways of the trade, it ruled that he should
have realized the import of the document he signed.
The CA further held:
Furthermore, to accord merit to this petition would be to
preempt the trial court in ruling upon the case below, since
the merits of the whole matter are laid down before us via a
petition whose sole purpose is to inquire upon the existence
of a grave abuse of discretion on the part of the [RTC] in
issuing the assailed Order and Resolution. The issues raised
herein are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is
being enforced by one, and [its] validity is attacked by the
other a matter x x x which respondent court is in the best
position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the
following issues for our consideration:
A. Whether or not the machineries purchased and imported
by SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan
or a lease.[12]

In the main, the Court will resolve whether the


said machines are personal, not immovable,
property which may be a proper subject of a writ of
replevin. As a preliminary matter, the Court will also
address briefly the procedural points raised by
respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to
indicate expressly whether it was being filed under
Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded
Judge Hilario Laqui as respondent.
There is no question that the present recourse is
under Rule 45. This conclusion finds support in the
very title of the Petition, which is Petition for Review
on Certiorari.[13]
While Judge Laqui should not have been
impleaded as a respondent,[14] substantial justice
requires that such lapse by itself should not warrant
the dismissal of the present Petition. In this light, the
Court deems it proper to remove, motu proprio, the
name of Judge Laqui from the caption of the present
case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines

used in their factory were not proper subjects of the


Writ issued by the RTC, because they were in fact
real property. Serious policy considerations, they
argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs
of replevin are issued for the recovery of personal
property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and
approval of the bond, the court shall issue an order and the
corresponding writ of replevin describing the personal
property alleged to be wrongfully detained and requiring the
sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code
enumerates immovable or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said
industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the
subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land.
Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence,
although each of them was movable or personal
property on its own, all of them have become
immobilized by destination because they are

essential and principal elements in the industry.[16] In


that sense, petitioners are correct in arguing that the
said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the
submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may
validly stipulate that a real property be considered as
personal.[18] After agreeing to such stipulation, they
are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract
is ordinarily precluded from denying the truth of any
material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court
upheld the intention of the parties to treat a house as
a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the
subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing
and Finance Corp. v. Wearever Textile Mills[20] also
held that the machinery used in a factory and
essential to the industry, as in the present case, was
a proper subject of a writ of replevin because it was
treated as personal property in a contract. Pertinent
portions of the Courts ruling are reproduced

hereunder:
x x x. If a house of strong materials, like what was involved
in the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and
no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in
its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying
the existence of the chattel mortgage.
In the present case, the Lease Agreement
clearly provides that the machines in question are to
be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and
remain, personal property notwithstanding that the
PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from
denying the characterization of the subject machines
as personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding
-- that the machines should be deemed personal
property pursuant to the Lease Agreement is good
only insofar as the contracting parties are
concerned.[22] Hence, while the parties are bound by
the Agreement, third persons acting in good faith are

not affected by its stipulation characterizing the


subject machinery as personal.[23] In any event,
there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that
the Agreement is a loan and not a lease.[24]
Submitting documents supposedly showing that they
own the subject machines, petitioners also argue in
their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the
intention of the parties and the validity of the lease
agreement itself.[25] In their Reply to respondents
Comment, they further allege that the Agreement is
invalid.[26]
These arguments are unconvincing. The validity
and the nature of the contract are the lis mota of the
civil action pending before the RTC. A resolution of
these questions, therefore, is effectively a resolution
of the merits of the case. Hence, they should be
threshed out in the trial, not in the proceedings
involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the
Court explained that the policy under Rule 60 was
that questions involving title to the subject property
questions which petitioners are now raising -- should
be determined in the trial. In that case, the Court
noted that the remedy of defendants under Rule 60
was either to post a counter-bond or to question the
sufficiency of the plaintiffs bond. They were not
allowed, however, to invoke the title to the subject
property. The Court ruled:

In other words, the law does not allow the defendant to file a
motion to dissolve or discharge the writ of seizure (or
delivery) on ground of insufficiency of the complaint or of the
grounds relied upon therefor, as in proceedings on
preliminary attachment or injunction, and thereby put at
issue the matter of the title or right of possession over the
specific chattel being replevied, the policy apparently being
that said matter should be ventilated and determined only at
the trial on the merits.[28]
Besides,
these
questions
require
a
determination of facts and a presentation of
evidence, both of which have no place in a petition
for certiorari in the CA under Rule 65 or in a petition
for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this
case may rely on the Lease Agreement, for nothing
on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in
the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the
parties.
Makati Leasing and Finance Corporation[30] is
also instructive on this point. In that case, the Deed
of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed
because respondent had allegedly been required to
sign a printed form of chattel mortgage which was in
a blank form at the time of signing. The Court
rejected the argument and relied on the Deed, ruling

as follows:
x x x. Moreover, even granting that the charge is true, such
fact alone does not render a contract void ab initio, but can
only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by
a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these
machineries to be seized, then its workers would be
out of work and thrown into the streets. [31] They also
allege that the seizure would nullify all efforts to
rehabilitate the corporation.
Petitioners arguments do not preclude the
implementation of the Writ. As earlier discussed, law
and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the
remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to
the sufficiency of the applicants bond, or of the surety or
sureties thereon, he cannot immediately require the return of
the property, but if he does not so object, he may, at any time
before the delivery of the property to the applicant, require
the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the
value of the property as stated in the applicants affidavit for
the delivery thereof to the applicant, if such delivery be

adjudged, and for the payment of such sum to him as may


be recovered against the adverse party, and by serving a
copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the
assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.
SO ORDERED.
DIGEST:
Facts:
Respondent PCI Leasing and Finance, Inc, filed with the RTC-QC a
complaint for a sum of money with an application for a writ of replevin.
Respondent Judge issued a writ of replevin directing its sheriff to seize
and deliver the machineries and equipment to PCI after 5 days and
upon the payment of the necessary expenses.
In the implementation of the said writ, the sheriff proceeded to
petitioners factory, seized one machinery with word that he would
return for the other.
Petitioners filed a motion for special protective order, 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.
The motion was opposed by PCI Leasing, on the ground that the
properties were still personal and therefore still subject to seizure and
a writ of replevin.
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.
Issue:
1.
Whether or not the machineries purchased and imported by
Sergs became real property by virtue of immobilization.
2.
Whether or not the contract between the parties is valid.
Ruling:
The petition is not meritorious.
1.
No.
The machines that were 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. In that sense petitioners are correct in arguing that the said
machines are real property pursuant to Article 415 (5) of the Civil
Code.
But the Court disagrees with the submission of the petitioners that the
said machines are not proper subject of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a
real property be considered as personal. After agreeing to such
stipulation, they are consequently stopped from claiming otherwise.
Under the principle of estoppels, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Clearly then, petitioners are stopped from denying the characterization
of the subject machines as personal property. Under circumstances,
they are proper subjects of the Writ of Seizure.
It should be stressed, however, that the Courts holding-that the
machines should be deemed personal property pursuant to the Lease
Agreement-is good only insofar as the contracting parties are
concerned. 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. In any event, there
is no showing that any specific third party would be adversely affected.
2.
Yes.
It should be pointed out that the Court may rely on the Lease
Agreement, for nothing on the 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.
Petition denied. Judgment affirmed.

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., defendantsappellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin
Joven for appellant.J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the
decision in the trial court and as set forth by counsel for the parties on
appeal, involves the determination of the nature of the properties
described in the complaint. The trial judge found that those properties
were personal in nature, and as a consequence absolved the
defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession
from the Government of the Philippine Islands. It has operated a
sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill
company erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal property,
the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill
company and the owner of the land there appeared the following
provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced and erected by the party of
the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for

said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass
to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will pass
to the party of the first part on the expiration or abandonment of the
land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a
judgment was rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution issued thereon, and
the properties now in question were levied upon as personalty by the
sheriff. No third party claim was filed for such properties at the time of
the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and
the defendant herein having consummated the sale, proceeded to
take possession of the machinery and other properties described in
the corresponding certificates of sale executed in its favor by the
sheriff of Davao.
As connecting up with the facts, it should further be explained that the
Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in
favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point.
According to the Code, real property consists of
1. Land, buildings, roads and constructions of all kinds adhering to
the soil;
xxx

xxx

xxx

5. Machinery, liquid containers, instruments or implements intended


by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last


mentioned paragraph. We entertain no doubt that the trial judge and
appellees are right in their appreciation of the legal doctrines flowing
from the facts.
In the first place, it must again be pointed out that the appellant
should have registered its protest before or at the time of the sale of
this property. It must further be pointed out that while not conclusive,
the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this court
in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44
Phil., 630), whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the
resolution of this appeal on side issues. It is machinery which is
involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a
lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to
the United States Supreme Court, it was held that machinery which is
movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant, but not when so placed by
a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the opinion
written by Chief Justice White, whose knowledge of the Civil Law is
well known, it was in part said:
To determine this question involves fixing the nature and character of
the property from the point of view of the rights of Valdes and its
nature and character from the point of view of Nevers & Callaghan as
a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real) property, not only land and
buildings, but also attributes immovability in some cases to property
of a movable nature, that is, personal property, because of the

destination to which it is applied. "Things," says section 334 of the


Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of section
335, which is as follows: "Machinery, vessels, instruments or
implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with
which we are dealing machinery placed in the plant it is plain,
both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore,
by the placing of machinery in a plant by a tenant or a usufructuary or
any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447;
and decisions quoted in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law
to have applied movable property belonging to him so as to deprive
him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery
put by the Altagracia Company in the plant belonging to Sanchez did
not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of
the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the
lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging
to the owner without compensation to the lessee. Under such
conditions the tenant in putting in the machinery was acting but as the
agent of the owner in compliance with the obligations resting upon
him, and the immobilization of the machinery which resulted arose in
legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.

xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan, that is, that which
was placed in the plant by the Altagracia Company, being, as regards
Nevers & Callaghan, movable property, it follows that they had the
right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict
with the claim of Valdes, since as to him the property was a part of
the realty which, as the result of his obligations under the lease, he
could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from
will be affirmed, the costs of this instance to be paid by the appellant.
DIGEST:

FACTSDavao Sawmill Co., operated a sawmill. The land


upon which the business was conducted was leased from
another person. On the land, Davao Sawmill erected a
building which housed the machinery it used. Some of
the machines were mounted and placed on foundations
of cement. In the contract of lease, Davo Sawmill agreed
to turn over free of charge all improvements and
buildings erected by it on the premises with the
exception of machineries, which shall remain with the
Davao Sawmill. In an action brought by the Davao Light
and Power Co., judgment was rendered against Davao
Sawmill. A writ of execution was issued and the
machineries placed on the sawmill were levied upon as
personalty by the sheriff. Davao Light and Power Co.,
proceeded to purchase the machinery and other
properties auctioned by the sheriff.
ISSUEAre the machineries real or personal property?
HELDArt.415 of the New Civil Code provides that Real

Property consists of:


8.

(1) Lands, buildings, roads and constructions of all


kinds adhered to the soil;xxx(5) Machinery,
receptacles, instruments or implements intended by
the owner pf the tenement for an industry ot 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;

Appellant should have registered its protest before or at


the time of the sale of the property. While not conclusive,
the appellant's characterization of the property as
chattels is indicative of intention and impresses upon the
property the character determined by the parties.
Machinery is naturally movable. However, machinery
may be immobilized by destination or purpose under the
following conditions:
General Rule: The machinery only becomes
immobilized if placed in a plant by the owner of the
property or plant.

Immobilization cannot be made by a tenant, a


usufructuary, or any person having only a
temporary right.

Exception: The tenant, usufructuary, or temporary


possessor acted as agent of the owner of the premises;
or he intended to permanently give away the property in
favor of the owner.

As a rule, therefore, the machinery should be considered


as Personal Property, since it was not placed on the land
by the owner of the said land.

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. 116144), 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
MORTGAGE ARE VALID; AND

DEEDS

OF

REAL ESTATE

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.
DIGEST:

FACTS:
Spouses Magcale secured a loan from Prudential Bank.
To secure payment, they executed a real estate mortgage
over a residential building. The mortgage included also the
right to occupy the lot and the information about the sales
patent applied for by the spouses for the lot to which the
building stood. After securing the first loan, the spouses
secured another from the same bank. To secure
payment, another real estate mortgage was executed
over the same properties.
The Secretary of Agriculture then issued a Miscellaneous
Sales Patent over the land which was later on mortgaged to
the bank.
The spouses then failed to pay for the loan and the REM was
extrajudicially foreclosed and sold in public auction despite
opposition from the spouses. The respondent court held that
the REM was null and void.

HELD:
A real estate mortgage can be constituted on the building
erected on the land belonging to another.
The inclusion of building distinct and separate from the
land in the Civil Code can only mean that the building itself
is an immovable property.
While it is true that a mortgage of land necessarily includes
in the absence of stipulation of the improvements
thereon, buildings, still a building in itself may be
mortgaged by itself apart from the land on which it is built.
Such a mortgage would still be considered as a REM for the
building would

still be considered as immovable property even if dealt with


separately and apart from the land.
The original mortgage on the building and right to occupancy
of the land was executed before the issuance of the
sales patent and before the government was divested
of title to the land. Under the foregoing, it is evident
that the mortgage executed by private respondent on
his own
building was a valid mortgage.
As to the second mortgage, it was done after the sales
patent was issued and thus prohibits pertinent provisions of
the Public Land Act.

G.R. No. L-50466 May 31, 1982


CALTEX (PHILIPPINES) INC., petitioner, vs.CENTRAL BOARD OF
ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY,
respondents.

AQUINO, J.:
This case is about the realty tax on machinery and equipment
installed by Caltex (Philippines) Inc. in its gas stations located on
leased land.
The machines and equipment consists of underground tanks,
elevated tank, elevated water tanks, water tanks, gasoline pumps,
computing pumps, water pumps, car washer, car hoists, truck hoists,
air compressors and tireflators. The city assessor described the said
equipment and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is
erected, a water tank if there is any is placed in one corner of the lot,
car hoists are placed in an adjacent shed, an air compressor is
attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude
oil, is dug deep about six feet more or less, a few meters away from
the shed. This is done to prevent conflagration because gasoline and
other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline
pump and the gasoline pump is commonly placed or constructed
under the shed. The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the shed, and
evidence that the gasoline underground tank is attached and
connected to the shed or building through the pipe to the pump and
the pump is attached and affixed to the cement pad and pavement
covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a
separate shed, the air compressor, the underground gasoline tank,
neon lights signboard, concrete fence and pavement and the lot
where they are all placed or erected, all of them used in the
pursuance of the gasoline service station business formed the entire
gasoline service-station.
As to whether the subject properties are attached and affixed to the
tenement, it is clear they are, for the tenement we consider in this
particular case are (is) the pavement covering the entire lot which

was constructed by the owner of the gasoline station and the


improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station,
as well as all the improvements, machines, equipments and
apparatus are allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel
pipe to the pump, so with the water tank it is connected also by a
steel pipe to the pavement, then to the electric motor which electric
motor is placed under the shed. So to say that the gasoline pumps,
water pumps and underground tanks are outside of the service
station, and to consider only the building as the service station is
grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas
station operators under an appropriate lease agreement or receipt. It
is stipulated in the lease contract that the operators, upon demand,
shall return to Caltex the machines and equipment in good condition
as when received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein.
Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. The realty tax on
said equipment amounts to P4,541.10 annually (p. 52, Rollo). The
city board of tax appeals ruled that they are personalty. The assessor
appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar
Virata as chairman, Acting Secretary of Justice Catalino Macaraig, Jr.
and Secretary of Local Government and Community Development
Jose Roo, held in its decision of June 3, 1977 that the said
machines and equipment are real property within the meaning of
sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and
that the definitions of real property and personal property in articles
415 and 416 of the Civil Code are not applicable to this case.

The decision was reiterated by the Board (Minister Vicente Abad


Santos took Macaraig's place) in its resolution of January 12, 1978,
denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed
for the setting aside of the Board's decision and for a declaration that
t he said machines and equipment are personal property not subject
to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has
exclusive appellate jurisdiction over this case is not correct. When
Republic act No. 1125 created the Tax Court in 1954, there was as
yet no Central Board of Assessment Appeals. Section 7(3) of that law
in providing that the Tax Court had jurisdiction to review by appeal
decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not the Central
Board of Assessment Appeals which under the Real Property Tax
Code has appellate jurisdiction over decisions of the said local boards
of assessment appeals and is, therefore, in the same category as the
Tax Court.
Section 36 of the Real Property Tax Code provides that the decision
of the Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the receipt of its
decision by the appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this
Court of the decision of the Central Board of Assessment Appeals is
the special civil action of certiorari, the recourse resorted to herein by
Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and
machinery already enumerated are subject to realty tax. This issue
has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due
"on real property, including land, buildings, machinery, and other

improvements" not specifically exempted in section 3 thereof. This


provision is reproduced with some modification in the Real Property
Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for new or further
purposes.
m) Machinery shall embrace machines, mechanical contrivances,
instruments, appliances and apparatus attached to the real estate. It
includes the physical facilities available for production, as well as the
installations and appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to
the gas station building or shed owned by Caltex (as to which it is
subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be
useless, and which have been attached or affixed permanently to the
gas station site or embedded therein, are taxable improvements and
machinery within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the
property or plant but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person
acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61
Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of the


Civil Code regarding machinery that becomes real property by
destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by the
lessee on leased land should be regarded as real property for
purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the
sheriff's action. (Compare with Machinery & Engineering Supplies,
Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment and
machinery permanently affixed by Caltex to its gas station and
pavement (which are indubitably taxable realty) should be subject to
the realty tax. This question is different from the issue raised in the
Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for
some purposes they might be considered personalty (84 C.J.S. 1812, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general
principle might be considered personal property" (Standard Oil Co. of
New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment
Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco's steel
towers were considered poles within the meaning of paragraph 9 of
its franchise which exempts its poles from taxation. The steel towers
were considered personalty because they were attached to square
metal frames by means of bolts and could be moved from place to
place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as
tools and equipment in the repair shop of a bus company which were
held to be personal property not subject to realty tax (Mindanao Bus
Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave
abuse of discretion in upholding the city assessor's is imposition of
the realty tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central


Board of Assessment Appeals are affirmed. The petition for certiorari
is dismissed for lack of merit. No costs.
SO ORDERED.
DIGEST.

FACTSCaltex loaned machines and equipment to gas


station operators under an appropriate lease agreement
or receipt. The lease contract stipulated that upon
demand, the operators shall return to Caltex the
machines and equipment in good condition as when
received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located,
does not become the owner of the machines and
equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The City Assessor of Pasay City characterized the said
items of gas station equipment and machinery as
taxable realty. However, the City Board of Tax Appeals
ruled that they are personalty. The Assessor appealed to
the Central Board of Assessment Appeals.
The Board held on June 3, 1977 that the said machines
are real property within the meaning of Ses. 3(k) & (m)
and 38 of the Real Property Tax Code, PD 464, and that
the Civil Code definitions of real and personal property in
Articles 415 and 416 are not applicable in this case.
ISSUEWON the pieces of gas station equipment and
machinery permanently affixed by Caltex to its gas
station and pavement should be subject to realty tax.

HELDSec.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 Sec.3 thereof.
Sec.3 of the Real Property Tax Code provides the
following definitions:
9.

k) Improvements a valuable addition made to


property or an amelioration in its conditionmore
than mere repairs or replacement of waste
intended to enhance its value, beauty, or utility
10. m) Machinery machines, mechanical contrivances,
instruments, appliances, and apparatus attached to
the real estateincludes the physical facilities
available for productioninstallation and
appurtenant service facilities.
The subject machines and equipment are taxable
improvement and machinery within the meaning of the
Assessment Law and the Real Property Tax Code,
because the same are necessary to the operation of the
gas station and have been attached/affixed/embedded
permanently to the gas station site.
Improvements on land are commonly taxed as
realty even though they might be considered
personalty. It is a familiar phenomenon to see things
classified as real property for purposes of taxation which
on general principle might be considered personal
property (Standard Oil Co., vs Jaramillo, 44 PHIL 630).
This case is also easily distinguishable from Board of
Assessment Appeals vs. Manila Electric Co., (119 Phil.
328) where Meralco's steel towers were exempted from
taxation. The steel towers were considered personalty

because they were attached to square metal frames by


means of bolts and could be moved from place to place
when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery
the same as the tools and equipment in the repair shop
of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs.
City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not
commit a grave abuse of discretion in upholding the City
Assessor's imposition of the realty tax on Caltex's gas
station and equipment.

G.R. No. 106041 January 29, 1993


BENGUET CORPORATION, petitioner, vs.CENTRAL BOARD OF
ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS

OF ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES,


PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN
MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
petitioner.

CRUZ, J.:
The realty tax assessment involved in this case amounts to
P11,319,304.00. It has been imposed on the petitioner's tailings dam
and the land thereunder over its protest.
The controversy arose in 1985 when the Provincial Assessor of
Zambales assessed the said properties as taxable improvements.
The assessment was appealed to the Board of Assessment Appeals
of the Province of Zambales. On August 24, 1988, the appeal was
dismissed mainly on the ground of the petitioner's "failure to pay the
realty taxes that fell due during the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of
Assessment Appeals, 1 one of the herein respondents. In its decision
dated March 22, 1990, the Board reversed the dismissal of the appeal but,
on the merits, agreed that "the tailings dam and the lands submerged
thereunder (were) subject to realty tax."

For purposes of taxation the dam is considered as real property as it


comes within the object mentioned in paragraphs (a) and (b) of Article
415 of the New Civil Code. It is a construction adhered to the soil
which cannot be separated or detached without breaking the material
or causing destruction on the land upon which it is attached. The
immovable nature of the dam as an improvement determines its
character as real property, hence taxable under Section 38 of the
Real Property Tax Code. (P.D. 464).
Although the dam is partly used as an anti-pollution device, this
Board cannot accede to the request for tax exemption in the absence
of a law authorizing the same.

xxx xxx xxx


We find the appraisal on the land submerged as a result of the
construction of the tailings dam, covered by Tax Declaration Nos.0020260 and 002-0266, to be in accordance with the Schedule of Market
Values for Zambales which was reviewed and allowed for use by the
Ministry (Department) of Finance in the 1981-1982 general revision.
No serious attempt was made by Petitioner-Appellant Benguet
Corporation to impugn its reasonableness, i.e., that the P50.00 per
square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to
disturb the market value applied by Respondent Appellee Provincial
Assessor of Zambales on the properties of Petitioner-Appellant
Benguet Corporation covered by Tax Declaration Nos. 002-0260 and
002-0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not
subject to realty tax because it is not an "improvement" upon the land
within the meaning of the Real Property Tax Code. More particularly,
it is claimed
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate from and independent
of the mine; hence, by itself it cannot be considered an improvement
separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the petitioner corporation
in the area, the tailings dam will benefit the local community by
serving as an irrigation facility;
(d) that the building of the dam has stripped the property of any
commercial value as the property is submerged under water wastes
from the mine;
(e) that the tailings dam is an environmental pollution control device
for which petitioner must be commended rather than penalized with a

realty tax assessment;


(f) that the installation and utilization of the tailings dam as a pollution
control device is a requirement imposed by law;
(2) as regards the valuation of the tailings dam and the submerged
lands:
(a) that the subject properties have no market value as they cannot
be sold independently of the mine;
(b) that the valuation of the tailings dam should be based on its
incidental use by petitioner as a water reservoir and not on the
alleged cost of construction of the dam and the annual build-up
expense;
(c) that the "residual value formula" used by the Provincial Assessor
and adopted by respondent CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties fornon-declaration
of the tailings dam and the submerged lands for realty tax purposes:
(a) that where a tax is not paid in an honest belief that it is not due, no
penalty shall be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a
tailings dam have been made to declare the dam for realty tax
purposes.
The petitioner does not dispute that the tailings dam may be
considered realty within the meaning of Article 415. It insists,
however, that the dam cannot be subjected to realty tax as a separate
and independent property because it does not constitute an
"assessable improvement" on the mine although a considerable sum
may have been spent in constructing and maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court
considered the dikes and gates constructed by the taxpayer in
connection with a fishpond operation as integral parts of the fishpond.

2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100


Phil. 303), involving a road constructed by the timber concessionaire
in the area, where this Court did not impose a realty tax on the road
primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the road
that was constructed by appellee belongs to the government by right
of accession not only because it is inherently incorporated or
attached to the timber land . . . but also because upon the expiration
of the concession said road would ultimately pass to the national
government. . . . In the second place, while the road was constructed
by appellee primarily for its use and benefit, the privilege is not
exclusive, for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound to allow
the free use of forest products within the concession for the personal
use of individuals residing in or within the vicinity of the land. . . . In
other words, the government has practically reserved the rights to
use the road to promote its varied activities. Since, as above shown,
the road in question cannot be considered as an improvement which
belongs to appellee, although in part is for its benefit, it is clear that
the same cannot be the subject of assessment within the meaning of
Section 2 of C.A.No. 470.
Apparently, the realty tax was not imposed not because the road was
an integral part of the lumber concession but because the
government had the right to use the road to promote its varied
activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an
American case, where it was declared that the reservoir dam went
with and formed part of the reservoir and that the dam would be
"worthless and useless except in connection with the outlet canal,
and the water rights in the reservoir represent and include whatever
utility or value there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the
United States. This case involved drain tunnels constructed by
plaintiff when it expanded its mining operations downward, resulting
in a constantly increasing flow of water in the said mine. It was held
that:

Whatever value they have is connected with and in fact is an integral


part of the mine itself. Just as much so as any shaft which descends
into the earth or an underground incline, tunnel, or drift would be
which was used in connection with the mine.
On the other hand, the Solicitor General argues that the dam is an
assessable improvement because it enhances the value and utility of
the mine. The primary function of the dam is to receive, retain and
hold the water coming from the operations of the mine, and it also
enables the petitioner to impound water, which is then recycled for
use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to the gas
station building or shed owned by Caltex (as to which it is subject to
realty tax) and which fixtures are necessary to the operation of the
gas station, for without them the gas station would be useless and
which have been attached or affixed permanently to the gas station
site or embedded therein, are taxable improvements and machinery
within the meaning of the Assessment Law and the Real Property Tax
Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded in the
land, they may, nevertheless, be considered as improvements on the
land, enhancing its utility and rendering it useful to the oil industry. It
is undeniable that the two tanks have been installed with some
degree of permanence as receptacles for the considerable quantities
of oil needed by MERALCO for its operations. (Manila Electric Co. v.
CBAA, 114 SCRA 273).
The pipeline system in question is indubitably a construction adhering
to the soil. 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. (MERALCO Securities Industrial Corp. v.
CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as a tax
upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are designed

and used by the owner as permanent improvement of the free hold,


and that for such reasons they were properly assessed by the
respondent taxing district as improvements. (Standard Oil Co. of New
Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real
property" and simply says that the realty tax is imposed on "real
property, such as lands, buildings, machinery and other
improvements affixed or attached to real property." In the absence of
such a definition, we apply Article 415 of the Civil Code, the pertinent
portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a
way that it cannot be separated therefrom without breaking the
material or deterioration of the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law,
provides that the realty tax is due "on the real property, including land,
buildings, machinery and other improvements" not specifically
exempted in Section 3 thereof. A reading of that section shows that
the tailings dam of the petitioner does not fall under any of the
classes of exempt real properties therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the
Real Property Tax Code defines improvement as follows:
(k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adopt it for new or further
purposes.
The term has also been interpreted as "artificial alterations of the
physical condition of the ground that are reasonably permanent in
character." 2

The Court notes that in the Ontario case the plaintiff admitted that the
mine involved therein could not be operated without the aid of the
drain tunnels, which were indispensable to the successful
development and extraction of the minerals therein. This is not true in
the present case.
Even without the tailings dam, the petitioner's mining operation can
still be carried out because the primary function of the dam is merely
to receive and retain the wastes and water coming from the mine.
There is no allegation that the water coming from the dam is the sole
source of water for the mining operation so as to make the dam an
integral part of the mine. In fact, as a result of the construction of the
dam, the petitioner can now impound and recycle water without
having to spend for the building of a water reservoir. And as the
petitioner itself points out, even if the petitioner's mine is shut down or
ceases operation, the dam may still be used for irrigation of the
surrounding areas, again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not
applicable because it involved water reservoir dams used for different
purposes and for the benefit of the surrounding areas. By contrast,
the tailings dam in question is being used exclusively for the benefit
of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam
has no separate existence, just as vigorously contends that at the
end of the mining operation the tailings dam will serve the local
community as an irrigation facility, thereby implying that it can exist
independently of the mine.
From the definitions and the cases cited above, it would appear that
whether a structure constitutes an improvement so as to partake of
the status of realty would depend upon the degree of permanence
intended in its construction and use. The expression "permanent" as
applied to an improvement does not imply that the improvement must
be used perpetually but only until the purpose to which the principal
realty is devoted has been accomplished. It is sufficient that the
improvement is intended to remain as long as the land to which it is
annexed is still used for the said purpose.

The Court is convinced that the subject dam falls within the definition
of an "improvement" because it is permanent in character and it
enhances both the value and utility of petitioner's mine. Moreover, the
immovable nature of the dam defines its character as real property
under Article 415 of the Civil Code and thus makes it taxable under
Section 38 of the Real Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00
per square meter made by the Provincial Assessor is excessive and
that his use of the "residual value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual
value formula" as follows:
A 50% residual value is applied in the computation because, while it
is true that when slime fills the dike, it will then be covered by another
dike or stage, the stage covered is still there and still exists and since
only one face of the dike is filled, 50% or the other face is unutilized.
In sustaining this formula, the CBAA gave the following justification:
We find the appraisal on the land submerged as a result of the
construction of the tailings dam, covered by Tax Declaration Nos.0020260 and 002-0266, to be in accordance with the Schedule of Market
Values for San Marcelino, Zambales, which is fifty (50.00) pesos per
square meter for third class industrial land (TSN, page 17, July 5,
1989) and Schedule of Market Values for Zambales which was
reviewed and allowed for use by the Ministry (Department) of Finance
in the 1981-1982 general revision. No serious attempt was made by
Petitioner-Appellant
Benguet
Corporation
to
impugn
its
reasonableness, i.e, that the P50.00 per square meter applied by
Respondent-Appellee Provincial Assessor is indeed excessive and
unconscionable. Hence, we find no cause to disturb the market value
applied by Respondent-Appellee Provincial Assessor of Zambales on
the properties of Petitioner-Appellant Benguet Corporation covered
by Tax Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the
conclusions of quasi-judicial agencies like the CBAA, which, because
of the nature of its functions and its frequent exercise thereof, has
developed expertise in the resolution of assessment problems. The

only exception to this rule is where it is clearly shown that the


administrative body has committed grave abuse of discretion calling
for the intervention of this Court in the exercise of its own powers of
review. There is no such showing in the case at bar.
We disagree, however, with the ruling of respondent CBAA that it
cannot take cognizance of the issue of the propriety of the penalties
imposed upon it, which was raised by the petitioner for the first time
only on appeal. The CBAA held that this "is an entirely new matter
that petitioner can take up with the Provincial Assessor (and) can be
the subject of another protest before the Local Board or a negotiation
with the local sanggunian . . ., and in case of an adverse decision by
either the Local Board or the local sanggunian, (it can) elevate the
same to this Board for appropriate action."
There is no need for this time-wasting procedure. The Court may
resolve the issue in this petition instead of referring it back to the local
authorities. We have studied the facts and circumstances of this case
as above discussed and find that the petitioner has acted in good
faith in questioning the assessment on the tailings dam and the land
submerged thereunder. It is clear that it has not done so for the
purpose of evading or delaying the payment of the questioned tax.
Hence, we hold that the petitioner is not subject to penalty for itsnondeclaration of the tailings dam and the submerged lands for realty tax
purposes.
WHEREFORE, the petition is DISMISSED for failure to show that the
questioned decision of respondent Central Board of Assessment
Appeals is tainted with grave abuse of discretion except as to the
imposition of penalties upon the petitioner which is hereby SET
ASIDE. Costs against the petitioner. It is so ordered.

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