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

We conclude that upon the grounds herein set forth the disposing part of the
decision and judgment entered in the court below should be affirmed with costs
of this instance against the appellant. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, seeking a peremptory mandamus to compel
the respondent to record in the proper register a document purporting to be a
chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de
Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa,
Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila
and owner of the house of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage, purporting to convey to
the petitioner by way of mortgage both the leasehold interest in said lot and the
building which stands thereon.
The clauses in said document describing the property intended to be thus
mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by
way of mortgage, the following described personal property, situated in the City
of Manila, and now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of
lease hereinabove referred to, and in and to the premises the subject of the said
lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased
premises.
After said document had been duly acknowledge and delivered, the petitioner
caused the same to be presented to the respondent, Joaquin Jaramillo, as
register of deeds of the City of Manila, for the purpose of having the same
recorded in the book of record of chattel mortgages. Upon examination of the
instrument, the respondent was of the opinion that it was not a chattel mortgage,
for the reason that the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law, and registration was
refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable; and
it is his duty to accept the proper fee and place the instrument on record. The
duties of a register of deeds in respect to the registration of chattel mortgage are
of a purely ministerial character; and no provision of law can be cited which
confers upon him any judicial or quasi-judicial power to determine the nature of
any document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the
Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these
have been transferred to section 198 of the Administrative Code, where they are
now found. There is nothing in any of these provisions conferring upon the
register of deeds any authority whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage. His duties in respect to such
instruments are ministerial only. The efficacy of the act of recording a chattel
mortgage consists in the fact that it operates as constructive notice of the
existence of the contract, and the legal effects of the contract must be discovered
in the instrument itself in relation with the fact of notice. Registration adds nothing
to the instrument, considered as a source of title, and affects nobody's rights
except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purpose of the
application of the Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this jurisdiction; but it must not be
forgotten that under given conditions property may have character different from
that imputed to it in said articles. It is undeniable that the parties to a contract
may by agreement treat as personal property that which by nature would be real
property; and it is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be considered personal
property. Other situations are constantly arising, and from time to time are
presented to this court, in which the proper classification of one thing or another
as real or personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in
an administrative ruling promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the capacity of Judge of the fourth
branch of the Court of First Instance of the Ninth Judicial District, in the City of
Manila; and little of value can be here added to the observations contained in
said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his
Honor continued:

Based principally upon the provisions of section quoted the Attorney-General of

the Philippine Islands, in an opinion dated August 11, 1909, held that a register of
deeds has no authority to pass upon the capacity of the parties to a chattel
mortgage which is presented to him for record. A fortiori a register of deeds can
have no authority to pass upon the character of the property sought to be
encumbered by a chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be held ineffective as
against third parties, but this is a question to be determined by the courts of
justice and not by the register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644),
this court held that where the interest conveyed is of the nature of real, property,
the placing of the document on record in the chattel mortgage register is a futile
act; but that decision is not decisive of the question now before us, which has
reference to the function of the register of deeds in placing the document on
record.

In the light of what has been said it becomes unnecessary for us to pass upon
the point whether the interests conveyed in the instrument now in question are
real or personal; and we declare it to be the duty of the register of deeds to
accept the estimate placed upon the document by the petitioner and to register it,
upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date
of the notification hereof, the respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed, but without costs. So
ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.
Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista,
instituted Civil Case No. 8235 of the Court of First, Instance of Manila entitled "
Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date,
he obtained a writ of attachment, which levied upon a house, built by Rivera on a
land situated in Manila and leased to him, by filing copy of said writ and the
corresponding notice of attachment with the Office of the Register of Deeds of
Manila, on June 8, 1949. In due course, judgment was rendered in favor of
Evangelista, who, on October 8, 1951, bought the house at public auction held in
compliance with the writ of execution issued in said case. The corresponding
definite deed of sale was issued to him on October 22, 1952, upon expiration of
the period of redemption. When Evangelista sought to take possession of the
house, Rivera refused to surrender it, upon the ground that he had leased the
property from the Alto Surety & Insurance Co., Inc. respondent herein and
that the latter is now the true owner of said property. It appears that on May 10,
1952, a definite deed of sale of the same house had been issued to respondent,
as the highest bidder at an auction sale held, on September 29, 1950, in
compliance with a writ of execution issued in Civil Case No. 6268 of the same
court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario
Guevara and Ricardo Rivera," in which judgment, for the sum of money, had
been rendered in favor respondent herein, as plaintiff therein. Hence, on June
13, 1953, Evangelista instituted the present action against respondent and
Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said
house, securing possession thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to the
house, because the sale made, and the definite deed of sale executed, in its
favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale
to Evangelista (October 8, 1951) and the definite deed of sale in his favor
(October 22, 1952). It, also, made some special defenses which are discussed
hereafter. Rivera, in effect, joined forces with respondent. After due trial, the
Court of First Instance of Manila rendered judgment for Evangelista, sentencing
Rivera and respondent to deliver the house in question to petitioner herein and to
pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952,
until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of
Appeals, which absolved said respondent from the complaint, upon the ground
that, although the writ of attachment in favor of Evangelista had been filed with
the Register of Deeds of Manila prior to the sale in favor of respondent,
Evangelista did not acquire thereby a preferential lien, the attachment having
been levied as if the house in question were immovable property, although in the
opinion of the Court of Appeals, it is "ostensibly a personal property." As such,
the Court of Appeals held, "the order of attachment . . . should have been served
in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of
Court, reading:
The property of the defendant shall be attached by the officer executing the order
in the following manner:
(e) Debts and credits, and other personal property not capable of manual
delivery, by leaving with the person owing such debts, or having in his
possession or under his control, such credits or other personal property, or with,
his agent, a copy of the order, and a notice that the debts owing by him to the
defendant, and the credits and other personal property in his possession, or
under his control, belonging to the defendant, are attached in pursuance of such
order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that the
house of Rivera should have been attached in accordance with subsection (c) of
said section 7, as "personal property capable of manual delivery, by taking and
safely keeping in his custody", for it declared that "Evangelists could not have . . .
validly purchased Ricardo Rivera's house from the sheriff as the latter was not in
possession thereof at the time he sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of
Appeals. In this connection, it is not disputed that although the sale to the
respondent preceded that made to Evangelists, the latter would have a better
right if the writ of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This question, in turn,
depends upon whether the house of Ricardo Rivera is real property or not. In the
affirmative case, the applicable provision would be subsection (a) of section 7,
Rule 59 of the Rules of Court, pursuant to which the attachment should be made
"by filing with the registrar of deeds a copy of the order, together with a
description of the property attached, and a notice that it is attached, and by
leaving a copy of such order, description, and notice with the occupant of the
property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's
house is personal property, the levy upon which must be made in conformity with
subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue
before us is whether a house, constructed the lessee of the land on which it is
built, should be dealt with, for purpose, of attachment, as immovable property, or
as personal property.
It is, our considered opinion that said house is not personal property, much less a
debt, credit or other personal property not capable of manual delivery, but
immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz.,
5374), "a true building (not merely superimposed on the soil) is immovable or real
property, whether it is erected by the owner of the land or by usufructuary
or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong
Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of
the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a
house as personal property for purposes of said contract
(Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New
York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464).
However, this view is good only insofar as the contracting parties are concerned.
It is based, partly, upon the principle of estoppel. Neither this principle, nor said
view, is applicable to strangers to said contract. Much less is it in point where
there has been no contract whatsoever, with respect to the status of the house
involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil.,
108; 52 Off. Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the parties entering
into a contract regarding a house gave said property the consideration of
personal property in their contract, bind the sheriff in advertising the property's
sale at public auction as personal property? It is to be remembered that in the
case at bar the action was to collect a loan secured by a chattel mortgage on the
house. It is also to be remembered that in practice it is the judgment creditor who
points out to the sheriff the properties that the sheriff is to levy upon in execution,
and the judgment creditor in the case at bar is the party in whose favor the owner
of the house had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution
do not allow, and, we should not interpret them in such a way as to allow, the
special consideration that parties to a contract may have desired to impart to real
estate, for example, as personal property, when they are, not ordinarily so. Sales
on execution affect the public and third persons. The regulation governing sales
on execution are for public officials to follow. The form of proceedings prescribed
for each kind of property is suited to its character, not to the character, which the
parties have given to it or desire to give it. When the rules speak of personal
property, property which is ordinarily so considered is meant; and when real
property is spoken of, it means property which is generally known as real
property. The regulations were never intended to suit the consideration that
parties may have privately given to the property levied upon. Enforcement of
regulations would be difficult were the convenience or agreement of private
parties to determine or govern the nature of the proceedings. We therefore hold
that the mere fact that a house was the subject of the chattel mortgage and was
considered as personal property by the parties does not make said house
personal property for purposes of the notice to be given for its sale of public
auction. This ruling is demanded by the need for a definite, orderly and well
defined regulation for official and public guidance and would prevent confusion
and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between the owner
and a third person, is real property within the purview of Rule 39, section 16, of
the Rules of Court as it has become a permanent fixture of the land, which, is
real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co., 37
Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et
al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for the
levy of attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable
property, its attachment by Evangelista was void or ineffective, because, in the
language of the Court of Appeals, "after presenting a Copy of the order of
attachment in the Office of the Register of Deeds, the person who might then be
in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or
other copies thereof." This finding of the Court of Appeals is neither conclusive
upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that
petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in
question "as a consequence of the levy of an attachment and execution of the
judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his
answer (paragraph 2), Ricardo Rivera admitted said attachment execution of
judgment. He alleged, however, by way a of special defense, that the title of
respondent "is superior to that of plaintiff because it is based on a public
instrument," whereas Evangelista relied upon a "promissory note" which "is only
a private instrument"; that said Public instrument in favor of respondent
"is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim
against Rivera amounted only to P866, "which is much below the real value" of
said house, for which reason it would be "grossly unjust to acquire the property
for such an inadequate consideration." Thus, Rivera impliedly admitted that his
house had been attached, that the house had been sold to Evangelista
in accordance with the requisite formalities, and that said attachment was valid,
although allegedly inferior to the rights of respondent, and the consideration for
the sale to Evangelista was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, Appeals that Rivera had received copies of said documents; and that, for this
but only " for the reasons stated in its special defenses" namely: (1) that by virtue reason, evidently, no proof was introduced thereon, we, are of the opinion, and
of the sale at public auction, and the final deed executed by the sheriff in favor of so hold that the finding of the Court of Appeals to the effect that said copies had
respondent, the same became the "legitimate owner of the house" in question; not been served upon Rivera is based upon a misapprehension of the specific
(2) that respondent "is a buyer in good faith and for value"; (3) that respondent issues involved therein and goes beyond the range of such issues, apart from
"took possession and control of said house"; (4) that "there was no valid being contrary to the aforementioned admission by the parties, and that,
attachment by the plaintiff and/or the Sheriff of Manila of the property in question accordingly, a grave abuse of discretion was committed in making said finding,
as neither took actual or constructive possession or control of the property at any which is, furthermore, inaccurate.
time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of
sale and final deed in the Office of Register of Deeds, Manila, if there was any, is Wherefore, the decision of the Court of Appeals is hereby reversed, and another
likewise, not valid as there is no registry of transactions covering houses erected one shall be entered affirming that of the Court of First Instance of Manila, with
on land belonging to or leased from another." In this manner, respondent claimed the costs of this instance against respondent, the Alto Surety and Insurance Co.,
a better right, merely under the theory that, in case of double sale of immovable Inc. It is so ordered.
property, the purchaser who first obtains possession in good faith, acquires title,
if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil
Code of the Philippines), and that the writ of attachment and the notice of
attachment in favor of Evangelista should be considered unregistered, "as there
is no registry of transactions covering houses erected on land belonging to or
leased from another." In fact, said article 1544 of the Civil Code of the
Philippines, governing double sales, was quoted on page 15 of the brief for
respondent in the Court of Appeals, in support of its fourth assignment of error
therein, to the effect that it "has preference or priority over the sale of the same
property" to Evangelista.

In other words, there was no issue on whether copy of the writ and notice of
attachment had been served on Rivera. No evidence whatsoever, to the effect
that Rivera had not been served with copies of said writ and notice, was
introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies were
served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly
admitted by the defendants, in their respective answers, and by their behaviour
throughout the proceedings in the Court of First Instance, and, as regards
respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein
(p. 26) that copies of said writ and notice were delivered to Rivera,
simultaneously with copies of the complaint, upon service of summons, prior to
the filing of copies of said writ and notice with the register deeds, and the truth of
this assertion has not been directly and positively challenged or denied in the
brief filed before us by respondent herein. The latter did not dare therein to go
beyond making a statement for the first time in the course of these
proceedings, begun almost five (5) years ago (June 18, 1953) reproducing
substantially the aforementioned finding of the Court of Appeals and then quoting
the same.

Considering, therefore, that neither the pleadings, nor the briefs in the Court of
Appeals, raised an issue on whether or not copies of the writ of attachment and
notice of attachment had been served upon Rivera; that the defendants had
impliedly admitted-in said pleadings and briefs, as well as by their conduct during
the entire proceedings, prior to the rendition of the decision of the Court of
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and
SURETY COMPANY. INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and
Surety Co., Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and
possessors of a house of strong materials constructed on Lot No. 3, Block No. 80
of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on
installment basis from the Philippine Realty Corporation. On November 6, 1951,
to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a
bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the
Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the
spouses Valino executed an alleged chattel mortgage on the aforementioned
house in favor of the surety company, which encumbrance was duly registered
with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted
that at the time said undertaking took place, the parcel of land on which the
house is erected was still registered in the name of the Philippine Realty
Corporation. Having completed payment on the purchase price of the lot, the
Valinos were able to secure on October 18, 1958, a certificate of title in their
name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952, the
Valinos, to secure payment of an indebtedness in the amount of P12,000.00,
executed a real estate mortgage over the lot and the house in favor of Isabel Iya,
which was duly registered and annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the
NARIC, the surety company was compelled to pay the same pursuant to the
undertaking of the bond. In turn, the surety company demanded reimbursement
from the spouses Valino, and as the latter likewise failed to do so, the company
foreclosed the chattel mortgage over the house. As a result thereof, a public sale
was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein
the property was awarded to the surety company for P8,000.00, the highest bid
received therefor. The surety company then caused the said house to be
declared in its name for tax purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real
estate mortgage over the lot covered by T.C.T. No. 26884 together with the
improvements thereon; thus, said surety company instituted Civil Case No. 2162
of the Court of First Instance of Manila naming Adriano and Lucia Valino and
Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion
of the residential house from the real estate mortgage in favor of defendant Iya
and the declaration and recognition of plaintiff's right to ownership over the same
in virtue of the award given by the Provincial Sheriff of Rizal during the public
auction held on December 26, 1952. Plaintiff likewise asked the Court to
sentence the spouses Valino to pay said surety moral and exemplary damages,
attorney's fees and costs. Defendant Isabel Iya filed her answer to the complaint
alleging among other things, that in virtue of the real estate mortgage executed
by her co-defendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the Provincial
Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house
was null and void for non-compliance with the form required by law. She,
therefore, prayed for the dismissal of the complaint and anullment of the sale
made by the Provincial Sheriff. She also demanded the amount of P5,000.00
from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as
crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the
complaint and denied the others. They, however, prayed for the dismissal of the
action for lack of cause of action, it being alleged that plaintiff was already the
owner of the house in question, and as said defendants admitted this fact, the
claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and
the surety company (Civil Case No. 2504 of the Court of First Instance of Manila)
stating that pursuant to the contract of mortgage executed by the spouses Valino
on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with
interest at 12% per annum or P120.00 a month, which indebtedness was payable
in 4 years, extendible for only one year; that to secure payment thereof, said
defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at
No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the
Associated Insurance and Surety Co., Inc., was included as a party defendant
because it claimed to have an interest on the residential house also covered by
said mortgage; that it was stipulated in the aforesaid real estate mortgage that
default in the payment of the interest agreed upon would entitle the mortgagee to
foreclose the same even before the lapse of the 4-year period; and as defendant
spouses had allegedly failed to pay the interest for more than 6 months, plaintiff
prayed the Court to order said defendants to pay the sum of P12,000.00 with
interest thereon at 12% per annum from March 25, 1953, until fully paid; for an
additional sum equivalent to 20% of the total obligation as damages, and for
costs. As an alternative in case such demand may not be met and satisfied
plaintiff prayed for a decree of foreclosure of the land, building and other
improvements thereon to be sold at public auction and the proceeds thereof
applied to satisfy the demands of plaintiff; that the Valinos, the surety company
and any other person claiming interest on the mortgaged properties be barred
and foreclosed of all rights, claims or equity of redemption in said properties; and
for deficiency judgment in case the proceeds of the sale of the mortgaged
property would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over
the building, arguing that as the lot on which the house was constructed did not
belong to the spouses at the time the chattel mortgage was executed, the house
might be considered only as a personal property and that the encumbrance
thereof and the subsequent foreclosure proceedings made pursuant to the
provisions of the Chattel Mortgage Law were proper and legal. Defendant
therefore prayed that said building be excluded from the real estate mortgage
and its right over the same be declared superior to that of plaintiff, for damages,
attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due
execution of the mortgage upon the land but assailed the allegation that the
building was included thereon, it being contended that it was already
encumbered in favor of the surety company before the real estate mortgage was
executed, a fact made known to plaintiff during the preparation of said contract
and to which the latter offered no objection. As a special defense, it was asserted
that the action was premature because the contract was for a period of 4 years,
which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted
the same on a stipulation of facts, after which the Court rendered judgment dated
March 8, 1956, holding that the chattel mortgage in favor of the Associated
Insurance and Surety Co., Inc., was preferred and superior over the real estate
mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the
Valinos were not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made, the
building then was still a personality and a chattel mortgage over the same was
proper. However, as the mortgagors were already the owner of the land at the
time the contract with Isabel Iya was entered into, the building was transformed
into a real property and the real estate mortgage created thereon was likewise
adjudged as proper. It is to be noted in this connection that there is no evidence
on record to sustain the allegation of the spouses Valino that at the time they
mortgaged their house and lot to Isabel Iya, the latter was told or knew that part
of the mortgaged property, i.e., the house, had previously been mortgaged to the
surety company.
The residential building was, therefore, ordered excluded from the foreclosure
prayed for by Isabel Iya, although the latter could exercise the right of a junior
encumbrance. So the spouses Valino were ordered to pay the amount
demanded by said mortgagee or in their default to have the parcel of land subject
of the mortgage sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real
estate mortgage; however, as the building constructed thereon has been the
subject of 2 mortgages; controversy arise as to which of these encumbrances
should receive preference over the other. The decisive factor in resolving the
issue presented by this appeal is the determination of the nature of the structure
litigated upon, for where it be considered a personality, the foreclosure of the
chattel mortgage and the subsequent sale thereof at public auction, made in
accordance with the Chattel Mortgage Law would be valid and the right acquired
by the surety company therefrom would certainly deserve prior recognition;
otherwise, appellant's claim for preference must be granted. The lower Court,
deciding in favor of the surety company, based its ruling on the premise that as
the mortgagors were not the owners of the land on which the building is erected
at the time the first encumbrance was made, said structure partook of the nature
of a personal property and could properly be the subject of a chattel mortgage.
We find reason to hold otherwise, for as this Court, defining the nature or
character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and
distinct from the land, in the enumeration of what may constitute real properties
(Art. 415, new Civil Code) could only mean one thing that a building is by itself
an immovable property . . . Moreover, and in view of the absence of any specific
provision to the contrary, a building is an immovable property irrespective of
whether or not said structure and the land on which it is adhered to belong to the
same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that
the land on which it is constructed belongs to another. To hold it the other way,
the possibility is not remote that it would result in confusion, for to cloak the
building with an uncertain status made dependent on the ownership of the land,
would create a situation where a permanent fixture changes its nature or
character as the ownership of the land changes hands. In the case at bar, as
personal properties could only be the subject of a chattel mortgage (Section 1,
Act 3952) and as obviously the structure in question is not one, the execution of
the chattel mortgage covering said building is clearly invalid and a nullity. While it
is true that said document was correspondingly registered in the Chattel
Mortgage Register of Rizal, this act produced no effect whatsoever for where the
interest conveyed is in the nature of a real property, the registration of the
document in the registry of chattels is merely a futile act. Thus, the registration of
the chattel mortgage of a building of strong materials produce no effect as far as
the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644).
Nor can we give any consideration to the contention of the surety that it has
acquired ownership over the property in question by reason of the sale
conducted by the Provincial Sheriff of Rizal, for as this Court has aptly
pronounced:

A mortgage creditor who purchases real properties at an extrajudicial foreclosure

sale thereof by virtue of a chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect to said real properties,
acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil.,
899).

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

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
THIRD DIVISION
[G.R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently
claiming otherwise.Hence, such property is a proper subject of a writ of replevin
obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its
February 26, 1999 Resolution[3] denying reconsideration. The decretal portion of
the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18,
1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City
(Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998
Resolution[8] denied petitioners Motion for Special Protective Order, praying that
the deputy sheriff be enjoined from seizing immobilized or other real properties in
(petitioners) factory in Cainta, Rizal and to return to their original place whatever
immobilized machineries or equipments he may have removed.[9]
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:[10]
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing
for short) filed with the RTC-QC a complaint for [a] sum of money (Annex E), with
an application for a writ of replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent
judge issued a writ of replevin (Annex B) directing its sheriff to seize and deliver
the machineries and equipment to PCI Leasing after 5 days and upon the
payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would] return
for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex
C), invoking the power of the court to control the conduct of its officers and
amend and control its processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ of
replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to
the contrary notwithstanding. They argued that to give effect to the agreement
would be prejudicial to innocent third parties. They further stated that PCI
Leasing [was] estopped from treating these machineries as personal because the
contracts in which the alleged agreement [were] embodied [were] totally sham
and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was
prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the words of the contract are clear and
leave no doubt upon the true intention of the contracting parties. Observing that
Petitioner Goquiolay was an experienced businessman who was not unfamiliar
with the ways of the trade, it ruled that he should have realized the import of the
document he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in
ruling upon the case below, since the merits of the whole matter are laid down
before us via a petition whose sole purpose is to inquire upon the existence of a
grave abuse of discretion on the part of the [RTC] in issuing the assailed Order
and Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS became
real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.[12]
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised
by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was
being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that
the Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion
finds support in the very title of the Petition, which is Petition for Review on
Certiorari.[13]
While Judge Laqui should not have been impleaded as a
respondent,[14] substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it
proper to remove, motu proprio, the name of Judge Laqui from the caption of the
present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the
court shall issue an order and the corresponding writ of replevin describing the
personal property alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or on
a piece of land, and which tend directly to meet the needs of the said industry or
works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them
have become immobilized by destination because they are essential and
principal elements in the industry.[16] In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property pursuant to Article
415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[18] After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth of
any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to
treat a house as a personal property because it had been made the subject of a
chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills[20] also held that the machinery used in a factory and essential to the
industry, as in the present case, was a proper subject of a writ of replevin
because it was treated as personal property in a contract. Pertinent portions of
the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a
chattel mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason why
a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the
chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of
the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or
hereafter become, in any manner affixed or attached to or embedded in, or
permanently resting upon, real property or any building thereon, or attached in
any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are
proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar
as the contracting parties are concerned.[22] Hence, while the parties are bound
by the Agreement, third persons acting in good faith are not affected by its
stipulation characterizing the subject machinery as personal.[23] In any event,
there is no showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and
the validity of the lease agreement itself.[25] In their Reply to respondents
Comment, they further allege that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the contract
are the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence,
they should be threshed out in the trial, not in the proceedings involving the
issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy under
Rule 60 was that questions involving title to the subject property questions which
petitioners are now raising -- should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the plaintiffs bond. They were not
allowed, however, to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve
or discharge the writ of seizure (or delivery) on ground of insufficiency of the
complaint or of the grounds relied upon therefor, as in proceedings on
preliminary attachment or injunction, and thereby put at issue the matter of the
title or right of possession over the specific chattel being replevied, the policy
apparently being that said matter should be ventilated and determined only at the
trial on the merits.[28]
Besides, these questions require a determination of facts and a presentation of
evidence, both of which have no place in a petition for certiorari in the CA under
Rule 65 or in a petition for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In
fact, petitioners assailed it first only in the RTC proceedings, which had ironically
been instituted by respondent. Accordingly, it must be presumed valid and
binding as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery
as personal property, was also assailed because respondent had allegedly been
required to sign a printed form of chattel mortgage which was in a blank form at
the time of signing. The Court rejected the argument and relied on the Deed,
ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code,
by a proper action in court. There is nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that steps were taken to nullify the
same. x x x

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be seized, then
its workers would be out of work and thrown into the streets.[31] They also allege
that the seizure would nullify all efforts to rehabilitate the corporation.

Petitioners arguments do not preclude the implementation of the Writ. As earlier

discussed, law and jurisprudence support its propriety. Verily, the above-
mentioned consequences, if they come true, should not be blamed on this Court,
but on the petitioners for failing to avail themselves of the remedy under Section
5 of Rule 60, which allows the filing of a counter-bond. The provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately
require the return of the property, but if he does not so object, he may, at any
time before the delivery of the property to the applicant, require the return
thereof, by filing with the court where the action is pending a bond executed to
the applicant, in double the value of the property as stated in the applicants
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and
for the payment of such sum to him as may be recovered against the adverse
party, and by serving a copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.
EN BANC
[G.R. No. L-8133. May 18, 1956.]
MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-
Appellants, vs. MACARIO M. OFILADA, Sheriff of the City of Manila and
ERNESTO ESTEBAN, Respondents-Appellees.
DECISION
LABRADOR, J.:
On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan of P200
from Ernesto Esteban, and to secure its payment she executed a chattel
mortgage over a house of mixed materials erected on a lot on Alvarado Street,
Manila. As Manarang did not pay the loan as agreed upon, Esteban brought an
action against her in the municipal court of Manila for its recovery, alleging that
the loan was secured by a chattel mortgage on her property. Judgment having
been entered in Plaintiffs favor, execution was issued against the same property
mortgaged.
Before the property could be sold Manarang offered to pay the sum of P277,
which represented the amount of the judgment of P250, the interest thereon, the
costs, and the sheriffs fees, but the sheriff refused the tender unless the
additional amount of P260 representing the publication of the notice of sale in
two newspapers be paid also. So Defendants therein brought this suit to compel
the sheriff to accept the amount of P277 as full payment of the judgment and to
annul the published notice of sale.
It is to be noted that in the complaint filed in the municipal court, a copy of the
chattel mortgage is attached and mention made of its registration, and in the
prayer request is made that the house mortgaged be sold at public auction to
satisfy the debt. It is also important to note that the house mortgaged was levied
upon at Plaintiffs request (Exhibit E).
On the basis of the above facts counsel for Manarang contended in the court
below that the house in question should be considered as personal property and
the publication of the notice of its sale at public auction in execution considered
unnecessary. The Court of First Instance held that although real property may
sometimes be considered as personal property, the sheriff was in duty bound to
cause the publication of the notice of its sale in order to make the sale valid or to
prevent its being declared void or voidable, and he did not, therefore, err in
causing such publication of the notice. So it denied the petition.
There cannot be any question that a building of mixed materials may be the
subject of a chattel mortgage, in which case it is considered as between the
parties as personal property. We held so expressly in the cases of Luna vs.
Encarnacion, et al., * 48 Off. Gaz., No. 7, p. 2664; chan
roblesvirtualawlibraryStandard Oil Co. of New York vs. Jaranillo, 44 Phil.,
630; chan roblesvirtualawlibraryand De Jesus vs. Guan Dee Co., Inc., 72 Phil.,
464. The matter depends on the circumstances and the intention of the parties.
cralaw The general principle of law is that a building permanently fixed to the
freehold becomes a part of it, that prima facie a house is real estate, belonging to
the owner of the land on which it stands, even though it was erected against the
will of the landowner, or without his consent cralaw . The general rule is
otherwise, however, where the improvement is made with the consent of the
landowner, and pursuant to an understanding either expressed or implied that it
shall remain personal property. Nor does the general rule apply to a building
which is wrongfully removed from the land and placed on the land of the person
removing it. (42 Am. Jur. 199-200.)
cralaw Among the principal criteria for determining whether property remains
personally or becomes realty are annexation to the soil, either actual or
construction, and the intention of the parties cralaw
Personal property may retain its character as such where it is so agreed by the
parties interested even though annexed to the realty, or where it is affixed in the
soil to be used for a particular purpose for a short period and then removed as
soon as it has served its purpose cralaw . (Ibid., 209-210.)
The question now before us, however, is:chanroblesvirtuallawlibrary Does the
fact that the parties entering into a contract regarding a house gave said property
the consideration of personal property in their contract, bind the sheriff in
advertising the propertys sale at public auction as personal property? It is to be
remembered that in the case at bar the action was to collect a loan secured by a
chattel mortgage on the house. It is also to be remembered that in practice it is
the judgment creditor who points out to the sheriff the properties that the sheriff is
to levy upon in execution, and the judgment creditor in the case at bar is the
party in whose favor the owner of the house and conveyed it by way of chattel
mortgage and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not
allow, and we should not interpret them in such a way as to allow, the special
consideration that parties to a contract may have desired to impart to real estate,
for example, as personal property, when they are not ordinarily so. Sales on
execution affect the public and third persons. The regulation governing sales on
execution are for public officials to follow. The form of proceedings prescribed for
each kind of property is suited to its character, not to the character which the
parties have given to it or desire to give it. When the rules speak of personal
property, property which is ordinarily so considered is meant; chan
roblesvirtualawlibraryand when real property is spoken of, it means property
which is generally known as real property. The regulations were never intended
to suit the consideration that parties, may have privately given to the property
levied upon. Enforcement of regulations would be difficult were the convenience
or agreement of private parties to determine or govern the nature of the
proceedings. We, therefore, hold that the mere fact that a house was the subject
of a chattel mortgage and was considered as personal property by the parties
does not make said house personal property for purposes of the notice to be
given for its sale at public auction. This ruling is demanded by the need for a
definite, orderly and well- defined regulation for official and public guidance and
which would prevent confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between the owner
and a third person, is real property within the purview of Rule 39, section 16, of
the Rules of Court as it has become a permanent fixture on the land, which is
real property. (42 Am. Jur. 199-200; chan roblesvirtualawlibraryLeung Yee vs.
Strong Machinery Co., 37 Phil., 644; chan roblesvirtualawlibraryRepublic vs.
Ceniza, et al., 90 Phil., 544; chan roblesvirtualawlibraryLadera, et al. vs. Hodges,
et al., [C. A], 48 Off. Gaz., 5374.).

The judgment appealed from is hereby affirmed, with costs. SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-4637 June 30, 1952
JOSE A. LUNA, petitioner,
vs.
DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD
REYES and THE PROVINCIAL SHERIFF OF RIZAL, respondents.
Jose S. Fineza for petitioner.
BAUTISTA ANGELO, J.:
On September 25, 1948, a deed designated as chattel mortgage was executed
by Jose A. Luna in favor of Trinidad Reyes whereby the former conveyed by way
of first mortgage to the latter a certain house of mixed materials stated in barrio
San Nicolas, municipality of Pasig, Province of Rizal, to secure the payment of a
promissory note in the amount of P1,500, with interest at 12 per cent per annum.
The document was registered in the office of the register of deeds for the
Province of Rizal. The mortgagor having filed to pay the promissory note when it
fell due, the mortgage requested the sheriff of said province to sell the house at
public auction so that with its proceeds the amount indebted may be paid
notifying the mortgagor in writing of the time and place of the sale as required by
law. The sheriff acceded to the request and sold the property to the mortgagee
for the amount covering the whole indebtedness with interest and costs. The
certificate of sale was issued by the sheriff on May 28, 1949. After the period for
the redemption of the property had expired without the mortgagor having
exercised his right to repurchase, the mortgagee demanded from the mortgagor
the surrender of the possession of the property, but the later refused and so on
October 13, 1950, she filed a petition in the Court of First Instance of Rizal
praying that the provincial sheriff be authorized to place her in possession of the
property invoking in her favor the provisions of Act No. 3135, as amended by Act
No. 4118.
When the petition came up for hearing before the court on October 25, 1950,
Jose A. Luna, the mortgagor, opposed the petition on the following grounds: (1)
that Act No. 3135 as amended by Act No. 4118 is applicable only to a real estate
mortgage; (2) that the mortgage involved herein is a chattel mortgage; and (3)
that even if the mortgage executed by the parties herein be considered as real
estate mortgage, the extra-judicial sale made by the sheriff of the property in
question was valid because the mortgage does not contain an express stipulation
authorizing the extra-judicial sale of the property. After hearing, at which both
parties have expressed their views in support of their respective contentions,
respondent judge, then presiding the court, overruled the opposition and granted
the petition ordering the provincial sheriff of Rizal, or any of this disputives, to
immediately place petitioner in possession of the property in question while at the
same time directing the mortgagor Jose A. Luna to vacate it and relinquish it in
favor of petitioner. It is from this order that Jose A. Luna desires now to obtain
relief by filing this petition for certioraricontending that the respondent judge has
acted in excess of his jurisdiction.
The first question which petitioner poses in his petition for certiorari is that which
relates to the validity of the extra-judicial sale made by the provincial sheriff of
Rizal of the property in question in line with the request of the mortgagee
Trinidad Reyes. It is contended that said extra-judicial sale having been
conducted under the provisions of Act No. 3135, as amended by Act No. 4118, is
invalid because the mortgage in question is not a real estate mortgage and,
besides, it does not contain an express stipulation authorizing the mortgagee to
foreclose the mortgage extra-judicially.
There is merit in this claim. As may be gleaned from a perusal of the deed signed
by the parties (Annex "C"), the understanding executed by them is a chattel
mortgage, as the parties have so expressly designated, and not a real estate
mortgage, specially when it is considered that the property given as security is a
house of mixed materials which by its very nature is considered as personal
property. Such being the case, it is indeed a mistake for the mortgagee to
consider this transaction in the light of Act No. 3135, as amended by Act No.
4118, as was so considered by her when she requested to provincial sheriff to
sell it extra-judicially in order to secure full satisfaction of the indebtedness still
owed her by the mortgagor. It is clear that Act No. 3135, as amended, only
covers real estate mortgages and is intended merely to regulate the extra-judicial
sale of the property mortgaged if and when the mortgagee is given a special
power or express authority to do so in the deed itself, or in a document annexed
thereto. These conditions do not here obtain. The mortgage before us is not a
real estate mortgage nor does it contain an express authority or power to sell the
property extra-judicially.
But regardless of what we have heretofore stated, we find that the validity of the
sale in question may be maintained, it appearing that the mortgage in question is
a chattel mortgage and as such it is covered and regulated by the Chattel
Mortgage Law, Act No. 1508. Section 14 of this Act allows the mortgagee
through a public officer in almost the same manner as that allowed by Act No.
3135, as amended by Act No. 4118, provided that the requirements of the law
relative to notice and registration are complied with. We are not prepared to state
if these requirements of the law had been complied with in the case for the
record before us is not complete and there is no showing to that effect. At any
rate, this issue is not how important because the same can be treshed out when
the opportunity comes for its determination, nor is it necessary for us to consider
it in reaching a decision in the present case. Suffice it to state that for the present
we are not expressing any opinion on this matter which concerns the validity of
the sale in question for the reason that this opinion will only be limited to a matter
of procedure relative to the step taken by the mortgagee in securing the
possession of the property involved.

In the supposition that the sale of the property made by the sheriff has been
made in accordance with law, and the question he is confronted is how to deliver
the possession of the property to the purchaser in case of refusal to surrender its
possession on the part of the debtor or mortgagor, the remedy of the purchaser
according to the authorities, is to bring an ordinary action for recovery of
possession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14
C.J.S., pp. 1027, 1028). The purchaser cannot take possession of the property
by force either directly or through the sheriff. And the reason for this is "that the
creditor's right of possession is conditioned upon the fact of default, and the
existence of this fact may naturally be the subject of controversy" (Bachrah Motor
Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a
writ of possession as was done by Trinidad Reyes in this case. Her remedy is to
file an ordinary action for recovery of possession in ordered that the debtor may
be given an opportunity to be heard not only in regarding possession but also
regarding the obligation covered by the mortgage. The petition she has filed in
the lower court, which was not even docketed, is therefore improper and should
be regarded.

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

It will be noted further that in the case at bar the period of redemption had not yet
expired when action was instituted in the court of origin, and that plaintiffs-
appellees did not choose to take possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties to govern the extrajudicial
foreclosure of the chattel mortgage. Neither was there an allegation to that effect.
Since plaintiffs-appellees' right to possess was not yet born at the filing of the
complaint, there could be no violation or breach thereof. Wherefore, the original
complaint stated no cause of action and was prematurely filed. For this reason,
the same should be ordered dismissed, even if there was no assignment of error
to that effect. The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is
necessary in arriving at a just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for
the year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-
appellees.
EN BANC
[G.R. No. L-19468. October 30, 1964.]
SALVADOR PIANSAY and CLAUDlA V. VDA. DE UY KIM, Plaintiffs-
Appellants, v. CONRADO S. DAVID and MARCOS MANGUBAT, Defendants-
Appellees.
Santiago F. Alidio, for Plaintiffs-Appellants.
Marcos Mangubat in his own behalf and for co-defendant-appellee Conrado
S. David.
SYLLABUS
1. JUDGMENTS; RES JUDICATA; FINAL RULING IN ONE CASE OVER SAME
ISSUE IS CONCLUSIVE IN ANOTHER CASE BETWEEN SAME PARTIES.
Where the chattel mortgage and sale in favor of a party had been annulled in the
decision in one case, which order became final and executory, it is held that said
party is now barred from asserting against the same adverse party in another
case that the said chattel mortgage and scale are valid.
2. MORTGAGES; CHATTEL MORTGAGE ON A HOUSE CANNOT BIND THIRD
PERSONS NOT PARTIES TO SAID CONTRACT. A contract constituting a
chattel mortgage on a house cannot bind third persons not parties to said
contract or their privies.
DECISION
CONCEPCION, J.:
This is an appeal from an order of the Court of First Instance of Manila in Civil
Case No. 47664 thereof. The pertinent facts are set forth in said order from which
we quote:jgc:chanrobles.com.ph
"It appears from the complaint that on December 11, 1943, defendant herein
Conrado S. David received a loan of P3,000 with interest at 12% per annum from
Claudia B. Vda. de Uy Kim, one of the plaintiffs, and to secure the payment of the
same, Conrado S. David executed a chattel mortgage on a house situated at
1259 Sande Street, Tondo, Manila; that the chattel mortgage was registered with
the Register of Deeds of Manila on December 19, 1948; that on February 10,
1953, the mortgaged house was sold at public auction to satisfy the
indebtedness to Claudia B. Vda. de Uy Kim, and the house was sold to Claudia
B. Vda. de Uy Kim in the said foreclosure proceedings; that on March 22, 1954,
Claudia B. Vda. de Uy Kim sold the same house to her co- plaintiff, Salvador
Piansay for the sum of P5,000.00; that on November 22, 1949, defendant
Conrado S. David mortgaged the said house to Marcos Mangubat, and on March
1, 1956, Marcos Mangubat filed a complaint against Conrado S. David, Civil
Case No. 29078, in the Court of First Instance of Manila, for the collection of the
loan of P2,000; that on March 24, 1956, the complaint was amended to include
the plaintiffs herein Salvador Piansay and Claudia B. Vda. de Uy Kim as party
defendants and praying that auction sale executed by the Sheriff on February 10,
1953, and the deed of absolute sale executed by Claudia B. Vda. de Uy Kim in
favor of Salvador Piansay be annulled; that decision was rendered in Civil Case
No. 29078 ordering Conrado S. David to pay the plaintiff the sum of P2,000,
damages and attorneys fees, and dismissing the complaint with respect to
Claudia B. Vda. de Uy Kim, Leonardo Uy Kim and Salvador Piansay; that upon
appeal, the Court of Appeals affirmed the decision but setting aside the award of
damages in favor of Claudia B. Vda. de Uy Kim; that in the execution of Civil
Case No. 29078 which was affirmed by the Court of Appeals in CA-G.R. No.
21797-R, the house which had been bought by Uy Kim at the foreclosure
proceedings and sold by her to Salvador Piansay was levied upon at the instance
of the defendant Marcos Mangubat; that to prevent the sale at public auction of
the house here in question, the plaintiffs herein filed a petition for certiorari and
mandamus with preliminary injunction in the Court of Appeals, CA-G.R. No.
28974-R, entitled Claudia B. Vda. de Uy Kim and Salvador Piansay versus Hon.
Judge Jesus Y. Perez, Et. Al.; that acting upon the said petition, the Court of
Appeals in its order of April 28, 1961, denied the petition to lift or discharge the
writ of execution."cralaw virtua1aw library
Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to
as the plaintiffs, instituted the present action, which was docketed as Civil Case
No. 47664 of the Court of First Instance of Manila, against David and Mangubat,
hereinafter referred to as the defendants. In their complaint plaintiffs, after
averring the foregoing facts, allege that, in the proceedings for the execution of
the decision in Civil Case No. 29078, David demanded from Piansay the
payment of rentals for the use and occupation of the house aforementioned,
which, Piansay claims, is his property, and that the defendants are threatening to
cause said house to be levied upon and sold at public auction in violation of the
alleged rights of the plaintiffs. Accordingly, plaintiffs prayed that a writ of
preliminary injunction to restrain said levy and sale at public auction be issued
and that, after appropriate proceedings, judgment be rendered declaring that
Piansay is the true and lawful owner of said house, sentencing the defendants to
pay damages and making the preliminary injunction permanent.
Mangubat moved to dismiss said complaint, upon the theory that the same is
barred by the principle of res judicata and that plaintiffs have no personality to
bring this action or to question the levy upon the house in question, because they
have no interest therein. After due hearing the lower court issued the order
appealed from granting said motion and dismissing the complaint, with costs
against the plaintiffs. A reconsideration of said order having been denied,
plaintiffs interposed the present appeal directly to this Court, only questions of
law being raised in the appeal, namely: (1) applicability of the principle of res
judicata; and (2) validity of the chattel mortgage constituted in favor of Mrs. Uy
Kim.
With reference to the first question, it should be noted that in case CA-G.R. No.
21797-R, the Court of Appeals affirmed the decision in Case No. 29078 of the
Court of First Instance of Manila, stating:jgc:chanrobles.com.ph
"In the case of Ladera, Et. Al. v. Hodges, Et. Al. (CA-G.R. No. 8027-R,
promulgated Sept. 23, 1952) this Court, thru Justice J. B. L. Reyes, said, among
others:chanrob1es virtual 1aw library
Since it is a rule in our law that buildings and constructions are regarded as
mere accessories to the land (following the Roman maxim omne quod solo
inaedificatur solo credit) it is logical that said accessories should partake of the
nature of the principal thing, which is the land, forming, as they do, but a single
object (res) with it in contemplation of law.
. . . While it is true that said document was correspondingly registered in the
Chattel Mortgage Register of Rizal, this Act produced no effect whatsoever for
where the interest conveyed is in the nature of real property, the registration of
the document in the registry of chattels is merely a futile act. Thus the registration
of the chattel mortgage of a building of strong materials produced no effect as far
as the building is concerned (Leung Yee v. Strong Machinery Co., 37 Phil. 644).
Nor can we give any consideration to that contention of the surety that it has
acquired ownership over the property in question by reason of the sale
conducted by the Provincial Sheriff of Rizal for as this court has aptly
pronounced:chanrob1es virtual 1aw library
A mortgage creditor who purchases real properties at an extra- judicial
foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor,
which mortgage has been declared null and void with respect to said real
properties, acquires no right thereto by virtue of said sale. (De la Riva v. Ah Kee,
60 Phil. 899).
"Thus Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage
constituted in her favor,, because it was in reality a mere contract of an
unsecured loan. It follows that the Sheriff was not authorized to sell the house as
a result of the foreclosure of such chattel mortgage. And as Mrs. Uy Kim could
not have acquired the house when the Sheriff sold it at public auction, she could
not, in the same token, have sold it validly to Salvador Piansay. Conceding that
the contract of sale between Mrs. Uy Kim and Salvador Piansay was of no effect,
we cannot nevertheless set it aside upon instance of Mangubat because, as the
court below opined, he is not a party thereto nor has he any interest in the
subject matter therein, as it was never sold or mortgaged to him" (Italics
supplied);
that, thereafter, the records of the case was remanded to the Court of First
Instance of Manila, which caused the corresponding writ of execution to be
issued; that upon the request of Mangubat, the house in question was levied
upon; that Piansay filed with the trial court, presided over by Hon. Jesus Y.
Perez, Judge, a motion to set aside said levy; that this motion was denied by said
court, in an order dated February 4, 1961, upon the following
ground:jgc:chanrobles.com.ph
"Considering that the decision rendered by the Court of Appeals in this case
when the same was elevated to said Court recognizes that defendant Claudia B.
de Uy Lim did not acquire the house of defendant Conrado S. David and can
therefore be executed by the plaintiff to satisfy the judgment rendered against
said defendant David in favor of the plaintiff. The mere fact that the dispositive
part of the decision states that the complaint is dismissed with respect to
defendants Claudia B. de Uy Kim, Leonardo Uy Kim and Salvador Piansay is of
no moment because the chattel mortgage executed by David in favor of Claudia
B. de Uy Kim might not be annulled but it did not transmit any right from
defendant David to Claudia B. de Uy Kim. The house in question can therefore
be levied upon because it had remained the property of defendant David" (Italics
supplied);
that a reconsideration of this order of February 4, 1961 having been denied by
Judge Perez, on February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-
R of the Court of Appeals, for a writ of certiorariand mandamus to annul said
orders of Judge Perez and to compel him to release said house from the
aforementioned levy; and that on March 3, 1961, the Court of Appeals denied
said petition for certiorariand mandamus "insofar as it prays that the order of
respondent Judge denying the lifting and discharge of the writ of execution be set
aside and revoked."cralaw virtua1aw library
In other words, in Civil Case No. 29078 of the Court of First Instance of Manila,
Piansay assailed the right of Mangubat to levy execution upon the house in
question alleging that the same belongs to him, he having bought it from Mrs. Uy
Kim, who had acquired it at the auction sale held in connection with the
extrajudicial foreclosure of the chattel mortgage constituted in her favor by David.
This pretense was, however, overruled by Judge Perez, who presided said court,
in its order of February 4, 1961, upon the theory that the chattel mortgage and
sale in favor of Mrs. Uy Kim had been annulled in the original decision in said
case, as affirmed by the Court of Appeals in CA-G.R. No. 21797-R. Regardless
of whether this theory is accurate or not, the fact is that said order became final
and executory upon the denial of the petition for certiorari and mandamus, to
annul the same, in CA-G.R. No. 28974-R of the Court of Appeals. Hence,
plaintiffs are not barred from asserting that the aforementioned chattel mortgage
and sale are valid.

At any rate, regardless of the validity of a contract constituting a chattel mortgage

on a house, as between the parties to said contract (Standard Oil Co. of N.Y. v.
Jaramillo, 44 Phil. 632- 633), the same cannot and does not bind third persons,
who are not parties to the aforementioned contract or their privies (Leung Yes v.
Strong Machinery Co., 37 Phil. 644; Evangelista v. Alto Surety, G.R. No. L-
11139, April 23, 1958; Navarro v. Pineda, G.R. No. L-18456, November 30,
1963). As a consequence, the sale of the house in question in the proceedings
for the extra-judicial foreclosure of said chattel mortgage, is null and void insofar
as defendant Mangubat is concerned, and did not confer upon Mrs. Uy Kim, as
buyer in said sale, any dominical right in and to said house (De la Riva v. Ah
Yee, 60 Phil. 800), so that she could not have transmitted to her assignee,
plaintiff Piansay, any such right as against defendant Mangubat. In short,
plaintiffs have no cause of action against the defendants herein.

WHEREFORE, the orders appealed from are hereby affirmed, with costs against
plaintiffs Salvador Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE
RODOLFO A. ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether or not respondent
Court erred in denying the Motion to Set Case for Pre-trial with respect to
respondent Remedios Vda. de Lacsamana as the case had been dismissed on
the ground of improper venue upon motion of co-respondent Philippine National
Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner
of a parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In
1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the property was
foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the
highest bidder in said foreclosure proceedings. However, the bank secured title
thereto only on December 14, 1977.
In the meantime, in 1974, while the properly was still in the alleged possession of
petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch),
and upon securing a permit from the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared said warehouse for tax purposes
for which he was issued Tax Declaration No. 5619. Petitioner then leased the
warehouse to one Hermogenes Sibal for a period of 10 years starting January
1975.
On July 26, 1978, a Deed of Sale was executed between respondent PNB
(Tarlac Branch) and respondent Lacsamana over the property. This contract was
amended on July 31, 1978, particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments, respondent - Lacsamana
secured title over the property in her name (TCT No. 173744) as well as separate
tax declarations for the land and building. 1
On November 22, 1979, petitioner commenced suit for "Annulment of Deed of
Sale with Damages" against herein respondents PNB and Lacsamana before
respondent Court of First Instance of Rizal, Branch XXXI, Quezon City,
essentially impugning the validity of the sale of the building as embodied in the
Amended Deed of Sale. In this connection, petitioner alleged:
xxx xxx xxx
22. That defendant, Philippine National Bank, through its Branch Manager ... by
virtue of the request of defendant ... executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the building owned by the plaintiff under
Tax Declaration No. 5619, notwithstanding the fact that said building is not
owned by the bank either by virtue of the public auction sale conducted by the
Sheriff and sold to the Philippine National Bank or by virtue of the Deed of Sale
executed by the bank itself in its favor on September 21, 1977 ...;
23. That said defendant bank fraudulently mentioned ... that the sale in its favor
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the
sheriff in its favor ... only limited the sale to the land, hence, by selling the
building which never became the property of defendant, they have violated the
principle against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor of respondent
Lacsamana be declared null and void and that damages in the total sum of
P230,000.00, more or less, be awarded to him.2
In her Answer filed on March 4, 1980,-respondent Lacsamana averred the
affirmative defense of lack of cause of action in that she was a purchaser for
value and invoked the principle in Civil Law that the "accessory follows the
principal".3
On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that
venue was improperly laid considering that the building was real property under
article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should
apply. 4
Opposing said Motion to Dismiss, petitioner contended that the action for
annulment of deed of sale with damages is in the nature of a personal action,
which seeks to recover not the title nor possession of the property but to compel
payment of damages, which is not an action affecting title to real property.
On April 25, 1980, respondent Court granted respondent PNB's Motion to
Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank
dated March 13, 1980, considered against the plaintiff's opposition thereto dated
April 1, 1980, including the reply therewith of said defendant, this Court resolves
to DISMISS the plaintiff's complaint for improper venue considering that the
plaintiff's complaint which seeks for the declaration as null and void, the
amendment to Deed of Absolute Sale executed by the defendant Philippine
National Bank in favor of the defendant Remedios T. Vda. de Lacsamana, on
July 31, 1978, involves a warehouse allegedly owned and constructed by the
plaintiff on the land of the defendant Philippine National Bank situated in the
Municipality of Bamban, Province of Tarlac, which warehouse is an immovable
property pursuant to Article 415, No. 1 of the New Civil Code; and, as such the
action of the plaintiff is a real action affecting title to real property which, under
Section 2, Rule 4 of the New Rules of Court, must be tried in the province where
the property or any part thereof lies.5
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated
the argument that the action to annul does not involve ownership or title to
property but is limited to the validity of the deed of sale and emphasized that the
case should proceed with or without respondent PNB as respondent Lacsamana
had already filed her Answer to the Complaint and no issue on venue had been
raised by the latter.
On September 1, 1980,.respondent Court denied reconsideration for lack of
merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent
Lacsamana was concerned, as the issues had already been joined with the filing
of respondent Lacsamana's Answer.
While it is true that petitioner does not directly seek the recovery of title or
possession of the property in question, his action for annulment of sale and his
claim for damages are closely intertwined with the issue of ownership of the
building which, under the law, is considered immovable property, the recovery of
which is petitioner's primary objective. The prevalent doctrine is that an action for
the annulment or rescission of a sale of real property does not operate to efface
the fundamental and prime objective and nature of the case, which is to recover
said real property. It is a real action. 9
Respondent Court, therefore, did not err in dismissing the case on the ground of
improper venue (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule
16) 11.
Petitioner's other contention that the case should proceed in so far as respondent
Lacsamana is concerned as she had already filed an Answer, which did not
allege improper venue and, therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the validity of the
Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent
Lacsamana alone.
WHEREFORE, the petition is hereby denied without prejudice to the refiling of
the case by petitioner Antonio Punsalan, Jr. in the proper forum.
Costs against petitioner.
SO ORDERED.

In the Order of November 10, 1980 respondent Court denied said Motion to Set
Case for Pre-trial as the case was already dismissed in the previous Orders of
April 25, 1980 and September 1, 1980.

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

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

The warehouse claimed to be owned by petitioner is an immovable or real

property as provided in article 415(l) of the Civil Code. 6 Buildings are always
immovable under the Code. 7 A building treated separately from the land on
which it stood is immovable property and the mere fact that the parties to a
contract seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as immovable property. 8
EN BANC
[G.R. No. L-18456. November 30, 1963.]
CONRADO P. NAVARRO, Plaintiff-Appellee, v. RUFINO G. PINEDA,
RAMONA REYES, ET AL., Defendants-Appellants.
Deogracias Taedo, Jr. for Plaintiff-Appellee.
Renato A. Santos, for Defendants-Appellants.
SYLLABUS
1. CHATTEL MORTGAGE; SUBJECT-MATTER; HOUSE ON LAND
BELONGING TO ANOTHER TREATED AS MOVABLE PROPERTY BETWEEN
THE PARTIES. Where a house stands on a rented land belonging to another
person, it may be the subject-matter of a chattel mortgage as personal or
movable property if so stipulated in the document of mortgage, and in an action
by the Mortgagee for foreclosure, the validity of the chattel mortgage cannot be
assailed by one of the parties to the contract of mortgage.
2. PROPERTY; IMMOVABLE PROPERTY; HOUSE ON LAND BELONGING TO
ANOTHER; GENERAL RULE AND EXCEPTIONS. Although in some
instances, a house of mixed materials has been considered as a chattel between
the parties and that the validity of the contract between them, has been
recognized, it has been a constant criterion that, with respect to third persons,
who are not parties to the contract, and specially in executed proceedings, the
house is considered as an immovable property.
DECISION
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana
Gonzales (married to Gregorio Pineda), borrowed from plaintiff Conrado P.
Navarro, the sum of P2,550.00, payable 6 months after said date or on June 14,
1959. To secure the indebtedness, Rufino executed a document captioned
"DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land,
belonging to her, registered with, the register of Deeds of Tarlac, under Transfer
Certificate of Title No. 25776, and Rufino G. Pineda, by way of Chattel Mortgage,
mortgaged his two-story residential house, having a floor area of 912 square
meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo. San
Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor
Vehicle Registration Certificate No A-171805. Both mortgages were contained in
one instrument, which was registered in both the Office of the Register of Deeds
and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were granted
an extension up to June 30, 1960, within which to pay. Came June 30,
defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that in
the remote event he should fail to make good the obligation on such date (July
30, 1960), the defendant would no longer ask for further extension and there
would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage
contract. In spite of said promise, defendants failed and refused to pay the
obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage
and for damages, which consisted of liquidated damages in the sum of P500.00
and 12% per annum interest on the principal, effective on the date of maturity,
until fully paid.
Defendants, answering the complaint, among others, stated
"Defendants admit that the loan is overdue but deny that portion of paragraph 4
of the First Cause of Action which states that the defendants unreasonably failed
and refuse to pay their obligation to the plaintiff the truth being the defendants
are hard up these days and pleaded to the plaintiff to grant them more time within
which to pay their obligation and the plaintiff refused; . . .
"WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable court render judgment granting the defendants until January 31, 1961,
within which to pay their obligation to the plaintiff."cralaw virtua1aw library
On September 30, 1960, plaintiff presented a Motion for Summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is not clear what ruling the lower court
made on the said motion. On November 11, 1960, however, the parties
submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel
Mortgages; that the indebtedness has been due and unpaid since June 14, 1960;
that a liability of 12% per annum as interest was agreed, upon failure to pay the
principal when due and P500.00 as liquidated damages; that the instrument had
been registered in the Registry of Property and Motor Vehicles Office, both of the
province of Tarlac; that the only issue in the Case is whether or not the deed of
Real Estate and Chattel Mortgages is valid, particularly on the questions of
whether or not the residential house, subject of the mortgage therein, can be
considered a chattel and the propriety of the attorneys fees.
On February 24, 1961, the lower court held
". . . WHEREFORE, this Court renders decision in this Case:chanrob1es virtual
1aw library
(a) Dismissing the complaint with regards to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and
Ramona Reyes, to pay jointly and severally and within ninety (90) days from the
receipt of the copy of this decision to the plaintiff Conrado P. Navarro the
principal sum of P2,550.00 with 12% compounded interest per annum from June
14, 1960, until said principal sum and interests are fully paid, plus P500.00 as
liquidated damages and the costs of this suit, with the warning that in default of
said payment the properties mentioned in the deed of real estate mortgage and
chattel mortgage (Annex A to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent
provisions of Act 3135, as amended by Act 4118, and Art. 14 of the Chattel
Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties mentioned
in said Annex A, immediately after the lapse of the ninety (90) days above-
mentioned, in default of such payment."cralaw virtua1aw library
The above judgment was directly appealed to this Court, the defendants therein
assigning only a single error, allegedly committed by the lower court, to wit
"In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant Rufino
G. Pineda was made the subject of the chattel mortgage, for the reason that it is
erected on a land that belongs to a third person."cralaw virtua1aw library
Appellants contend that Article 415 of the New Civil Code, in classifying a house
as immovable property, makes no distinctions whether the owner of the land is or
is not the owner of the building; the fact that the land belongs to another is
immaterial, it is enough that the house adheres to the land; that in case of
immovables by incorporation, such as houses, trees, plants, etc; the Code does
not require that the attachment or incorporation be made by the owner of the
land, the only criterion being the union or incorporation with the soil. In other
words, it is claimed that "a building is an immovable property, irrespective of
whether or not said structure and the land on which it is adhered to, belong to the
same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also
the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue
that since only movables can be the subject of a chattel mortgage (Sec. 1, Act
No. 3952), then the mortgage in question which, is the basis of the present
action, cannot give rise to an action for foreclosure because it is a nullity. (Citing
Associated Ins. Co., Et. Al. v. Isabel Iya, Isabel Iya v. Adriano Valino, Et. Al. L-
10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected on
the land which belonged to a third person, but also and principally on the doctrine
of estoppel, in that "the parties have so expressly agreed" in the mortgage to
consider the house as a chattel "for its smallness and mixed materials of sawali
and wood." In construing Arts. 334 and 335 of the Spanish Civil Code
(corresponding to Arts. 415 and 416, N.C.C.), for purposes of the application of
the Chattel Mortgage Law, it was held that under certain conditions, "a property
may have a character different from that imputed to it in said articles. It is
undeniable that the parties to a contract may by agreement, treat as personal
property that which by nature would be real property" (Standard Oil Co. of N.Y. v.
Jaranillo, 44 Phil., 632-633). "There can not be any question that a building of
mixed materials may be the subject of a chattel mortgage, in which case, it is
considered as between the parties as personal property . . . The matter depends
on the circumstances and the intention of the parties." "Personal property may
retain its character as such where it is so agreed by the parties interested even
though annexed to the realty . . .." (42 Am. Jur. 209-210, cited in Manarang, Et.
Al. v. Ofilada, Et Al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954).
The view that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based, partly, upon the
principles of estoppel . . ." (Evangelista v. Alto Surety No. L-11139, Apr. 23,
1958). In a case, a mortgaged house built on a rented land, was held to be a
personal property not only because the deed of mortgage considered. it as such,
but also because it did not form an integral part of the land (Evangelista v. Abad,
[CA]; 36 O.G. 2913), for it is now well settled that an object placed on land by
one who has only a temporary right to the same, such as a lessee or
usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co. Inc. v. Castillo, Et Al., 61
Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property if so
stipulated in the document of mortgage (Evangelista v. Abad, supra). It should be
noted, however, that the principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably estop him
from subsequent claiming otherwise (Ladera, Et. Al. v. C.W. Hodges, Et Al., [CA];
48 O.G. 5374). The doctrine, therefore, gathered from these cases is that
although in some instances, a house of mixed materials has been considered as
a chattel between the parties and that the validity of the contract between them,
has been recognized, it has been a constant criterion nevertheless that, with
respect to third persons, who are not parties to the contract, and specially in
execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage"
"my personal properties", a residential house and a truck. The mortgagor himself
grouped the house with the truck, which is, inherently a movable property. The
house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and
wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya
cases, (L-10837-38, supra), refer to a building or a house of strong materials,
permanently adhered to the land, belonging to the owner of the house himself. In
the case of Lopez v. Orosa, (L-10817-18), the subject building was a theater,
built of materials worth more than P62,000.00 attached permanently to the soil.
In these two cases and in the Leung Yee Case, supra, third persons assailed the
validity of the deed of chattel mortgages; in the present case, it was one of the
parties to the contract of mortgages who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from,

should be, as it is hereby affirmed, with costs against appellants.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in
C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable
to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the assessment to
the respondent Board of Tax Appeals on the ground that the same are not realty.
The Board of Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of
facts:
Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real
properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex
"B";
(c) Lathe machine with motor, appearing in the attached photograph, marked
Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked
Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked
Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached
photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked
Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be
seen in the attached photographs which form part of this agreed stipulation of
facts;
5. That petitioner is the owner of the land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein, its TPU trucks are made;
body constructed; and same are repaired in a condition to be serviceable in the
TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries, parts
and the like offered to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling,
and having denied a motion for reconsideration, petitioner brought the case to
this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the
New Civil Code, and holding that pursuant thereto the movable equipments are
taxable realties, by reason of their being intended or destined for use in an
industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
machineries is further restricted by section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:
Art. 415. The following are immovable properties:
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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE
COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF
OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of
the Court of First Instance of Manila, dismissing said plaintiff's complaint against
Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by
the trial court in its decision in question which will be discussed in the course of
this decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in declaring
that the additional machinery and equipment, as improvement incorporated with
the central are subject to the mortgage deed executed in favor of the defendants
Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc.,
owner of the sugar central situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on
two parcels and land "with all its buildings, improvements, sugar-cane mill, steel
railway, telephone line, apparatus, utensils and whatever forms part or is
necessary complement of said sugar-cane mill, steel railway, telephone line, now
existing or that may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central
by buying additional machinery and equipment, so that instead of milling 150
tons daily, it could produce 250. The estimated cost of said additional machinery
and equipment was approximately P100,000. In order to carry out this plan, B.A.
Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter,
to advance the necessary amount for the purchase of said machinery and
equipment, promising to reimburse him as soon as he could obtain an additional
loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having
agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E),
B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710
to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount
supplied by him to said B.A. Green having been P25,750. Furthermore, B.H.
Berkenkotter had a credit of P22,000 against said corporation for unpaid salary.
With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co.,
Inc., purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc.,
applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said B.A. Green
and installed in the sugar central after the execution of the original mortgage
deed, on April 27, 1927, together with whatever additional equipment acquired
with said loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing
fruits, and rents not collected when the obligation falls due, and the amount of
any indemnities paid or due the owner by the insurers of the mortgaged property
or by virtue of the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate continues in
the possession of the person who mortgaged it or whether it passes into the
hands of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil.,
690), cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this
court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS
AND FIXTURES. It is a rule, established by the Civil Code and also by the
Mortgage Law, with which the decisions of the courts of the United States are in
accord, that in a mortgage of real estate, the improvements on the same are
included; therefore, all objects permanently attached to a mortgaged building or
land, although they may have been placed there after the mortgage was
constituted, are also included. (Arts. 110 and 111 of the Mortgage Law, and 1877
of the Civil Code; decision of U.S. Supreme Court in the matter of Royal
Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199
U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that
it may be understood that the machinery and other objects placed upon and used
in connection with a mortgaged estate are excluded from the mortgage, when it
was stated in the mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment
claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was
not permanent in character inasmuch as B.A. Green, in proposing to him to
advance the money for the purchase thereof, made it appear in the letter, Exhibit
E, that in case B.A. Green should fail to obtain an additional loan from the
defendants Cu Unjieng e Hijos, said machinery and equipment would become
security therefor, said B.A. Green binding himself not to mortgage nor encumber
them to anybody until said plaintiff be fully reimbursed for the corporation's
indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained
as loan from the plaintiff-appellant by B.A. Green, as president of the Mabalacat
Sugar Co., Inc., the latter became owner of said machinery and equipment,
otherwise B.A. Green, as such president, could not have offered them to the
plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the requirements of
such trade or industry.
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.

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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for
appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in
the trial court and as set forth by counsel for the parties on appeal, involves the
determination of the nature of the properties described in the complaint. The trial
judge found that those properties were personal in nature, and as a consequence
absolved the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in the sitio of
Maa, barrio of Tigatu, municipality of Davao, Province of Davao. However, the
land upon which the business was conducted belonged to another person. On
the land the sawmill company erected a building which housed the machinery
used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of
cement. In the contract of lease between the sawmill company and the owner of
the land there appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and
buildings introduced and erected by the party of the second part shall pass to the
exclusive ownership of the party of the first part without any obligation on its part
to pay any amount for said improvements and buildings; also, in the event the
party of the second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass to the
ownership of the party of the first part as though the time agreed upon had
expired: Provided, however, That the machineries and accessories are not
included in the improvements which will pass to the party of the first part on the
expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff
and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered
in favor of the plaintiff in that action against the defendant in that action; a writ of
execution issued thereon, and the properties now in question were levied upon
as personalty by the sheriff. No third party claim was filed for such properties at
the time of the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and the defendant
herein having consummated the sale, proceeded to take possession of the
machinery and other properties described in the corresponding certificates of
sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao
Saw Mill Co., Inc., has on a number of occasions treated the machinery as
personal property by executing chattel mortgages in favor of third persons. One
of such persons is the appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the
Code, real property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the requirements of
such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right in
their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must
further be pointed out that while not conclusive, the characterization of the
property as chattels by the appellant is indicative of intention and impresses upon
the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the resolution of this
appeal on side issues. It is machinery which is involved; moreover, machinery
not intended by the owner of any building or land for use in connection therewith,
but intended by a lessee for use in a building erected on the land by the latter to
be returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United from the act of the owner in giving by contract a permanent destination to the
States Supreme Court, it was held that machinery which is movable in its nature machinery.
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 xxx xxx xxx
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: 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
To determine this question involves fixing the nature and character of the the execution upon the judgment in their favor, and the exercise of that right did
property from the point of view of the rights of Valdes and its nature and not in a legal sense conflict with the claim of Valdes, since as to him the property
character from the point of view of Nevers & Callaghan as a judgment creditor of was a part of the realty which, as the result of his obligations under the lease, he
the Altagracia Company and the rights derived by them from the execution levied could not, for the purpose of collecting his debt, proceed separately against.
on the machinery placed by the corporation in the plant. Following the Code (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
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
Finding no reversible error in the record, the judgment appealed from will be
movable nature, that is, personal property, because of the destination to which it
affirmed, the costs of this instance to be paid by the appellant.
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
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No.
SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI,
issued in Civil Case No. 36040, as wen as the resolution dated September 22,
1981 of the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever
Textile Mills, Inc., discounted and assigned several receivables with the former
under a Receivable Purchase Agreement. To secure the collection of the
receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos
Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private
respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil
Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent's filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the subject
machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed
by herein private respondent, set aside the Orders of the lower court and ordered
the return of the drive motor seized by the sheriff pursuant to said Orders, after
ruling that the machinery in suit cannot be the subject of replevin, much less of a
chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the
only way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was
to take the main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of
certiorari. It is contended by private respondent, however, that the instant petition
was rendered moot and academic by petitioner's act of returning the subject
motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned
the subject motor drive, it made itself unequivocably clear that said action was
without prejudice to a motion for reconsideration of the Court of Appeals
decision, as shown by the receipt duly signed by respondent's
representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent
that this petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether
the machinery in suit is real or personal property from the point of view of the
parties, with petitioner arguing that it is a personality, while the respondent
claiming the contrary, and was sustained by the appellate court, which
accordingly held that the chattel mortgage constituted thereon is null and void, as
contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143
where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not
now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely
had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors
to sustain the interpretation that the parties, particularly the mortgagors, intended
to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it
is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated
the subject house as personality.
Examining the records of the instant case, We find no logical justification to
exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong materials,
like what was involved in the above Tumalad case, may be considered as
personal property for purposes of executing a chattel mortgage thereon as long
as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the
Court of Appeals lays stress on the fact that the house involved therein was built
on a land that did not belong to the owner of such house. But the law makes no
distinction with respect to the ownership of the land on which the house is built
and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses upon
the property the character determined by the parties. As stated in Standard Oil
Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a
contract may by agreement treat as personal property that which by nature would
be real property, as long as no interest of third parties would be prejudiced
thereby.
Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as
personal property but was merely required and dictated on by herein petitioner to
sign a printed form of chattel mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court and the
Court of Appeals except in a supplemental memorandum in support of the
petition filed in the appellate court. Moreover, even granting that the charge is
true, such fact alone does not render a contract void ab initio, but can only be a
ground for rendering said contract voidable, or annullable pursuant to Article
1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably
benefited from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed to
impugn the efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil.
70, heavily relied upon by said court is not applicable to the case at bar, the
nature of the machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a Chattel
Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with
the instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals
are hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank,
elevated water tanks, water tanks, gasoline pumps, computing pumps, water
pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The
city assessor described the said equipment and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is erected, a
water tank if there is any is placed in one corner of the lot, car hoists are placed
in an adjacent shed, an air compressor is attached in the wall of the shed or at
the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug
deep about six feet more or less, a few meters away from the shed. This is done
to prevent conflagration because gasoline and other combustible oil are very
inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and
the gasoline pump is commonly placed or constructed under the shed. The
footing of the pump is a cement pad and this cement pad is imbedded in the
pavement under the shed, and evidence that the gasoline underground tank is
attached and connected to the shed or building through the pipe to the pump and
the pump is attached and affixed to the cement pad and pavement covered by
the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate
shed, the air compressor, the underground gasoline tank, neon lights signboard,
concrete fence and pavement and the lot where they are all placed or erected, all
of them used in the pursuance of the gasoline service station business formed
the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the tenement, it
is clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the
gasoline station and the improvement which holds all the properties under
question, they are attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all
the improvements, machines, equipments and apparatus are allowed by Caltex
(Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the
pump, so with the water tank it is connected also by a steel pipe to the pavement,
then to the electric motor which electric motor is placed under the shed. So to
say that the gasoline pumps, water pumps and underground tanks are outside of
the service station, and to consider only the building as the service station is
grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators
under an appropriate lease agreement or receipt. It is stipulated in the lease
contract that the operators, upon demand, shall return to Caltex the machines
and equipment in good condition as when received, ordinary wear and tear
excepted.
The lessor of the land, where the gas station is located, does not become the
owner of the machines and equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. The realty tax on said equipment
amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled
that they are personalty. The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as
chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of
Local Government and Community Development Jose Roo, held in its decision
of June 3, 1977 that the said machines and equipment are real property within
the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and that the
definitions of real property and personal property in articles 415 and 416 of the
Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took
Macaraig's place) in its resolution of January 12, 1978, denying Caltex's motion
for reconsideration, a copy of which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the
setting aside of the Board's decision and for a declaration that t he said machines
and equipment are personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive
appellate jurisdiction over this case is not correct. When Republic act No. 1125
created the Tax Court in 1954, there was as yet no Central Board of Assessment
Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction
to review by appeal decisions of provincial or city boards of assessment appeals
had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the
Central Board of Assessment Appeals shall become final and executory after the
lapse of fifteen days from the receipt of its decision by the appellant. Within that
fifteen-day period, a petition for reconsideration may be filed. The Code does not
provide for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the
decision of the Central Board of Assessment Appeals is the special civil action of
certiorari, the recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already
enumerated are subject to realty tax. This issue has to be resolved primarily
under the provisions of the Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with
some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments,
appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment
Law).
We hold that the said equipment and machinery, as appurtenances to the gas
station building or shed owned by Caltex (as to which it is subject to realty tax)
and which fixtures are necessary to the operation of the gas station, for without
them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the
Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property or
plant but not when so placed by a tenant, a usufructuary, or any person having
only a temporary right, unless such person acted as the agent of the owner
(Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code
regarding machinery that becomes real property by destination. In the Davao
Saw Mills case the question was whether the machinery mounted on foundations
of cement and installed by the lessee on leased land should be regarded as real
property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's
action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of
Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery
permanently affixed by Caltex to its gas station and pavement (which are
indubitably taxable realty) should be subject to the realty tax. This question is
different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some
purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and
41). "It is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal
property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs.
Manila Electric Co., 119 Phil. 328, where Meralco's steel towers were considered
poles within the meaning of paragraph 9 of its franchise which exempts its poles
from taxation. The steel towers were considered personalty because they were
attached to square metal frames by means of bolts and could be moved from
place to place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as tools and
equipment in the repair shop of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).

The Central Board of Assessment Appeals did not commit a grave abuse of
discretion in upholding the city assessor's is imposition of the realty tax on
Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of

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

SO ORDERED.
FIRST DIVISION (Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications continued)
G.R. No. 120098 October 2, 2001
LIST OF MACHINERIES & EQUIPMENT
RUBY L. TSAI, petitioner,
vs. A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R Hongkong:
VILLALUZ, respondents.
Serial Numbers Size of Machines
x---------------------------------------------------------x
xxx xxx xxx
[G.R. No. 120109. October 2, 2001.]
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs. xxx xxx xxx
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.
C. Two (2) Circular Knitting Machines made in West Germany.
QUISUMBING, J.:
xxx xxx xxx
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R.
D. Four (4) Winding Machines.
CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila,
Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court's
resolution denying petitioners' motion for reconsideration. xxx xxx xxx

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained SCHEDULE "A"
a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor I. TCT # 372097 - RIZAL
of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No.
372097, where its factory stands, and the chattels located therein as enumerated xxx xxx xxx
in a schedule attached to the mortgage contract. The pertinent portions of the
Real and Chattel Mortgage are quoted below:
II. Any and all buildings and improvements now existing or hereafter to exist on
the above-mentioned lot.
MORTGAGE
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the
(REAL AND CHATTEL) above-mentioned lot located at . . .

xxx xxx xxx (a) Forty eight sets (48) Vayrow Knitting Machines . . .

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First (b) Sixteen sets (16) Vayrow Knitting Machines . . .
Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all the
buildings and improvements now existing or which may hereafter exist thereon,
situated in . . . (c) Two (2) Circular Knitting Machines . . .

"Annex A" (d) Two (2) Winding Machines . . .

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

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which

the Court of Appeals deleted. But according to the CA, there was no clear
showing that petitioners acted malevolently, wantonly and oppressively. The
evidence, however, shows otherwise.It is a requisite to award exemplary
damages that the wrongful act must be accompanied by bad faith,26 and the
guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act of purchasing the
controverted properties despite her knowledge of EVERTEX's claim was
oppressive and subjected the already insolvent respondent to gross
disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the
properties found in the factory of the financially handicapped respondent,
including those properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement with the RTC
that an award of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive.

Article 2216 of the Civil Code provides that no proof of pecuniary loss is
necessary for the adjudication of exemplary damages, their assessment being
left to the discretion of the court in accordance with the circumstances of each
case.29 While the imposition of exemplary damages is justified in this case, equity
calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-
52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial
discretion granted to the courts in the assessment of damages must always be
exercised with balanced restraint and measured objectivity. Thus, here the award
of exemplary damages by way of example for the public good should be reduced
to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC's award of
P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the
circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution
of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16513 January 18, 1921
THE UNITED STATES, plaintiff-appellee,
vs.
MANUEL TAMBUNTING, defendant-appellant.
Manuel Garcia Goyena for appellant.
Acting Attorney-General Feria for appellee.
STREET, J.:
This appeal was instituted for the purpose of reversing a judgment of the Court of
First Instance of the city of Manila, finding the accused, Manuel Tambunting,
guilty of stealing a quantity of gas belonging to the Manila Gas Corporation, and
sentencing him to undergo imprisonment for two months and one day, of arresto
mayor, with the accessories prescribed by law; to indemnify the said corporation
in the sum of P2, with subsidiary imprisonment in case of insolvency; and to pay
the costs.
The evidence submitted in behalf of the prosecution shows that in January of the
year 1918, the accused and his wife became occupants of the upper floor of the
house situated at No. 443, Calle Evangelista, in the city of Manila. In this house
the Manila Gas Corporation had previously installed apparatus for the delivery of
gas on both the upper and lower floors, consisting of the necessary piping and a
gas meter, which last mentioned apparatus was installed below. When the
occupants at whose request this installation had been made vacated the
premises, the gas company disconnected the gas pipe and removed the meter,
thus cutting off the supply of gas from said premises.
Upon June 2, 1919, one of the inspectors of the gas company visited the house
in question and found that gas was being used, without the knowledge and
consent of the gas company, for cooking in the quarters occupied by the
defendant and his wife: to effect which a short piece of iron pipe had been
inserted in the gap where the gas meter had formerly been placed, and piece of
rubber tubing had been used to connect the gas pipe of rubber tubing had been
used to connect the gas pipe in kitchen with the gas stove, or plate, used for
cooking.
At the time this discovery was made, the accused, Manuel Tambunting, was not
at home, but he presently arrived and admitted to the agent to the gas company
that he had made the connection with the rubber tubing between the gas pipe
and the stove, though he denied making the connection below. He also admitted
that he knew he was using gas without the knowledge of the company and that
he had been so using it for probably two or three months.
The clandestine use of gas by the accused in the manner stated is thus
established in our opinion beyond a doubt; and inasmuch as the animo
lucrandi is obvious, it only remains to consider, first, whether gas can be the
subject to larceny and, secondly, whether the quantity of gas appropriated in the
two months, during which the accused admitted having used the same, has been
established with sufficient certainty to enable the court to fix an appropriate
penalty.
Some legal minds, perhaps more academic than practical, have entertained
doubt upon the question whether gas can be the subject of larceny; but no
judicial decision has been called to our attention wherein any respectable court
has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175), this court,
speaking through Mr. Justice Torres, said ". . . the right of the ownership of
electric current is secured by article 517 and 518 of the Penal Code; the
application of these articles in cases of subtraction of gas, a fluid used for
lighting, and in some respects resembling electricity, is confirmed by the rule laid
down in the decisions of the supreme court of Spain of January 20, 1887, and
April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of
the Penal Code of that country, articles identical with articles 517 and 518 of the
code in force in these Islands." These expressions were used in a case which
involved the subtraction and appropriation of electrical energy and the court held,
in accordance with the analogy of the case involving the theft of gas, that
electrical energy could also be the subject of theft. The same conclusion was
reached in U.S. vs. Carlos (21 Phil., 553), which was also a case of prosecution
for stealing electricity.
The precise point whether the taking of gas may constitute larceny has never
before, so far as the present writer is aware, been the subject of adjudication in
this court, but the decisions of Spanish, English, and American courts all answer
the question in the affirmative. (See U.S. vs. Carlos, 21 Phil., 553, 560.)
In this connection it will suffice to quote the following from the topic "Larceny," at
page 34, Vol. 17, of Ruling Case Law:
There is nothing in the nature of gas used for illuminating purposes which
renders it incapable of being feloniously taken and carried away. It is a valuable
article of merchandise, bought and sold like other personal property, susceptible
of being severed from a mass or larger quantity and of being transported from
place to place. Likewise water which is confined in pipes and electricity which is
conveyed by wires are subjects of larceny."
As to the amount and value of the gas appropriated by the accused in the period
during which he admits having used it, the proof is not entirely satisfactory.
Nevertheless we think the trial court was justified in fixing the value of the gas at
P2 per month, which is the minimum charge for gas made by the gas company,
however small the amount consumed. That is to say, no person desiring to use
gas at all for domestic purposes can purchase the commodity at a lower rate per
month than P2. There was evidence before the court showing that the general
average of the monthly bills paid by consumers throughout the city for the use of
gas in a kitchen equipped like that used by the accused is from P18 to 20, while
the average minimum is about P8 per month. We think that the facts above
stated are competent evidence; and the conclusion is inevitable that the accused
is at least liable to the extent of the minimum charge of P2 per month. The
market value of the property at the time and place of the theft is of court the
proper value to be proven (17 R.C.L., p. 66); and when it is found that the least
amount that a consumer can take costs P2 per months, this affords proof that the
amount which the accused took was certainly worth that much. Absolute certainty
as to the full amount taken is of course impossible, because no meter wad used;
but absolute certainty upon this point is not necessary, when it is certain that the
minimum that could have been taken was worth a determinable amount.

It appears that before the present prosecution was instituted, the accused had
been unsuccessfully prosecuted for an infraction of section 504 of the Revised
Ordinances of the city of Manila, under a complaint charging that the accused,
not being a registered installer of gas equipment had placed a gas installation in
the house at No. 443, Calle Evangelista. Upon this it is argued for the accused
that, having been acquitted of that charge, he is not now subject to prosecution
for the offense of theft, having been acquitted of the former charge. The
contention is evidently not well-founded, since the two offenses are of totally
distinct nature. Furthermore, a prosecution for violation of a city ordinance is not
ordinarily a bar to a subsequent prosecution for the same offense under the
general law of the land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)

The conclusion is that the accused is properly subject to punishment, under No.
5 of article 518 of the Penal Code, for the gas taken in the course of two months
a the rate of P2 per month. There being no aggravating or attenuating
circumstance to be estimated, it results that the proper penalty is two months and
one day of arresto mayor, as fixed by the trial court. The judgment will therefore
be affirmed, with costs against the appellant, it being understood that the amount
of the indemnity which the accused shall pay to the gas company is P4, instead
of P2, with subsidiary imprisonment for one day in case of insolvency. So
ordered.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA,
respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation
assails the decision of the Central Board of Assessment Appeals (composed of
the Secretary of Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated May 6, 1976,
holding that Meralco Securities' oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the
Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from
Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the
shoulder of the public highway. The portion passing through Laguna is about
thirty kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six
feet with a maximum capacity of 75,000 barrels daily. The pipes for fuel and
black oil measure sixteen inches by forty-eight feet with a maximum capacity of
100,000 barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so
as to preclude breakage or damage thereto and prevent leakage or seepage of
the oil. The valves are welded to the pipes so as to make the pipeline system one
single piece of property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes
have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried. In points where the
pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof.
Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved
from one place to another as shown in the permit issued by the Secretary of
Public Works and Communications which permit provides that the government
reserves the right to require the removal or transfer of the pipes by and at the
concessionaire's expense should they be affected by any road repair or
improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax
Declarations Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta.
Rosa; 9882-9885, Bian and 15806-15810, Calamba, containing the assessed
values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment
Appeals of Laguna composed of the register of deeds as chairman and the
provincial auditor as member. That board in its decision of June 18, 1975 upheld
the assessments (pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment
Appeals. As already stated, that Board, composed of Acting Secretary of Finance
Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos
and Secretary of Local Government and Community Development Jose Roo as
members, ruled that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, provides that the Board's decision becomes
final and executory after the lapse of fifteen days from the date of receipt of a
copy of the decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of
Assessment Appeals (70 O.G. 10085), a party may ask for the reconsideration of
the Board's decision within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On
June 6, 1977, Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because
the Board acted within its jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no
jurisdiction to review the decision of the Central Board of Assessment Appeals
and because no judicial review of the Board's decision is provided for in the Real
Property Tax Code, Meralco Securities' recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-
judicial functions whereby the record of a particular case is ordered to be
elevated for review and correction in matters of law (14 C.J.S. 121-122; 14 Am
Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power
there is an underlying power in the courts to scrutinize the acts of such agencies
on questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary
and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising
quasi-judicial functions is proper in cases of lack of jurisdiction, error of law,
grave abuse of discretion, fraud or collusion or in case the administrative
decision is corrupt, arbitrary or capricious (Mafinco Trading Corporation vs. Ople,
L-37790, March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs.
Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of
Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the
provincial assessor and the provincial board of assessment appeals that Meralco
Securities' pipeline is subject to realty tax, reasoned out that the pipes are
machinery or improvements, as contemplated in the Assessment Law and the
Real Property Tax Code; that they do not fall within the category of property
exempt from realty tax under those laws; that articles 415 and 416 of the Civil
Code, defining real and personal property, have no application to this case; that
even under article 415, the steel pipes can be regarded as realty because they
are constructions adhered to the soil and things attached to the land in a fixed
manner and that Meralco Securities is not exempt from realty tax under the
Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of article 415. This contention is not
sustainable under the provisions of the Assessment Law, the Real Property Tax
Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with
some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any
of the classes of exempt real property enumerated in section 3 of the
Assessment Law and section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon
or in the earth, carrying with it the right to the use of the soil in which it is placed
(Note 21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all
kinds adhered to the soil and everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil
(Exh. B, p. 39, Rollo). It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were welded to
form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the
flow of oil, it is in a sense machinery within the meaning of the Real Property Tax
Code.
It should be borne in mind that what are being characterized as real property are
not the steel pipes but the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed.
2nd 3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark
vs. R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it
from the payment of realty taxes. The alleged exemption is predicated on the
following provisions of that law which exempt Meralco Securities from local taxes
and make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed. Work * The Real Property Tax Code contains the following definitions in its section 3:
obligations, special taxes and royalties which are fixed by the provisions of this
Act or by the concession for any of the kinds of concessions to which this Act "k) Improvements - is a valuable addition made to property or an amelioration in
relates, are considered as inherent on such concessions after they are granted, its condition, amounting to more than mere repairs or replacement of waste,
and shall not be increased or decreased during the life of the concession to costing labor or capital and intended to enhance its value, beauty or utility or to
which they apply; nor shall any other special taxes or levies be applied to such adapt it for new or further purposes. "
concessions, nor shall 0concessionaires under this Act be subject to
any provincial, municipal or other local taxes or levies; nor shall any sales tax be
charged on any petroleum produced from the concession or portion thereof, "m) Machinery - shall embrace machines, mechanical contrivances, instruments,
manufactured by the concessionaire and used in the working of his concession. appliances and apparatus attached to the real estate. It includes the physical
All such concessionaires, however, shall be subject to such taxes as are of facilities available for production, as well as the installations and appurtenant
general application in addition to taxes and other levies specifically provided in service facilities, together with all other equipment designed for or essential to its
this Act. manufacturing, industrial or agricultural purposes." (See sec. 3[f], Assessment
Law).
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has
always been imposed by the lawmaking body and later by the President of the
Philippines in the exercise of his lawmaking powers, as shown in section 342 et
seq. of the Revised Administrative Code, Act No. 3995, Commonwealth Act No.
470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a
particular municipality or city but the proceeds of the tax accrue to the province,
city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No.
464). In contrast, a local tax is imposed by the municipal or city council by virtue
of the Local Tax Code, Presidential Decree No. 231, which took effect on July 1,
1973 (69 O.G. 6197).

We hold that the Central Board of Assessment Appeals did not act with grave
abuse of discretion, did not commit any error of law and acted within its
jurisdiction in sustaining the holding of the provincial assessor and the local
board of assessment appeals that Meralco Securities' pipeline system in Laguna
is subject to realty tax.

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

SO ORDERED.

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

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

Footnotes
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11984 March 10, 1919

FLORENTINO PAMINTUAN, plaintiff-appellant,

vs.
TOMAS GARCIA (deceased), ET AL., defendants.
TOMAS GARCIA (deceased) and JOSE M. DIZON, appellants.

Tirso de Irureta Goyena for plaintiff-appellant

Pedro Abad Santos and Crossfield & O'Brien for defendants-appellants.

CARSON, J.:

Limiting ourselves strictly to the question submitted by agreement of counsel for

the various parties to these proceeding dated January 17, 1919, we are of
opinion and so hold, that the language used in the disposing part of our decree
entered while the case was pending on appeal,1 wherein we said " por
consiguiente creemos que los frutos naturales o civiles que dichos bienes han
producido, o que hayan podido producir, pertenecen a la sucesion de Tomas
Garcia," is not susceptible of interpretation so as to include "industrial fruits."

The terms "natural," "industrial" and "civil fruits" are highly technical, and are
authoritatively defined in the Civil Code, article 355 (Cf. Escriche, Diccionario de
Legislacion y Jurisprudencia, Vol. II, p. 1102); and there can be no question as to
the meaning which should be given them when they occur in a decree entered by
this court.

The decree in question has long since become final, and whether it was or was
not error to omit therefrom a provision recognizing the right of the estate of
Tomas Garcia to industrial as well as natural fruits is not now open to question.
Well founded objection to the decree upon this ground should have been
submitted on motion for reconsideration before the decree became final, and this
court is not authorized under the stipulation of the parties above mentioned to
review that question.

Arellano, C.J., Torres Street, Malcolm and Avancea, JJ., concur.

Republic of the Philippines A preliminary investigation has heretofore been conducted in this case, under my
SUPREME COURT direction, having examined the witness under oath, in accordance with the
Manila provisions of section 39 of Act No. 183 of the Philippine Commission, as
amended by section 2 of Act No. 612 of the Philippine Commission.
EN BANC
(Sgd) L. M. SOUTHWORTH,
G.R. No. 6295 September 1, 1911 Prosecuting Attorney.

THE UNITED STATES, plaintiff-appellee, Subscribed and sworn to before me this 4th day of March, 1910, in the city of
vs. Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city
IGNACIO CARLOS, defendant-appellant. of Manila.

A. D. Gibbs for appellant. (Sgd.) CHARLES LOBINGIER,

Acting Attorney-General Harvey for appellee. Judge, First Instance.

PER CURIAM:
The information filed in this case is as follows:
The undersigned accuses Ignacio Carlos of the crime of theft, committed as
follows:
That on, during, and between the 13th day of February, 1909, and the 3d day of
March, 1910, in the city of Manila, Philippine Islands, the said Ignacio Carlos,
with intent of gain and without violence or intimidation against the person or force
against the thing, did then and there, willfully, unlawfully, and feloniously, take,
steal , and carry away two thousand two hundred and seventy-three (2,273)
kilowatts of electric current, of the value of nine hundred and nine (909) pesos
and twenty (20) cents Philippine currency, the property of the Manila Electric
Railroad and Light Company, a corporation doing business in the Philippine
Islands, without the consent of the owner thereof; to the damage and prejudice of
the said Manila Electric Railroad and Light Company in the said sum of nine
hundred and nine (909) pesos and twenty (20) cents Philippine currency, equal
to and equivalent of 4,546 pesetas Philippine currency. All contrary to law.
(Sgd.) L. M. SOUTWORTH,
Prosecuting Attorney.
Subscribed and sworn to before me this 4th day of March, 1910, in the city of
Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city
of Manila.
(Sgd.) CHARLES S. LOBINGIER,
Judge, First Instance.
A warrant for the arrest of the defendant was issued by the Honorable J. C.
Jenkins on the 4th of March and placed in the hands of the sheriff. The sheriff's
return shows that the defendant gave bond for his appearance. On the 14th of
the same month counsel for the defendant demurrer to the complaint on the
following grounds:
1 That the court has no jurisdiction over the person of the accused nor of the
offense charged because the accused has not been accorded a preliminary
investigation or examination as required by law and no court, magistrate, or other
competent authority has determined from a sworn complaint or evidence
adduced that there is probable cause to believe that a crime has been
committed, or that this defendant has committed any crime.
2 That the facts charged do not constitute a public offense.
The demurrer was overruled on the same day and the defendant having refused
to plead, a plea of not guilty was entered by direction of the court for him and the
trial proceeded.
After due consideration of all the proofs presented and the arguments of counsel
the trial court found the defendant guilty of the crime charged and sentenced him
to one year eight months and twenty-one days' presidio correccional, to
indemnify the offended party, The Manila Electric Railroad and Light Company, in
the sum of P865.26, to the corresponding subsidiary imprisonment in case of
insolvency and to the payment of the costs. From this judgment the defendant
appealed and makes the following assignments of error:
I.
The court erred in overruling the objection of the accused to the jurisdiction of the
court, because he was not given a preliminary investigation as required by law,
and in overruling his demurrer for the same reason.
II.
The court erred in declaring the accused to be guilty, in view of the evidence
submitted.
III.
The court erred in declaring that electrical energy may be stolen.
IV.
The court erred in not declaring that the plaintiff consented to the taking of the
current.
V.
The court erred in finding the accused guilty of more than one offense.
VI.
The court erred in condemning the accused to pay P865.26 to the electric
company as damages.
Exactly the same question as that raised in the first assignment of error, was
after a through examination and due consideration, decided adversely to
appellant's contention in the case of U. S. vs. Grant and Kennedy (18 Phil. Rep.,
122). No sufficient reason is presented why we should not follow the doctrine
enunciated in that case.
The question raised in the second assignment of error is purely one fact. Upon
this point the trial court said:
For considerably more than a year previous to the filing of this complaint the
accused had been a consumer of electricity furnished by the Manila Electric
Railroad and Light Company for a building containing the residence of the
accused and three other residences, and which was equipped, according to the
defendant's testimony, with thirty electric lights. On March 15, 1909, the
representatives of the company, believing that more light was being used than
their meter showed, installed an additional meter (Exhibit A) on a pole outside of
defendant's house, and both it and the meter (Exhibit B) which had been
previously installed in the house were read on said date. Exhibit A read 218
kilowatt hours; Exhibit B, 745 kilowatt hours. On March 3, 1910 each was read
again, Exhibit A showing 2,718 kilowatt hours and Exhibit B, 968. It is undisputed
that the current which supplied the house passed through both meters and the
city electrician testifies that each meter was tested on the date of the last reading
and was "in good condition." The result of this registration therefore is that while
the outsider meter (Exhibit A) showed a consumption in defendant's building of
2,500 kilowatt hours of electricity, this inside meter (Exhibit B) showed but 223
kilowatt hours. In other words the actual consumption, according to the outside
meter, was more than ten times as great as that registered by the one inside.
Obviously this difference could not be due to normal causes, for while the
electrician called by the defense (Lanusa) testifies to the possibility of a
difference between two such meters, he places the extreme limit of such
difference between them 5 per cent. Here, as we have seen, the difference is
more than 900 per cent. Besides, according to the defendant's electrician, the
outside meter should normally run faster, while according to the test made in this
case the inside meter (Exhibit B) ran the faster. The city electrician also testifies
that the electric current could have been deflected from the inside meter by
placing thereon a device known as a "jumper" connecting the two outside wires,
and there is other testimony that there were marks on the insulation of the meter
Exhibit B which showed the use of such a device. There is a further evidence that
the consumption of 223 kilowatt hours, registered by the inside meter would not
be a reasonable amount for the number of lights installed in defendant's building
during the period in question, and the accused fails to explain why he should
have had thirty lights installed if he needed but four or five.
On the strength of this showing a search warrant was issued for the examination
of defendant's premises and was duly served by a police officer (Hartpence). He
was accompanied at the time by three employees of the Manila Electric Railroad
and Light Company, and he found there the accused, his wife and son, and
perhaps one or two others. There is a sharp conflict between the several
spectators on some points but on one there is no dispute. All agree that the
"jumper" (Exhibit C) was found in a drawer of a small cabinet in the room of
defendant's house where the meter was installed and not more than 20 feet
therefrom. In the absence of a satisfactory explanation this constituted
possession on defendant's part, and such possession, under the Code of Civil
Procedure, section 334 (10), raises the presumption that the accused was the
owner of a device whose only use was to deflect the current from the meter.
Is there any other "satisfactory explanation" of the "jumper's" presence? The only
one sought to be offered is the statement by the son of the accused, a boy of
twelve years, that he saw the "jumper" placed there by the witness Porter, an
employee of the Light Company. The boy is the only witness who so testifies and
Porter himself squarely denies it. We can not agree with counsel for the defense
that the boy's interest in the outcome of this case is less than that of the witness
for the prosecution. It seems to us that his natural desire to shield his father
would far outweight any interest such an employee like Porter would have and
which, at most, would be merely pecuniary.
There is, however, one witness whom so far as appears, has no interest in the
matter whatsoever. This is officer Hartpence, who executed the search warrant.
He testifies that after inspecting other articles and places in the building as he
and the other spectators, including the accused, approached the cabinet in which
the "jumper" was found, the officer's attention was called to the defendant's
appearance and the former noticed that the latter was becoming nervous. Where
the only two witnesses who are supposed to know anything of the matter thus
contradict each other this item of testimony by the officer is of more than ordinary
significance; for if, as the accused claims, the "jumper" was placed in the cabinet
for the first time by Porter there would be no occasion for any change of
demeanor on the part of the accused. We do not think that the officer's
declination to wait until defendant should secure a notary public shows bias. The
presence of such an official was neither required nor authorized by law and the
very efficacy of a search depends upon its swiftness.
We must also agree with the prosecuting attorney that the attending
circumstances do not strengthen the story told by the boy; that the latter would
have been likely to call out at the time he saw the "jumper" being placed in the
drawer, or at least directed his father's attention to it immediately instead of
waiting, as he says, until the latter was called by the officer. Finally, to accept the
boy's story we must believe that this company or its representatives deliberately
conspired not merely to lure the defendant into the commission of a crime but to
fasten upon him a crime which he did not commit and thus convict an innocent
man by perjured evidence. This is a much more serious charge than that
contained in the complaint and should be supported by very strong corroborating
circumstances which we do not find here. We are, accordingly, unable to
consider as satisfactory defendant's explanation of the "jumper's" presence.
The only alternative is the conclusion that the "jumper" was placed there by the
accused or by some one acting for him and that it was the instrument by which
the current was deflected from the matter Exhibit B and the Light Company
deprived of its lawful compensation.
After a careful examination of the entire record we are satisfied beyond
peradventure of a doubt that the proofs presented fully support the facts as set
forth in the foregoing finding.
Counsel for the appellant insists that the only corporeal property can be the
subject of the crime of larceny, and in the support of this proposition cites several
authorities for the purpose of showing that the only subjects of larceny are
tangible, movable, chattels, something which could be taken in possession and
carried away, and which had some, although trifling, intrinsic value, and also to
show that electricity is an unknown force and can not be a subject of larceny.
In the U. S. vs. Genato (15 Phi. Rep., 170) the defendant, the owner of the store
situated at No. 154 Escolta, Manila, was using a contrivance known as a
"jumper" on the electric meter installed by the Manila Electric Railroad and the
Light Company. As a result of the use of this "jumper" the meter, instead of
making one revolution in every four seconds, registered one in seventy-seven
seconds, thereby reducing the current approximately 95 per cent. Genato was
charged in the municipal court with a violation of a certain ordinance of the city of
Manila, and was sentenced to pay a fine of P200. He appealed to the Court of
First Instance, was again tried and sentenced to pay the same fine. An appeal
was taken from the judgment of the Court of First Instance to the Supreme Court
on the ground that the ordinance in question was null and void. It is true that the
only question directly presented was of the validity of the city ordinance. The
court, after holding that said ordinance was valid, said:
Even without them (ordinances), the right of ownership of electric current is
secured by articles 517 and 518 of the Penal Code; the application of these
articles in case of subtraction of gas, a fluid used for lighting, and in some
respects resembling electricity, is confirmed by the rule laid down in the decisions
of the supreme court of Spain January 20, 1887, and April 1, 1897, construing
and enforcing the provisions of articles 530 and 531 of the penal code of that
country, articles identical with articles 517 and 518 of the code in force in these
Islands.
Article 517 of the Penal Code above referred to reads as follows:
The following are guilty of larceny:
(1) Those who with intent of gain and without violence or intimidation against the
person, or force against things, shall take another's personal property without the
owner's consent.
And article 518 fixes the penalty for larceny in proportion to the value of the
personal property stolen.
It is true that electricity is no longer, as formerly, regarded by electricians as a
fluid, but its manifestation and effects, like those of gas, may be seen and felt.
The true test of what is a proper subject of larceny seems to be not whether the
subject is corporeal, but whether it is capable of appropriation by another than
the owner.
It is well-settled that illuminating gas may be the subject of larceny, even in the
absence of a statute so providing. (Decisions of supreme court of Spain, January
20, 1887, and April 1, 1897, supra; also (England) Queen vs. Firth, L. R. 1 C. C.,
172, 11 Cox C. C., 234; Queen vs. White, 3 C. & K., 363, 6 Cox C. C., 213;
Woods vs. People, 222 III., 293, 7 L. R. A., 520; Commonwealth vs. Shaw, 4
Allen (Mass), 308; State vs. Wellman, 34 Minn., 221, N. W. Rep., 385, and 25
Cyc., p. 12, note 10.)
In the case of Commonwealth vs. Shaw, supra, the court, speaking through Chief
Justice Bigelow, said:
There is nothing in the nature of gas used for illuminating purposes which
renders it incapable of being feloniously taken and carried away. It is a valuable
article of merchandise, bought and sold like other personal property, susceptible
of being severed from a mass or larger quantity, and of being transported from
place to place. In the present case it appears that it was the property of the
Boston Gas Light Company; that it was in their possession by being confined in
conduits and tubes which belonged to them, and that the defendant severed a
portion of that which was in the pipes of the company by taking it into her house
and there consuming it. All this being proved to have been done by her secretly
and with intent to deprive the company of their property and to appropriate it to
her own use, clearly constitutes the crime of larceny.
Electricity, the same as gas, is a valuable article of merchandise, bought and
sold like other personal property and is capable of appropriation by another. So
no error was committed by the trial court in holding that electricity is a subject of
larceny.
It is urged in support of the fourth assignment of error that if it be true that the
appellant did appropriate to his own use the electricity as charged he can not be
held guilty of larceny for any part of the electricity thus appropriated, after the first
month, for the reason that the complaining party, the Manila Electric Road and
Light Company, knew of this misappropriation and consented thereto.
The outside meter was installed on March 15, 1909, and read 218 kilowatt hours.
On the same day the inside meter was read and showed 745 kilowatt hours. Both
meters were again read on March 3, 1910, and the outside one showed 2,718
kilowatt hours while the one on the inside only showed 968, the difference in
consumption during this time being 2,277 kilowatt hours. The taking of this
current continued over a period of one year, less twelve days. Assuming that the
company read both meters at the end of each month; that it knew the defendant
was misappropriating the current to that extent; and that t continued to furnish the
current, thereby giving the defendant an opportunity to continue the
misppropriation, still, we think, that the defendant is criminally responsible for the
taking of the whole amount, 2,277 kilowatt hours. The company had a contract
with the defendant to furnish him with current for lighting purposes. It could not
stop the misappropriation without cutting off the current entirely. It could not
reduce the current so as to just furnish sufficient for the lighting of two, three, or
five lights, as claimed by the defendant that he used during the most of this time,
but the current must always be sufficiently strong to furnish current for the thirty
lights, at any time the defendant desired to use them.
There is no pretense that the accused was solicited by the company or any one
else to commit the acts charged. At most there was a mere passive submission
on the part of the company that the current should be taken and no indication
that it wished it to be taken, and no knowledge by the defendant that the
company wished him to take the current, and no mutual understanding between
the company and the defendant, and no measures of inducement of any kind
were employed by the company for the purpose of leading the defendant into
temptation, and no preconcert whatever between him and company. The original
design to misappropriate this current was formed by the defendant absolutely
independent of any acts on the part of the company or its agents. It is true, no
doubt, as a general proposition, that larceny is not committed when the property
is taken with the consent of its owner. It may be difficult in some instances to
determine whether certain acts constitute, in law, such "consent." But under the
facts in the case at bar it is not difficult to reach a conclusion that the acts
performed by the plaintiff company did not constitute a consent on its part the
defendant take its property. We have been unable to find a well considered case
holding contrary opinion under similar facts, but, there are numerous cases
holding that such acts do not constitute such consent as would relieve the taker
of criminal responsibility. The fourth assignment of error is, therefore, not well
founded.
It is also contended that since the "jumper" was not used continuously, the
defendant committed not a single offense but a series of offenses. It is, no doubt,
true that the defendant did not allow the "jumper" to remain in place continuously
for any number of days as the company inspected monthly the inside meter. So
the "jumper" was put on and taken off at least monthly, if not daily, in order to
avoid detection, and while the "jumper" was off the defendant was not
misappropriating the current. The complaint alleged that the defendant did on,
during, and between the 13th day of February, 1909, and the 3d of March, 1910.
willfully, unlawfully, and feloniously take, steal, and carry away 2,277 kilowatts of
electric current of the value of P909. No demurrer was presented against this
complaint on the ground that more than one crime was charged. The
Government had no opportunity to amend or correct this error, if error at all. In
the case of U. S. vs. Macaspac (12 Phil. Rep., 26), the defendant received from
one Joquina Punu the sum of P31.50, with the request to deliver it to Marcelina
Dy-Oco. The defendant called upon Marcelina, but instead of delivering the said
amount she asked Marcelina for P30 in the name of Joaquina who had in no way
authorized her to do so. Marcelina gave her P30, believing that Joaquina had
sent for it. Counsel for the defendant insisted that the complaint charged his
client with two different crimes of estafa in violation of section 11 of General
Orders, No. 58. In disposing of this question this court said:
The said defect constitutes one of the dilatory pleas indicated by section 21, and
the accused ought to have raised the point before the trial began. Had this been
done, the complaint might have been amended in time, because it is merely a
defect of form easily remedied. . . . Inasmuch as in the first instance the accused
did not make the corresponding dilatory plea to the irregularity of the complaint, it
must be understood that has waived such objection, and is not now entitled to
raise for the first time any question in reference thereto when submitting to this
court her assignment of errors. Apart from the fact that the defense does not
pretend that any of the essential rights of the accused have been injured, the
allegation of the defect above alluded to, which in any case would only affect
form of the complaint, can not justify a reversal of the judgment appealed from,
according to the provisions of section 10 of General Orders, No. 58.
In the case at bar it is not pointed out wherein any of the essential rights of the
defendant have been prejudiced by reason of the fact that the complaint covered
the entire period. If twelve distinct and separate complaints had been filed
against the defendant, one for each month, the sum total of the penalties
imposed might have been very much greater than that imposed by the court in
this case. The covering of the entire period by one charge has been beneficial, if
anything, and not prejudicial to the rights of the defendant. The prosecuting
attorney elected to cover the entire period with one charge and the accused
having been convicted for this offense, he can not again be prosecuted for the
stealing of the current at any time within that period. Then, again, we are of the
opinion that the charge was properly laid. The electricity was stolen from the
same person, in the same manner, and in the same place. It was substantially
one continuous act, although the "jumper" might have been removed and
replaced daily or monthly. The defendant was moved by one impulse to
appropriate to his own use the current, and the means adopted by him for the
taking of the current were in the execution of a general fraudulent plan.
A person stole gas for the use of a manufactory by means of pipe, which drew off
the gas from the main without allowing it to pass through the meter. The gas from
this pipe was burnt every day, and turned off at night. The pipe was never closed
at this junction with the main, and consequently always remained full of gas. It
was held, that if the pipe always remained full, there was, in fact, a continuous
taking of the gas and not a series of separate talkings. It was held also that even
if the pipe had not been kept full, the taking would have been continuous, as it
was substantially all one transaction. (Regina vs. Firth, L. R., 1 C. C., 172; 11
Cox C. C., 234. Cited on p. 758 of Wharton's Criminal Law, vol. 1, 10th ed.)
The value of the electricity taken by the defendant was found by the trial court to
be P865.26. This finding is fully in accordance with the evidence presented. So
no error was committed in sentencing the defendant to indemnify the company in
this amount, or to suffer the corresponding subsidiary imprisonment in case of
insolvency.
The judgment being strictly in accordance with the law and the merits of the
case, same is hereby affirmed, with costs against the appellant.
Arellano, C.J., Torres, Mapa and Carson, JJ.
Separate Opinions
MORELAND, J., dissenting:
I feel myself compelled to dissent because, in my judgment, there is no evidence
before this court, and there was none before the court below, establishing the
most essential element of the crime of larceny, namely, the taking without the
consent of the owner. As I read the record, there is no evidence showing that the
electricity alleged to have been stolen was taken without the consent of the
complaining company. The fact is that there was not a witness who testified for
the prosecution who was authorized in law, or who claimed to be authorized in
fact, to testify as to whether or not the alleged taking of the electricity was without
the consent of the company or, even that said company had not been paid for all
electricity taken. Not one of them was, as a matter of law, competent to either of
those facts. Not one of them was an officer of the company. The leading witness
for the people, Kay, was only an inspector of electric lights. Another, McGeachim
was an electrical engineer in the employ of the company. Another, Garcia, was
an electrician of the company. These witness all confined their testimony to
technical descriptions of meters, their nature and function, of electric light wires,
the writing of defendant's house, the placing of a meter therein, the placing of the
meter outside of the house in order to detect, by comparing the readings of the
two, whether the accused was actually using more electricity than the house
meter registered, the discovery that more electricity was being used than said
meter registered, and of the finding of a "jumper" in defendant's possession. One
of these witnesses testified also that he had suspected for a long time that the
accused was "stealing" electricity and that later he was "positive of it."
In order to sustain a charge of larceny under section 517 of Penal Code, it is
necessary to prove that there was a taking without the consent of the owner. This
is unquestioned. The question is: Has the prosecution proved that fact? Has it
proved that the electricity alleged to have been stolen was used without the
consent of the company? Has it proved that the accused did not have a right to
use electricity whether it went through the meter or not? Has it proved, even, that
the accused did not have a right to use a "jumper?" Has it been proved that the
company has not been fully paid for all the electricity which defendant used,
however obtained? Not one of these facts has been proved. The only way to
determine those questions was to ascertain the relations which existed between
the accused and the company at the time the electricity alleged to have been
stolen was used by the accused. There was certainly some relation, some
contract, either express or implied, between the company and the accused or the
company would not have been supplying him the electric current. What was that
relation, that contract? No one can possibly tell by reading the record. There is
not a single word in all the evidence even referring to it. Not one of the people's
witnesses mentioned it. Not one of them, very likely, knew what it really was. The
relation which a corporation bears to private persons for whom they are
rendering service is determined by the corporation itself through the acts of
its officials, and not by its employees. While an employee might, as the act of a
servant, have caused the contract between the company and the accused to be
signed by the accused, it was nevertheless a contract determined and prepared
by the company through its officers and not one made by the employee; and
unless the employee actually knew the terms of the contract signed by the
accused, either by having read it, if in writing, or by having heard it agreed upon,
if verbal, he would not be competent to testify to its terms except rendered so by
admission of the party to be charged by it. It nowhere appears that any of the
witnesses for the prosecution had any knowledge whatever of the terms of the
contract between the company and the accused. It does not appear that any of
them had ever seen it or heard it talked about by either party thereto. The
company has offered no testimony whatever on the matter. The record is
absolutely silent on that point.
This being true, how can we say that the accused committed a crime? How can
we say that a given act is criminal unless we know the relation of the parties to
whom the act refers? Are we to presume an act wrong when it may be right? Are
we to say that the accused committed a wrong when we do not know whether he
did or not? If we do not know the arrangements under which the company
undertook to furnish electricity to the defendant, how do we know that the
accused has not lived up to them? If we do not know their contract, how do we
know that the accused violated it?
It may be urged that the very fact that a meter was put in by the company is
evidence that it was for the company's protection. This may be true. But is it not
just as proper to presume that it was put in for defendant's protection also?
Besides, it does not appear that the company really put in the matter, nor does
not appear that the company really put in the meter, nor does it even appear to
whom it belonged. No more does it appear on whose application it was put in.
The witness who installed the meter in defendant's house did not say to whom it
belonged and was unable to identify the one presented by the prosecution on the
trial as the one he installed. But however these things may be, courts are not
justified in "assuming" men into state prison. The only inferences that courts are
justified in drawing are those springing from facts which are not only proved but
which are of themselves sufficient to warrant the inference. The mere fact, it is a
fact, that the company placed a meter in defendant's house is not sufficient to
sustain the conclusion in a criminal case that the defendant did not have the right
to use electricity which did not have the right to use electricity which did not pass
through the meter. Much less would it warrant the inference that, in so using
electricity, the defendant feloniously and criminally took, sole, and carried it
away without the consent of the company. An accused is presumed innocent
until contrary is proved. His guilt must be established beyond a reasonable
doubt. It is incumbent on the state to prove every fact which is essential to the
guilt of the accused, and to prove every such fact as though the whole issue
rested on it. The evidence of the prosecution must exclude every reasonable
hypothesis of innocence as with his guilt, he can not be convicted.
But what was the necessity of all this uncertainty? What was the force which
prevented the company from proving clearly and explicitly the contract between
itself and the accused? What prevented it from proving clearly, explicitly, and
beyond all cavil that the electricity was taken (used) without its consent? Why did
not some competent official testify? Why did the company stand by wholly silent?
Why did it leave its case to be proved by servants who were competent to testify,
and who did actually testify, so far as legal evidence goes, only in relation to
technical matters relating to meters and electric currents? Why did the
prosecution place upon this court the necessity of deducing and inferring and
concluding relative to the lack of consent of the company when a single word
from the company itself would have avoided that necessity? We have only one
answer to all these questions: We do not know.
In the case of Bubster vs. Nebraska (33 Neb., 663), the accused was charged
with the larceny of buggy of the value of $75. He was found guilty. On appeal the
judgment of conviction was reversed, the court saying:
There are two serious objections to this verdict. First, the owner of the buggy,
although apparently within reach of the process of the court, was not called as a
witness. Her son-in-law, who resided with her, testifies that he did not give his
consent, and very freely testifies that his mother-in-law did not. She was within
reach of the process of the court and should have been called as a witness to
prove her nonconsent.
The rule is very clearly stated in note 183, volume 1, Philips on Evidence (4th
Am. ed.). A conviction of larceny ought not to be permitted or sustained unless it
appears that the property was taken without the consent of the owner, and the
owner himself should be called, particularly in a case like that under
consideration, when the acts complained of may be consistent with the utmost
goodfaith. There is a failure of proof therefore on this point.
In the case of State vs. Moon (41 Wis., 684), the accused was charged with the
larceny of a mare. He was convicted. On appeal the court reversed the judgment
of conviction, saying:
In State vs. Morey (2 Wis., 494) it was held that in prosecutions of lacerny, if the
owner of the property alleged to have been stolen is known, and his attendance
as a witness can be procured, his testimony that the property was taken from him
without his consent is indispensable to a conviction. This is upon the principle
that his testimony is the primary and the best evidence that the property was
taken without his consent, and hence, that secondary evidence of the fact cannot
be resorted to, until the prosecution shows it inability, after due diligence, to
procure the attendance of the owner.
In volume 1, Phillips on Evidence (5th Am., ed., note 183 sec. 635), the author
says:
In all cases, and especially in this, the lacerny itself must be proved by the
evidence the nature of the case admits. . . . This should be by the testimony of
the owner himself if the property was taken from his immediate possession, or if
from the actual possession of another, though a mere servant or child of the
owner, that the immediate possession was violated, and this, too, without the
consent of the person holding it. Where nonconsent is an essential ingredient in
the offense, as it is here, direct proof alone, from the person whose nonconsent
is necessary, can satisfy the rule. You are to prove a negative, and the very
person who can swear directly to the necessary negative must, if possible,
always be produced. (Citing English authorities.) Other and inferior proof cannot
be resorted to till it be impossible to procure this best evidence. If one person be
dead who can swear directly to the negative, and another be alive who can yet
swear to the same thing, he must be produced. In such cases, mere
presumption, prima facie or circumstantial evidence is secondary in degree, and
cannot be used until all the sources of direct evidence are exhausted.
I quote these authorities not because I agree with the doctrine as therein set
forth. I quote them because there is a principle inherent in the doctrine laid down
which is recognized by all courts as having value and effect. It is this: Failure to
call an available witness possessing peculiar knowledge concerning facts
essential to a party's case, direct or rebutting, or to examine such witness as to
facts covered by his special knowledge, especially if the witness be naturally
favorable to the party's contention, relying instead upon the evidence of
witnesses less familiar with the matter, gives rise to an inference, sometimes
denominated a strong presumption of law, that the testimony of such
uninterrogated witness would not sustain the contention of the party. Where the
party himself is the one who fails to appear or testify, the inference is still
stronger. The nonappearance of a litigant or his failure to testify as to facts
material to his case and as to which he has especially full knowledge creates an
inference that he refrains from appearing or testifying because the truth, if made
to appear, would not aid his contention; and, in connection with an equivocal
statement on the other side, which if untrue could be disapproved by his
testimony, often furnishes strong evidence of the facts asserted. As to this
proposition the authorities are substantially uniform. They differ only in the cases
to which the principles are applied. A substantially full list of the authorities is
given in 16 Cyclopedia of Law and Procedure (pp. 1062 to 1064, inclusive) from
which the rules as stated above are taken.
This court has recognized the value of this principle and has permitted it strongly
to influence its view of the evidence in certain cases. In the case of United
States vs. Magsipoc (20 Phil. Rep., 604) one of the vital facts which the
prosecution was required to establish in order to convict the accused was that a
certain letter which the accused alleged he mailed to his daughter, who was
attending a boarding school in Iloilo, and which the daughter testified she had
received, had not really been sent by the accused and received by the daughter
but, instead, had been purloined by him from the post-office after he had duly
placed it therein and after it had been taken into custody and control of the postal
authorities. It was conceded that the directress of the boarding school which the
daughter was at the time attending knew positively whether the daughter was at
the time attending knew positively whether the daughter had received the letter in
question or not. This court held that, in weighing the evidence, it would take into
consideration the failure of the prosecution to produce the directress of the
school as a witness in the case, she being the only person, apart from the
daughter herself, who really knew the fact.
Another those cases was that of U. S. vs. Casipong (20 Phil. Rep., 178) charged
with maintaining a concubine outside his home with public scandal. To prove the
scandalous conduct charged and its publicity, the prosecution introduced
testimony, not of witnesses in the vicinity where the accused resided and where
the scandal was alleged to have occurred, but those from another barrio. No
Witness living in the locality where the public scandal was alleged to have
occurred was produced. This court, in the decision of that case on appeal,
allowed itself, in weighing the evidence of the prosecution, to be strongly
influenced by the failure to produce as witnesses persons who, if there had really
been public scandal, would have been the first, if not the only ones, to know it.
The court said:
In this case it would have been easy to have submitted abundant evidence that
Juan Casipong forsook his lawful wife and lived in concubinage in the village of
Bolocboc with his paramour Gregoria Hongoy, for there would have been an
excess of witnesses to testify regarding the actions performed by the defendants,
actions not of isolated occurrence but carried on for many days in slight of
numerous residents scandalized by their bad example. But it is impossible to
conclude from the result of the trial that the concubinage with scandal charged
against the defendants has been proved, and therefore conviction of the alleged
concubine Gregoria Hongoy is not according to law.
In the case at bar the question of the consent of the company to the us of the
electricity was the essence of the charge. The defendant denied that he had
taken the electricity without the consent of the company. The prosecution did not
present any officer of the corporation to offset this denial and the company itself,
although represented on the trial by its own private counsel, did not produce a
single witness upon that subject.
In the case of Standard Oil Co. vs. State (117 Tenn., 618), the court (p.672) said:
But the best evidence of what his instructions to Holt were and the information he
had of the transaction at the time was made were the letters which he wrote to
Holt directing him to go to Gallatin, and the daily and semi-weekly reports made
to him by Holt and Rutherford of what was done there, which were not produced,
although admitted to be then in his possession. He was aware of the value of
such evidence, as he produced a copy of his letter to Holt, condemning the
transaction, as evidence in behalf of the plaintiffs in error. The presumption
always is that competent and pertinent evidence within the knowledge or control
of a party which he withholds is against his interest and insistence.
(Dunlap vs. Haynes, 4 Heisk., 476; Kirby vs. Tallmadge, 160 U. S., 379, 16 Sup.
Ct., 349, 40 L. ed., 463; Pacific Constr. Co. vs. B. W. Co., 94 Fed,, 180, 36 C. C.
A., 153)
In the case of Succession of Drysdale (127 La., 890), the court held:
When a will presented for probate is attacked on the ground that it is a forgery,
and there are pertinent facts relating to the will in the possession of the
proponent, and he repeatedly fails to testify when his testimony could clear up
many clouded and doubtful things, his failure to testify casts suspicion upon the
will, especially when the one asking for the probate of the will is a principal
legatee.
In the case of Belknap vs. Sleeth (77 Kan., 164), the court (p. 172) said:
What effect should such conduct have in the consideration of a case, where the
successful party thus living beyond the jurisdiction of the court has refused to
testify in a material matter in behalf of the opposing party? It must be conceded
that the benefit of all reasonable presumptions arising from his refusal should be
given to the other party. The conduct of a party in omitting to produce evidence
peculiarly within his knowledge frequently affords occasion for presumptions
against him. (Kirby vs. Tallmadge, 160 U. S., 379, 16 Sup. Ct., 349, 14 L. Ed.,
463.) This rule has been often applied where a party withholds evidence within
his exclusive possession and the circumstances are such as to impel an honest
man to produce the testimony. In this case the witness not only failed but refused
to testify concerning material matters that must have been within his knowledge.
In the case of Heath vs. Waters (40 Mich., 457), it was held that:
It is to be presumed that when a witness refuses to explain what he can explain,
the explanation would be to his prejudice.
In case of Frick vs. Barbour (64 Pa. St., 120, 121), the court said:
It has been more than once said that testimony in a case often consists in what is
not proved as well as in what is proved. Where withholding testimony raises a
violent presumption that a fact not clearly proved or disproved exists, it is not
error to allude to the fact of withholding, as a circumstance strengthening the
proof. That was all that was done here.
In the case of Funda vs. St. Paul City Railway Co. (71 Minn., 438), the court held:
The defendant having omitted to call its motorman as a witness, although within
reach and available, the court was, under the circumstances, justified in
instructing the jury that, in weighing the effect of the evidence actually introduced,
they were at liberty to presume that the testimony of the motorman, if introduced,
would not have been favorable to the cause of defendant.
In the case of Gulf, C. & S. F. Ry. Co. vs. Ellis (54 Fed. Rep., 481), the circuit
court of appeals held that:
Failure to produce the engineer as a witness to rebut the inferences raised by the
circumstancial evidence would justify the jury in assuming that his evidence,
instead of rebutting such inference, would support them.
In Wigmore on Evidence (vol. 1, sec. 285), it is said:
The consciousness indicated by the conduct may be, not an indefinite one
affecting the weakness of the cause at large, but a specific one concerning the
defects of a particular element in the cause. The failure to bring before the
tribunal some circumstances, document, or witness, when either the party
himself or his opponent claims that the facts would thereby be elucidated, serves
to indicate, as the most natural inference, that the party fears to do so, and this
fear is some evidence that circumstances or document or witness, if brought,
would have exposed facts unfavorable to the party. These inferences, to be sure,
cannot fairly be made except upon certain conditions; and they are also open
always to explanation by circumstances which make some other hypothesis a
more natural one than the party's fear of exposure. But the propriety of such an
inference in general is not doubted. The nonproduction of evidence that would
naturally have been produced by an honest and therefore fearless claimant
permits the inference that its tenor is unfavorable to the party's cause. . . .
Continuing this same subject the same author says:
At common law the party-opponent in a civil case was ordinarily privileged from
taking the stand (post, sec. 2217); but he was also disqualified; and hence the
question could rarely arise whether his failure to testify could justify any inference
against him. But since the general abolition of both of the privilege and the
disqualification (post, secs. 2218, 577), the party has become both competent
and compellable like other witnesses; and the question plainly arises whether his
conduct is to be judged by the same standards of inference. This question
naturally be answered in the affirmative. . . . (See Aragon Coffee Co., vs. Rogers,
105 Va., 51.)
As I stated at the outset, I have been unable to find in the record of this case any
proof of legal value showing or tending to show that the electricity alleged to have
been stolen was taken or used without the consent of the company. The
defendant, therefore, should be acquitted.
There are other reasons why I cannot agree to the conviction of the accused.
Even though the accused to be found to have committed the acts charged
against him, it stands conceded in this case that there is a special law passed
particularly and especially to meet cases of this very kind, in which the offense is
mentioned by name and described in detail and is therein made a misdemeanor
and punished as such. It is undisputed and admitted that heretofore and ever
since said act was passed cases such as the one at bar have uniformly and
invariably been cognized and punished under said act; and that this is the first
attempt ever made in these Islands to disregard utterly the plain provisions of this
act, and to punish this class of offenses under the provisions of Penal Code
relating to larceny. The applicability of those provisions is, to say the very least,
extremely doubtful, even admitting that they are still in force. Even though
originally applicable, these provisions must now be held to be repealed by
implication, at least so far as the city of Manila is concerned, by the passage of
the subsequent act defining the offense in question and punishing it altogether
differently.
Moreover, I do not believe that electricity, in the for in which it was delivered to
the accused, is susceptible of being stolen under the definition given by the law
of these Islands to the crime of larceny.
Concisely, then, I dissent because (a) this court, by its decision in this case, has,
in my judgment, disregarded the purpose of the Legislature, clearly expressed;
because (b) it has applied a general law, of at least very doubtful application, to a
situation completely dealt with, and admittedly so by a later statute conceived
and enacted solely and expressly to cover that very situation; because (c) the
court makes such application in spite of the fact that, under the general law, if it is
applicable, the crime in hand is a felony while under the later statute it is only a
misdemeanor; because (d), in my judgment, the court modifies the definition
given by the Legislature to the crime of lacerny, which has been the same and
has received the same interpretation in this country and in Spain for more than
two centuries; because (e) the decision disregards, giving no importance to a
positive statute which is not only the last expression of the legislative will on the
particular subject in hand, but was admittedly passed for the express purpose of
covering the very situation to which the court refuses to apply it. While the statute
referred to is an act of the Municipal Board of the city of Manila, this court has
held in a recent case that said board was authorized by the legislature to pass
it. Therefore it is an Act of the Legislature of the Philippine Islands.
In this dissent I shall assert, and, I think, demonstrate three propositions, to wit:
First. That an electric current is not a tangible thing, a chattel, but is a condition,
a state in which a thing or chattel finds itself; and that a condition or state can not
be stolen independently of the thing or chattel of which it is a condition or state.
That it is chattels which are subjects of lacerny and not conditions.
Second. That, even if an electric current is a tangible thing, a chattel, and
capable of being stolen, in the case at bar no electric current was taken by the
defendant, and therefore none was stolen. The defendant simply made use of
the electric current, returning to the company exactly the same amount that he
received.
Third. That, even if an electric current is a tangible thing, a chattel, and capable
of being stolen, the contract between the company and the defendant was one
for use and not for consumption; and all the defendant is shown to have done,
which is all he could possibly have done, was to make use of a current of
electricity and not to take or consume electricity itself .
I shall therefore maintain that there is no lacerny even though the defendant
committed all the acts charged against him.
In discussing the question whether, under the law of the Philippine Islands, an
electric current is the subject of larceny, I shall proceed upon the theory,
universally accepted to-day, that electricity is nothing more or less than energy.
As Mr. Meadowcroft says in his A B C of Electricity, indorsed by Mr. Edison,
"electricity is a form of energy, or force, and is obtained by transforming some
other form of energy into electrical energy."
In this I do not forget the theory of the "Electron" which is now being quietly
investigated and studied, which seems to tend to the conclusion that there is no
difference between energy and matter, and that all matter is simply a
manifestation of energy. This theory is not established, has not been announced
by any scientist as proved, and would probably have no effect on the present
discussion if it were.
Based on this accepted theory I draw the conclusion in the following pages that
electricity is not the subject of larceny under the law of the Philippine Islands.
Partida 3, title 29, law 4, thus defines "cosas muebles:"
The term muebles is applied to all the things that men can move from one place
to another, and all those that can naturally move themselves: those that men can
move from one place to another are such as cloths, books, provisions, wine or
oil, and all other things like them; and those that can naturally move themselves
are such as horses, mules, and the other beast, and cattle, fowls and other
similar things.
Partida 5 title 5, law 29, contains the following:
But all the other things which are muebles and are not annexed to the house or
do not appeartain thereto belong to the vendor and he can take them away and
do what he likes with them: such are the wardrobes, casks and the jars not fixed
in the ground, and other similar things.
Article 517 of the Penal Code, in that portion defining larceny, as charged against
the accused in the case at bar, reads:
ART. 517. The following are guilty of theft:
1. Those who, with intent of gain and without violence or intimidation against the
person or force against things, shall take another's personal property (cosas
muebles) without the owner's consent.
This article of the Penal Code, as is seen, employs precisely the words defined in
the Partidas. The definition of the word is clear in the law as written. It is also
clear in the law as interpreted. I have not been able to find a writer on Spanish or
Roman criminal law who does not say clearly and positively that the only property
subject to lacerny is tangible movable chattels, those which occupy space, have
three dimensions, have a separate and independent existence of their own apart
from everything else, and can be manually seized and carried from one place to
another. This was the unquestioned theory of the Roman criminal law and it is
the undoubted and unquestioned theory of the Spanish criminal law. Nor do I find
a writer or commentator on the Spanish or Roman Civil Law who does not define
a cosa mueble in the same way.
One of the leading commentators of Spain on criminal law writes thus concerning
the property subject to robbery and lacerny:
Personal property belonging to another. If robbery consists in the taking of a
thing for the purpose and by the means indicated in the article in question, it
follows from the very nature of this class of crimes, that only personal or movable
property can be the subject thereof, because none but such property can be the
subject of the correctatio of the Romans; "Furtum since contrectatione non fiat,"
says Ulpian. The abstraction, the rapine, the taking, and all the analogous terms
and expressions used in the codes, imply the necessity that the things abstracted
or taken can be carried from one place to another. Hence the legal maxim: Real
property "non contractantur, sed invaduntur." (6 Groizard, p. 47)
The act of taking is what constitutes the contrectatio and the invito domino which
all the great ancient and modern jurists consider as the common ingredient (in
addition to the fraudulent intention of gain), of the crimes of robbery and theft.
From what has been said it follows that the taking, the act of taking without
violence or intimidation to the persons, or force upon the things, for the purpose
of gain and against the will of the owner, is what determines the nature of the
crime of theft as defined in paragraph 1 of this section. (6 Groizard, pp. 261,
262.)
The material act of taking is, therefore, an element of the crime which cannot be
replaced by any other equivalent element. From this principle important
consequences follow which we need not now stop to consider for the reason that
in speaking of the crime of robbery we have already discussed the subject at
great length. Immovable and incorporeal things cannot be the subject of the theft
for the reason that in neither the one or the other is it possible to effect
the contrectatio, that is to say, the material act of laying hands on them for the
purpose of removing the same, taxing the same or abstracting the same. Hence
the legal maxims: "Furtum non committitur in rebus immobilibus and Res
incorporales nec tradi possideri possunt, ita contectavit nec aufferri." (6 Groizard,
p. 266.)
Criticising an opinion of the supreme court of Spain which held that illuminating
gas was a subject of lacerny, the same writer says:
The owner of a certain store who had entered into a contract with a gas company
whereby he substantially agreed to pay for the consumption of the amount of gas
which passed through a meter, surreptitiously placed a pipe which he connected
with the branch from the main pipe before it reached the meter and used the
same for burning more lights than those for which he actually paid. The supreme
court of Madrid convicted the defendant of the crime of estafa but the supreme
court of Spain reversed the judgment, holding that he should be convicted of
theft. The only reason which the supreme court had for so deciding was that the
owner of the store had taken personal property belonging to another without the
latter's consent, thereby committing the crime not of estafa but of consummated
theft. But in our judgment, considering the sense and import of the section under
consideration, it cannot be properly said that the owner of the store took the gas
because in order to do this it would have been necessary that the said fluid were
capable of being taken or transported, in other words, that the contrectatio, the
meaning of which we have already sufficiently explained, should have taken
place.
Gas is not only intangible and therefore impossible of being the subject
of contrectatio, of being seized, removed, or transported from one place to
another by the exercise of the means purely natural which man employs in taking
possession of property belonging to another, but, by reason of its nature, it is
necessary that it be kept in tank, or that it be transmitted through tubes or pipes
which by reason of their construction, or by reason of the building to which the
same may be attached, partake of the nature of immovable property. There is no
means, therefore, of abstracting gas from a tank, from a tunnel or from a pipe
which conveys the fluid to a building, for the purpose of being consumed therein,
unless the receptacle containing the same is broken, or the tank or pipe bored,
and other tubes or pipes are connected therewith at the point of the opening or
fracture by means of which the gas can conveyed to a place different from that
for which it was originally intended.
This exposition, interpretation, if you choose to call it such, has a further
foundation in our old laws which have not been changed but rather preserved in
the definition of movable an immovable property given by the Civil Code.
According to Law, I Title XVII, Partida II, personal property means those things
which live and move naturally by themselves, and those which are neither living
nor can naturally move, but which may be removed; and Law IV, Title XXIX,
Partida III, defines personal property as that which man can move or take from
one place to another, and those things which naturally by themselves can move.
Finally, corporeal things, according to Law I, Title III, Partida III, are those which
may be the subject of possession with the assistance of the body, and
incorporeal those which cannot be physically seized, and cannot be properly
possessed. From these definitions it follows that unless we do violence to the
plain language of these definitions, it would be impossible to admit that gas is
a corporeal thing, and much less that it is movable property. (6 Groizard, pp. 268,
269.)
If the holding that gas, which is unquestionably a physical entity having a
separate and independent existence and occupying space, has approached the
verge of unstealable property so closely that the ablest of Spain commentators
believes that there is grave danger of the complete destruction of the ancient
legislative definition of stealable property by judicial interpretation, what would be
said in regard to a decision holding that an electric current is a subject of
lacerny?
It may be well to add just here, although it may be somewhat out of its regular
order, what the author above quoted regards was the crime actually committed in
the case he was discussing. He says:
For us, for the reasons hereinbefore set out, it would be more in harmony with
the principles and legal texts which determine the nature of the crimes of theft
and estafa, to assign the latter designation to the fraudulent act which he have
heretofore examined and which substantially consists in the alteration, by means
of a fraudulent method, of the system established by an agreement to supply a
store with illuminating gas and to determine the amount consumed for lighting
and heating and pay its just value. We respect, however, the reasons to the
contrary advanced in the hope that the supreme court in subsequent judgments
will definitely fix the jurisprudence on the subject.
Nor can the abusive use of a thing determine the existence of the crime under
consideration. A bailee or pledgee who disposes of the thing, bail or pledge
entrusted to his custody for his own benefit is not guilty of lacerny for the reason
that both contracts necessarily imply the voluntary delivery of the thing by the
owner thereof and a lawful possession of the same prior to the abusive use of it.
Not even a denial of the existence of the bailment or contract of pledge with of
gain constitutes the crime of lacerny for the reason that the material act of taking
possession of the property without the consent of the owner is lacking. (6
Groizard, p. 269.)
That under the Roman and Spanish law property to be the subject of lacerny
must be a tangible chattel which has a separate independent existence of its own
apart from everything else, which has three dimensions an occupies space so
that it may of itself be bodily seized and carried away, is not an open question.
That that was also the doctrine of the common law is equally beyond question.
In the consideration of this case the great difficulty lies in confusing
the appearance with the thing, in confounding the analogy with
the things analogous. It is said that the analogy between electricity and real
liquids or gas is absolutely complete; that liquids and gases pass through pipes
from the place of manufacture to the place of use; and the electric current, in
apparently the same manner, passes through a wire from the plant to the lamp;
that it is measured by a meter like liquids and gas; that it can be diverted or
drawn from the wire in which the manufacturer has placed it, to the light in the
possession of another; that a designing and unscrupulous person may, by means
of a wire surreptiously and criminally transfer from a wire owned by another all
the electricity which it contains precisely as he might draw molasses from a
barrel for his personal use. And the question is triumphantly put, "how can you
escape the inevitable results of this analogy?" The answer is that
it is an analogy and nothing more. It is an appearance. The wire from which the
electricity was drawn has lost nothing. It is exactly the same entity. It weighs the
same, has just as many atoms, arranged in exactly the same way, is just as hard
and just as durable. It exactly the same thing as it was before it received the
electricity, at the time it had it, and after it was withdrawn from it. The difference
between a wire before and after the removal of the electricity is simply a
difference of condition. Being charged with electricity it had
a quality or condition which was capable of being transferred to some other body
and, in the course of that transfer, of doing work or performing service. A body in
an elevated position is in a conditiondifferent from a body at sea level or at the
center of the earth. It has the quality of being able to do something, to perform
some service by the mere change of location. It has potential energy, measured
by the amount of work required to elevated it. The weight or monkey of a pile
driver is the same weight when elevated 50 feet in air as it is when it lies on top
of the pile 50 feet below, but it has altogether a different quality. When elevated it
is capable of working for man by driving a pile. When lying on top of the pile, or at
sea level, it has no such quality. The question is, "can you steal that quality?"
Two pile drivers, owned by different persons, are located near each other. The
one owner has, by means of his engine and machinery, raised his weight to its
highest elevation, ready to deliver a blow. While this owner is absent over night
the owner of the other pile driver, surreptiously and with evil design and intent,
unlocks the weight and, by means of some mechanical contrivance, takes
advantage of its fall in such a way that the energy thus produced raised the
weight of his own pile driver to an elevation of forty feet, where it remains ready,
when released, to perform service for him. What has happened? Exactly the
same thing, essentially, as happened when the electric charge of one battery is
transferred to another. The condition which was inherent in the elevated weight
was transferred to the weight which was not elevated; that is, the potential
energy which was a condition or quality of the elevated weight was by a wrongful
act transferred to another. But was that condition or quality stolen in the sense
that it was a subject of lacerny as that crime is defined the world over? Would the
one who stole the battery after it had been elevated to the ceiling, or the weight
of the pile driver after it had been elevated 50 feet in the air, be guilty of a
different offense than if he stole those chattels before such elevation? Not at all.
The weight elevated had more value, in a sense, than one not elevated; and the
quality of elevation is considered only in fixing value. It has nothing whatever to
do with the nature of the crime committed. It is impossible to steal
a quality or condition apart from the thing or chattel of which it is
a quality or condition of a thing affects the value of the thing. It is impossible to
steal value. The thing, the chattel is that which is stolen. Its quality or condition is
that which, with other circumstances, goes to make the value.
A mill owner has collected a large amount of water in a dam at such an elevation
as to be capable of running his mill for a given time. A neighboring mill owner
secretly introduces a pipe in the dam and conveys the water to his own mill,
using it for his own benefit. He may have stolen the water, but did he steal
the head, the elevation of the water above the wheel? The fact that the water had
a head made it more valuable and that fact would be taken into consideration in
fixing the penalty which ought to be imposed for the offense; but it has nothing
whatever to do with determining the nature of the offense of which the man would
be charged.
Larceny cannot be committed against qualities or conditions. It is committed
solely against chattels, tangible things. A given chattel is a compromise result of
all its properties, qualities, or conditions. None of the qualities which go make up
the complete thing is the subject of larceny. One cannot steal from a roof the
quality of shedding rain, although he may bore it full of holes and thus spoil that
quality; and this, no matter how much he might be benefit thereby himself. If, in a
country where black horses were very dear and white horses very cheap, one, by
a subtle process, took from a black horse the quality of being black and
transferred that quality to his own horse, which formerly was white, thereby
greatly increasing its value and correspondingly decreasing the value of the other
horse which by the process was made white, would he be guilty of larceny?
Would he be guilty of larceny who, with intent to gain, secretly and furtively and
with the purpose of depriving the true owner of his property, took from a bar of
steal belonging to another the quality of being hard, stiff and unyielding and
transferred that quality to a willow wand belonging to himself? Is he guilty of
larceny who, with intent to defraud and to benefit himself correspondingly, takes
from a copper wire belonging to another the quality of being electrified and
transfers that quality to an electric light? An electric current is either a
tangible thing, a chattel of and by itself, with a perfect, separate and independent
existence, or else it is a mere quality, property or condition of some tangible
thing or chattel which does have such an existence. The accepted theory to-day
is, and it is that which must control, that electricity is not a tangible thing or
chattel, that it has no qualities of its own, that it has no dimensions, that it is
imponderable, impalpable, intangible, invisible, unweighable, weightless,
colorless, tasteless, odorless, has no form, no mass, cannot be measured, does
not occupy space, and has no separate existence. It is, must be, therefore,
simply a quality, a condition, a property of some tangible thing or chattel which
has all or most of those qualities which electricity has not. Being merely
the quality of a thing and not the thing itself , it cannot be the subject of larceny.
To repeat" As we know it, electricity is nothing more or less than a condition of
matter. It has no existence apart from the thing of which it is condition. In other
words, it has no separate, independent existence. It is immaterial, imponderable,
impalpable, intangible, invisible, weightless and immeasurable, is tasteless,
odorless, and colorless. It has no dimensions and occupies no space. It is the
energy latent in a live herself is the power potential in the arm of a laborer. It is
the force stored in the wound-up spring. It is an agency, not a "cosa mueble." It is
a movement and not a chattel. It is energy and not a body. It is what the
laborer expends and not what he produces. It is strength striped by an unknown
process from arms of men and atoms of coal, collected and marshalled at a
given place under the mysterious leash of metal, ready to spring like a living
servant to the work of its master. It is not a chattel, it is life. It is as incapable of
being stolen, by itself, as the energy latent in a live horse. It is as impossible to
steal an electric current as it is to steal the energy hidden in a wound-up watch
spring. One may steal the horse and with it the energy which is a quality of the
horse. One may steal a watch and with it the energy which is a property of the
wound-up. But can we say that one can steal the energy in the watch spring
separate from the spring itself, or electricity apart from the wire of which it is a
quality or condition?
A laborer was stored up in his muscles the capacity to do a day's work. He has
potential energy packed away in little cells or batteries all through his body. With
the proper mechanism he can enter a room which it is desired to light with
electricity and, by using the stored-up energy of his body on the mechanism, light
the room by transforming the energy of his muscles into the electricity which
illuminates the room. We have, then, a laborer who, by moving his hands and
arms in connection with the appropriate machinery, is able to light the room in
which he is at the time. What causes the light? The energy in the laborer's
muscles is transformed into light by means of the intermediate phenomenon
known as electricity. As a concrete result, we have the energy in the laborer's
muscles transmuted into light. Now, is the energy passing through the wire, more
capable of being stolen than the energy in the muscles of the laborer? Or is the
light or heat any more or less a subject of larceny than the electric current of
which they are a manifestation? Could the energy which performed the day's
work be stolen? Could the electric current which lighted the room be stolen apart
from the wire of which it was a quality? One might kidnap the laborer and with
him the energy which constitutes his life; but can we say that the energy, of itself,
is the subject of separate larceny? But, it the laborer's energy cannot be stolen
while it resides in and is a quality of his arm, can the same energy any more be
stolen when it resides in and is a quality of a wire in the form of electricity? If so,
just where is the dividing line, where is the point at which this kinetic energy
ceases to be incapable of being separately stolen and becomes a subject to
theft? Is it at the crank by which the laborer turns the machine? Is it at the
armature, the conductor, the fields coils, the field magnet, the commutator, the
brushes, the driving pulley, or the belt tightener? Is it where the current enters
what is called the electric-light wire, or is it where it enters the bulb or arc and
produces the light? In other words, at what point does the untealable laborer's
energy become stealable electric energy?
An electric-light wire placed in a house for the purpose of furnishing light for the
same has its precise counterpart in a laborer placed therein for the same
purpose. Like the laborer, it is filled with energy which will, when released,
perform the service intended. The wire is simply a means of transmitting the
energy of the laborer's muscles, and that stored in tons of coal which he handles,
from the electric plant or factory to the house where the light is produced. The
wire simply avoids the necessity of the laborer being in the very house where he
produces the light. Instead of being there, he, by means of the so-called electric-
light wire, is located at a distance, but produces the light in exactly the same way,
transmitting his energy for that purpose. The wire stands in exactly the same
relation to the person in whose house it is put as would a laborer who had been
sent to that house to render services. The energy may be diverted from the
purpose for which it was intended, or a wrong account given of the amount of
work performed by that energy; but it is impossible to steal, take and carry the
energy away. One cannot steal days' works; and that is all an electric current is.
One may use those days' works in hoeing corn when it has been agreed that
they shall be used in picking cotton; but that is not larceny of the days' works, as
larceny has been defined by the jurisprudence of every country, Or, one may
report to the owner of those days' works that he had used three of them when in
reality he used thirty and pay him accordingly, but that is not larceny of the
twenty-seven.
But, it is argued, the illustration is not a fair one; energy in a laborer's arm or in
the muscles of a horse or in a wound-up spring is, so far as its capability of being
stolen is concerned, quite different from energy which has been separated from
the arms of the laborer or the muscles of the horse and driven through a wire;
from such wire electricity may be drawn like water from a barrel; and while it is
impossible to steal the energy of a man or a horse because it would destroy the
life of the animal, an entirely different question is presented when the energy has
actually been separated from those animals and confined in a wire.
This argument has several fundamental defects. In the first place, it assumes the
whole question at issue. By asserting that electricity is separable from the object
of which it is a quality or state is to assume that electricity is a material thing,
which the real question to be resolved. In the second place, if electricity is in the
real sense of that term, separable from the object to which it belongs, then it
must be admitted that it is capable of separate and independent existence apart
from any other object. This is not so. It is not only admitted but contended by
every scientist who has touched this subject that electricity is incapable of an
independent existence apart from some given material object. In the third place,
this argument overlooks the fact, even if we assume that it can be separated, that
the thing when separated is not the same thing that it was before separation; in
other words, when the so-called separation occurs there is not only a
transference of energy from the horse to the battery but there is also
a transformation. In the horse it is muscular energy. In the wire it is electrical
energy. In the horse it is potential. In the wire kinetic. It is not the same thing in
the wire that it was in the horse. In the fourth place, the argument makes the
stealability of a thing depend not on its nature but on where it is located. This is
an assumption wholly unwarranted and impossible under the law. To say that
whether or not a thing is stealable depends not on its nature but on where it is
located is absurd. A diamond ring in a burglar-proof safe is as much a subject of
larceny, under the definition of the law, as if it lay in an open showcase. If energy
is stealable at all, and it must be remembered that I am proceeding, as we must
necessarily proceed upon the accepted theory that electricity is nothing more or
less than energy, it is so by reason of its nature and by reason of its residing in a
battery rather than in a horse; and if it is stealable by virtue of its nature it can be
stolen from the horse as well as from the battery or wire. A thing is subject to
larceny because, and only because, it is a cosa mueble, not because it is inside
a horse, a wire or a safe. If it is a cosa mueble it is the subject of larceny
although it be located on the moon; and if it is not a cosa mueble it is not subject
to lacerny although it be placed in a den of thieves. The difficulty or ease of
getting at a thing has nothing whatever to do with its stealability. In the fifth place,
this argument overlooks the very important fact, to be dealt with more at length
later, that the electric current used by the accused was returned to the company,
after use, absolutely undiminished in quantity.
What, then, is the difference between corn, for example, and an electric current?
It is this. One is a cosa mueble while the other is not; one is produced by a wholly
different process from the other and from wholly different materials, if we may
call materials those changes which result in the immaterial thing called an electric
current; in the case of corn we deal not with the quality or energy of corn, but with
corn as a composite and concrete result of all its qualities and uses; we deal with
a tangible thing, a chattel, and not with a condition or quality of a tangible thing;
we deal with things instead of ideas, with things which
exist separate and independent and which do not depend, as does electricity,
wholly upon some body not only for the capability of manifesting its
existence, but also for very existence itself ; because we deal with something
which changes its form but never its nature as a physical entity. It is always
a chattel, a tangible thing, a cosa mueble.
On the other hand, in the case of the electric current we deal not with a thing, a
chattel a cosa mueble, but with a condition or quality, a property of a cosa
mueble; with an idea which always, before it has any significance of meaning
whatever, associates itself with an entity, a body or chattel, as
a characteristic or quality of such body or chattel; with lines of force which are
merely and solely a quality, a property, a characteristic of the magnet, instead of
which grains of corn which are absolute entities, independent of and apart from
everything else, and not mere characteristic or qualities of some entity of body
which does not exist as an absolute physical entity in itself; with the horse and
the violet and not their perfume; with the lily and not its beauty; with the clouds
and not their color; with entities and not accidents; with realities and not the
imponderable, impalpable ideas and qualities which make upthe reality.
As he already been said, the difficulty in the elucidation of the question comes
from the confusion of qualities with things, of appearances with realities.
Apparently an electric current does things. It produces phenomena. It,
therefore, appears to be something. But it must not be forgotten that many times
appearances are deceitful. They do not always insure realities. It is not judicial to
say that, because a thing looks so, it is so. It is not judicial to say that, simply
because it looks as if one committed larceny, therefore he is guilty of larceny.
Before we may legally convict one of larceny, we must know exactly what he did.
Justice is not founded on guess work nor on appearances. Men's right are
preserved by definitions, and definitions are founded on facts, not fancies, on
realities, not appearances. Because, when one taps an electrically charged wire
belonging to another and, by means of a contrivance, transfers the charge to his
own uses, it looks as if he was stealing something, is not sufficient to convict him
of larceny. We must first know what larceny is, as well as what an electric current
is, and what is meant by its use in producing light. To know what larceny is we
must know what legislators and judges during the development of jurisprudence
have always said and agreed it is. In other words, we must know its definition. It
approaches tyranny to convict one of murder when is actually guilty of homicide
only. Yet the only thing which separates the two crimes is a definition. It is wrong
to convict one of robbery who is guilty only of larceny. Yet these two crimes are
distinguished only by a definition. If, as in the case at bar, whether or not one is
declared a felon and is sent to prison for one year eight months and twenty-one
days, is forever disqualified from holding public office and of exercising the right
of suffrage, or whether, instead, he is declared guilty of a misdemeanor simply
and punished lightly with no accompanying disqualifications, depends upon
whether he has committed larceny as defined by the Penal Code or whether he
has merely violated a city ordinance, the question whether he actually committed
larceny or not begins to assume importance. It assumes importance not only to
him but to society as well. If a court to-day palpably modifies a definition in order
to convict an offender of larceny, how can society be assured that tomorrow the
same court will not modify some other definition to convict a citizen of treason?
When definitions are destroyed no man is secure in his person or his property.
When men act on appearances instead of realities justice will be shortlived. A
whale looks like a fish, acts like a fish, swims like a fish and lives all its life in the
water like a fish. But it is not a fish. It is an animal. It is air-breathing, warm-
blooded, and viviparous, and suckles its young. Now, if whether or not a whale is
a fish or an animal is the potent factor determining whether a man goes to state
prison as a felon with all the deplorable consequences resulting, or whether he is
lightly sentenced as a mere misdemeanant, is it not of the supremest importance
to determine whether a whale is a fish or an animal? I am informed that it used to
be a common sight in The New York Zoological Gardens to see Mr. Crowley, the
large and extremely intelligent chimpanzee, dressed in faultless attire, sit at the
table and take his food and wine like a gentleman. Children believed him to be a
man; and many intelligent grown people honestly believed that he was as much
man as chimpanzee. But if the officials of the city of New York had been indicted
for kidnapping, based upon the seizure and forcible detention of Mr. Crowley,
would it not have been of the most solemn importance to them to throw away
appearances and determine accurately what Mr. Crowley really was? And in
case of doubt as to what he was, could they not justly have demanded the
benefit of that doubt?
So, where one who diverted an electric current has been accused by reason
thereof of the crime of larceny, which crime, it being admitted, can be committed
only against tangible things, chattels, is it not of the very greatest importance to
determine what an electric current is, that is, whether it is a tangible thing,
a chattel, or not and what is the nature and meaning of the process by which it
transforms itself into electric light? And in case of doubt as what it is, cannot the
accused justly demand the benefit of that doubt? To convict one of larceny it is
not sufficient to show merely that a wrongful act has been done; but it must
appear that a wrongful act of a particular kind has been committed. To constitute
larceny it must be proved that the wrongful act was committed against chattels,
against tangible things, which were seized upon and asported by the one
accused. In the case at bar it has not been shown that the accused laid unlawful
hands upon and asported a tangible thing, a chattel, una cosa mueble. The very
least that the prosecution must necessarily admit is that no one knows what
electricity really is. That being so, it seems to me to be a contradiction of terms to
say that larceny, which must admittedly be committed against a known thing, can
be committed against a thing absolutely unknown. At least it would seem that
there is a grave doubt about the definition of larceny covering wrongful acts
relative to an electric current; and by reason of that doubt the conviction ought
not to be sustained. And if it is true, as I have herein attempted to show, that,
under the prevailing and generally accepted theory, electricity is nothing more or
less than a condition, a quality, a property of some tangible thing, some chattel or
body, then, certainly, the charge of larceny must fall, as that crime can be
committed only against the thing and not against a quality of the thing.
Although the only question in this case is whether electricity is such a tangible
thing, as can, under the definition of lacerny contained in the Penal Code, be the
subject of lacerny, nevertheless the court dismissed that question substantially
without discussion, the only reference thereto being the following:
I is true that electricity is no longer, as formerly, regarded by electricians as a
fluid, but its manifestations and effects, like those of gas, may be seen and felt.
The true test of what is a proper subject of lacerny seems to be not whether the
subject is incorporeal, but whether it is capable of appropriation by another than
the owner.
xxx xxx xxx
Electricity, the same as gas, is a valuable article of merchandise, bought and
sold like other personal property and is capable of appropriation by another. So
no error was committed by the trial court in holding that electricity is a subject of
lacerny.
The statement fail to touch the essential question involved and is wholly beside
the point for the following reasons, lying aside for the moment the nature of the
act which the accused actually committed, assuming that he committed the act
described by the witnesses for the prosecution:
In the first place, as I understand the law , the statement is not quite correct that,
in the Philippine Islands, "the true test of what is a proper subject of lacerny
seems to be not whether the subject is corporeal or incorporeal, but whether it is
capable of appropriation," unless the word "appropriation" has the same meaning
as the word "taking"used in the article of the Penal Code defining larceny. If the
court intended to use the word "appropriation" in the sense of "taking," then its
use was unnecessary and may be misleading. If it did not so intend, then the rule
of law laid down by the court is not as I understand the law to be.
An appropriation in addition to or different from the taking is not an essential of
lacerny anywhere. Wharton says that "lacerny id is the fraudulent taking
and carrying away of a thing without claim of right, with the intention of converting
it to a use other than that of the owner and without his consent." Article 517 of the
Penal Code provides that they shall be guilty of lacerny "who . . . take (toman)
(not appropriate) another's cosas muebles (movable chattels) without the owner's
consent." Unless, therefore, the word "appropriation" is used in the same sense
as "taking," the paragraph in the court's decision above quoted does not contain
a correct statement of the law. If it means the same thing then the use of the
word in no way enlightens the situation; for it is just as difficult to determine
whether a cosa mueble can be appropriated as it is to determine whether it can
be taken. The question before us is whether or not electricity is such a cosa
mueble that it can be taken under the law of lacerny. To substitute in that
problem the word "appropriation" for the word "taking" does not laid in its solution
in the slightest degree when it is admitted that the word substituted means
exactly the same thing as the word in the place of which it was substituted.
An illustration will serve further to show the fallacy inherent in the statement
quoted: Let us suppose that the Penal Code defined larceny thus: "Any person
who, with intent to gain, takes from another his cake without his consent shall be
guilty of lacerny." Let us suppose that some one should then defined the subject
of lacerny as anything, corporeal or incorporeal, which can be "appropriated." It
would be obvious that such definition would be erroneous, for the reason that,
while pie is as capable of being "appropriated" as cake, still, under the terms of
the law, lacerny cannot be committed against pie. So that where the statute
prescribes that the only thing subject to larceny is a cosa mueble and the
definition of the subject of larceny is claimed to be anything that can be
"appropriated," the answer at once is that such definition is inaccurate under the
law as it may be too broad. There may be some things which can be
"appropriated" that are not cosas muebles.
In the second place, the quoted paragraph from the court's decision contains
another error in the statement of the law. I am of the opinion that, under the
common law, and I am sure under the Spanish law, the statement that "the true
test of what is a proper subject of larceny seems to be not whether the subject is
corporeal or incorporeal . . ." is not accurate. Professor Beale, of Harvard, says in
his article on larceny that
At common law the only subjects of larceny were tangible, movable chattels;
something which could be taken in possession and carried away, and which had
some, although trifling, intrinsic value. Any substance which has length, breadth,
and thickness may be the subject of larceny. . . . A chose in action being in its
essence intangible could not be the subject of larceny at common law and the
paper evidence of the chose in action was considered merged with it.
Wharton says:
Choses in action, including bonds and notes of all classes according to the
common law are not the subject of larceny, being mere rights of action, having no
corporeal existence; . . . .
I have already quoted at length from writers on the Spanish and Roman law to
show that only tangible, corporeal chattels can be the subject of larceny.
In the third place, by entirely begging the question, it leaves the whole
proposition of whether electricity is a subject of larceny not only unsolved but
wholly untouched. As we have already seen, the word "appropriation" nowhere
appears in subdivision 1 of the Penal Code in connection with larceny. But if it
were there used in connection with such crime, it would necessarily refer entirely
to a cosa mueble as that is the only thing under that article which is the subject of
larceny and, therefore of "appropriation." So that, before we can possibly know
whether a thing is capable of appropriation or not under the Penal Code, we must
know whether that thing is or is not a cosa mueble, as that, as we have said, is
the only thing that can be taken or appropriated in committing the crime of
larceny. But, as is readily seen, that brings us right back to the question we
started with, What is a cosa mueble? It is more than apparent, therefore, that the
quoted paragraph adds nothing whatever to the discussion.
In the fourth place, the word "appropriation" in the paragraph quoted is there
used with a complete misapprehension of its meaning as found in the article of
the Civil Code from which it is taken. Articles 334 and 335 of the Civil Code seek
to divide all property capable of appropriation into classes. They read:
ART. 334. Son bienes immuebles:
1. Las tierras, edificios, caminos y construcciones de todo genero adheridas al
suelo.
xxx xxx xxx
This article has ten subdivision dealing with all kinds of real property. It is not
necessary to quote it all at this time.
The English of the part quoted is as follows:
ART. 334. Real property consists of
1. Lands, buildings, roads, and constructions of all kinds adherent to the soil.
xxx xxx xxx
ART. 335. Se reputan bienes muebles los susceptibles de apropiacion no
comprendidos en el capitulo anterior, y en general todos los que se pueden
transportar de un punto a otro sin menoscabo de la cosa immueble a que
estuvieron unidos.
This article in English is as follows:
ART. 335. Personal property is considered anything susceptible of appropriation
and not included in the foregoing chapter, and, in general, all that which can be
carried from one place to another without damage to the real estate to which it
may be attached.
As is seen from the terms of the articles, two expressions are used in defining
"bienes muebles," one of elimination and other of description. The clause of
elimination provides that all property subject to appropriation shall be personal
property except that property described in article 334. But this description was
found to be too broad. It included too much; and it was, therefore, necessary to
make use of a limiting or restricting clause in connection with the exclusion
clause. To that the article further provided that appropriable property shall be, "in
general, all property which can be carried from one place to another." Under this
restricting clause, then, property to be personal property must be not only
property not included in article 334 but also property which can be transported
from one place to another. It must fulfill two requirements instead of one.
Besides, under the Spanish law, real property is as much subject to appropriation
as personal property. The word in Spanish seems to be broader than its legal
use in English.
From the foregoing it is plain that property to be personal property must not only
be susceptible of appropriation, which the court in the quoted paragraph claims is
the only requirement, but it must also be capable of being of itself manually
seized and transported from one place to another.
This presents the fourth reason why I say that the proposition laid down by the
court in the quoted paragraph is laid down under a complete misapprehension of
the definition of una cosa mueble.
And finally, the word "appropriate" which the court has used is found in
subdivision 2 of article 517 of the Penal Code. It provides that those are guilty of
larceny, "who, finding a thing (una cosa mueble) lost and knowing its
owner, appropriate it with intent to gain." The signification which the word here
has is quite different from that of the word "take" (toman) used in the first
subdivision, being considerably limited in its reach. As used here it is very like
"convert." There is no removal from the possession of the owner, as in the first
paragraph. In the Penal Code the word "taking" means something more than
"appropriation." It means a removal from the possession of the owner a
transportation or asportation of the thing from one place to another from the
possession of the owner to the possession of the theft; while "appropriation"
means, rather, the making use of the converting of the property after the taking is
complete, or without any "taking" at all. Under the Spanish law, while real estate
is not, of course, subject to asportation, to "taking," and, therefore, not the
subject of larceny, it is subject to "appropriation." In the same way while
electricity is, under the Spanish and Roman laws, wholly incapable of seizure
and asportation, of the manual "taking" the trespass essential to larceny,
it may possibly, in one or another sense of the word, be subject to appropriation."
If at one extreme of the scale of things, namely, real estate, the thing
is too tangible to be stolen, is it not logical to expect that at the opposite extreme
the thing, electricity, for example, may be found too intangible to be stolen?
We have seen that, in all the history of Roman and Spanish jurisprudence, the
crime of larceny has been confined to tangible things, to chattels, which have an
independent existence of their own; which have three dimensions; which occupy
space; which are capable of having a trespass committed against themselves;
which can be, of themselves and alone, taken physically into possession and
carried away (asported).
We have that the fact that electricity is not such a thing is admitted by all.
And we have asked the question, "How, then, can the charge of larceny be
sustained?"
But let as assume, for the sake of argument, that electricity is a tangible thing,
like water, for instance. Still the crime committed, if any, is not lacerny. Let us
modify the illustration already given of the surreptitious removal by A of water
stored in a dam by B for milling purposes. Let us suppose that B has built a
reservoir on an elevated portion of his farm for the storage of water for irrigating
purposes. He has built ditches or conduits from the reservoir to every part of his
farm to carry the water to the places needed. During the dry season while B is
engaged in irrigating his lands A surreptitiously and with intent to gain, constructs
a small mill upon one of the conduits and utilizes the rapid fall and swift flow of
the water to operate his mill. For many months A thus takes advantages of B's
conduit and water and enriches himself by reason thereof. Did A commit the
crime larceny? The water, every drop of it, after being used by A, went to its work
of irrigating the lands of B, pausing only long enough to turn the water wheel of
A's mill. Certainly then, no water was stolen. A simply made use of the "head,"
the fall of the water. If anything was stolen it was the "head," the elevation of the
water, the energy developed by its passage from high to low ground. This is
precisely what happens when an electric current passes through an electric bulb
or arc and produces light. Whether the current operates one light of one hundred,
the volume, the amperage, of the current, that is, the quantity of it, if we may use
the term (and it must be remembered that I am assuming electricity to be a
tangible thing and will speak accordingly) remains exactly the same. The volume
or quantity of the electricity is just the same when it comes out of the hundredth
light as it was when it entered the first. While there is a difference between the
current as it comes from the last light and as it entered the first, it is simply one
of condition, or state. All of the electricity is still there. Like the water; it has
simply lost its "head," its energy. It has been deprived of its pressure, of
its electro-motive force; but it is the same old electricity, in the same old quantity.
So that, when the accused in the case at bar, by means of a "jumper," burned
thirty lights, instead of the three for which he paid the company, he was not
stealing electricity. Exactly as much electricity went back into the company's wire
after serving the twenty-seven lights for which he did not pay as came out of that
wire in the first place. The defendant took nothing; he usedsomething. In larceny
there must be a taking. Here there is only a use. Electricity is a utility, not a thing.
The company, in the cease at bar, lost no more than did the owner of the
irrigation system in the example heretofore given. As no water was taken, so no
electricity was taken. The same amount of water remained to the owner after its
use by A. The same amount of electricity remained to the company after its use
by the defendant.
The well-known Italian author, Avv. Umberto Pipia, in his very able work entitled
"L' Electricita nel Diritto" puts the question thus (translation of Mr. Percy R.
Angell, Manila, 1911):
From the point of view of the jurist can electricity be stolen? A person connects a
deflecting wire to the main conduit of electricity; he thus makes a secondary
circuit in which he introduces a resistance and profits by the electro-motive power
which is developed, to supply his lamps or put his motor in movement. In such
case can we apply article 402 of the Penal Code, which provides that whoever
takes possession of movable property of another in order to derive profit thereby,
taking it from the place where he finds it without the consent of the owner, is
punished with reclusion up to three years?
The author then refers to the decisions of certain course of Europe which hold
that electricity is stealable, and continues:
The Roman court of cassation has lost sight of that fundamental principle of
interpretation of law (a principle which it ought to have had well in mind before
applying to a new manifestations of force legislative provisions enacted in view of
totally different cases) by which penal laws do not extend beyond the cases and
the times in them expressed. Nulla poena sine lege, is the rule in terms of penal
law, unless we wish to bring about a deplorable confusion of powers, and the
judiciary desires to usurp the authority of the legislator. If in the written laws gaps
or breaks are encountered, it is the duty of the court to point them out to the
legislator, to the end that he take the necessary measures; but it is not lawful for
him by analogous interpretation to apply a penal provision where such has not
been explicitly enacted.
In the unanimous opinion of jurist, two elements are necessary to constitute the
crime of theft, legally speaking; the first is the taking possession of the personal
(movable) property of another, contrectatio, and the taking away of the thing from
the place where it is found without the consent of the person to whom it
belongs, ablatio.
Now we have conclusively shown that electric current is not a thing, but a state, a
vibration following certain converging waves. It can not therefore be taken
possession of as the personal property of another. A person who unlawfully uses
electric current for his personal enjoyment places himself in a state of unlawful
enjoyment of a utility, but he does not take possession of personal property. It
was a grave error, that of the court of cassation, in holding electric current to be a
thing imprisoned in wires, and composed of particles that can be subtracted. In
connecting a second circuit one does not subtract electric current; not a particle
of electric energy enters into the possession of the so-called thief ; the same
amount in amperes that was found and derived on connecting the second circuit,
is found at the end of this circuit. The current has only suffered a diminution of
potential; while continuing to be of the same volume, it becomes less adapted for
the use intended, because having overcome a resistance, it has lost in potential,
its electro-motive power.
. . . It leaves the circuit in the same amount in which it entered. Only its power for
work has diminished. Not a single particle or molecule of electric current is taken
by such abusive use, only the state of undulation. The movement that first follows
the principal, and then the second circuit, and by these undulations the so-called
thief illegally derives benefit. But the extraordinary provisions of crime are not
applicable to all illegal actions.
Another powerful argument in favor of my position is this: That in no case of
usurpation, the using of things protected by law (diritto) that are not material
things , do we speak of theft. To repress abuses the legislator has been obliged
to establish special provisions of law, but has explicitly recognized those relating
to theft to be inapplicable. A trade-mark, trade-name, modello de fabrica, a
scientific or artistic work, undoubtedly constitute objects of law similar to things;
form the contents of various juridical relations; have more or less economic
value; pertain to the patrimony of the person who has produced them or brought
them into being. If a third person makes use of the trade-mark or trade-name, the
scientific work or artistic production of another, nobody denies that he takes
possession of a utility that does not belong to him; that by the very illegal act he
derives profit, and at the same time diminishes the patrimony of the person
having legitimate rights herein. But with all that, it has never occurred to anyone
to bring an action for theft against the usurper of the firm name, the counterfeit of
the trade-mark or the plagiarist. The legislator, desiring to protect this new
species of property, has provided special repressive measures; but in their
absence, the courts can not apply the actio furti, because it is not applicable to
cases and conditions other than those provided for.
If this be so, why different conceptions on the score of electricity? Here likewise,
there is no subtraction of personal property, but the illegal use of an advantage,
of the right pertaining to another, which remain however unchanged. Hence the
legal solution should be the same.
The second and not less essential condition of theft is that of the ablatio, the
necessity of taking the thing from the place where it is found. But here we have
nothing of that; the current is deviated from its course, true, but it returns to the
place where it was undiminished. The statement in the foregoing decision that
there are particles transportable from place to place is exact; the undulation is in
itself, it has its own efficiency, but it is neither taken away nor subtracted. It has
been justly said that all that is done is to erect a bridge over which the
undulations of the particles are transported in the wire attached, but nothing
corporeal passes from one wire to another, since not one of the vibrating
particles moves with the current which flows through the connected wire.
Consequently, in whatever aspect the question is considered the presumption of
theft grows less. In fine, although there be a usurpation of a utility to the prejudice
of another, it should not be held to constitute theft, because that is the vulgar, not
the legal conception. That in civil and commercial law we may resort to
analogous interpretation, and that, in the absence of special provisions we
should apply the rules which govern similar matters and analogous cases, there
is no doubt. The courts can not refuse to say what the law is (dire ie diritto) nor
dismiss the litigants on the pretext that the law had made no provision for their
case; and it is from this concept that electricity, as a rule, in the various relations
where it constitutes the object, is considered to be a thing, with all the attributes
of such. But the penal law is restrictive; under certain aspects it is exceptional.
Here we have to do with limitations and restrictions on the most sacred rights of
persons, the right to liberty, the right to honor. And these rights can not be
abridged without definite and explicit provisions of the law. Where these are
lacking we can pray, as I do, that they be supplied, but a decision in such case is
an arbitrary act (arbitro), not justice: nulla poena sine lege.
xxx xxx xxx
So on the wrongful use of electric current; profit is derived from its high potential
which is produced by the work and expenditure of money on the part of the
furnishing company; the current is returned exactly as it was delivered except it
has lost a certain amount of electromotive power that was illegally
(antigiuridicamente) employed to overcome the resistance introduced by the third
party.
xxx xxx xxx
. . . Penal law must be strictly construed (e di interpretazione restrittiva). It
punishes the contractatio of a movable thing which is taken from the place where
it is found without the consent of the owner. In the proposition under discussion,
we have not to do with movable things, there is no true transporting to another
place; therefore the figura giuridica of theft is wanting.
It can not be doubted that by movable things is meant even liquids and fluids,
because these are material, concrete, and corporeal things, but their physical
external manifestations can not affect the juridical relation . But in our case there
is not a thing, fluid or liquid; there is a state of undulation, of movement, which
one uses illegally, assuming however the obligation to indemnify for all the
damages resulting from his illicit action, but there is no theft, any more than there
would be where a person applied a pulley to the shaft of an engine in order to put
his own machinery in motion, so far as there would be no appropriation. The
current which injuriously traverse the lamp or electric motor is not appropriated or
destroyed by the person who uses it; it flows out from the lights and continues its
course in the circuit undiminished in intensity; it has only lost part of its power,
because, having encountered a resistance, it has developed certain energy to
overcome it, energy which has produced light, traction, or mechanical work.
Nor may it be said that electricity would then be deprived of any legal protection.
Do we not have articles 1511 et seq. of the Civil Code that provide for fraud? Is
there not the civil crime and quasi crime? To protect electric energy is it
necessary to imprison one who uses it antigiuridicamente, while the letter of the
law does not consent? In any case it is known that adducere inconveniens non
est solvere argumentum. As in the laws of our country provision is made for the
illegal use of a firm name, trade-mark and works of genius (l' ingegno); in
England, where provision has been made for the matter we are discussing they
have enacted a law imposing severe penalties upon persons who illegally use
electric energy, and I am of the first to applaud them. But let there be laws, not
merely judicial opinion (arbitria di interpretati).
Nor does it avail to urge that when we have to do with benefits that are useful to
man, which serve his ends, that he can appropriate, these benefits are
considered as things in the eyes of the law. But it is necessary to make a
distinction. From the standpoint of the civil law, they are, because a wide and
analogous construction is permissible and permitted; but from that of the penal
law, they are not, because such construction is expressly forbidden by article 4 of
the preliminary provisions of the Civil Code.
If a trade-mark is not a benefit to man, in what does it serve him? Is not a literary
or artistic production such? Does not the counterfeiter illegally appropriate such
benefits? But if it is required to inflict criminal penalties upon him, a special law
must be enacted; the provisions relative to theft can be applied in his case.
xxx xxx xxx
Nor is it a conclusive argument to say that the manufacturer spends large sums
of money and erects costly machinery to generate the electricity, and when
others steal it from him, such action, according to juridical conscience and social
morals, constitutes theft.
Let us suppose an individual acquires a ticket of admission, and enters a hall
where there is being produced a play of some sort. He, on the strength of the
legal negotiation with the impresario and the acquisition of the ticket has a right
to the most ample enjoyment that his optical and acoustic senses are able to
realize. But he arranges a phonograph and a cinematograph, and surreptitiously
fixes and appropriates part of the acoustic and visual enjoyment that does not
belong to him, takes it outside of the theater and later avails himself thereof to his
benefit by reproducing the harmony of the sounds and the optical illusion of the
scene. Is he liable for theft?
From the standpoint of the doctrine I am combating, he is. The impresario has
sacrificed money or work to produce the spectacle. Our friend has the right to
enjoy it to the limit of the capacity of his organs of vision and hearing, but beyond
that. By means of suitable instruments he has caught up the sounds,
movements, and colors for the purpose of gain, and he commits a theft because
there enter the correctatio and the ablatio.
From the point of view of the law he is not. He would be held to reimburse the
impresario for all damages, but he can not be called a thieft, nor be punished as
such. The sounds and forms of light are states, not things; therefore they can not
form subjects of theft.
And if this is so, the same conclusion must be reached with respect to electricity.
The supreme court of the German Empire, sitting at Leipsic, October 20, 1896, in
a decision holding that electricity was not a subject of larceny, said:
The court below found that the act did not constitute theft or unlawful
appropriation, because electricity is not to be considered a thing within the
meaning of paragraph 242 of the Penal Code, and because by things the law
means portions of material nature; that corporeal existence is an essential
ingredient of the thing. Even the Penal Code starts from this principle.
Incorporeal things, as for example rights, intellectual products and machine
power are not subjects of theft. The same must be said of electricity. Experts say
that the science is not yet determined. We well know what must be done to
produce electric energy, but we do not comprehend these vital operations, any
more than we understand what is that makes the muscles of the human arm
capable of exerting force. In the conclusions of the Court of First Instance there is
no error of law. That court starts from the principle that the corporal existence of
the thing must be the essential element to come within the meaning of article
242. This assumption is not based upon the precepts of the Civil Code, but,
rather, upon the idea which is at the bottom of the Penal Code, namely, the
movable and independent thing, which presupposes the corporeality of the
object. If then, under articles 242 and 245, the condition precedent to the
commission of larceny is that the object of theft or unlawful appropriation be a
piece or portion of material substance in either a solid or liquid state, or in form of
gas, the Court of First Instance committed no error in finding there was neither
theft nor illegal appropriation. Whether or not the notation of a thing, in the sense
of the penal laws, requires something corporeal, is a question of law; but the
question whether electricity is a substance, a corporeal thing, or a force, a
movement of a minute particles, is a question of fact that can not be decided by
the rules of law, but by physical research alone. The consideration of the great
importance of electricity in commercial life and the place awaiting it among the
vital conveniences and the fact of its having commercial value, is not an
argument to prove that electricity is a corporeal thing, because the quality of
being a vital convenience and having commercial value does not constitute a
necessary standard of corporelity, since force, operations, intellectual products
are vital conveniences (beni) and have commercial value. When, in the
jurisprudence of the day the need for penal laws for punishment of unjust
appropriation of electric current becomes apparent, the legislator should provide
them. The courts can not be called upon to supply the lack of legal provisions by
analogous applications of rules not made to fit the circumstance. In penal law the
principle nulla poena sine is supreme.
These authorities fully support my contention that electricity is not stealable
under the provisions of the Spanish Penal Code. They also support the
proposition that even if electricity is a tangible thing, like water, and therefore
stealable, the crime, if any, committed by the defendant in this case is not
larceny, because the company had just as much electricity after the illegal act as
it had before. In other words, it has lost no electricity. Having lost no electricity it
can not charge anyone with stealing it. If a thousand lights were burned, no
more electricity would be consumed than if one light were burned, just as, no
more water is consumed in running a thousand water wheels placed one below
another than in running one. Just as much water flows over the thousandth wheel
as flowed over the first. In the same manner there is just as much electricity
flowing out of the thousandth light as flowed into the first. Just as in using the
water, nothing is consumed but the head, the quantity of water remaining the
same, so, in using electricity, nothing is consumed but the head (the pressure,
the potential, the electro-motive force), the electricity itself remaining
undiminished. No electricity was taken. It was used and then returned to its
owner.
For a clear understanding of this problem, and a logical and philosophical, as
well as legal, solution thereof, we must never, for a moment, forget the fact that
the real contract between the company and the defendant was one to
furnish labor and services; a lease, if you please, of an agency, a contract of
precisely the same nature as one by which the company lets to the defendant the
use of one of the company's workmen to turn by hand, in the defendant's own
house, an electrical machine and thereby produce light for defendant's use. This
is the crux of the whole question. While no contract was proved we know of
necessity, from the principles which underlie and govern electric lighting, that the
contract must have been as above stated. If the defendant should require the
laborer thus placed in his house to work overtime and should not pay the
company therefor, thus taking advantage of the situation, there would be no
larceny. To be sure, the defendant would return the workman to the company
fatigued and reduced in strength by reason of the overtime he had required him
to put in, but it would be the same workman which he had received. It is this
which shows the absurdity of the claim that the defendant in this case is guilty of
larceny. The company never intended to sell the workman to the defendant and
the defendant never expected to buy him. It was the use that was the basis of the
contract. In exactly the same manner the company never intended to sell
electricity to the defendant and the defendant never intended to buy electricity.
The basis of the contract was the use of electricity. Just as the laborer was
returned by defendant to the company fatigued and reduced in strength by
reason of the overtime which the defendant had wrongfully and illegally required
him to put in, so the current of electricity was returned by the defendant to the
company fatigued and reduced in strength by reason of the lights which the
defendant had wrongfully and illegally caused it to supply; and just as,
notwithstanding the reduction in strength, it was the same identical workman
returned that was sent out, so the electric current returned to the company after
the illegal use by defendant was the same identical current which the company
had furnished him. Where then, is the foundation for the charge of larceny?
Let us now see what are the results of the holding of the court that electricity is
subject to larceny.
The Spanish Law of the Philippine Islands has not been changed by any
legislative enactment. A cosa mueble is the same now as it was in the days of
the Partidas. No legislature has changed the law of larceny as it came from the
jurisprudence of Rome and Spain. Nor has any legislature touched the law of the
personal chattel to give it a new definition or one which changes its ancient
signification. Its present definition is the same as that given by Sanchez Roman,
Pacheco, Scaevola, Manresa, and Groizard as drawn form the decrees of kings
and acts of legislatures. That definition having been framed by
the lawmaking power of Spain, from the Partidas down to the Penal Code, it
ought not to be changed by any agency short of the lawmaking power of the
United States. The substance and nature of crime ought not to be changed
by courts in a country where crimes are purely statutory. It has the appearance of
a usurpation of the functions of the lawmaking body, an unwarrantable
assumption of the legislative attributes.
The holding of the court in this case is, in effect, an amendment to the Penal
Code. It has changed materially the definition of a cosa mueble and, therefore, of
the crime of larceny, as made by the lawmaking bodies of Spain and the United
States. I do not assert that the courts have not the right to determine whether a
given set of facts do or do not fulfill the definition of a given crime. What I do say
is that the very greatest care should be exercised in cases which may involved
as a consequence of their decision the changing of the scope of the substantive
law of crime. The fact, admitted by all, that whether the phenomenon which we
call electricity really is a "cosa mueble," under the accepted definition of that
word, is open to doubt, should give us pause. Before holding that electricity is
a cosa mueble, the fact whether it is or not ought to be substantially free from
doubt, This is particularly true in a country where crimes are purely statutory, and
in which, therefore, the legislature is presumed to have had in mind in framing its
definition of "cosas muebles" only such chattels, or those of the same nature, as
were known to the legislature at the time it acted. At the time the Penal Code
became operative substantially nothing was known by those who created if of the
phenomenon, electricity. It is more than clear that at the time of the enactment of
the laws relating to larceny, of which article 517 of the Penal Code is a
reproduction, nothing whatever was known of that phenomenon. We have,
therefore, no means of knowing what would have been the legislative action in
relation thereto. The legislative authorities of those times might have treated it as
substantially every other legislative body has treated it that has touched the
question; namely, as a thing separate and distinct from chattels, and unlawful
acts affecting it and its use as crimes distinct from the crimes against tangible
property, such as robbery and larceny. In this jurisdiction the legislature is the
only authority for the definition of the crime. Where a new situation arises by
virtue of discoveries which reveal agencies never known before, and whose real
nature is unknown even to the discoverers the legislature is the body to take the
initiative in determining the position of such agencies among the affairs of men,
unless they clearly fall within a class already established and defined; and it
appears that some legislative bodies have done that very thing and have passed
special laws touching the place which should be given electricity in the civil and
criminal law. This was done here by the passage of the ordinance of the city of
Manila. The fact that legislatures in many jurisdictions have enacted special laws
relative to electricity is the very clearest proof that there was the gravest doubt
among learned men of the applicability of existing laws to acts committed against
the rights of producers of electricity. The legislature of the Islands having acted
through the council of the city of Manila and by such action made illegal acts
against the producers of electricity a special crime wholly distinct from larceny,
such act should be conclusive on this court as to the legislative intent.
Section 649 of the Revised Ordinance of the city of Manila provides in part:
No person shall, for any purpose whatsoever, use or enjoy the benefits of any
device by means of which he may fraudulently obtain any current of electricity or
any telephone or telegraph service; and the existence in any building or premises
of any such device shall, in the absence of satisfactory explanation, be deemed
sufficient evidence of such use by the person benefiting thereby.
This section was enacted under the authority of the Legislature of the Philippine
Islands, as was section 930 of said ordinances, by the terms of which one was
violates the provisions of section 649 "shall be punished by a fine of not more
than two hundred pesos or by imprisonment for not more than six months, or
both such fine and imprisonment, in the discretion of the court, for each offense."
Articles 517 and 518 of the Penal Code read in part as follows:
ART. 517. The following are guilty of theft:
1. Those who, with intent of gain and without violence or intimidation against the
person or force against the things, shall take another's personal property (cosa
mueble) without the owner's consent.
xxx xxx xxx
ART. 518. Those guilty of theft shall be punished:
1. With the penalty of presidio correccional in its medium and maximum degrees
if the value of the stolen property should exceed 6,250 pesetas.
2. With the penalty of presidio correccional in its minimum and medium degrees
should it not exceed 6,250,pesetas and be more than 1,250 pesetas.
3. With arresto mayor in its medium degree to presidio correccional in its
minimum degree should it not exceed 1,250 pesetas and be more than
250 pesetas.
4. With arresto mayor to its fullest extent should it be more than 25 but not
exceed 250 pesetas.
5. With arresto mayor in its minimum and medium degrees if it should not exceed
25 pesetas; if exceeding 25 and not more than 65 pesetas, a theft of nutritious
grains, fruits, or wood shall be punished with a fine of room 325 to 500 pesetas.
he wish, and if he desires to punish him very severely he will bring it in the Court
of First Instance, which he can generally do if he cares to. It is incoceivable that
the legislature intended that such a condition should exist. It is in violation of
every sense of fairness, is against every rule of statutory construction, and is
clearly inimical to public policy. To assert that the complaining in which he shall
prosecute the accused but also, in effect, the crime of which he shall be charged,
as the decision in this case holds in effect, is to assert a proposition, the bare
statement of which is its own completest refutation.
For these reasons the judgment of conviction should be reversed.

Under subdivision 2 of the article last quoted, which is the paragraph under which
the accused is punished in the case at bar, the penalty prescribed is from six
months and one day to four years and two months. The accused in this case was
actually sentenced to one year eight months and twenty-one days of presidio
correccional, to indemnify the company in the sum of P865.26, to the
corresponding subsidiary imprisonment in case of failure to pay said sum, and to
the accessory penalties provided by law.

Having before us these two laws, we may now see to what untoward and
unfortunate results the majority opinion leads us in holding that a person who
commits a crime against an electric current can be punished under either, or
both, of two different statutes. As we have seen already there is, relatively
speaking, an enormous difference in the penalties prescribed by said law. That
imposed by the ordinance of the city of Manila can not in any event exceed six
months' imprisonment and a fine of P200; while that provided in the Penal Code
may be as severe as four years and two months imprisonment, with indemnity
equal to the value of the property stolen, with corresponding subsidiary
imprisonment in case of nonpayment. To this must be added all those accessory
penalties prescribed by the code, such as suspension from any public office,
profession or trade, and from the right the suffrage. To me it is wholly
unbelievable that, under the circumstances of this case and the nature of the
offense itself, it was the intention of the legislative authority to permit the
concurrent existence of two laws, both in force, punishing the same crime with
penalties which bear no relation to each other and which are widely different in
severity. Note what results from such a holding. Prosecution under the
ordinance must be in the municipal court. Prosecution under the Penal
Code may be in the municipal court or it may be and generally must be, as in this
case, in the Court of First Instance. But it is certain that, under the
ordinance, every case may be prosecuted in the municipal court, whatever the
value of the electricity taken; or, if the value is sufficient, the prosecution may be
brought in the Court of First Instance. The selection of the court is left to the
complaint. This means that the complaint is able to say within certain limits what
punishment shall be inflicted; for, if he desires that the accused shall be lightly
punished he will bring the action in the municipal court, which he always can do if
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
002-0260 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 for
non-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.
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 its
non-declaration 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.

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.
002-0260 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."
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of
First Instance of Zambales and Olongapo City; FERNANDO MAGCALE &
TEODULA BALUYUT-MAGCALE, respondents.
PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of
the then Court of First Instance of Zambales and Olongapo City in Civil Case No.
2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale
vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real
estate mortgage executed by respondent spouses in favor of petitioner bank are
null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula
Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the
following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces
containing a total floor area of 263 sq. meters, more or less, generally
constructed of mixed hard wood and concrete materials, under a roofing of cor.
g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE
under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with
an assessed value of P35,290.00. This building is the only improvement of the
lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right
of occupancy on the lot where the above property is erected, and more
particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo
Townsite Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City,
containing an area of 465 sq. m. more or less, declared and assessed in the
name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the
Assessor of Olongapo City with an assessed value of P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
All corners of the lot marked by conc. cylindrical monuments of the Bureau of
Lands as visible limits. ( Exhibit "A, " also Exhibit "1" for defendant).
Apart from the stipulations in the printed portion of the aforestated deed of
mortgage, there appears a rider typed at the bottom of the reverse side of the
document under the lists of the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot
applied for by the Mortgagors as herein stated is released or issued by the
Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold
the Registration of same until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the Secretary of Agriculture and
Natural Resources, which title with annotation, shall be released in favor of the
herein Mortgage.
From the aforequoted stipulation, it is obvious that the mortgagee (defendant
Prudential Bank) was at the outset aware of the fact that the mortgagors
(plaintiffs) have already filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act
3344 with the Registry of Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential
Bank in the sum of P20,000.00. To secure payment of this additional loan,
plaintiffs executed in favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged in Exhibit "A." (Exhibit
"B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage
was likewise registered with the Registry of Deeds, this time in Olongapo City, on
May 2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales
Patent No. 4776 over the parcel of land, possessory rights over which were
mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration Book of the
Province of Zambales, Original Certificate of Title No. P-2554 was issued in the
name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of
Zambales, on May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant Bank after it became
due, and upon application of said defendant, the deeds of Real Estate Mortgage
(Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the
highest bidder in a public auction sale conducted by the defendant City Sheriff on
April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit
"D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of
Real Estate Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp.
41-53), opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62),
and in an Order dated January 10, 1979 (Ibid., p. 63), the Motion for
Reconsideration was denied for lack of merit. Hence, the instant petition (Ibid.,
pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to
require the respondents to comment (Ibid., p. 65), which order was complied with
the Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on
June 2,1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due
course and the parties were required to submit simultaneously their respective
memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while
private respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-
155).
In a Resolution dated August 10, 1979, this case was considered submitted for
decision (Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE
VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF
PRIVATE RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776
ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL
CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT
OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.
(Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can
be constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the
Philippines, this Court ruled that, "it is obvious that the inclusion of "building"
separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-
10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence
of stipulation of the improvements thereon, buildings, still a building by itself may
be mortgaged apart from the land on which it has been built. Such a mortgage
would be still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has
also established that possessory rights over said properties before title is vested
on the grantee, may be validly transferred or conveyed as in a deed of mortgage
(Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the
original mortgage deed on the 2-storey semi-concrete residential building with
warehouse and on the right of occupancy on the lot where the building was
erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23,
1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24,
1972, on the basis of which OCT No. 2554 was issued in the name of private
respondent Fernando Magcale on May 15, 1972. It is therefore without question
that the original mortgage was executed before the issuance of the final patent
and before the government was divested of its title to the land, an event which
takes effect only on the issuance of the sales patent and its subsequent
registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer,
96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs.
Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under
the foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the
government is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-
2554, it will be noted that Sections 121, 122 and 124 of the Public Land Act, refer
to land already acquired under the Public Land Act, or any improvement thereon
and therefore have no application to the assailed mortgage in the case at bar
which was executed before such eventuality. Likewise, Section 2 of Republic Act
No. 730, also a restriction appearing on the face of private respondent's title has
likewise no application in the instant case, despite its reference to encumbrance
or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything
regarding the improvements existing thereon.
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.

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
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY
TREASURER OF QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the
following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which
authorized the Municipal Board of Manila to grant a franchise to construct,
maintain and operate an electric street railway and electric light, heat and power
system in the City of Manila and its suburbs to the person or persons making the
most favorable bid. Charles M. Swift was awarded the said franchise on March
1903, the terms and conditions of which were embodied in Ordinance No. 44
approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for
short), became the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at
Botocan Falls, Laguna and is transmitted to the City of Manila by means of
electric transmission wires, running from the province of Laguna to the said City.
These electric transmission wires which carry high voltage current, are fastened
to insulators attached on steel towers constructed by respondent at intervals,
from its hydro-electric plant in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel towers within Quezon City,
on land belonging to it. A photograph of one of these steel towers is attached to
the petition for review, marked Annex A. Three steel towers were inspected by
the lower court and parties and the following were the descriptions given there of
by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City.
The findings were as follows: the ground around one of the four posts was
excavated to a depth of about eight (8) feet, with an opening of about one (1)
meter in diameter, decreased to about a quarter of a meter as it we deeper until it
reached the bottom of the post; at the bottom of the post were two parallel steel
bars attached to the leg means of bolts; the tower proper was attached to the leg
three bolts; with two cross metals to prevent mobility; there was no concrete
foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be
determined with certainty to whether said adobe stone was placed purposely or
not, as the place abounds with this kind of stone; and the tower carried five high
voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City,
on land owned by the petitioner approximate more than one kilometer from the
first tower. As in the first tower, the ground around one of the four legs was
excavate from seven to eight (8) feet deep and one and a half (1-) meters wide.
There being very little water at the bottom, it was seen that there was no
concrete foundation, but there soft adobe beneath. The leg was likewise provided
with two parallel steel bars bolted to a square metal frame also bolted to each
corner. Like the first one, the second tower is made up of metal rods joined
together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the
first two towers given above, the ground around the two legs of the third tower
was excavated to a depth about two or three inches beyond the outside level of
the steel bar foundation. It was found that there was no concrete foundation. Like
the two previous ones, the bottom arrangement of the legs thereof were found to
be resting on soft adobe, which, probably due to high humidity, looks like mud or
clay. It was also found that the square metal frame supporting the legs were not
attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the
aforesaid steel towers for real property tax under Tax declaration Nos. 31992 and
15549. After denying respondent's petition to cancel these declarations, an
appeal was taken by respondent to the Board of Assessment Appeals of Quezon
City, which required respondent to pay the amount of P11,651.86 as real
property tax on the said steel towers for the years 1952 to 1956. Respondent
paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on December 29, 1958,
ordering the cancellation of the said tax declarations and the petitioner City
Treasurer of Quezon City to refund to the respondent the sum of P11,651.86.
The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers
come within the term "poles" which are declared exempt from taxes under part II
paragraph 9 of respondent's franchise; (2) the steel towers are personal
properties and are not subject to real property tax; and (3) the City Treasurer of
Quezon City is held responsible for the refund of the amount paid. These are
assigned as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate,
buildings, plant (not including poles, wires, transformers, and insulators),
machinery and personal property as other persons are or may be hereafter
required by law to pay ... Said percentage shall be due and payable at the time
stated in paragraph nineteen of Part One hereof, ... and shall be in lieu of all
taxes and assessments of whatsoever nature and by whatsoever authority upon
the privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee from which taxes and assessments the grantee is
hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of
wood or timber, as typically the stem of a small tree stripped of its branches; also
by extension, a similar typically cylindrical piece or object of metal or the like".
The term also refers to "an upright standard to the top of which something is
affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's
New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of
Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles of
the PLDT Co. which are made of two steel bars joined together by an interlacing
metal rod. They are called "poles" notwithstanding the fact that they are no made
of wood. It must be noted from paragraph 9, above quoted, that the concept of
the "poles" for which exemption is granted, is not determined by their place or
location, nor by the character of the electric current it carries, nor the material or
form of which it is made, but the use to which they are dedicated. In accordance
with the definitions, pole is not restricted to a long cylindrical piece of wood or
metal, but includes "upright standards to the top of which something is affixed or
by which something is supported. As heretofore described, respondent's steel
supports consists of a framework of four steel bars or strips which are bound by
steel cross-arms atop of which are cross-arms supporting five high voltage
transmission wires (See Annex A) and their sole function is to support or carry
such wires.
The conclusion of the CTA that the steel supports in question are embraced in
the term "poles" is not a novelty. Several courts of last resort in the United States
have called these steel supports "steel towers", and they denominated these
supports or towers, as electric poles. In their decisions the words "towers" and
"poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the
law provided that wires shall be constructed upon suitable poles, this term was
construed to mean either wood or metal poles and in view of the land being
subject to overflow, and the necessary carrying of numerous wires and the
distance between poles, the statute was interpreted to include towers or poles.
(Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used
by an association used to convey its electric power furnished to subscribers and
members, constructed for the purpose of fastening high voltage and dangerous
electric wires alongside public highways. The steel supports or towers were
made of iron or other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the said two
metal pieces being connected with criss-cross iron running from the bottom to the
top, constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users'
Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company
engaged in the generation of hydro-electric power generated from its plant to the
Tower of Oxford and City of Waterbury. These steel towers are about 15 feet
square at the base and extended to a height of about 35 feet to a point, and are
embedded in the cement foundations sunk in the earth, the top of which extends
above the surface of the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment capable of carrying wires for the
transmission of electric power (Connecticut Light and Power Co. v. Oxford, 101
Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person
met his death was built for the purpose of supporting a transmission wire used for
carrying high-tension electric power, but claimed that the steel towers on which it
is carried were so large that their wire took their structure out of the definition of a
pole line. It was held that in defining the word pole, one should not be governed
by the wire or material of the support used, but was considering the danger from
any elevated wire carrying electric current, and that regardless of the size or
material wire of its individual members, any continuous series of structures
intended and used solely or primarily for the purpose of supporting wires carrying
electric currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252
P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and
incorporated in the petitioner's franchise, should not be given a restrictive and
narrow interpretation, as to defeat the very object for which the franchise was
granted. The poles as contemplated thereon, should be understood and taken as
a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the
respondent would be required to employ "wooden poles", or "rounded poles" as it
used to do fifty years back, then one should admit that the Philippines is one
century behind the age of space. It should also be conceded by now that steel
towers, like the ones in question, for obvious reasons, can better effectuate the
purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in
question are not embraced within the termpoles, the logical question posited is
whether they constitute real properties, so that they can be subject to a real
property tax. The tax law does not provide for a definition of real property; but
Article 415 of the Civil Code does, by stating the following are immovable
property:
therefore, it cannot be properly raised for the first time on appeal. The herein
petitioner is indulging in legal technicalities and niceties which do not help him
any; for factually, it was he (City Treasurer) whom had insisted that respondent
herein pay the real estate taxes, which respondent paid under protest. Having
acted in his official capacity as City Treasurer of Quezon City, he would surely
know what to do, under the circumstances.

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil; IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs
against the petitioners.
xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it

cannot be separated therefrom without breaking the material or deterioration of
the object;

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of

the tenement for an industry or works which may be carried in a building or on a
piece of land, and which tends directly to meet the needs of the said industry or
works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects
mentioned in paragraph 1, because they do not constitute buildings or
constructions adhered to the soil. They are not construction analogous to
buildings nor adhering to the soil. As per description, given by the lower court,
they are removable and merely attached to a square metal frame by means of
bolts, which when unscrewed could easily be dismantled and moved from place
to place. They can not be included under paragraph 3, as they are not attached
to an immovable in a fixed manner, and they can be separated without breaking
the material or causing deterioration upon the object to which they are attached.
Each of these steel towers or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be disassembled by unscrewing the
bolts and reassembled by screwing the same. These steel towers or supports do
not also fall under paragraph 5, for they are not machineries, receptacles,
instruments or implements, and even if they were, they are not intended for
industry or works on the land. Petitioner is not engaged in an industry or works in
the land in which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of
Quezon City to refund the sum of P11,651.86, despite the fact that Quezon City
is not a party to the case. It is argued that as the City Treasurer is not the real
party in interest, but Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he should not be ordered to
effect the refund. This question has not been raised in the court below, and,
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother
Juana Gonzales (married to Gregorio Pineda), borrowed from plaintiff
Conrado P. Navarro, the sum of P2,500.00, payable 6 months after said
date or on June 14, 1959. To secure the indebtedness, Rufino executed
a document captioned "DEED OF REAL ESTATE and CHATTEL
MORTGAGES", whereby Juana Gonzales, by way of Real Estate
Mortgage hypothecated a parcel of land, belonging to her, registered with
the Register of Deeds of Tarlac, under Transfer Certificate of Title No.
25776, and Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his
two-story residential house, having a floor area of 912 square meters,
erected on a lot belonging to Atty. Vicente Castro, located at Bo. San
Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under
Motor Vehicle Registration Certificate No. A-171806. Both mortgages
were contained in one instrument, which was registered in both the Office
of the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were
granted extension up to June 30, 1960, within which to pay. Came June
30, defendants again failed to pay and, for the second time, asked for
another extension, which was given, up to July 30, 1960. In the second
extension, defendant Pineda in a document entitled "Promise",
categorically stated that in the remote event he should fail to make good
the obligation on such date (July 30, 1960), the defendant would no
longer ask for further extension and there would be no need for any
formal demand, and plaintiff could proceed to take whatever action he
might desire to enforce his rights, under the said mortgage contract. In
spite of said promise, defendants, failed and refused to pay the
obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the
mortgage and for damages, which consisted of liquidated damages in the
sum of P500.00 and 12% per annum interest on the principal, effective
on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation
to the plaintiff the truth being the defendants are hard up these
days and pleaded to the plaintiff to grant them more time within
which to pay their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully
prayed that this Honorable Court render judgment granting the
defendants until January 31, 1961, within which to pay their
obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary
Judgment, claiming that the Answer failed to tender any genuine and
material issue. The motion was set for hearing, but the record is not clear
what ruling the lower court made on the said motion. On November 11,
1960, however, the parties submitted a Stipulation of Facts, wherein the
defendants admitted the indebtedness, the authenticity and due
execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a
liability of 12% per annum as interest was agreed, upon failure to pay the
principal when due and P500.00 as liquidated damages; that the
instrument had been registered in the Registry of Property and Motor
Vehicles Office, both of the province of Tarlac; that the only issue in the
case is whether or not the residential house, subject of the mortgage
therein, can be considered a Chattel and the propriety of the attorney's
fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
 (a) Dismissing the complaint with regard to defendant Gregorio
Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino
Pineda and Ramon Reyes, to pay jointly and severally and within
ninety (90) days from the receipt of the copy of this decision to
the plaintiff Conrado P. Navarro the principal sum of P2,550.00
with 12% compounded interest per annum from June 14, 1960,
until said principal sum and interests are fully paid, plus P500.00
as liquidated damages and the costs of this suit, with the warning
that in default of said payment of the properties mentioned in the
deed of real estate mortgage and chattel mortgage (Annex "A" to
the complaint) be sold to realize said mortgage debt, interests,
liquidated damages and costs, in accordance with the pertinent
provisions of Act 3135, as amended by Act 4118, and Art. 14 of
the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes,
to deliver immediately to the Provincial Sheriff of Tarlac the
personal properties mentioned in said Annex "A", immediately
after the lapse of the ninety (90) days above-mentioned, in default
of such payment.
The above judgment was directly appealed to this Court, the defendants
therein assigning only a single error, allegedly committed by the lower
court, to wit
In holding that the deed of real estate and chattel mortgages
appended to the complaint is valid, notwithstanding the fact that
the house of the defendant Rufino G. Pineda was made the
subject of the chattel mortgage, for the reason that it is erected on
a land that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a
house as immovable property, makes no distinction whether the owner of
the land is or not the owner of the building; the fact that the land belongs
to another is immaterial, it is enough that the house adheres to the land;
that in case of immovables by incorporation, such as houses, trees,
plants, etc; the Code does not require that the attachment or
incorporation be made by the owner of the land, the only criterion being
the union or incorporation with the soil. In other words, it is claimed that
"a building is an immovable property, irrespective of whether or not said
structure and the land on which it is adhered to, belong to the same
owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also
the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants
argue that since only movables can be the subject of a chattel mortgage
(sec. 1, Act No. 3952) then the mortgage in question which is the basis of
the present action, cannot give rise to an action for foreclosure, because
it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano
Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was
erected on the land which belonged to a third person, but also and
principally on the doctrine of estoppel, in that "the parties have
so expressly agreed" in the mortgage to consider the house as chattel
"for its smallness and mixed materials of sawali and wood". In construing
arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415
and 416, N.C.C.), for purposes of the application of the Chattel Mortgage
Law, it was held that under certain conditions, "a property may have a
character different from that imputed to it in said articles. It is undeniable
that the parties to a contract may by agreement, treat as personal
property that which by nature would be real property" (Standard Oil Co. of
N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a
building of mixed materials may be the subject of a chattel mortgage, in
which case, it is considered as between the parties as personal property.
... The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is
so agreed by the parties interested even though annexed to the realty ...".
(42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No.
L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.) The view that parties to a
deed of chattel mortgagee may agree to consider a house as personal
property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the principles
of estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958).
In a case, a mortgage house built on a rented land, was held to be a
personal property, not only because the deed of mortgage considered it
as such, but also because it did not form part of the land (Evangelista v.
Abad [CA];36 O.G. 2913), for it is now well settled that an object placed
on land by one who has only a temporary right to the same, such as a
lessee or usufructuary, does not become immobilized by attachment
(Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co.,
Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a
person stands on a rented land belonging to another person, it may be
mortgaged as a personal property is so stipulated in the document of
mortgage. (Evangelista v. Abad, supra.) It should be noted, however, that
the principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al.,
[CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases
is that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been
a constant criterion nevertheless that, with respect to third persons, who
are not parties to the contract, and specially in execution proceedings,
the house is considered as an immovable property (Art. 1431, New Civil
Code).

In the case at bar, the house in question was treated as personal or

movable property, by the parties to the contract themselves. In the deed
of chattel mortgage, appellant Rufino G. Pineda conveyed by way of
"Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is,
inherently a movable property. The house which was not even declared
for taxation purposes was small and made of light construction materials:
G.I. sheets roofing, sawali and wooden walls and wooden posts; built on
land belonging to another.

The cases cited by appellants are not applicable to the present case. The
Iya cases (L-10837-38, supra), refer to a building or a house of strong
materials, permanently adhered to the land, belonging to the owner of the
house himself. In the case of Lopez v. Orosa, (L-10817-18), the subject
building was a theatre, built of materials worth more than P62,000,
attached permanently to the soil. In these cases and in the Leung Yee
case, supra, third persons assailed the validity of the deed of chattel
mortgages; in the present case, it was one of the parties to the contract
of mortgages who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed

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

As an improvement attached to land, by express provision of law, though not

physically so united, the sugar quotas are inseparable therefrom, just like
servitudes and other real rights over an immovable. Article 415 of the Civil Code,
in enumerating what are immovable properties, names

10. Contracts for public works, and servitudes and other real rights over
immovable property. (Emphasis supplied)

It is by law, therefore, that these properties are immovable or real, Article 416 of
the Civil Code being made to apply only when the thing (res) sought to be
classified is not included in Article 415.

The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th
Congress) allows transfers of sugar quotas does not militate against their
immovability. Neither does the fact that the Sugar Quota Office does not require
registration of sales of quotas with the Register of Deeds for their validity, nor the
fact that allocation of unrefined sugar quotas is not made among lands planted to
sugarcane but among "the sugar producing mills and plantation OWNERS",
since the lease or sale of quotas are voluntary transactions, the regime of which,
is not necessarily identical to involuntary transfers or levies; and there cannot be
a sugar plantation owner without land to which the quota is attached; and there
can exist no quota without there being first a corresponding plantation.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in
C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable
to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the assessment to
the respondent Board of Tax Appeals on the ground that the same are not realty.
The Board of Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of
facts:
Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real
properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex
"B";
(c) Lathe machine with motor, appearing in the attached photograph, marked
Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked
Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked
Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached
photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked
Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be
seen in the attached photographs which form part of this agreed stipulation of
facts;
5. That petitioner is the owner of the land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein, its TPU trucks are made;
body constructed; and same are repaired in a condition to be serviceable in the
TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries, parts
and the like offered to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling,
and having denied a motion for reconsideration, petitioner brought the case to
this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the
New Civil Code, and holding that pursuant thereto the movable equipments are
taxable realties, by reason of their being intended or destined for use in an
industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
machineries is further restricted by section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:
Art. 415. The following are immovable properties:
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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14078 February 24, 1961
MINDANAO BUS COMPANY, petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent.
Felimon B. Barria and I.V. Binamira for petitioner.
Office of the Solicitor General for respondent.
LABRADOR, J.:
Appeal by certiorari from a decision of the Court of Tax Appeals, ordering the
petitioner-appellant Mindanao Bus Company to pay P15,704.16, as documentary
stamp taxes for the period from January 1, 1948 up to September 16, 1953. The
decision sought to be reviewed modifies an assessment by the Collector of
Internal Revenue eliminating the compromise penalty imposed by the Collector.
Petitioner is a common carrier engaged in transporting passengers and freight by
means of auto-buses in Northern Mindanao, under certificates of public
convenience issued by the Public Service Commission. Sometime in September,
1953, an agent of the respondent Collector of Internal Revenue examined the
books of accounts of the petitioner and found that the freight tickets used by it do
not contain the required documentary stamp tax. Said agent took with him 500
booklets of tickets used by the petitioner and counted the freight receipts
contained therein. He counted 1,305 freight tickets. Assuming that each freight
ticket covers baggage valued at more than P5.00, the Collector of Internal
Revenue, upon recommendation of the agent, assessed against the petitioner
the sum of P15,704.16, exclusive of compromise penalty, as documentary stamp
taxes from January 1, 1948 up to September 16, 1953. The tax is computed in
the following manner:
Number of registered booklets of 100 tickets each,
from Oct. 29, 1948 to September 16, 1953 86,282
Number of booklets assessed to have been used
from Jan. 1, 1948 to Oct. 31, 1948 14,000
TOTAL NUMBER OF BOOKLETS USED
FROM
Jan. 1, 1948 to Sept. 16, 1953 100,282
Number of Ticket Booklets verified as basis 500
for assessment
Number of freight tickets per booklet
of 100 tickets each 2.61
Total number of ticket booklets used
Jan. 1, 1948 to Sept. 16, 1953 100,282
Multiply by average number of freight tickets
per booklet 2.61
Documentary stamp tax on 261,736 Freight Tickets P15,704.16
TOTAL AMOUNT DUE & COLLECTIBLE P15,704.16
The assessment of the Collector was appealed to the Court of Tax Appeals. In
that court the respondent Collector was declared in default and the petitioner
presented its evidence. The tax court, modified the decision of the Collector and
ordered the petitioner to pay only P15,704.16 as documentary stamp tax for the
period above-stated, without any compromise penalty. Upon petitioner's motion
for reconsideration, the court resolved to reopen the case, for the sole purpose of
allowing the petitioner to present as evidence the 500 booklets and 17 sackful,
respectively, of passenger and freight tickets of the petitioner. During the
rehearing of the case, the petitioner, however, failed to submit the said evidence;
instead it presented stub tickets, Exhibits "X-1" and "X-2, which were already in
its possession during the first hearing. The Court of Tax Appeals denied the
motion for reconsideration. Hence, this appeal.
In this Court, petitioner-appellant presents the following assignments of error:
I. THE TAX COURT ERRED IN PRESUMING THE CORRECTNESS OF THE
ASSESSMENT, AND IN NOT FINDING SAME NOT BASED UPON THE BEST
EVIDENCE OBTAINABLE, BUT IS ARBITRARY, SPECULATIVE,
HYPOTHETICAL, GROSSLY EXAGGERATED AND WITHOUT FACTUAL
BASES.
II. THE TAX COURT ERRED IN HOLDING THAT THE TICKETS ISSUED FOR
EXCESS BAGGAGE ARE BILLS OF LADING SUBJECT TO THE
DOCUMENTARY STAMP TAX.
III. THE TAX COURT ERRED IN NOT FINDING AND DECLARING SECTION
127 OF REGULATION NO. 26 OF THE DEPARTMENT OF FINANCE
UNCONSTITUTIONAL.
IV. THE TAX COURT ERRED IN HOLDING THE PETITIONER LIABLE AND
REQUIRING IT TO PAY THE TAX ASSESSMENT OF P15,704.16.
In support of its first assignment of error, the petitioner-appellant claims that the
computation made by the respondent is not based upon the best available
evidence, but on mere presumptions. This claim is devoid of merit. The agent of
the Bureau of Internal Revenue who investigated the petitioner's books of
accounts found it impossible to count one by one the freight tickets contained in
used booklets dumped inside the petitioner's bodega, because the booklets were
so numerous and most of them were either torn or destroyed. The procedure
followed by said agent, which is the average method, in ascertaining the total
number of freight tickets used during the period under review, can not be
improved because an actual count of the freight tickets is practically impossible.
The average method is the only way by which the agent could determine the
number of booklets used during the period in question.
The agent also correctly assumed that the value of the goods covered by each
freight ticket is not less than P5.00. It is a common practice of passengers in the
rural areas not to secure receipts for cargoes of small value and to demand
receipts only for valuable cargo (Interprovincial Autobus Co., Inc. vs. Collector of
Internal Revenue, G.R. No. L-6741, January 31, 1956.) If the freight tickets were
issued, the baggage carried must have been valuable enough.
On the other hand, it was the duty of petitioner to present evidence to show
inaccuracy in the above method of assessment (Interprovincial Autobus Co., Inc.
vs. Collector, supra; Perez vs. C.T.A., G.R. No. L-9193, May 29, 1957; Perez vs.
C.T.A., et al., G.R. No. L-10507, May 30, 1958; Government of P. I. vs. Monte de
Piedad, 35 Phil. 42), but it failed to do so. The claim of petitioner that the freight
tickets issued by it are not bills of lading subject to documentary stamp tax must
also be dismissed in view of our ruling in the case of Interprovincial Autobus Co.,
Inc. vs. Collector, supra: .
But the claim that freight tickets of bus companies are not 'bills of lading or
receipts' within the meaning of the Documentary Stamp Tax Law is without merit.
Bills of Lading, in modern jurisprudence, are not those issued by masters of
vessels alone; they now comprehend all forms of transportation, whether by sea
or land, and includes the receipts for cargo transported.
The term 'bill of lading' is frequently defined, especially by the older authorities as
a writing signed by the master of a vessel acknowledging the receipts of goods
on board to be transported to a certain port and there delivered to a designated
person or on his order. This definition was formulated at a time when goods were
principally transported by sea and, while adequate in view of the conditions
existing at that early day, is too narrow to suit present conditions. As
comprehending all methods of transportation, a bill of lading may be defined as a
written acknowledgment of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named or on his order. Such
instruments are sometimes called 'shipping receipts,' 'forwarders' receipts,' and
'receipts for transportation." The designation, however, is not material, and
neither is the form of the instrument. If it contains an acknowledgment by the
carrier of the receipt of goods for transportation, it is, in legal effect, a bill of
lading." (9 Am. Jur. 662, emphasis supplied) .
Section 227 of the National Internal Revenue Code imposes the tax on receipts
for goods or effects shipped from one port or place to another port or place in the
Philippines. The use of the word place after port and of the, word 'receipt' shows
that the receipts for goods shipped on land are included.
As its third assignment of error, the petitioner-appellant questions the validity of
Section 127 of Regulation No. 26, insofar as it provides that chits, memoranda
and other papers not in the usual commercial form of bill of lading, when used by
the common carrier in the transportation of goods for the collection of fares, are
to be considered bills of lading subject to documentary stamp tax, alleging that
said section is beyond the powers of the Secretary of Finance, which are
contained in Section 388 of the Tax Code. This argument should also be
dismissed for lack of merit. As the Solicitor General correctly argues the validity
of Section 127 of Regulation No. 26 should be upheld under the principle of
legislative approval by reenactment. Section 127 of said regulation sought to
implement Section 1449 (q) and (r) of the Revised Administrative Code, and the
latter provisions were reenacted in Section 227 of the National Internal Revenue
Code. Section 127 is in the same Regulations as Section 121. We are quoting
hereunder a portion of the decision of this Court in the case of Interprovincial
Autobus Co., Inc. vs. Collector, supra, to sustain our ruling that the third
assignment of error in the case at bar should be dismissed:
Another reason for sustaining the validity of the regulation, may be found in the
principle of legislative approval by reenactment. The regulations were approved
on September 16, 1924. When the National Internal Revenue Code was
approved on February 18, 1939, the same provisions on stamp tax, bills of lading
and receipts were reenacted. There is a presumption that the legislature
reenacted the law on the tax with full knowledge of the contents of the
regulations then in force regarding bills of lading and receipts, and that it
approved or confirmed them because they carry out the legislative purpose.
The fourth assignment of error, being only a consequence of the first three, the
same should also be dismissed.
WHEREFORE, the decision appealed from should be affirmed, with costs
against petitioner-appellant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, seeking a peremptory mandamus to compel
the respondent to record in the proper register a document purporting to be a
chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de
Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa,
Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila
and owner of the house of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage, purporting to convey to
the petitioner by way of mortgage both the leasehold interest in said lot and the
building which stands thereon.
The clauses in said document describing the property intended to be thus
mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by
way of mortgage, the following described personal property, situated in the City
of Manila, and now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of
lease hereinabove referred to, and in and to the premises the subject of the said
lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased
premises.
After said document had been duly acknowledge and delivered, the petitioner
caused the same to be presented to the respondent, Joaquin Jaramillo, as
register of deeds of the City of Manila, for the purpose of having the same
recorded in the book of record of chattel mortgages. Upon examination of the
instrument, the respondent was of the opinion that it was not a chattel mortgage,
for the reason that the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law, and registration was
refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable; and
it is his duty to accept the proper fee and place the instrument on record. The
duties of a register of deeds in respect to the registration of chattel mortgage are
of a purely ministerial character; and no provision of law can be cited which
confers upon him any judicial or quasi-judicial power to determine the nature of
any document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the
Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these
have been transferred to section 198 of the Administrative Code, where they are
now found. There is nothing in any of these provisions conferring upon the
register of deeds any authority whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage. His duties in respect to such
instruments are ministerial only. The efficacy of the act of recording a chattel
mortgage consists in the fact that it operates as constructive notice of the
existence of the contract, and the legal effects of the contract must be discovered
in the instrument itself in relation with the fact of notice. Registration adds nothing
to the instrument, considered as a source of title, and affects nobody's rights
except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purpose of the
application of the Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this jurisdiction; but it must not be
forgotten that under given conditions property may have character different from
that imputed to it in said articles. It is undeniable that the parties to a contract
may by agreement treat as personal property that which by nature would be real
property; and it is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be considered personal
property. Other situations are constantly arising, and from time to time are
presented to this court, in which the proper classification of one thing or another
as real or personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in
an administrative ruling promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the capacity of Judge of the fourth
branch of the Court of First Instance of the Ninth Judicial District, in the City of
Manila; and little of value can be here added to the observations contained in
said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his
Honor continued:

Based principally upon the provisions of section quoted the Attorney-General of

the Philippine Islands, in an opinion dated August 11, 1909, held that a register of
deeds has no authority to pass upon the capacity of the parties to a chattel
mortgage which is presented to him for record. A fortiori a register of deeds can
have no authority to pass upon the character of the property sought to be
encumbered by a chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be held ineffective as
against third parties, but this is a question to be determined by the courts of
justice and not by the register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644),
this court held that where the interest conveyed is of the nature of real, property,
the placing of the document on record in the chattel mortgage register is a futile
act; but that decision is not decisive of the question now before us, which has
reference to the function of the register of deeds in placing the document on
record.

In the light of what has been said it becomes unnecessary for us to pass upon
the point whether the interests conveyed in the instrument now in question are
real or personal; and we declare it to be the duty of the register of deeds to
accept the estimate placed upon the document by the petitioner and to register it,
upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date
of the notification hereof, the respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed, but without costs. So
ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8437 March 23, 1915
THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-
appellee,
vs.
ALDECOA & CO., in liquidation, JOAQUIN IBAEZ DE ALDECOA Y PALET,
ZOILO IBAEZ DE ALDECOA Y PALET, CECILIA IBAEZ DE ALDECOA Y
PALET, and ISABEL PALET DE GABARRO, defendants-appellants.
WILLIAM URQUHART, intervener-appellant.
Antonio Sanz and Chicote and Miranda for appellants.
Hausermann, Cohn and Fisher for appellee.
TRENT, J.:
This action was brought on January 31, 1911, by the plaintiff bank against the
above-named defendants for the purpose of recovering from the principal
defendant, Aldecoa & Co., an amount due from the latter as the balance to its
debit in an account current with the plaintiff, and to enforce the subsidiary liability
of the other defendants for the payment of this indebtedness, as partners of
Aldecoa & Co., and to foreclose certain mortgages executed by the defendants
to secure the indebtedness sued upon.
Judgment was entered on the 10th of August, 1912, in favor of the plaintiff and
against the defendants for the sum of P344,924.23, together with interest thereon
at the rate of 7 per cent per annum from the date of the judgment until paid, and
for costs, and for the foreclosure of the mortgages. The court decreed that in the
event of there being a deficiency, after the foreclosure of the mortgages, the
plaintiff must resort to and exhaust the property of the principal defendant before
taking out execution against the individual defendants held to be liable in
solidum with the principal defendant, but subsidiarily. Judgment was also entered
denying the relief sought by the intervener. All of the defendants and the
intervener have appealed.
The defendants, Joaquin Ibaez de Alcoa, Zoilo Ibaez de Alcoa, and Cecilia
Ibaez de Alcoa, were born in the Philippine Islands on March 27, 1884, July 4,
1885, and . . . , 1887, respectively, the legitimate children of Zoilo Ibaez de
Alcoa and the defendant, Isabel Palet. Both parents were native of Spain. The
father's domicile was in Manila, and he died here on October 4, 1895. The
widow, still retaining her Manila domicile, left the Philippine Islands and went to
Spain in 1897 because of her health, and did not return until the latter part of
1902. the firm of Aldecoa & Co., of which Zoilo Ibaez de Aldecoa, deceased,
had been a member and managing director, was reorganized in December,
1896, and the widow became one of the general or "capitalistic" partners of the
firm. The three children, above mentioned, appear in the articles of agreement as
industrial partners.
On July 31, 1903, Isabel Palet, the widowed mother of Joaquin Ibaez de
Aldecoa and Zoilo Ibaez de Aldecoa, who were then over the age of 18 years,
went before a notary public and executed two instruments (Exhibits T and U),
wherein and whereby she emancipated her two sons, with their consent and
acceptance. No guardian of the person or property of these two sons had ever
been applied for or appointed under or by virtue of the provisions of the Code of
Civil Procedure since the promulgation of the Code in 1901. After the execution
of Exhibit T and U, both Joaquin Ibaez de Aldecoa and Zoilo Ibaez de Aldecoa
participated in the management of Aldecoa and Co, as partners by being present
and voting at meetings of the partners of the company upon matters connected
with its affairs.
On the 23rd of February, 1906, the defendant firm of Aldeco and Co. obtained
from the bank a credit in account current up to the sum of P450,000 upon the
terms and conditions set forth in the instrument executed on that date (Exhibit A).
Later it was agreed that the defendants, Isabel Palet and her two sons, Joaquin
and Zoilo, should mortgage, in addition to certain securities of Aldecoa and Co.,
as set forth in Exhibit A, certain of their real properties as additional security for
the obligations of Aldecoa and Co. So, on March 23, 1906, the mortgage, Exhibit
B, was executed wherein certain corrections in the description of some of the real
property mortgaged to the bank by Exhibit A were made and the amount for
which each of the mortgaged properties should be liable was set forth. These two
mortgages, Exhibits A and B, were duly recorded in the registry of property of the
city of Manila on March 23, 1906.
On the 31st day of December, 1906, the firm of Aldecoa and Co. went into
liquidation on account of the expiration of the term for which it had been
organized, and the intervener, Urquhart, was duly elected by the parties as
liquidator, and be resolution dated January 24, 1907, he was granted the
authority expressed in that resolution (Exhibit G).
On June 30, 1907, Aldeco and Co. in liquidation, for the purposes of certain
litigation about to be commenced in its behalf, required an injunction bond in the
sum of P50,000, which was furnished by the bank upon the condition that any
liability incurred on the part of the bank upon this injunction bond would be
covered by the mortgage of February 23, 1906. An agreement to this effect was
executed by Aldecoa and Co. in liquidation, by Isabel Palet, by Joaquin Ibaez
de Aldecoa, who had then attained his full majority, and by Zoilo Ibaez de
Aldecoa, who was not yet twenty-three years of age. In 1908, Joaquin Ibaez de
Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de Aldecoa commenced
an action against their mother, Isabel Palet, and Aldecoa and Co., in which the
bank was not a party, and in September of that year procured a judgment of the
Court of First Instance annulling the articles of copartnership of Aldecoa and Co.,
in so far as they were concerned, and decreeing that they were creditors and not
partners of that firm.
The real property of the defendant Isabel Palet, mortgaged to the plaintiff,
corporation by the instrument of March 23, 1906 (Exhibit B), was, at the instance
of the defendant, registered under the provisions of the Land Registration Act,
subject to the mortgage thereon in favor of the plaintiff, by decree, of the land
court dated March 8, 1907.
On the 6th of November, 1906, the defendants, Isabel Palet and her three
children, Joaquin Ibaez de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia
Ibaez de Aldecoa, applied to the land court for the registration of their title to the
real property described in paragraph 4 of the instrument of March 23, 1906
(Exhibit B), in which application they stated that the undivided three-fourths of
said properties belonging to the defendants, Isabel Palet, Joaquin Ibaez de
Aldecoa, and Zoilo Ibaez de Aldecoa, were subject to the mortgage in favor of
the plaintiff to secure the sum of P203,985.97 under the terms of the instrument
dated March 22, 1906. Pursuant to this petition the Court of Land Registration, by
decree dated September 8, 1907, registered the title to the undivided three-
fourths interest therein pertaining to the defendants, Isabel Palet and her two
sons, Joaquin and Zoilo, to the mortgage in favor of the plaintiff to secure the sun
of P203,985.97.
On December 22, 1906, Aldecoa and Co., by a public instrument executed
before a notary public, as additional security for the performance of the
obligations in favor of the plaintiff under the terms of the contracts Exhibits A and
B, mortgaged to the bank the right of mortgage pertaining to Aldecoa and Co.
upon certain real property in the Province of Albay, mortgaged to said company
by one Zubeldia to secure an indebtedness to that firm. Subsequent to the
execution of this instrument, Zubeldia caused his title to the mortgaged property
to be registered under the provisions of the Land Registration Act, subject to a
mortgage of Aldecoa and Co. to secure the sum of P103,943.84 and to the
mortgage of the mortgage right of Aldecoa and Co. to the plaintiff.
As the result of the litigation Aldecoa and Co. and A. S. Macleod, wherein the
injunction bond for P50,000 was made by the bank in the manner and for the
purpose above set forth, Aldecoa and Co. became the owner, through a
compromise agreement executed in Manila on the 14th of August, 1907, of the
shares of the Pasay Estate Company Limited (referred to in the contract of March
13, 1907, Exhibit V), and on the 30th day of August of that year Urquhart, as
liquidator, under the authority vested in him as such, and in compliance with the
terms of the contract of June 13, 1907, mortgaged to the plaintiff, by way of
additional security for the performance of the obligations set forth in Exhibits A
and B, the 312 shares of the Pasay Estate Company, Limited, acquired by
Aldecoa and Co.
On the 31st day of March, 1907, Aldecoa and Co. mortgaged, as additional
security for the performance of those obligations, to the plaintiff the right of
mortgage, pertaining to the firm of Aldecoa and Co., upon certain real estate in
that Province of Ambos Camarines, mortgaged to Aldecoa and Co. by one
Andres Garchitorena to secure a balance of indebtedness to that firm of the sum
of P20,280.19. The mortgage thus created in favor of the bank was duly recorded
in the registry of deeds f that province. On the 31st day of March, 1907, Aldecoa
and Co. mortgaged as further additional security for the performance of the
obligations set forth in Exhibits A and B, the right of mortgage pertaining to the
firm of Aldecoa and Co. upon other real property in the same province,
mortgaged by the firm of Tremoya Hermanos and Liborio Tremoya, to secure the
indebtedness of that firm to the firm of Aldecoa and Co. of P43,117.40 and the
personal debt of the latter of P75,463.54. the mortgage thus created in favor of
the bank was filed for record with the registrar of deeds of that province.
On the 30th day of January, 1907, Aldecoa and Co. duly authorized the bank to
collect from certain persons and firms, named in the instrument granting this
authority, any and all debts owing by them to Aldecoa and Co. and to apply all
amounts so collected to the satisfaction, pro tanto, of any indebtedness of
Aldecoa and Co. to the bank.
By a public instrument dated February 18, 1907, Aldecoa and Co. acknowledged
as indebtedness to Joaquin Ibaez de Aldecoa in the sum of P154,589.20, a like
indebtedness to Zoilo Ibaez de Aldecoa in the sum of P89,177.07. On
September 30, 1908, Joaquin, Zoilo, and Cecilia recovered a judgment in the
Court of First Instance of Manila for the payment to them f the sum of
P155,127.31, as the balance due them upon the indebtedness acknowledged in
the public instrument dated February 18, 1907.
On November 30, 1907, Joaquin, Zoilo, and Cecilia instituted an action in the
Court of First Instance of the city of the Manila against the plaintiff bank for the
purpose of obtaining a judicial declaration to the effect that the contract whereby
Aldecoa and Co. mortgaged to the bank the shares of the Pasay Estate
Company recovered from Alejandro S. Macleod, was null and void, and for a
judgment of that these shares be sold and applied to the satisfaction of their
judgment obtained on September 30, 1908. Judgment was rendered by the lower
court in favor of the plaintiffs in that action in accordance with their prayer, but
upon appeal this court reversed that judgment and declared that the mortgage of
the shares of stock in the Pasay Estate Co. to the bank was valid.
In October, 1908, Joaquin and Zoilo Ibaez de Aldecoa instituted an action
against the plaintiff bank for the purpose of obtaining a judgment annulling the
mortgages created by them upon their interest in the properties described in
Exhibits A and B, upon the ground that the emancipation buy their mother was
void and of no effect, and that, therefore, they were minors incapable of creating
a valid mortgage upon their real property. The Court of First Instance dismissed
the complaint as to Joaquin upon the ground that he had ratified those
mortgages after becoming of age, but entered a judgment annulling said
mortgages with respect to Zoilo. Both parties appealed from this decision and the
case was given registry No. 6889 in the Supreme Court.1
On the 31st day of December, 1906, on which date the defendant Aldecoa and
Co. went into liquidation, the amount of indebtedness to the bank upon the
overdraft created by the terms of the contract, Exhibit A, was P516,517.98.
Neither the defendant Aldecoa and Co., nor any of the defendants herein, have
paid or caused to be paid to the bank the yearly partial payments due under the
terms of the contract, Exhibit A. But from time to time the bank has collected and
received from provincial debtors of Aldecoa and Co. the various sums shown in
Exhibit Q, all of which sums so received have been placed to the credit of
Aldecoa and Co. and notice duty given. Also, the bank, from time to time, since
the date upon which Aldecoa and Co. went into liquidation, has received various
other sums from, or for the account of, Aldecoa and Co., all of which have been
duly placed to the credit of that firm, including the sum of P22,552.63, the amount
of the credit against one Achaval, assigned to the bank by Aldecoa and Co. The
balance to the credit of the bank on the 31st day of December, 1911, as shown
on the books of Aldecoa and Co., was for the sum of P416.853.46. It appeared
that an error had been committed by the bank in liquidating the interest charged
to Aldecoa and Co., and this error was corrected so that the actual amount of the
indebtedness of Aldecoa and Co. to the plaintiff on the 15th of February, 1912,
with interest to December 10, 1912, the date of the judgment, the amount was
P344,924.23.
The trial court found that there was no competent evidence that the bank
induced, or attempted to induce, any customer of Aldecoa and Co. to discontinue
business relations with that company. The court further found that Urquhart had
failed to show that he had any legal interest in the matter in litigation between
plaintiff and defendants, or in the success of either of the parties, or an interest
against both, as required by section 121 of the Code of Civil Procedure. No
further findings, with respect to the facts alleged in the complaint of the
intervener, were made.
Aldecoa and Co. insist that the court erred:
1. In overruling the defendant's demurrer based upon the alleged ambiguity and
vagueness of the complaint.
2. In ruling that there was no competent evidence that the plaintiff had induced
Aldecoa and Co.'s provincial debtors to cease making consignments to that firm.
3. In rendering a judgment in a special proceeding for the foreclosure of a
mortgage, Aldecoa and Co. not having mortgaged any real estate of any kind
within the jurisdiction of the trial court, and the obligation of the persons who had
signed the contract of suretyship in favor of the bank having been extinguished
by operation of law.
The argument on behalf of the defendant in support of its first assignment of error
from the complaint that Aldecoa and Co. authorized the plaintiff bank, by the
instrument Exhibit G, to make collections on behalf of this defendant, and that the
complaint failed to specify the amount obtained by the bank in the exercise of the
authority conferred upon it, the complaint was thereby rendered vague and
indefinite. Upon this point it is sufficient to say that the complaint alleges that a
certain specific amount was due from the defendant firm as a balance of its
indebtedness to the plaintiff, and this necessarily implies that there were no
credits in favor of the defendant firm of any kind whatsoever which had not
already been deducted from the original obligation.
With respect to the contention set forth in the second assignment of error to the
effect that the bank has prejudiced Aldecoa and Co. by having induced
customers of the latter to cease their commercial relations with this defendant,
the ruling of the court that there is no evidence to show that there was any such
inducement is fully supported by the record. It may be possible that some of
Aldecoa and Co.'s customers ceased doing business with that firm after it went
into liquidation. This is the ordinary effect of a commercial firm going
consideration, for the reason that it was a well known fact that Aldecoa and Co.
was insolvent. It is hardly probable that the bank, with so large a claim against
Aldecoa and Co. and with unsatisfactory security for the payment of its claim,
would have taken any action whatever which might have had the effect of
diminishing Aldecoa and Co.'s ability to discharge their claim. The contention that
the customers of Aldecoa and Co. included in the list of debtors ceased to make
consignments to the firm because they had been advised by the bank that
Aldecoa and Co. had authorized the bank to collect these credits from the
defendant's provincial customers and apply the amounts so collected to the
partial discharge of the indebtedness of the defendant to the bank. Furthermore,
the bank was expressly empowered to take any steps which might be necessary,
judicially or extrajudicially, for the collection of these credits. The real reason
which caused the defendant's provincial customers to cease making shipments
was due to the fact that the defendant, being out of funds, could not give its
customers any further credit. It is therefore clear that the bank, having exercised
the authority conferred upon it by the company in a legal manner, is not
responsible for any damages which might have resulted from the failure of the
defendant's provincial customers to continue doing business with that firm.
In the third assignments of errors two propositions are insisted upon: (1) that in
these foreclosure proceedings the court was without jurisdiction to render
judgment against Aldecoa and Co. for the reason that firm had mortgaged no real
property within the city of Manila to the plaintiff; and (2) that the mortgages given
by this defendant have been extinguished by reason of the fact that the bank
extended the time within which the defendant's provincial debtors might make
their payments.
We understand that the bank is not seeking to exercise its mortgages rights upon
the mortgages which the defendant firm holds upon certain real properties in the
Provinces of Albay and Ambros Camarines and to sell these properties at public
auction in these proceedings. Nor do we understand that the judgment of the trial
courts directs that this be done. Before that property can be sold the original
mortgagors will have to be made parties. The banks is not trying to foreclose, in
this section, any mortgages on real property executed by Aldecoa and Co. It is
true that the bank sought and obtained a money judgment against that firm, and
at the same time and in the same action obtained a foreclosure judgment against
the other defendants. If two or more persons are in solidum the debtors mortgage
any of their real property situate in the jurisdiction of the court, the creditor, in
case of the solidary debtors in the same suit and secure a joint and several
judgment against them, as well as judgments of foreclosure upon the respective
mortgages.
The contention that the extensions granted to Aldecoa and Co.'s debtors, with
the consent and authority of that firm itself, has resulted in extinguishment of the
mortgages created by Aldecoa and Co. or of the mortgages created by partners
of that company to secure its liabilities to the bank, is not tenable. The record
shows that all the sureties were represented by Urquhart, the person elected by
them as liquidator of the firm, when he agreed with the bank upon the extensions
granted to those debtors. The authority to grant these extensions was conferred
upon the bank by the liquidator, and he was given authority by all the sureties to
authorized the bank to proceed in this manner.
With respect to the contention that the bank should be required to render an
account of collections made under authority of Exhibit G, it is sufficient to say that
the bank has properly accounted for all amounts collected from the defendant's
debtors, and has applied all such amounts to the partial liquidation of the
defendant's debt die to the bank. It is true that the sum for which judgment was
rendered against Aldecoa and Co. is less than the amount originally demanded
in the complaint, but this difference is due to the fact that certain amounts which
had been collected from Aldecoa and Co.'s provincial debtors by the bank were
credited to the latter between the date on which the complaint was filed and the
date when the case came on for trial, and the further fact that it was necessary to
correct an entry concerning one of the claims inasmuch as it appears that this
claim had been assigned to the bank absolutely, and not merely for the purposes
of collection, as the bookkeeper of the bank supposed, the result being that
instead of crediting Aldecoa and Co. with the full face value of this claim, the
bookkeeper had merely credited from time to time the amounts collected from
this debtor. We, therefore, find no error prejudicial to the rights of this defendant.
Doa Isabel Palt makes the following assignment of errors:
1. That the court erred in failing to hold that her obligation as surety had been
extinguished in accordance with the provisions of article 1851 of the Civil Code.
2. That the court erred in refusing to order for the benefit of this appellant that the
property of Aldecoa and Co. should be exhausted before the plaintiff firm should
be entitled to have recourse to the property of this defendant and appellant for
the satisfaction of its judgment.
This appellant does not contend that she is not personally liable in solidum with
Aldecoa and Co. for the liability of the latter firm to the plaintiff in the event that
the appeal taken by Aldecoa and Co. should unsuccessful. We have just held
that the judgment appealed from by Aldecoa and Co. should be affirmed. But
Doa Isabel Palet does not contend that her liability as a partner for the
obligations of Aldecoa and Co., although solidary, is subsidiary, and that she is
entitled to insist that the property of Aldecoa and Co. be first applied in its entirety
to the satisfaction of the firm's obligations before the bank shall proceed against
her in the execution of its judgment.
The trial court directed that the mortgaged properties, including the properties
mortgaged in the event that Aldecoa and Co. should fail to pay into court the
amount of the judgment within the time designated for that purpose. the court
recognized the subsidiary character of the personal liability of Doa Isabel Palet
as a member of the firm of Aldecoa and Co. and decreed that as to any
deficiency which might result after the sale of the mortgaged properties,
execution should not issue against the properties of Doa Isabel Palet until all
the property of Aldecoa and Co. shall have been exhausted. The properties
mortgaged by Doa Isabel Palet were so mortgaged not merely as security for
the performance of her own solidary subsidiary obligation as a partner bound for
all the debts of Aldecoa and Co., but for the purpose of securing the direct
obligation of the firm itself to the bank. We are, therefore, of the opinion that the
trial court committed no error upon this point.
It is urged on behalf of Doa Isabel Palet that the mortgages executed by her
upon her individual property have been canceled. The ground for this contention
is that Aldecoa and Co. undertook by the contract of February 23, 1906, to
discharge its liability to the plaintiff bank at the rate of not less than P50,000 per
annum, and that therefore it was the duty of the bank to sue Aldecoa and Co. as
soon as that firm failed to pay at maturity any one of the partial payments which it
had promised to make, and to apply the proceeds, from the sale of the property
of Aldecoa and Co. to the satisfaction of this indebtedness, and that the fact that
the bank failed to do so is equivalent to an extension of the term of the principal
debtor, and that the effect of this extension has been to extinguish the obligation
of this defendant as a surety of Aldecoa and Co. It is also contended that the
bank expressly extended the term within which Aldecoa and Co. was to satisfy its
obligation by allowing Aldecoa and Co. to furnish additional security. Doa Isabel
Palet alleges that all these acts were done without her knowledge or consent.
The extension of the term which, in accordance with the provisions of article
1851 of the Civil Code produces the extinction of the liability of the surety must of
necessity be based on some new agreement between the creditor and principal
debtor, by virtue of which the creditor deprives himself of his right to immediately
bring an action for the enforcement of his claim. The mere failure to bring an
action upon a credit, as soon as the same or any part of its matures, does not
constitute an extension of the term of the obligation.
Doa Isabel Palet is a personal debtor jointly and severally with Aldecoa and Co.
for the whole indebtedness of the latter firm to the bank, and not a mere surety of
the performance of the obligations of Aldecoa and Co. without any solidary
liability. It is true that certain additional deeds of mortgage and pledge were
executed by Aldecoa and Co. in favor of the bank as additional security after
Aldecoa and Co. had failed to meet its obligation to pay the first installment due
under the agreement of February 23, 1906, but there is no stipulation whatever in
any of these documents or deeds which can in any way be interpreted in the
sense of constituting an extension which would bind the bank to waiter for the
expiration of any new term before suing upon its claim against Aldecoa and Co.
We find nothing in the record showing either directly or indirectly that the bank at
any time has granted any extension in favor of Aldecoa and Co. for the
performance of its obligations. The liquidator of Aldecoa and Co. authorized the
bank to grant certain extensions to some of the provincial debtors of Aldecoa and
Co. whose debts were to be paid to the bank under the authority conferred upon
the bank by Aldecoa and Co. There is a marked difference between the
extension of time within which Aldecoa and Co.'s debtors might pay their
respective debts, and the extension of time for the payment of Aldecoa and Co.'s
own obligations to the bank. If the bank was had brought suit on its credit against
Aldecoa and Co., for the amount then due, on the day following the extension of
the time of Aldecoa and Co.'s debtors for the payments of their debts, it is evident
that the fact of such extension having been granted could not served in any
sense as a defense in favor of Aldecoa and Co. against the bank's action,
although this extension would have been available to Aldecoa and Co.'s debtors
if suit had been brought to enforce their liabilities to Aldecoa and Co. We must,
therefore, conclude that the judgment appealed from, in so far as it relates to
Doa Isabel Palet, must likewise be affirmed.
The intervener, William Urquhart, assigns these errors:
1. The court erred in holding that the proof fails to show a case for intervention
within the meaning of section 121 of the Code of Civil Procedure.
2. The court erred in failing to give preference to the credit of the liquidator
Urquhart for his salary.
The trial court found, as we have said, that Urquhart had failed to show that he
had any legal interest in the matter in litigation between the plaintiffs and the
defendants, or in the success of any of the parties, or any interest against both.
The proof upon this branch of the case consists of the following agreed
statement of facts:
Mr. Urquhart is a creditor of Aldecoa and Co. in the sum of P21,000 due him for
money loaned by him to Aldecoa and Co. before they went into liquidation.
Aldecoa and Co., in liquidation, owe Mr. Urquhart the liquidator P14,000 as
salary.
Section 121 of the Code of civil Procedure provides that:
A person may, at any period of a trial, upon motion, be permitted by the court to
intervene in an action or proceeding, if he has legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both.
The intervener is seeking to have himself declared a preferred creditor over the
bank. According to the above- quoted agreed statement of facts, he is a mere
creditor of Aldecoa and Co. for the sum of P21,000, loaned that firm before it
went into liquidation. This amount is not evidenced by a public document, or any
document for that matter, nor secured by pledge or mortgage, while the amount
due the bank appears in a public instrument and is also secured by pledges and
mortgages on the property of Aldecoa and Co., out of which the intervener seeks
to have his indebtedness satisfied. It is, therefore, clear that the intervener is not
entitled to the relief sought, in so far as the P21,000 is concerned.
The bank insists that, as the intervener had been in the employ of Aldecoa and
Co. for several years prior to the time that the latter went into liquidation, it cannot
be determined what part of the P14,000 is for salary as such employee and what
part is for salary as liquidator. We find no trouble in reaching the conclusion that
all of the P14,000 represents Urquhart's salary as liquidator of the firm of Aldecoa
and Co. The agreed statement of facts clearly supports this view. It is there
stated that Aldecoa and Co. in liquidation owed the liquidator P14,000 as salary.
The agreement does not say, nor can it be even inferred from the same, that
Aldecoa and Co. owed Urquhart P14,000, or any other sum for salary as an
employee of that firm before it went into liquidation. Under these facts, is the
intervener a preferred creditor over the bank for this amount?
In support of his contention that he should be declared a preferred creditor over
the bank for the P14,000, the appellant cites the decision of the supreme court of
Spain of March 16, 1897, and quotes the following from the syllabus of that case:
That the expense of maintenance of property is bound to affect such persons as
have an interest therein, whether they be the owners or creditors of the property;
therefore payment for this object has preference over any other debt, since such
other debts are recoverable to the extent that the property is preserved and
maintained.
There can be no question about the correctness of this ruling of the supreme
court of Spain to the effect that the fees of a receiver, appointed by the court to
preserve property in litigation, must be paid in preference to the claims of
creditors. But this is not at all the case under consideration, for the reason that
Urquhart was elected liquidator by the members of the firm of Aldecoa and Co.
Neither do we believe that the contention of the appellant can be sustained under
article 1922 of the Civil Code, which provides that, with regard to specified
personal property of the debtor, the following are preferred:
1. Credits for the construction, repair, preservation, or for the amount of the sale
of personal property which may be in the possession of the debtor to the extent
of the value of the same.
The only personal property of Aldecoa and Co. is 16 shares of the stock of the
Banco-Espaol-Filipino; 450 shares of the stock of the Compaia Maritima; 330
shares of the stock of the Pasay Estate Co., Ltd; and certain claims against
debtors of Aldecoa and Co., mentioned in Exhibit G.
The shares of stock in the Banco Espaol-Filipino and the Compaia Maritima
were pledged to the bank before Aldecoa and Co. went into liquidation, so
Urquhart had nothing to do with the preservation of these. The stock of the Pasay
Estate co., Ltd., was pledged to the bank on August 30, 1907, on the same day
that it came into the possession of Aldecoa and Co. and by the terms of the
pledge the bank was authorized to collect all dividends on the stock and apply
the proceeds to the satisfaction of its claim against Aldecoa and Co. The credits
set forth in Exhibit G were assigned to the bank on January 30, 1907, so, it will
be seen, that the Pasay Estate shares were in the possession of Aldecoa and
Co., or its liquidator, only one day. Urquhart had been liquidator twenty-eight
days when the credits, mentioned in Exhibit G, were assigned to the bank. If it
could be held that these two items bring him within the above quoted provisions
of article 1922, he could not be declared a preferred creditor over the bank for
the P14,000 salary for the reason that, according to his own showing, he had
been paid for his services as liquidator up to January, 1910. It is the salary since
that date which is now in question. The only property of Aldecoa and Co. which
the liquidator had anything to do with after 1910 was the real estate mortgages
on real property cannot be regarded as personal property, and it is only of
personal property that article 1922 speaks.
The judgment appealed from, in so far as it relates to Urquhart, being in
accordance with the law and the merits of the case, is hereby affirmed.
The appellants, Joaquin and Zoilo Ibaez de Aldecoa, make the following
assignments of error:
1. The court erred in not sustaining the plea of lis pendens with respect to the
validity of mortgages claimed by the plaintiff, which plea was set up as a special
defense by the defendants Joaquin and Zoilo Ibaez de Aldecoa, and in taking
jurisdiction of the case and in deciding therein a matter already submitted for
adjudication and not yet finally disposed of.
2. The court erred in hot sustaining the plea of res adjudicata set up as a special
defense by these defendants with respect to the contention of plaintiff that these
defendants are industrial and general partners of the firm of Aldecoa and Co.
3. The court erred in holding that the defendants Joaquin and Zoilo Ibaez de
Aldecoa were general partners (socios colectivos) of the firm of Aldecoa and Co.,
and is rendering judgment against them subsidiarily for the payment of the
amount claimed in the complaint.
The basis of the first alleged error is the pendency of an action instituted by the
appellants, Joaquin and Zoilo, in 1908, to have the mortgages which the bank
seeks to foreclose in the present action annulled in so far as their liability thereon
is concerned. That action was pending in this Supreme Court on appeal when
the present action was instituted (1911), tried, and decided in the court below.
The principle upon which plea of another action pending is sustained is that the
latter action is deemed unnecessary and vexatious. (Williams vs. Gaston, 148
Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1 R. C. L., sec. 1.) A statement of the rule to
which the litigant to its benefits, and which has often met with approval, is found
in Watson vs. Jones (13 Wall., 679, 715; 20 L. ed., 666):
But when the pendency of such a suit is set up to defeat another, the case must
be the same. There must be the same parties, or at least such as represent the
same interest, there must be the same rights asserted, and the same relief
prayed for. This relief must be founded on the same facts, and the title or
essential basis of the relief sought must be the same. The identity in these
particulars should be such that if the pending case has already been disposed of,
it could be pleaded in bar as a former adjudication of the same matter between
the same parties.
It will be noted that the cases must be identical in a number of ways. It will be
conceded that in so far as the plea is concerned, the parties are the same in the
case at bar as they were in the action to have the mortgages annulled. Their
position is simple reversed, the defendants there being the plaintiffs here, and
vice versa. This fact does not affect the application of the rule. The inquiry must
therefore proceed to the other requisites demanded by the rule. Are the same
rights asserted? Is the same relief prayed for?
The test of identity in these respects is thus stated in 1 Cyc., 28:
A plea of the pendency of a prior action is not available unless the prior action is
of such a character that, had a judgment been rendered therein on the merits,
such a judgment would be conclusive between the parties and could be pleaded
in bar of the second action.
This test has been approved, citing the quotation, in Williams vs. Gaston (148
Ala., 214; 42 Sou., 552); Van Vleck vs. Anderson (136 Iowa, 366; 113 N. W.,
853); Wetzstein vs. Mining Co. (28 Mont., 451; 72 P., 865). It seems to us that
unless the pending action, which the appellants refer to, can be shown to
approach the action at bar to this extent, the plea ought to fail.
The former suit is one to annul the mortgages. The present suit is one for the
foreclosure of the mortgages. It may be conceded that if the final judgment in the
former action is that the mortgages be annulled, such an adjudication will deny
the right of the bank to foreclose the mortgages. But will a decree holding them
valid prevent the bank from foreclosing them. Most certainly not. In such an
event, the judgment would not be a bar to the prosecution of the present action.
The rule is not predicated upon such a contingency. It is applicable, between the
same parties, only when the judgment to be rendered in the action first instituted
will be such that, regardless of which party is successful, it will amount to res
adjudicata against the second action. It has often been held that a pending action
upon an insurance policy to recover its value is not a bar to the commencement
of an action to have the policy reformed. The effect is quite different after final
judgment has been rendered in an action upon the policy. Such a judgment may
be pleaded in bar to an action seeking to reform the policy. The case are
collected in the note to National Fire Insurance Co. vs. Hughes (12 L. R. A., [N.
S.], 907). So, it was held in the famous case of Sharon vs. Hill (26 Fed., 337),
that the action brought by Miss hill for the purpose of establishing the
genuineness of a writing purporting to be a declaration of marriage and thereby
establishing the relation of husband and wife between the parties could not be
pleaded in abatement of Senator Sharon's action seeking to have the writing
declared false and forged. The court said:
This suit and the action of Sharon vs. Sharon are not brought on the same claim
or demand. The subject matter and the relief sought are not identical. This suit is
brought to cancel and annul an alleged false and forged writing, and enjoin the
use of it by the defendant to the prejudice and injury of the plaintiff, while the
other is brought to establish the validity of said writing as a declaration of
marriage, as well as the marriage itself, and also to procure a dissolution thereof,
and for a division of the common property, and for alimony.
Incidentally, it was held in this case that a judgment of the trial court declaring the
writing genuine was not res adjudicata after an appeal had been taken from the
judgment of the Supreme Court. So, in the case ta bar, the fact that the trial court
in the former action holds the mortgages invalid as to one of the herein
appellants is not final by reason of the appeal entered by the bank from that
judgment.
Cases are also numerous in which an action for separation has been held not to
be a bar to an action for divorce or vice versa. (Cook vs. Cook, [N. C.], 40 L. R.
S., [N. S.], 83, and cases collected in the note.) In Cook vs. Cook it was held that
a pending action for absolute divorce was not a bar to the commencement of an
action for separation. The above authorities are so analogous in principle to the
case at bar that we deem the conclusion irresistible, that the pending action to
annul the liability of the two appellant children on the mortgages cannot operates
as a plea in abatement in the case in hand which seeks to foreclose these
mortgages. The subject matter and the relief asked for are entirely different. The
facts do not conform to the rule and it is therefore not applicable.
With reference to the second alleged error, it appears that a certified copy of the
judgment entered in the former case, wherein it was declared that these two
appellants, together with their sister Cecilia, were creditors and partners of
Aldecoa and Co., was offered in evidence and marked Exhibit 5. This evidence
was objected to by the plaintiff on the ground that it was res inter alios acta and
not competent evidence against the plaintiff or binding upon it in any way
because it was not a party to that action. This objection was sustained and the
proffered evidence excluded. If the evidence had been admitted, what would be
its legal effect? That was an action in personam and the bank was not a party.
The judgment is, therefore, binding only upon the parties to the suit and their
successors in interest (sec. 306, Code of Civil Procedure, No. 2).
The question raised by the third assignment of errors will be dealt with in a
separate opinion wherein the appeal of Cecilia Ibaez de Aldecoa will be
disposed of.
The appellants whose appeals are herein determined will pay their respective
portions of the cost. So ordered.
Arellano, C. J., Torres and Araullo, JJ., concur.
Moreland, J.. concurs in the result.
Johnson, J., dissents.
TRENT, J.:
In Hongkong and Shanghai Banking Corporation vs. Aldecoa and Co. et al., R.
G. No. 8437, just decided, we said that the correctness of the judgment declaring
that the defendants, Joaquin, Zoilo, and Cecilia Ibaez de Aldecoa, are
subsidiarily liable to the bank as industrial partners of Aldecoa and Co. for the
debts of the latter, would be determined in a separate opinion.
The facts are these: Joaquin, Zoilo, and Cecilia Ibaez de Aldecoa were born in
the Philippine Islands, being the legitimate children of Zoilo Ibaez de Aldecoa
and Isabel Palet. Both parent were native of Spain, but domiciled in Manila,
where the father died in 1895. At the time of his death the father was a member
and managing director of an ordinary general mercantile partnership known as
Adecoa and Co. In December, 1896, Isabel Palet, for herself and as the parent of
her above-named three children, exercising the patria potestad, entered into a
new contract with various persons whereby the property and good will, together
with the liabilities of the firm of which her husband was a partner, were taken
over. The new firm was also an ordinary general mercantile partnership and
likewise denominated Aldecoa and Co. Although having the same name, the new
firm was entirely distinct from the old one and was, in fact, a new enterprise. The
widow entered into the new partnership as a capitalistic partner and caused her
three children to appear in the articles of partnership as industrial partners. At the
time of the execution of this new contract Joaquin was twelve years of age, Zoilo
eleven, and Cecilia nine.
Clauses 9 and 12 of the new contract of partnership read:
9. The industrial partners shall bear in proportion to the shares the losses which
may result to the partnership from bad business, but only from the reserve fund
which shall be established, as set forth in the 12th clause, and if the loss suffered
shall exhaust said fund the balance shall fall exclusively upon the partners
furnishing the capital.
12. The industrial partner shall likewise contribute 50 per cent of his net profits to
the formation of said reserve fund, but may freely dispose of the other 50 per
cent.
The question is presented, Could the mother of the three children legally bind
them as industrial partners of the firm of Aldecoa and Co. under the above facts?
If so, are they liable jointly and severally with all their property, both real and
personal, for the debts of the firm? That all industrial partners of an ordinary
general mercantile partnership are liable with all their property, both personal and
real, for all the debts of the firm owing to third parties precisely as a capitalistic
partner has long since been definitely settled in this jurisdiction, notwithstanding
provisions to the contrary in the articles of agreement. (Compaia Maritima vs.
Muoz, 9 Phil. Re., 326.)
There are various provisions of law, in force in 1896, which must be considered
in determining whether or not the mother had the power to make her children
industrial partners of the new firm Aldecoa and Co.
Article 5 of the Code of Commerce reads:
Persons under twenty-one years of age and incapacitated persons may continue,
through their guardians, the commerce which their parents or persons from
whom the right is derived may have been engaged in. If the guardians do not
have legal capacity to trade, or have some incompatibility, they shall be under
the obligation to appoint one or more factors who possess the legal
qualifications, and we shall take their places in the trade.
As the firm of which it is claimed the children are industrial partners was not a
continuation of the firm of which their deceased father was a member, but was a
new partnership operating under its own articles of agreement, it is clear that
article 5, supra, does not sustain the mother's power to bind her children as
industrial partners of the new firm.
Article 4 of the Code of Commerce reads:
The persons having the following conditions shall have legal capacity to
customarily engage in commerce:
1. Those who have reached the age of twenty-one years.
2. Those who are not subject to the authority of a father or mother or to a marital
authority.
3. Those who have the free disposition of their property.
The appellant children had not a single one of these qualifications in 1896 when
the mother attempted to enter them as industrial partners of the firm of Aldecoa
and Co.
It is claimed that the power of the mother to bind her children as industrial
partners is within her parental authority as defined by the Civil Code. Articles 159
to 166 which compose chapter 3 of the Civil Code, entitled "Effect of parental
authority with regard to the property of the children," defined the extent of the
parental authority over the property of minor children. Article 159 provides that
the father, or, in his absence, the mother, is the legal administrator of the
property of this children who are under their authority. Article 160 gives to such
parent the administration and usufruct of property acquired by the child by its
work or industry or for any good consideration. We take it that all the property
possessed by the children at the time the contract of partnership was entered
into in 1896 had been acquired by them either by their work or industry or for a
good consideration. The children were at that time under the authority of their
mother.
Article 164 reads:
The father, or the mother in a proper case, cannot alienate the real property of
the child, the usufruct or administration of which belongs to them, nor encumber
the same, except for sufficient reasons of utility or necessity, and after
authorization from the judge of the domicile, upon hearing by the department of
public prosecution, excepting the provisions which, with regard to the effects of
transfers, the mortgage law establishes.
The mother did not secure judicial approval to enter into the contract of
partnership on behalf of her children. Does member ship in an ordinary general
mercantile partnership alienate or encumber the real property of an industrial
partner? Clearly a partner alienates what he contributes to the firm as capital by
transferring its ownership to the firm. But this, in the case of an industrial partner,
is nothing. An industrial partner does not alienate any portion of his property by
becoming a member of such a firm. Therefore, the mother did not violate this
prohibition of article 164 in attempting to make her children industrial partners.
But the article in question also prohibited her from encumbering their real
property. This undoubtedly prohibits formal encumbrances such as mortgages,
voluntary easements, usufructuary rights, and others which create specific liens
upon specific real property. it has been held to prohibit the creation of real rights,
and especially registrable leases in favor of third persons. (Res., Aug. 30, 1893.)
The same word is used in article 317 of the Civil Code in placing restrictions
upon the capacity of a child emancipated by the concession of the parent to deal
with his own property. In commenting on this latter article, Manresa asks the
question, "To what encumbrances does the code in speaking of emancipated
children?" and answers it as follows:
The prohibition against encumbering real property is so explicit . . . that we
consider it unnecessary to enumerate what are the incumbrances to which the
law refers. All that signifies a limitation upon property, such as the creation,
modification, or extinction of the right of usufruct, use, habituation, emphyteusis,
mortgages, annuities, easements, pensions affecting real property, bonds, etc.,
is, in an express consent of the persons who are mentioned in the said article
317. (Vol. 2, p. 689.)
In commenting upon the same article, Sanchez Roan says practically the same
thing. (Vol. 5, p. 1179.) Neither of these commentators refers to the right of an
emancipated child to enter into a contract of partnership without the parent's
consent. The question, in so far as we have been able to ascertain, does not
appear to have ever been discussed, either by the courts or the commentators. It
is significant, however, that a contract of surety is placed by both the above
mentioned commentators among the prohibited contracts. The encumbrance
placed upon the real property of a surety is precisely the same as the
encumbrance placed upon the real property of an industrial partner. That is, prior
to judgment on the principal obligation or judgment against the partnership, the
property is not specifically liable, and the creditor has n preferred lien thereon or
right thereto by reason of the bond or partnership contract, as the case may be.
After judgment, the property of the surety or of the industrial partner, both real
and personal, is subsidiarily subject to execution. The evident purpose of both
article 164, prohibiting the parent from encumbering the real property of his child
without judicial approval, and of article 317, placing the same prohibition upon
the emancipated child in the absence of the parent's approval, is the same. It is
desired that the child's real property shall be frittered away by hasty and ill-
advised contracts entered into by the one having the administration thereof. Both
articles would fail of their purpose if the parent or the child, as the case might be,
could do indirectly what could not be done directly. In other words, there would
be little purpose in prohibiting a formal encumbrance by means of a mortgage,
for instance, when a subsidiary liability by means of a bond or membership in a
partnership could as effectually deprive the child of its real property. This
proposition rests upon the theory that the mother could have freely disposed of
the child's personal property in 1896 and that the only recourse open to them
would have been an action against their mother for the value of such property. If
this theory be true, the result would not be changed for the reason that children
were either industrial partners or they were not. If they were, they are liable to the
extent of both their real and personal property for the debts of the firm. If they
were not, they are in no way liable. There can be only two kinds or classes of
partners in a firm of this kind, capitalistic and industrial. Both are personally liable
to third persons for the debts of such a firm. To say that the children are industrial
partners, but liable only to the extent of their personal property, would be to place
them in a different class of partners. As the mother did not secure judicial
approval, the contract wherein she attempted to make her children industrial
partners, with all the consequences flowing therefrom, was, therefore, defective
and that act of itself in no way made the children liable for the debts of the new
firm.
The question remains, Did any of the children validly ratify the contract after
acquiring capacity to do so? Cecilia was never emancipated and there is no
evidence indicating that she has ever ratified the contract by word or deed. She
is, therefore, completely exonerated from liability for the debts of Aldecoa and
Co.
The other two children, Joaquin and Zoilo, were emancipated by their mother
after they had reached the age of eighteen and prior to seeking annullment of the
contract of partnership had participated by vote and otherwise in the
management of the firm, as is evidenced by Exhibits W, Y, and Z. These various
acts sufficiently show a ratification of the partnership contract and would have the
effect of making the two children industrial partners if they had been of age at
that time. Ratification is in the nature of the contract. It is the adoption of, and
assent to be bound by, the act of another. (Words and Phrases, vol. 7, p. 5930.)
From the effect of emancipation it cannot be doubted that the two children had
capacity, with their mother's consent, to enter into a contract of partnership, and,
by so doing, make themselves industrial partners, thereby encumbering their
property. Conceding that the children under these circumstances could enter into
such a contract with their mother, her express consent to the ratification of the
contract by the two children does not appear of record. The result flowing from
the ratification being the encumbrance of their property, their mother's express
consent was necessary.
For the foregoing reasons the judgment appealed from, in so far as it holds the
three children liable as industrial partners, is reversed, without costs in so far as
this branch of the case is concerned. So ordered.