G.R. No.

L-16218           November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA,

LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants, 
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.

Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.

Ernesto Parol for defendants-appellees.

MAKALINTAL, J.:

This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the
complaint filed by appellants, upon motion of defendants-appellate on the ground that the action was
within the exclude (original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the same
province.

The complaint alleges in substance that appellants were the owners of the house, worth P200.00,
built on and owned by them and situated in the said municipality Lagangilang; that sometime in
January 1957 appealed forcibly demolished the house, claiming to be the owners thereof; that the
materials of the house, after it was dismantled, were placed in the custody of the barrio lieutenant of
the place; and that as a result of appellate's refusal to restore the house or to deliver the material
appellants the latter have suffered actual damages the amount of P200.00, plus moral and
consequential damages in the amount of P600.00. The relief prayed for is that "the plaintiffs be
declared the owners of the house in question and/or the materials that resulted in (sic) its
dismantling; (and) that the defendants be orders pay the sum of P200.00, plus P600.00 as damages,
the costs."

The issue posed by the parties in this appeal is whether the action involves title to real property, as
appellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A.
296, as amended), whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated
in the order appealed from, since there is no real property litigated, the house having ceased to
exist, and the amount of the demand does exceed P2,000.00 (Sec. 88, id.)1

The dismissal of the complaint was proper. A house is classified as immovable property by reason of
its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true
regardless of the fact that the house may be situated on land belonging to a different owner. But
once the house is demolished, as in this case, it ceases to exist as such and hence its character as
an immovable likewise ceases. It should be noted that the complaint here is for recovery of
damages. This is the only positive relief prayed for by appellants. To be sure, they also asked that
they be declared owners of the dismantled house and/or of the materials. However, such declaration
in no wise constitutes the relief itself which if granted by final judgment could be enforceable by
execution, but is only incidental to the real cause of action to recover damages.

The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs
are adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes,
Dizon and Regala, JJ., concur.
G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner, 

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent. 

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent Court erred in
denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de
Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB). 

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land
consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land
to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount,
the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the
highest bidder in said foreclosure proceedings. However, the bank secured title thereto only on
December 14, 1977. 

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with
the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the
Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said
warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then
leased the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975. 

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly
to include in the sale, the building and improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her name (TCT No. 173744) as well as
separate tax declarations for the land and building. 
1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages"
against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal,
Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner alleged: 

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... by
virtue of the request of defendant ... executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the fact that said building is not owned by the
 bank either by virtue of the public auction sale conducted by the Sheriff and sold to
the Philippine National Bank or by virtue of the Deed of Sale executed by the bank
itself in its favor on September 21, 1977 ...; 

23. That said defendant bank fraudulently mentioned ... that the sale in its favor
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the sheriff in
its favor ... only limited the sale to the land, hence, by selling the building which never
became the property of defendant, they have violated the principle against 'pactum
commisorium'. 

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be
declared null and void and that damages in the total sum of P230,000.00, more or less, be awarded
to him.2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of
lack of cause of action in that she was a purchaser for value and invoked the principle in Civil Law
that the "accessory follows the principal".3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was
improperly laid considering that the building was real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should apply.  4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale
with damages is in the nature of a personal action, which seeks to recover not the title nor
possession of the property but to compel payment of damages, which is not an action affecting title
to real property. 

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows: 

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated
March 13, 1980, considered against the plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue considering that the plaintiff's complaint
which seeks for the declaration as null and void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant Philippine
National Bank situated in the Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real
property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in
the province where the property or any part thereof lies. 5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
of sale and emphasized that the case should proceed with or without respondent PNB as
respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had
been raised by the latter. 

On September 1, 1980,.respondent Court denied reconsideration for lack of merit. 

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined with the filing of respondent Lacsamana's
Answer. 

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

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

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

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in

article 415(l) of the Civil Code.   Buildings are always immovable under the Code.   A building treated
6 7

separately from the land on which it stood is immovable property and the mere fact that the parties
to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise
changed its character as immovable property.  8

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

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4)  , which was timely raised (Section 1, Rule 16)  . 
10 11

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as
the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone. 

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner
Antonio Punsalan, Jr. in the proper forum. 

Costs against petitioner. 

SO ORDERED. 

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner, 
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents. 

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First
Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs.
Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor of
petitioner bank are null and void. 

The undisputed facts of this case by stipulation of the parties are as follows: 

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula

Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the following
described properties: 

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces

containing a total floor area of 263 sq. meters, more or less, generally constructed of
mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets;
declared and assessed in the name of FERNANDO MAGCALE under Tax
Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed
value of P35,290.00. This building is the only improvement of the lot. 

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of

occupancy on the lot where the above property is erected, and more particularly
described and bounded, as follows: 

A first class residential land Identffied as Lot No. 720, (Ts-308,

Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac,
Olongapo City, containing an area of 465 sq. m. more or less,
declared and assessed in the name of FERNANDO MAGCALE under
Tax Duration No. 19595 issued by the Assessor of Olongapo City
with an assessed value of P1,860.00; bounded on the 

NORTH: By No. 6, Ardoin Street 

SOUTH: By No. 2, Ardoin Street 

EAST: By 37 Canda Street, and 

WEST: By Ardoin Street.

 All corners of the lot marked by conc. cylindrical
monuments of the Bureau of Lands as visible limits.
( Exhibit "A, " also Exhibit "1" for defendant). 

Apart from the stipulations in the printed portion of the aforestated

deed of mortgage, there appears a rider typed at the bottom of the
reverse side of the document under the lists of the properties
mortgaged which reads, as follows: 

AND IT IS FURTHER AGREED that in the event the

Sales Patent on the lot applied for by the Mortgagors
as herein stated is released or issued by the Bureau
of Lands, the Mortgagors hereby authorize the
Register of Deeds to hold the Registration of same
until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the
Secretary of Agriculture and Natural Resources,
which title with annotation, shall be released in favor
of the herein Mortgage. 

From the aforequoted stipulation, it is obvious that the mortgagee

(defendant Prudential Bank) was at the outset aware of the fact that
the mortgagors (plaintiffs) have already filed a Miscellaneous Sales
Application over the lot, possessory rights over which, were
mortgaged to it. 

Exhibit "A" (Real Estate Mortgage) was registered under the

Provisions of Act 3344 with the Registry of Deeds of Zambales on
November 23, 1971. 

On May 2, 1973, plaintiffs secured an additional loan from defendant

Prudential Bank in the sum of P20,000.00. To secure payment of this
additional loan, plaintiffs executed in favor of the said defendant
another deed of Real Estate Mortgage over the same properties
previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for
defendant). This second deed of Real Estate Mortgage was likewise
registered with the Registry of Deeds, this time in Olongapo City, on
May 2,1973. 

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent
No. 4776 over the parcel of land, possessory rights over which were mortgaged to
defendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent,
and upon its transcription in the Registration Book of the Province of Zambales,
Original Certificate of Title No. P-2554 was issued in the name of Plaintiff Fernando
Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972. 

For failure of plaintiffs to pay their obligation to defendant Bank after it became due,
and upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits
"A" and "B") were extrajudicially foreclosed. Consequent to the foreclosure was the
sale of the properties therein mortgaged to defendant as the highest bidder in a
public auction sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit
"E"). The auction sale aforesaid was held despite written request from plaintiffs
 through counsel dated March 29, 1978, for the defendant City Sheriff to desist from
going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No.
2443-0, Rollo, pp. 29-31). 

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35). 

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by
private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979
(Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition
(Ibid., pp. 5-28). 

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112). 

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties
were required to submit simultaneously their respective memoranda. (Ibid., p. 114). 

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents
filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155). 

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P.
158). 

In its Memorandum, petitioner raised the following issues: 

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND 

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE

RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER
ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY
15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.
(Memorandum for Petitioner, Rollo, p. 122). 

This petition is impressed with merit. 

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another. 

The answer is in the affirmative. 

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court
ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said
provision of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa,
Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,
May 30,1958). 

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would be still a real estate mortgage for the building would
still be considered immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established
that possessory rights over said properties before title is vested on the grantee, may be validly
transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438
[1961]). 

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on
the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the
lot where the building was erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.
Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of
which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15,
1972. It is therefore without question that the original mortgage was executed before the issuance of
the final patent and before the government was divested of its title to the land, an event which takes
effect only on the issuance of the sales patent and its subsequent registration in the Office of the
Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110
Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p.
49). Under the foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the government is to all
intents and purposes a valid mortgage. 

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted
that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the
Public Land Act, or any improvement thereon and therefore have no application to the assailed
mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of
Republic Act No. 730, also a restriction appearing on the face of private respondent's title has
likewise no application in the instant case, despite its reference to encumbrance or alienation before
the patent is issued because it refers specifically to encumbrance or alienation on the land itself and
does not mention anything regarding the improvements existing thereon. 

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

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

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

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

This pronouncement covers only the previous transaction already alluded to and does not pass upon
any new contract between the parties (Ibid), as in the case at bar. It should not preclude new
contracts that may be entered into between petitioner bank and private respondents that are in
accordance with the requirements of the law. After all, private respondents themselves declare that
they are not denying the legitimacy of their debts and appear to be open to new negotiations under
the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the land in its favor. 

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City
is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but
ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void,
without prejudice to any appropriate action the Government may take against private respondents. 

SO ORDERED. 

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur. 

 
G.R. No. L-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, but only " for the
reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the
final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of
the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that
respondent "took possession and control of said house"; (4) that "there was no valid attachment by
the plaintiff and/or the Sheriff of Manila of the property in question as neither took actual or
constructive possession or control of the property at any 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 likewise, not valid as there is no registry of transactions covering houses erected
on land belonging to or leased from another." In this manner, respondent claimed a better right,
merely under the theory that, in case of double sale of immovable 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
Appeals — that Rivera had received copies of said documents; and that, for this reason, evidently,
no proof was introduced thereon, we, are of the opinion, and so hold that the finding of the Court of
Appeals to the effect that said copies had not been served upon Rivera is based upon a
misapprehension of the specific issues involved therein and goes beyond the range of such issues,
apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a
grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be
entered affirming that of the Court of First Instance of Manila, with the costs of this instance against
respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia
and Felix, JJ.,concur.
G.R. No. L-18456           November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee, 
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, 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.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala, and Makalintal,
JJ., concur.

[G.R. No. L-11139. April 23, 1958.]

SANTOS EVANGELISTA, Petitioner, v. ALTO SURETY & INSURANCE CO., INC., Respondent. 

Gonzalo D. David for Petitioner. 

Raul A. Aristorenas and Benjamin Relova for Respondent. 

SYNOPSIS

1. PROPERTY; HOUSE IS NOT PERSONAL BUT REAL PROPERTY FOR PURPOSES OF ATTACHMENT. — A house is
not personal property, much less a debt, credit or other personal property capable of manual delivery, but
immovable property "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 a usufructuary or lessee" (Laddera v. Hodges, 48 Off.
Gaz., 5374.) and the attachment of such building is subject to the provisions of subsection (a) of section 7,
Rule 59 of the Rules of Court. 

DECISION

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 v. Ricardo Rivera," for a sum of money. On
the same date, he obtained a writ of attachment, which was 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. v.
Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had
been rendered in favor of 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, and 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: jgc:chanrobles.com.ph

"The property of the defendant shall be attached by the officer executing the order in the following manner:
virtual 1aw library
chanrob1es

. . . 

"(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 "Evangelista 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."
cralaw virtua1aw library

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 Evangelista, 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 by the lessee of the land on which it is built, should
be dealt with, for purposes 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 v.
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 a usufructuary or lessee. This is the doctrine of
our Supreme Court in Leung Yee v. Strong Machinery Company, 37 Phil., 644. And it is amply supported by
the rulings of the French Court . . . ." cralaw virtua1aw library

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 v. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New York v.
Jaramillo, 44 Phil., 630; De Jesus v. 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 v. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held: jgc:chanrobles.com.ph

"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 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 of the land, which is real
property. (42 Am. Jur. 199-200; Leung Yee v. Strong Machinery Co., 37 Phil., 644; Republic v. Ceniza, Et Al., 90
Phil., 544; Ladera, Et. Al. v. Hodges, Et Al., [C.A. ], 48 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 and execution of judgment. He alleged, however, by
way 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 allow plaintiff 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, but only "for the reasons
stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed
executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in
question; (2) that respondent "is a buyer in good faith and for value" ; (3) that respondent "took possession
and control of said house" ; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of
Manila of the property in question as neither took actual or constructive possession or control of the
property at any 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 likewise, not valid as there is no
registry of transactions covering houses erected on land belonging to or leased from another." In this
manner, respondent claimed a better right, merely under the theory that, in case of double sale of
immovable 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 copy of the complaint, upon service of summons, prior to the filing of copies of
said writ and notice with the register of 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 Appeals — that Rivera had received
copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we are of
the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been
served upon Rivera is based upon a misapprehension of the specific issues involved therein and goes beyond
the range of such issues, apart from being contrary to the aforementioned admission by the parties, and that,
accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore,
inaccurate. 

Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered
affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the
Alto Surety & Insurance Co., Inc. It is so ordered. 

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J. B. L., Endencia, and
Felix, JJ., concur. 
 [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 Plaintiff’s 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 sheriff’s 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 Plaintiff’s 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;   Standard Oil Co. of
chan roblesvirtualawlibrary

New York vs. Jaranillo, 44 Phil., 630;  and De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter
chan roblesvirtualawlibrary

depends on the circumstances and the intention of the parties.

“  The general principle of law is that a building permanently fixed to the freehold becomes a part of it,
 cralaw

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  . The general rule is
 cralaw

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.)
“  Among the principal criteria for determining whether property remains personally or becomes realty
 cralaw

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 .” (Ibid., 209-210.)  cralaw

The question now before us, however, is:  Does the fact that the parties entering into a contract
chanroblesvirtuallawlibrary

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 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;  and when real chan roblesvirtualawlibrary

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;  Leung Yee vs. Strong Machinery Co., 37 Phil., 644; chan roblesvirtualawlibrary chan

Republic vs. Ceniza, et al., 90 Phil., 544;  Ladera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.).
roblesvirtualawlibra ry chan roblesvirtualawlibrary

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

Paras, C.J., Bengzon, Padilla., Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, Reyes, J.B.L.
and Endencia, JJ., concur.
G.R. No. L-19468            October 30, 1964

SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-appellants, 

vs.
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. 

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:

It appears from the complaint that on December 11, 1948, 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 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 attorney's
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.

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 adjudicata 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 adjudicata; 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:

In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R, promulgated Sept. 23,
1952) this Court, thru Justice J. B. L. Reyes, said, among others:

Since it is a rule in our law that buildings and constructions are regarded as mere
accesories to the land (following the Roman maxim omne quod solo inaedificatur
solo credit) it is logical that said accessories should partaked 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 vs. 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:

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 vs.
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, 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 (Emphasis supplied);
that, thereafter, the records of the case were 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:

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 Kim 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 (Emphasis 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 certiorari and 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 certiorari and 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."

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 at 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 now 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. vs. 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 Yee vs. Strong Machinery Co., 37 Phil. 644; Evangelista vs. Alto Surety, G.R.
No. L-11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L-18456, November 30, 1963). As a
consequence, the sale of the house in question in the proceedings for the extrajudicial 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
vs. 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 others appealed from are hereby affirmed, with costs against plaintiffs Salvador
Piansay and Claudia B. Vda. de Uy Kim. It is so ordered. 
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.
G.R. No. L-15334             January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON

CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.

Ross, Selph and Carrascoso for respondent. 

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric street
railway and electric light, heat and power system in the City of Manila and its suburbs to the person
or persons making the most favorable bid. Charles M. Swift was awarded the said franchise on
March 1903, the terms and conditions of which were embodied in Ordinance No. 44 approved on
March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the transferee and
owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by respondent at intervals,
from its hydro-electric plant in the province of Laguna to the City of Manila. The respondent Meralco
has constructed 40 of these steel towers within Quezon City, on land belonging to it. A photograph of
one of these steel towers is attached to the petition for review, marked Annex A. Three steel towers
were inspected by the lower court and parties and the following were the descriptions given there of
by said court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a depth
of about eight (8) feet, with an opening of about one (1) meter in diameter, decreased to
about a quarter of a meter as it we deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars attached to the leg means of bolts; the tower
proper was attached to the leg three bolts; with two cross metals to prevent mobility; there
was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with
certainty to whether said adobe stone was placed purposely or not, as the place abounds
with this kind of stone; and the tower carried five high voltage wires without cover or any
insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in the
first tower, the ground around one of the four legs was excavate from seven to eight (8) feet
deep and one and a half (1-½) meters wide. There being very little water at the bottom, it
was seen that there was no concrete foundation, but there soft adobe beneath. The leg was
likewise provided with two parallel steel bars bolted to a square metal frame also bolted to
each corner. Like the first one, the second tower is made up of metal rods joined together by
 means of bolts, so that by unscrewing the bolts, the tower could be dismantled and
reassembled.

The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to a
depth about two or three inches beyond the outside level of the steel bar foundation. It was
found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers
for real property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's
petition to cancel these declarations, an appeal was taken by respondent to the Board of
Assessment Appeals of Quezon City, which required respondent to pay the amount of P11,651.86
as real property tax on the said steel towers for the years 1952 to 1956. Respondent paid the
amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for short)
which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.

In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term
"poles" which are declared exempt from taxes under part II paragraph 9 of respondent's franchise;
(2) the steel towers are personal properties and are not subject to real property tax; and (3) the City
Treasurer of Quezon City is held responsible for the refund of the amount paid. These are assigned
as errors by the petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said percentage
shall be due and payable at the time stated in paragraph nineteen of Part One hereof, ... and
shall be in lieu of all taxes and assessments of whatsoever nature and by whatsoever
authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee from which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis
supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as
typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the top
of which something is affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New International
Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
which exemption is granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use to which they are
dedicated. In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by which
something is supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires. 

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not
a novelty. Several courts of last resort in the United States have called these steel supports "steel
towers", and they denominated these supports or towers, as electric poles. In their decisions the
words "towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or
metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an association
used to convey its electric power furnished to subscribers and members, constructed for the purpose
of fastening high voltage and dangerous electric wires alongside public highways. The steel supports
or towers were made of iron or other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the said two metal pieces being
connected with criss-cross iron running from the bottom to the top, constructed like ladders and
loaded with high voltage electricity. In form and structure, they are like the steel towers in question.
(Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric power,
but claimed that the steel towers on which it is carried were so large that their wire took their
structure out of the definition of a pole line. It was held that in defining the word pole, one should not
be governed by the wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material wire of its individual
members, any continuous series of structures intended and used solely or primarily for the purpose
of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v.
Bryan 252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would be
required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then one
should admit that the Philippines is one century behind the age of space. It should also be conceded
by now that steel towers, like the ones in question, for obvious reasons, can better effectuate the
purpose for which the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the termpoles, the logical question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx     xxx     xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;

xxx     xxx     xxx

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

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

xxx     xxx     xxx

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

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

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.
G.R. No. L-26278             August 4, 1927

LEON SIBAL , plaintiff-appellant, 

vs.
EMILIANO J. VALDEZ ET AL., defendants. 
EMILIANO J. VALDEZ, appellee.

J. E. Blanco for appellant.

Felix B. Bautista and Santos and Benitez for appellee.

JOHNSON, J.:

The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day
of December 1924. The facts are about as conflicting as it is possible for facts to be, in the trial
causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of
the Province of Tarlac, by virtue of a writ of execution issued by the Court of First Instance of
Pampanga, attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by the
plaintiff and his tenants on seven parcels of land described in the complaint in the third paragraph of
the first cause of action; that within one year from the date of the attachment and sale the plaintiff
offered to redeem said sugar cane and tendered to the defendant Valdez the amount sufficient to
cover the price paid by the latter, the interest thereon and any assessments or taxes which he may
have paid thereon after the purchase, and the interest corresponding thereto and that Valdez
refused to accept the money and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was
attempting to harvest the palay planted in four of the seven parcels mentioned in the first cause of
action; that he had harvested and taken possession of the palay in one of said seven parcels and in
another parcel described in the second cause of action, amounting to 300 cavans; and that all of
said palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J.
Valdez his attorneys and agents, restraining them (1) from distributing him in the possession of the
parcels of land described in the complaint; (2) from taking possession of, or harvesting the sugar
cane in question; and (3) from taking possession, or harvesting the palay in said parcels of land.
Plaintiff also prayed that a judgment be rendered in his favor and against the defendants ordering
them to consent to the redemption of the sugar cane in question, and that the defendant Valdez be
condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the two
parcels above-mentioned ,with interest and costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the bond for
P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each
and every allegation of the complaint and step up the following defenses:

(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;
 (b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the
complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminary
injunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de cana dulce) palay
in said parcels of land, representing a loss to him of P8,375.20 and that, in addition thereto, he
suffered damages amounting to P3,458.56. He prayed, for a judgment (1) absolving him from all
liability under the complaint; (2) declaring him to be the absolute owner of the sugar cane in question
and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of
P11,833.76, representing the value of the sugar cane and palay in question, including damages.

Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing
the evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgment
against the plaintiff and in favor of the defendants —

(1) Holding that the sugar cane in question was personal property and, as such, was not
subject to redemption;

(2) Absolving the defendants from all liability under the complaint; and

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos
Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08
as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

(c) 646.00, the value of palay harvested by plaintiff; 

(d) 600.00, the value of 150 cavans of palay which the defendant was not able to
raise by reason of the injunction, at P4 cavan. 9,439.08 From that judgment the
plaintiff appealed and in his assignments of error contends that the lower court erred:
(1) In holding that the sugar cane in question was personal property and, therefore,
not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7
and 8, and that the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40
from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was
unable to raise palay on the land, which would have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.
It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of
execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co.,
Inc. vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said Leon
Sibal, situated in the Province of Tarlac, designated in the second of attachment as parcels
1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the
auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid for
the said parcels separately as follows (Exhibit C, and 2-A):

Parcel

1 .....................................................................  P1.00

2 .....................................................................  2,000.00 

3 .....................................................................  120.93 

4 .....................................................................  1,000.00 

5 .....................................................................  1.00 

6 .....................................................................  1.00 

7 with the house thereon ..........................  150.00

8 .....................................................................  1,000.00
==========

4,273.93

(3) That within one year from the sale of said parcel of land, and on the 24th day of
September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc.,
for the account of the redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The redemption price said eight
parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C
and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province
of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga
(Emiliano J. Valdez vs. Leon Sibal 1.º — the same parties in the present case), attached the
personal property of said Leon Sibal located in Tarlac, among which was included the sugar
cane now in question in the seven parcels of land described in the complaint (Exhibit A).
 (2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid
therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also
attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest and
participation therein, which real property consisted of eleven parcels of land and a house and
camarin situated in one of said parcels (Exhibit A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin,
were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200.
Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and
11. The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12,
and 13, were released from the attachment by virtue of claims presented by Agustin
Cuyugan and Domiciano Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J.
Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it at
public auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203 of
the Court of First Instance of Manila, as stated above. Said amount represented the unpaid
balance of the redemption price of said eight parcels, after payment by Leon Sibal of P2,000
on September 24, 1923, fro the account of the redemption price, as stated above. (Exhibit C
and 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of
land described in the first cause of action of the complaint at public auction on May 9 and 10,
1924, for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land
situated in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923,
Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of said
parcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights
and interest in the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which
Leon Sibal had or might have had on said eight parcels by virtue of the P2,000 paid by the
latter to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is personal or real
property. It is contended that sugar cane comes under the classification of real property as
"ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334
enumerates as real property the following: Trees, plants, and ungathered products, while they are
annexed to the land or form an integral part of any immovable property." That article, however, has
received in recent years an interpretation by the Tribunal Supremo de España, which holds that,
under certain conditions, growing crops may be considered as personal property. (Decision of March
18, 1904, vol. 97, Civil Jurisprudence of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil
Code, in view of the recent decisions of the supreme Court of Spain, admits that growing crops are
sometimes considered and treated as personal property. He says:

No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante
a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuente
con la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su terminacion por desahucio no extingue
los derechos del arrendario, para recolectar o percibir los frutos correspondientes al año
agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su
vez el importe de la renta integra correspondiente, aun cuando lo haya sido por precepto
legal durante el curso del juicio, fundandose para ello, no solo en que de otra suerte se daria
al desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestro
proposito, la consideracion de inmuebles que el articulo 334 del Codigo Civil atribuge a los
frutos pendientes, no les priva del caracter de productos pertenecientes, como tales, a
quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.

xxx     xxx     xxx

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de

diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca,
salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma
de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en
que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered
products may be sold and transferred as personal property; (2) that the Supreme Court of Spain, in a
case of ejectment of a lessee of an agricultural land, held that the lessee was entitled to gather the
products corresponding to the agricultural year, because said fruits did not go with the land but
belonged separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909, as
amended, the mortgage of a piece of land does not include the fruits and products existing thereon,
unless the contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some light on the
question which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are likewise immovable, and are considered as part of
the land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases
"standing crops" may be considered and dealt with as personal property. In the case of Lumber Co.
vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the Civil
Code it is provided that 'standing crops and the fruits of trees not gathered and trees before they are
cut down . . . are considered as part of the land to which they are attached, but the immovability
provided for is only one in abstracto and without reference to rights on or to the crop acquired by
others than the owners of the property to which the crop is attached. . . . The existence of a right on
the growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the
crop movable quoad the right acquired therein. Our jurisprudence recognizes the possible
mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28
La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761)
that "article 465 of the Revised Code says that standing crops are considered as immovable and as
part of the land to which they are attached, and article 466 declares that the fruits of an immovable
gathered or produced while it is under seizure are considered as making part thereof, and incurred
to the benefit of the person making the seizure. But the evident meaning of these articles, is where
the crops belong to the owner of the plantation they form part of the immovable, and where it is
seized, the fruits gathered or produced inure to the benefit of the seizing creditor.

A crop raised on leased premises in no sense forms part of the immovable. It belongs to the
lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his
judgment creditors. If it necessarily forms part of the leased premises the result would be that
it could not be sold under execution separate and apart from the land. If a lessee obtain
supplies to make his crop, the factor's lien would not attach to the crop as a separate thing
belonging to his debtor, but the land belonging to the lessor would be affected with the
recorded privilege. The law cannot be construed so as to result in such absurd
consequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be
destructive of the very objects of the act, it would render the pledge of the crop objects of the
act, it would render the pledge of the crop impossible, for if the crop was an inseparable part
of the realty possession of the latter would be necessary to that of the former; but such is not
the case. True, by article 465 C. C. it is provided that "standing crops and the fruits of trees
not gathered and trees before they are cut down are likewise immovable and are considered
as part of the land to which they are attached;" but the immovability provided for is only
one in abstracto and without reference to rights on or to the crop acquired by other than the
owners of the property to which the crop was attached. The immovability of a growing crop is
in the order of things temporary, for the crop passes from the state of a growing to that of a
gathered one, from an immovable to a movable. The existence of a right on the growing crop
is a mobilization by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired thereon. The provision of our Code is identical with the
Napoleon Code 520, and we may therefore obtain light by an examination of the
jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de España but by the Supreme Court
of Louisiana, is followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states we find that
the settle doctrine followed in said states in connection with the attachment of property and
execution of judgment is, that growing crops raised by yearly labor and cultivation are considered
personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329:
Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am.
Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and
Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence as the natural increment or usual incident of
something already in existence, and then belonging to the vendor, and then title will vest in the buyer
the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially and not actually possessed.
He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may
grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall
thereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or fruits to
grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold,
however, must be specific and identified. They must be also owned at the time by the vendor.
(Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel
Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may be
subjected to execution. The pertinent portion of said section reads as follows: "All goods, chattels,
moneys, and other property, both real and personal, * * * shall be liable to execution. Said section
450 and most of the other sections of the Code of Civil Procedure relating to the execution of
judgment were taken from the Code of Civil Procedure of California. The Supreme Court of
California, under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held,
without variation, that growing crops were personal property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property.
Section 2 of said Act provides: "All personal property shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in pursuance thereof shall be termed a chattel
mortgage." Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop
while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that
"growing crops" are personal property. This consideration tends to support the conclusion
hereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned in
said article of the Civil Code have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered products."

At common law, and generally in the United States, all annual crops which are raised by
yearly manurance and labor, and essentially owe their annual existence to cultivation by
man, . may be levied on as personal property." (23 C. J., p. 329.) On this question Freeman,
in his treatise on the Law of Executions, says: "Crops, whether growing or standing in the
field ready to be harvested, are, when produced by annual cultivation, no part of the realty.
They are, therefore, liable to voluntary transfer as chattels. It is equally well settled that they
may be seized and sold under execution. (Freeman on Executions, vol. p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by
section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose of
attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products"
have the nature of personal property. The lower court, therefore, committed no error in holding that
the sugar cane in question was personal property and, as such, was not subject to redemption.
All the other assignments of error made by the appellant, as above stated, relate to questions of fact
only. Before entering upon a discussion of said assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by
the defendant. His absence from the trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.

Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the
complaint, the plaintiff made a futile attempt to show that said two parcels belonged to Agustin
Cuyugan and were the identical parcel 2 which was excluded from the attachment and sale of real
property of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description of
parcel 2 in the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 of
the complaint will readily show that they are not the same.

The description of the parcels in the complaint is as follows:

1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela de
terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban,
Tarlac, de unas dos hectareas poco mas o menos de superficie.

2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado Alejandro
Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap,
Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados
de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con
Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro Santos and
Melecio Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador
amillarado P4,200 pesos.

On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the
complaint were included among the parcels bought by Valdez from Macondray on June 25, 1924,
and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included among
the parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924, and
corresponded to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The description of
parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:

Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F.

de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of
Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto
Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990.
Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4
(Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the
trial when the defendant offered his evidence, we are inclined to give more weight to the evidence
adduced by him that to the evidence adduced by the plaintiff, with respect to the ownership of
parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the complaint
belong to the defendant, having acquired the same from Macondray & Co. on June 25, 1924, and
from the plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190
cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of the
crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only,
at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to
parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the
certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as above
stated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest
of both Macondray and Sibal in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second
cause of action, it appears from the testimony of the plaintiff himself that said parcel corresponds to
parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed of
sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of
said parcel, having acquired the interest of both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under
said execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923.
Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the
sugar cane in question. (Exhibit A) The said personal property so attached, sold at public auction
May 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in favor of
Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).

June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on
the 30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that
the sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that
said area would have yielded an average crop of 1039 picos and 60 cates; that one-half of the
quantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; that
during the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant,
as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence also shows
that the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas de
cana) and not 1,170,000 as computed by the lower court. During the season the shoots were selling
at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 from
sugar-cane shoots and not P1,435.68 as allowed by the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190
cavans, one-half of said quantity should belong to the plaintiff, as stated above, and the other half to
the defendant. The court erred in awarding the whole crop to the defendant. The plaintiff should
therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as
allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of the plaintiff from
cultivating about 10 hectares of the land involved in the litigation. He expected to have raised about
600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The lower
court has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have netted
him P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his
sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the
defendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower
court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;

323.00 for the palay harvested by plaintiff in parcels 1 and 2;

600.00 for the palay which defendant could have raised.

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

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.
G.R. No. 120098            October 2, 2001

RUBY L. TSAI, petitioner, 
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, 

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265.
Also assailed is respondent court's resolution denying petitioners' motion for reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million
peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security
for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the
lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated
in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel
Mortgage are quoted below: 

MORTGAGE

(REAL AND CHATTEL)

xxx           xxx           xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements
now existing or which may hereafter exist thereon, situated in . . .

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications —
continued)

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines

 xxx           xxx           xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx           xxx           xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx           xxx           xxx

D. Four (4) Winding Machines.

xxx           xxx           xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx           xxx           xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the above-
mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
mentioned lot located at . . .

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

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

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.

xxx           xxx           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:

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.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING

AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

In G.R. No. 120098, PBCom raised the following issues:

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE
1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL
PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE
1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE
MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT
SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL
PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR
REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD

FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE
DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS
BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU
THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF
UNJUST ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the
foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to
petitioner Ruby Tsai is valid.

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating
the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975
deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage. 8 Additionally, Tsai argues that
respondent court erred in holding that the disputed 1981 machineries are not real
properties.9 Finally, she contends that the Court of Appeals erred in holding against petitioner's
arguments on prescription and laches10 and in assessing petitioner actual damages, attorney's fees
and expenses of litigation, for want of valid factual and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally
leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the
pieces of machinery in question were personal properties have no factual and legal basis. 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

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals
deleted. But according to the CA, there was no clear showing that petitioners acted malevolently,
wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award
exemplary damages that the wrongful act must be accompanied by bad faith, 26 and the guilty acted
in a wanton, fraudulent, oppressive, reckless or malevolent manner. 27 As previously stressed,
petitioner Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's
claim was oppressive and subjected the already insolvent respondent to gross disadvantage.
Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24,
1987.28 Thus, PBCom's act of taking all the properties found in the factory of the financially
handicapped respondent, including those properties not covered by or included in the mortgages, is
equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award
of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil
Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary
damages, their assessment being left to the discretion of the court in accordance with the
circumstances of each case.29 While the imposition of exemplary damages is justified in this case,
equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in
the assessment of damages must always be exercised with balanced restraint and measured
objectivity. Thus, here the award of exemplary damages by way of example for the public good
should be reduced to P100,000.00.

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

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine
Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever
Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and
possession of the properties in question from November 1986 31 until subject personal properties are
restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3)
P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.
G.R. No. L-40411             August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant, 

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court and as
set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint, with costs against the
plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged to
another person. On the land the sawmill company erected a building which housed the machinery
used by it. Some of the implements thus used were clearly personal property, the conflict concerning
machines which were placed and mounted on foundations of cement. In the contract of lease
between the sawmill company and the owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive ownership
of the party of the first part without any obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and accessories are not
included in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action
against the defendant in that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim was filed for such
properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein.
Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has
on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx     xxx     xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any

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

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
from the facts.

In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of intention
and impresses upon the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil.,
630), whether obiter dicta or not, furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues.
It is machinery which is involved; moreover, machinery not intended by the owner of any building or
land for use in connection therewith, but intended by a lessee for use in a building erected on the
land by the latter to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery,
vessels, instruments or implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and which tend directly to
meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq.
to and inclusive of article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we are dealing —
machinery placed in the plant — it is plain, both under the provisions of the Porto Rican Law
and of the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result would
 not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203;
Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in
Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that one only having a temporary right to the
possession or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it by an act of immobilization
to become the property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization
took place because of the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost such machinery, and it was
expressly stipulated that the machinery so put in should become a part of the plant belonging
to the owner without compensation to the lessee. Under such conditions the tenant in putting
in the machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.

xxx     xxx     xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty which, as the result of his obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.
G.R. No. L-64261 December 26, 1984

JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO and J. BURGOS MEDIA
SERVICES, INC., petitioners, 
vs.
THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, THE CHIEF, PHILIPPINE
CONSTABULARY, THE CHIEF LEGAL OFFICER, PRESIDENTIAL SECURITY COMMAND, THE
JUDGE ADVOCATE GENERAL, ET AL., respondents. 

Lorenzo M. Tañada, Wigberto E. Tañada, Martiniano Vivo, Augusto Sanchez, Joker P. Arroyo,
Jejomar Binay and Rene Saguisag for petitioners. 

The Solicitor General for respondents. 

ESCOLIN, J.:

Assailed in this petition for certiorari prohibition and mandamus with preliminary mandatory and
prohibitory injunction is the validity of two [2] search warrants issued on December 7, 1982 by
respondent Judge Ernani Cruz-Pano, Executive Judge of the then Court of First Instance of Rizal
[Quezon City], under which the premises known as No. 19, Road 3, Project 6, Quezon City, and 784
Units C & D, RMS Building, Quezon Avenue, Quezon City, business addresses of the "Metropolitan
Mail" and "We Forum" newspapers, respectively, were searched, and office and printing machines,
equipment, paraphernalia, motor vehicles and other articles used in the printing, publication and
distribution of the said newspapers, as well as numerous papers, documents, books and other
written literature alleged to be in the possession and control of petitioner Jose Burgos, Jr. publisher-
editor of the "We Forum" newspaper, were seized. 

Petitioners further pray that a writ of preliminary mandatory and prohibitory injunction be issued for
the return of the seized articles, and that respondents, "particularly the Chief Legal Officer,
Presidential Security Command, the Judge Advocate General, AFP, the City Fiscal of Quezon City,
their representatives, assistants, subalterns, subordinates, substitute or successors" be enjoined
from using the articles thus seized as evidence against petitioner Jose Burgos, Jr. and the other
accused in Criminal Case No. Q- 022782 of the Regional Trial Court of Quezon City, entitled People
v. Jose Burgos, Jr. et al. 1

In our Resolution dated June 21, 1983, respondents were required to answer the petition. The plea for preliminary mandatory and prohibitory
injunction was set for hearing on June 28, 1983, later reset to July 7, 1983, on motion of the Solicitor General in behalf of respondents. 

At the hearing on July 7, 1983, the Solicitor General, while opposing petitioners' prayer for a writ of
preliminary mandatory injunction, manifested that respondents "will not use the aforementioned
articles as evidence in the aforementioned case until final resolution of the legality of the seizure of
the aforementioned articles. ..."   With this manifestation, the prayer for preliminary prohibitory
2

injunction was rendered moot and academic. 

Respondents would have this Court dismiss the petition on the ground that petitioners had come to
this Court without having previously sought the quashal of the search warrants before respondent
judge. Indeed, petitioners, before impugning the validity of the warrants before this Court, should
have filed a motion to quash said warrants in the court that issued them.   But this procedural flaw3

notwithstanding, we take cognizance of this petition in view of the seriousness and urgency of the
constitutional issues raised not to mention the public interest generated by the search of the "We
Forum" offices, which was televised in Channel 7 and widely publicized in all metropolitan dailies.
The existence of this special circumstance justifies this Court to exercise its inherent power to
suspend its rules. In the words of the revered Mr. Justice Abad Santos in the case of C. Vda. de
Ordoveza v. Raymundo,   "it is always in the power of the court [Supreme Court] to suspend its rules
4

or to except a particular case from its operation, whenever the purposes of justice require it...". 

Respondents likewise urge dismissal of the petition on ground of laches. Considerable stress is laid
on the fact that while said search warrants were issued on December 7, 1982, the instant petition
impugning the same was filed only on June 16, 1983 or after the lapse of a period of more than six
[6] months. 

Laches is failure or negligence for an unreasonable and unexplained length of time to do that which,
by exercising due diligence, could or should have been done earlier. It is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. 5

Petitioners, in their Consolidated Reply, explained the reason for the delay in the filing of the petition
thus: 

Respondents should not find fault, as they now do [p. 1, Answer, p. 3, Manifestation]
with the fact that the Petition was filed on June 16, 1983, more than half a year after
the petitioners' premises had been raided. 

The climate of the times has given petitioners no other choice. If they had waited this
long to bring their case to court, it was because they tried at first to exhaust other
remedies. The events of the past eleven fill years had taught them that everything in
this country, from release of public funds to release of detained persons from
custody, has become a matter of executive benevolence or largesse 

Hence, as soon as they could, petitioners, upon suggestion of persons close to the
President, like Fiscal Flaminiano, sent a letter to President Marcos, through counsel
Antonio Coronet asking the return at least of the printing equipment and vehicles.
And after such a letter had been sent, through Col. Balbino V. Diego, Chief
Intelligence and Legal Officer of the Presidential Security Command, they were
further encouraged to hope that the latter would yield the desired results. 

After waiting in vain for five [5] months, petitioners finally decided to come to Court.
[pp. 123-124, Rollo] 

Although the reason given by petitioners may not be flattering to our judicial system, We find no
ground to punish or chastise them for an error in judgment. On the contrary, the extrajudicial efforts
exerted by petitioners quite evidently negate the presumption that they had abandoned their right to
the possession of the seized property, thereby refuting the charge of laches against them. 

Respondents also submit the theory that since petitioner Jose Burgos, Jr. had used and marked as
evidence some of the seized documents in Criminal Case No. Q- 022872, he is now estopped from
challenging the validity of the search warrants. We do not follow the logic of respondents. These
documents lawfully belong to petitioner Jose Burgos, Jr. and he can do whatever he pleases with
them, within legal bounds. The fact that he has used them as evidence does not and cannot in any
way affect the validity or invalidity of the search warrants assailed in this petition. 
Several and diverse reasons have been advanced by petitioners to nullify the search warrants in
question. 

1. Petitioners fault respondent judge for his alleged failure to conduct an examination under oath or
affirmation of the applicant and his witnesses, as mandated by the above-quoted constitutional
provision as wen as Sec. 4, Rule 126 of the Rules of Court .  This objection, however, may properly
6

be considered moot and academic, as petitioners themselves conceded during the hearing on
August 9, 1983, that an examination had indeed been conducted by respondent judge of Col.
Abadilla and his witnesses. 

2. Search Warrants No. 20-82[a] and No. 20- 82[b] were used to search two distinct places: No. 19,
Road 3, Project 6, Quezon City and 784 Units C & D, RMS Building, Quezon Avenue, Quezon City,
respectively. Objection is interposed to the execution of Search Warrant No. 20-82[b] at the latter
address on the ground that the two search warrants pinpointed only one place where petitioner Jose
Burgos, Jr. was allegedly keeping and concealing the articles listed therein, i.e., No. 19, Road 3,
Project 6, Quezon City. This assertion is based on that portion of Search Warrant No. 20- 82[b]
which states: 

Which have been used, and are being used as instruments and means of committing
the crime of subversion penalized under P.D. 885 as amended and he is keeping
and concealing the same at 19 Road 3, Project 6, Quezon City.

The defect pointed out is obviously a typographical error. Precisely, two search warrants were
applied for and issued because the purpose and intent were to search two distinct premises. It would
be quite absurd and illogical for respondent judge to have issued two warrants intended for one and
the same place. Besides, the addresses of the places sought to be searched were specifically set
forth in the application, and since it was Col. Abadilla himself who headed the team which executed
the search warrants, the ambiguity that might have arisen by reason of the typographical error is
more apparent than real. The fact is that the place for which Search Warrant No. 20- 82[b] was
applied for was 728 Units C & D, RMS Building, Quezon Avenue, Quezon City, which address
appeared in the opening paragraph of the said warrant.   Obviously this is the same place that
7

respondent judge had in mind when he issued Warrant No. 20-82 [b]. 

In the determination of whether a search warrant describes the premises to be searched with
sufficient particularity, it has been held "that the executing officer's prior knowledge as to the place
intended in the warrant is relevant. This would seem to be especially true where the executing officer
is the affiant on whose affidavit the warrant had issued, and when he knows that the judge who
issued the warrant intended the building described in the affidavit, And it has also been said that the
executing officer may look to the affidavit in the official court file to resolve an ambiguity in the
warrant as to the place to be searched."  8

3. Another ground relied upon to annul the search warrants is the fact that although the warrants
were directed against Jose Burgos, Jr. alone, articles b belonging to his co-petitioners Jose Burgos,
Sr., Bayani Soriano and the J. Burgos Media Services, Inc. were seized. 

Section 2, Rule 126 of the Rules of Court, enumerates the personal properties that may be seized
under a search warrant, to wit: 

Sec. 2. Personal Property to be seized. — A search warrant may be issued for the
search and seizure of the following personal property: 

[a] Property subject of the offense; 

 [b] Property stolen or embezzled and other proceeds or fruits of the
offense; and 

[c] Property used or intended to be used as the means of committing

an offense. 

The above rule does not require that the property to be seized should be owned by the person
against whom the search warrant is directed. It may or may not be owned by him. In fact, under
subsection [b] of the above-quoted Section 2, one of the properties that may be seized is stolen
property. Necessarily, stolen property must be owned by one other than the person in whose
possession it may be at the time of the search and seizure. Ownership, therefore, is of no
consequence, and it is sufficient that the person against whom the warrant is directed has control or
possession of the property sought to be seized, as petitioner Jose Burgos, Jr. was alleged to have in
relation to the articles and property seized under the warrants. 

4. Neither is there merit in petitioners' assertion that real properties were seized under the disputed
warrants. Under Article 415[5] of the Civil Code of the Philippines, "machinery, receptables,
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" are considered immovable property. In Davao Sawmill Co. v. Castillo  where 9

this legal provision was invoked, this Court ruled that machinery which is movable by nature
becomes immobilized when placed by the owner of the tenement, property or plant, but not so when
placed by a tenant, usufructuary, or any other person having only a temporary right, unless such
person acted as the agent of the owner. 

In the case at bar, petitioners do not claim to be the owners of the land and/or building on which the
machineries were placed. This being the case, the machineries in question, while in fact bolted to
the ground remain movable property susceptible to seizure under a search warrant. 

5. The questioned search warrants were issued by respondent judge upon application of Col.
Rolando N. Abadilla Intelligence Officer of the P.C. Metrocom.  The application was accompanied by
10

the Joint Affidavit of Alejandro M. Gutierrez and Pedro U. Tango, 11 members of the Metrocom Intelligence and
Security Group under Col. Abadilla which conducted a surveillance of the premises prior to the filing of the application for the search warrants
on December 7, 1982. 

It is contended by petitioners, however, that the abovementioned documents could not have
provided sufficient basis for the finding of a probable cause upon which a warrant may validly issue
in accordance with Section 3, Article IV of the 1973 Constitution which provides: 

SEC. 3. ... and no search warrant or warrant of arrest shall issue except upon
probable cause to be determined by the judge, or such other responsible officer as
may be authorized by law, after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place
to be searched and the persons or things to be seized. 

We find petitioners' thesis impressed with merit. Probable cause for a search is defined as such facts
and circumstances which would lead a reasonably discreet and prudent man to believe that an
offense has been committed and that the objects sought in connection with the offense are in the
place sought to be searched. And when the search warrant applied for is directed against a
newspaper publisher or editor in connection with the publication of subversive materials, as in the
case at bar, the application and/or its supporting affidavits must contain a specification, stating with
particularity the alleged subversive material he has published or is intending to publish. Mere
generalization will not suffice. Thus, the broad statement in Col. Abadilla's application that petitioner
"is in possession or has in his control printing equipment and other paraphernalia, news publications
and other documents which were used and are all continuously being used as a means of
committing the offense of subversion punishable under Presidential Decree 885, as amended ..." 12 is
a mere conclusion of law and does not satisfy the requirements of probable cause. Bereft of such particulars as would justify a finding of the
existence of probable cause, said allegation cannot serve as basis for the issuance of a search warrant and it was a grave error for
respondent judge to have done so. 

Equally insufficient as basis for the determination of probable cause is the statement contained in
the joint affidavit of Alejandro M. Gutierrez and Pedro U. Tango, "that the evidence gathered and
collated by our unit clearly shows that the premises above- mentioned and the articles and things
above-described were used and are continuously being used for subversive activities in conspiracy
with, and to promote the objective of, illegal organizations such as the Light-a-Fire Movement,
Movement for Free Philippines, and April 6 Movement." 13

In mandating that "no warrant shall issue except upon probable cause to be determined by the
judge, ... after examination under oath or affirmation of the complainant and the witnesses he may
produce; 14 the Constitution requires no less than personal knowledge by the complainant or his witnesses of the facts upon which the
issuance of a search warrant may be justified. In Alvarez v. Court of First Instance, 15 this Court ruled that "the oath required must refer to
the truth of the facts within the personal knowledge of the petitioner or his witnesses, because the purpose thereof is to convince the
committing magistrate, not the individual making the affidavit and seeking the issuance of the warrant, of the existence of probable cause."
As couched, the quoted averment in said joint affidavit filed before respondent judge hardly meets the test of sufficiency established by this
Court in Alvarez case. 

Another factor which makes the search warrants under consideration constitutionally objectionable is
that they are in the nature of general warrants. The search warrants describe the articles sought to
be seized in this wise: 

1] All printing equipment, paraphernalia, paper, ink, photo (equipment, typewriters,

cabinets, tables, communications/recording equipment, tape recorders, dictaphone
and the like used and/or connected in the printing of the "WE FORUM" newspaper
and any and all documents communication, letters and facsimile of prints related to
the "WE FORUM" newspaper. 

2] Subversive documents, pamphlets, leaflets, books, and other publication to

promote the objectives and piurposes of the subversive organization known as
Movement for Free Philippines, Light-a-Fire Movement and April 6 Movement; and, 

3] Motor vehicles used in the distribution/circulation of the "WE FORUM" and other
subversive materials and propaganda, more particularly,

1] Toyota-Corolla, colored yellow with Plate No. NKA 892;

2] DATSUN pick-up colored white with Plate No. NKV 969

3] A delivery truck with Plate No. NBS 524;

4] TOYOTA-TAMARAW, colored white with Plate No. PBP 665; and,

5] TOYOTA Hi-Lux, pick-up truck with Plate No. NGV 427 with
marking "Bagong Silang."

In Stanford v. State of Texas 16 the search warrant which authorized the search for "books, records, pamphlets, cards, receipts,
lists, memoranda, pictures, recordings and other written instruments concerning the Communist Party in Texas," was declared void by the
U.S. Supreme Court for being too general. In like manner, directions to "seize any evidence in connectionwith the violation of SDC 13-3703
or otherwise" have been held too general, and that portion of a search warrant which authorized the seizure of any "paraphernalia which
could be used to violate Sec. 54-197 of the Connecticut General Statutes [the statute dealing with the crime of conspiracy]" was held to be a
general warrant, and therefore invalid. 17 The description of the articles sought to be seized under the search warrants in question cannot be
characterized differently.

In the Stanford case, the U.S. Supreme Courts calls to mind a notable chapter in English history: the
era of disaccord between the Tudor Government and the English Press, when "Officers of the Crown
were given roving commissions to search where they pleased in order to suppress and destroy the
literature of dissent both Catholic and Puritan Reference herein to such historical episode would not
be relevant for it is not the policy of our government to suppress any newspaper or publication that
speaks with "the voice of non-conformity" but poses no clear and imminent danger to state security. 

As heretofore stated, the premises searched were the business and printing offices of the
"Metropolitan Mail" and the "We Forum newspapers. As a consequence of the search and seizure,
these premises were padlocked and sealed, with the further result that the printing and publication of
said newspapers were discontinued. 

Such closure is in the nature of previous restraint or censorship abhorrent to the freedom of the
press guaranteed under the fundamental law, 18 and constitutes a virtual denial of petitioners' freedom to express
themselves in print. This state of being is patently anathematic to a democratic framework where a free, alert and even militant press is
essential for the political enlightenment and growth of the citizenry. 

Respondents would justify the continued sealing of the printing machines on the ground that they
have been sequestered under Section 8 of Presidential Decree No. 885, as amended, which
authorizes "the sequestration of the property of any person, natural or artificial, engaged in
subversive activities against the government and its duly constituted authorities ... in accordance
with implementing rules and regulations as may be issued by the Secretary of National Defense." It
is doubtful however, if sequestration could validly be effected in view of the absence of any
implementing rules and regulations promulgated by the Minister of National Defense. 

Besides, in the December 10, 1982 issue of the Daily Express, it was reported that no less than
President Marcos himself denied the request of the military authorities to sequester the property
seized from petitioners on December 7, 1982. Thus: 

The President denied a request flied by government prosecutors for sequestration of

the WE FORUM newspaper and its printing presses, according to Information
Minister Gregorio S. Cendana. 

On the basis of court orders, government agents went to the We Forum offices in
Quezon City and took a detailed inventory of the equipment and all materials in the
premises. 

Cendaña said that because of the denial the newspaper and its equipment remain at
the disposal of the owners, subject to the discretion of the court. 19 

That the property seized on December 7, 1982 had not been sequestered is further confirmed by the reply of then Foreign Minister Carlos P.
Romulo to the letter dated February 10, 1983 of U.S. Congressman Tony P. Hall addressed to President Marcos, expressing alarm over the
"WE FORUM " case. 20 In this reply dated February 11, 1983, Minister Romulo stated: 

2. Contrary to reports, President Marcos turned down the recommendation of our

authorities to close the paper's printing facilities and confiscate the equipment and
materials it uses.  21
IN VIEW OF THE FOREGOING, Search Warrants Nos. 20-82[a] and 20-82[b] issued by respondent
judge on December 7, 1982 are hereby declared null and void and are accordingly set aside. The
prayer for a writ of mandatory injunction for the return of the seized articles is hereby granted and all
articles seized thereunder are hereby ordered released to petitioners. No costs. 

SO ORDERED. 

Fernando, C.J., Teehankee, Makasiar, Concepcion, Jr., Melencio-Herrera, Plana, Relova, Gutierrez,
Jr., De la Fuente and Cuevas, JJ., concur. 

Aquino, J., took no part. 

Separate Opinions

ABAD SANTOS, J., concurring

I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At the same time I wish to
state my own reasons for holding that the search warrants which are the subject of the petition are
utterly void. 

The action against "WE FORUM" was a naked suppression of press freedom for the search warrants
were issued in gross violation of the Constitution. 

The Constitutional requirement which is expressed in Section 3, Article IV, stresses two points,
namely: "(1) that no warrant shall issue but upon probable cause, to be determined by the judge in
the manner set forth in said provision; and (2) that the warrant shall particularly describe the things
to be seized." (Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383 [1967].) 

Any search warrant is conducted in disregard of the points mentioned above will result in wiping "out
completely one of the most fundamental rights guaranteed in our Constitution, for it would place the
sanctity of the domicile and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers." (Ibid, p. 748.) 

The two search warrants were issued without probable cause. To satisfy the requirement of probable
cause a specific offense must be alleged in the application; abstract averments will not suffice. In the
case at bar nothing specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the offense of subversion
punishable under P.D. No. 885, as amended. There is no mention of any specific provision of the
decree. I n the words of Chief Justice C Concepcion, " It would be legal heresy of the highest order,
to convict anybody" of violating the decree without reference to any determinate provision thereof. 

The search warrants are also void for lack of particularity. Both search warrants authorize Col.
Rolando Abadilla to seize and take possession, among other things, of the following: 
 Subversive documents, pamphlets, leaflets, books and other publication to promote
the objectives and purposes of the subversive organizations known as Movement for
Free Philippines, Light-a-Fire Movement and April 6 Movement. 

The obvious question is: Why were the documents, pamphlets, leaflets, books, etc. subversive?
What did they contain to make them subversive? There is nothing in the applications nor in the
warrants which answers the questions. I must, therefore, conclude that the warrants are general
warrants which are obnoxious to the Constitution. 

In point of fact, there was nothing subversive published in the WE FORUM just as there is nothing
subversive which has been published in MALAYA which has replaced the former and has the same
content but against which no action has been taken. 

Conformably with existing jurisprudence everything seized pursuant to the warrants should be
returned to the owners and all of the items are subject to the exclusionary rule of evidence. 

Teehankee, J., concur.

Separate Opinions

ABAD SANTOS, J., concurring

I am glad to give my concurrence to the ponencia of Mr. Justice Escolin At the same time I wish to
state my own reasons for holding that the search warrants which are the subject of the petition are
utterly void. 

The action against "WE FORUM" was a naked suppression of press freedom for the search warrants
were issued in gross violation of the Constitution. 

The Constitutional requirement which is expressed in Section 3, Article IV, stresses two points,
namely: "(1) that no warrant shall issue but upon probable cause, to be determined by the judge in
the manner set forth in said provision; and (2) that the warrant shall particularly describe the things
to be seized." (Stonehill vs. Diokno, 126 Phil. 738, 747: 20 SCRA 383 [1967].) 

Any search warrant is conducted in disregard of the points mentioned above will result in wiping "out
completely one of the most fundamental rights guaranteed in our Constitution, for it would place the
sanctity of the domicile and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers." (Ibid, p. 748.) 

The two search warrants were issued without probable cause. To satisfy the requirement of probable
cause a specific offense must be alleged in the application; abstract averments will not suffice. In the
case at bar nothing specifically subversive has been alleged; stated only is the claim that certain
objects were being used as instruments and means of committing the offense of subversion
punishable under P.D. No. 885, as amended. There is no mention of any specific provision of the
decree. I n the words of Chief Justice C Concepcion, " It would be legal heresy of the highest order,
to convict anybody" of violating the decree without reference to any determinate provision thereof. 
The search warrants are also void for lack of particularity. Both search warrants authorize Col.
Rolando Abadilla to seize and take possession, among other things, of the following: 

Subversive documents, pamphlets, leaflets, books and other publication to promote

the objectives and purposes of the subversive organizations known as Movement for
Free Philippines, Light-a-Fire Movement and April 6 Movement. 

The obvious question is: Why were the documents, pamphlets, leaflets, books, etc. subversive?
What did they contain to make them subversive? There is nothing in the applications nor in the
warrants which answers the questions. I must, therefore, conclude that the warrants are general
warrants which are obnoxious to the Constitution. 

In point of fact, there was nothing subversive published in the WE FORUM just as there is nothing
subversive which has been published in MALAYA which has replaced the former and has the same
content but against which no action has been taken. 

Conformably with existing jurisprudence everything seized pursuant to the warrants should be
returned to the owners and all of the items are subject to the exclusionary rule of evidence. 
G.R. No. L-17500             May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF
MANILA, plaintiffs-appellants, 
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and
CONNELL BROS. CO. (PHIL.), defendants-appellants.

Angel S. Gamboa for defendants-appellants.

Laurel Law Offices for plaintiffs-appellants. 

DIZON, J.:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation
licensed to do business in the Philippines — hereinafter referred to as ATLANTIC — sold and
assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company — hereinafter
referred to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00
was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's
Bank & Trust Company — hereinafter referred to as the BANK — amounting, as of July 13, 1950, to
P200,000.00. In addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the
Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00 each,
maturing on different dates, executed by both DALCO and the Dahican America Lumber
Corporation, a foreign corporation and a stockholder of DALCO, — hereinafter referred to as
DAMCO, all payable to the BANK or its order. 

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in
favor of the BANK — the latter acting for itself and as trustee for the Export-Import Bank of
Washington D.C. — a deed of mortgage covering five parcels of land situated in the province of
Camarines Norte together with all the buildings and other improvements existing thereon and all the
personal properties of the mortgagor located in its place of business in the municipalities of
Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date, DALCO executed a
second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid
balance of the sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G).
Both deeds contained the following provision extending the mortgage lien to properties to be
subsequently acquired — referred to hereafter as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all
buildings, machinery, fixtures, tools equipment and other property which the Mortgagor may
hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the
premises, shall immediately be and become subject to the lien of this mortgage in the same
manner and to the same extent as if now included therein, and the Mortgagor shall from time
to time during the existence of this mortgage furnish the Mortgagee with an accurate
inventory of such substituted and subsequently acquired property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In
addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and
9,286 shares of DAMCO to secure the same obligations. 

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK
paid the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former
its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up
to April 1, 1953 to pay the overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO
purchased various machineries, equipment, spare parts and supplies in addition to, or in
replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the
provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK
requested DALCO to submit complete lists of said properties but the latter failed to do so. In
connection with these purchases, there appeared in the books of DALCO as due to Connell Bros.
Company (Philippines) — a domestic corporation who was acting as the general purchasing agent of
DALCO — thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the
purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and
supplies by CONNELL and DAMCO to it. Thereafter, the corresponding agreements of rescission of
sale were executed between DALCO and DAMCO, on the one hand and between DALCO and
CONNELL, on the other. 

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said
agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12,
1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First Instance
of Camarines Norte against DALCO and DAMCO. On the same date they filed an ex-
parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary
injunction to restrain DALCO from removing its properties. The court granted both remedies and
appointed George H. Evans as Receiver. Upon defendants' motion, however, the court, in its order
of February 21, 1953, discharged the Receiver. 

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint
and alleging several affirmative defenses and a counterclaim. 

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the
owner and possessor of some of the equipments, spare parts and supplies which DALCO had
acquired subsequent to the execution of the mortgages sought to be foreclosed and which plaintiffs
claimed were covered by the lien. In its order of March 18,1953 the Court granted the motion, as well
as plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was
reinstated. 

On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and
asserting affirmative defenses and a counterclaim. 

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the
venue of the action to the Court of First Instance of Manila where it was docketed as Civil Case No.
20987. 

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries,
equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of
P175,000.00 which was deposited in court pending final determination of the action. By a similar
agreement one-half (P87,500.00) of this amount was considered as representing the proceeds
obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL),
and the other half as representing those obtained from the sale of the "after acquired properties". 
After due trial, the Court, on July 15, 1960, rendered judgment as follows: 

IN VIEW WHEREFORE, the Court: 

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with
7% interest per annum from July 13, 1950, Plus another sum of P100,000.00 with 5%
interest per annum from July 13, 1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4%
interest per annum from July 3, 1950, plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and
to pay unto Dahican American Lumber Co. the sum of P2,151,678.24 both with legal interest
from the date of the filing of the respective answers of those parties, 10% of the principals as
attorney's fees;

4. Orders that of the sum realized from the sale of the properties of P175,000.00, after
deducting the recognized expenses, one-half thereof be adjudicated unto plaintiffs, the court
no longer specifying the share of each because of that announced intention under the
stipulation of facts to "pool their resources"; as to the other one-half, the same should be
adjudicated unto both plaintiffs, and defendant Dahican American and Connell Bros. in the
proportion already set forth on page 9, lines 21, 22 and 23 of the body of this decision; but
with the understanding that whatever plaintiffs and Dahican American and Connell Bros.
should receive from the P175,000.00 deposited in the Court shall be applied to the
judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated
properties shall be borne by People's Bank, Atlantic Gulf, Connell Bros., and Dahican
American Lumber Co., pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add
the following paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the
Court orders the sale at public auction of the lands object of the mortgages to satisfy the said
mortgages and costs of foreclosure.

From the above-quoted decision, all the parties appealed. 

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were
subject to the deeds of mortgage mentioned heretofore; that said properties were acquired from
suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were
the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in
favor of plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after
acquired properties" as well as those obtained from the sale of the "undebated properties" in the
total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the
mortgage lien they had thereon; that damages should have been awarded to plaintiffs against
defendants, all of them being guilty of an attempt to defraud the former when they sought to rescind
the sales already mentioned for the purpose of defeating their mortgage lien, and finally, that
defendants should have been made to bear all the expenses of the receivership, costs and
attorney's fees. 

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that
plaintiffs had no cause of action against them because the promissory note sued upon was not yet
due when the action to foreclose the mortgages was commenced; secondly, in not holding that the
mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO
because they were not registered in accordance with the Chattel Mortgage Law, the court erring, as
a consequence, in holding that said properties were subject to the mortgage lien in favor of plaintiffs;
thirdly, in not holding that the provision of the fourth paragraph of each of said mortgages did not
automatically make subject to such mortgages the "after acquired properties", the only meaning
thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not
ruling that said stipulation was void as against DAMCO and CONNELL and in not awarding the
proceeds obtained from the sale of the "after acquired properties" to the latter exclusively; fifthly, in
appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by
reason of the depreciation or loss in value of the "after acquired properties" placed under
receivership was damnum absque injuria and, consequently, in not awarding, to said parties the
corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO and DAMCO to
pay attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership,
instead of sentencing plaintiffs to pay attorney's fees. 

Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as
appellants submit a total of seventeen. However, the multifarious issues thus before Us may be
resolved, directly or indirectly, by deciding the following issues: 

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage
subject of foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid
and binding on the properties aforesaid inspite of the fact that they were not registered in
accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the
mortgages are valid and binding upon the "after acquired properties", what is the effect thereon, if
any, of the rescission of sales entered into, on the one hand, between DAMCO and DALCO, and
between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose the
mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every
nature and description taken in exchange or replacement, as well as all buildings, machineries,
fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install,
attach; or use in, to upon, or in connection with the premises — that is, its lumber concession —
"shall immediately be and become subject to the lien" of both mortgages in the same manner and to
the same extent as if already included therein at the time of their execution. As the language thus
used leaves no room for doubt as to the intention of the parties, We see no useful purpose in
discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We
might say logical, in all cases where the properties given as collateral are perishable or subject to
inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the
inevitable wear and tear — but with the understanding — express or implied — that they shall be
replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful
nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the
original value of the properties given as security. Indeed, if such properties were of the nature
already referred to, it would be poor judgment on the part of the creditor who does not see to it that a
similar provision is included in the contract. 
B. But defendants contend that, granting without admitting, that the deeds of mortgage in question
cover the "after acquired properties" of DALCO, the same are void and ineffectual because they
were not registered in accordance with the Chattel Mortgage Law. In support of this and of the
proposition that, even if said mortgages were valid, they should not prejudice them, the defendants
argue (1) that the deeds do not describe the mortgaged chattels specifically, nor were they
registered in accordance with the Chattel Mortgage Law; (2) that the stipulation contained in the
fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the "after
acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after
acquired properties" should not prejudice creditors and other third persons such as DAMCO and
CONNELL. 

The stipulation under consideration strongly belies defendants contention. As adverted to

hereinbefore, it states that all property of every nature, building, machinery etc. taken in exchange or
replacement by the mortgagor "shall immediately be and become subject to the lien of this mortgage
in the same manner and to the same extent as if now included therein". No clearer language could
have been chosen. 

Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a
chattel mortgage must be registered and must describe the mortgaged chattels or personal
properties sufficiently to enable the parties and any other person to identify them, We say that such
law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force,
there can be no doubt that the provisions of said code must govern their interpretation and the
question of their validity. It happens however, that Articles 334 and 1877 of the old Civil Code are
substantially reproduced in Articles 415 and 2127, respectively, of the new Civil Code. It is,
therefore, immaterial in this case whether we take the former or the latter as guide in deciding the
point under consideration. 

Article 415 does not define real property but enumerates what are considered as such, among them
being machinery, receptacles, instruments or replacements intended by owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and shall tend
directly to meet the needs of the said industry or works. 

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the
chattels were placed in the real properties mortgaged to plaintiffs, they came within the operation of
Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject: 

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil
Code (old) gives the character of real property to machinery, liquid containers, instruments or
replacements 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. 

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage
constituted on a sugar central includes not only the land on which it is built but also the buildings,
machinery and accessories installed at the time the mortgage was constituted as well as the
buildings, machinery and accessories belonging to the mortgagor, installed after the constitution
thereof . 
It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in
connection with, and for use in the development of its lumber concession and that they were
purchased in addition to, or in replacement of those already existing in the premises on July 13,
1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real
estate mortgages involved herein — which were registered as such — did not have to be registered
a second time as chattel mortgages in order to bind the "after acquired properties" and affect third
parties. 

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that
the "after acquired properties" did not become immobilized because DALCO did not own the whole
area of its lumber concession all over which said properties were scattered. 

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the
present. In the former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery
therein involved as personal property by executing chattel mortgages thereon in favor of third
parties, while in the present case the parties had treated the "after acquired properties" as real
properties by expressly and unequivocally agreeing that they shall automatically become subject to
the lien of the real estate mortgages executed by them. In the Davao Sawmill decision it was, in fact,
stated that "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" (61 Phil. 112, emphasis
supplied). In the present case, the characterization of the "after acquired properties" as real property
was made not only by one but by both interested parties. There is, therefore, more reason to hold
that such consensus impresses upon the properties the character determined by the parties who
must now be held in estoppel to question it. 

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225
U.S. 58) where it was held that while under the general law of Puerto Rico, machinery placed on
property by a tenant does not become immobilized, yet, when the tenant places it there pursuant to
contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as
against his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it
is not disputed that DALCO purchased the "after acquired properties" to be placed on, and be used
in the development of its lumber concession, and agreed further that the same shall become
immediately subject to the lien constituted by the questioned mortgages. There is also abundant
evidence in the record that DAMCO and CONNELL had full notice of such stipulation and had never
thought of disputed validity until the present case was filed. Consequently all of them must be
deemed barred from denying that the properties in question had become immobilized. 

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in
support their contention that the mortgages under foreclosure are void, and, that, even if valid, are
ineffectual as against DAMCO and CONNELL. 

Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired
properties" superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants'
contention that in relation to said properties they are "unpaid sellers"; that as such they had not only
a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to
DALCO. 

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL
were the suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did
not know their exact identity and description prior to the filing of the case bar because DALCO, in
violation of its obligation under the mortgages, had failed and refused theretofore to submit a
complete list thereof. In the course of the proceedings, however, when defendants moved to
dissolve the order of receivership and the writ of preliminary injunction issued by the lower court,
they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the properties
aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after
acquire properties," and engaged the services of auditors to examine the books of DALCO so as to
bring out the details thereof. The report of the auditors and its annexes (Exhibits V, V-1 — V4) show
that neither DAMCO nor CONNELL had supplied any of the goods of which they respective claimed
to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to
be DAMCO or CONNELL that, in fact, CONNELL collected a 5% service charge on the net value of
all items it claims to have sold to DALCO and which, in truth, it had purchased for DALCO as the
latter's general agent; that CONNELL had to issue its own invoices in addition to those o f the real
suppliers in order to collect and justify such service charge. 

Taking into account the above circumstances together with the fact that DAMCO was a stockholder
and CONNELL was not only a stockholder but the general agent of DALCO, their claim to be the
suppliers of the "after acquired required properties" would seem to be preposterous. The most that
can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some
of the purchases. But if DALCO still owes them any amount in this connection, it is clear that,
as financiers, they can not claim any right over the "after acquired properties" superior to the lien
constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution of
the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or
improve DAMCO and CONNELL's position by enabling them to assume the role of "unpaid
suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course,
is utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also
because there is abundant evidence in the record showing that both DAMCO and CONNELL had
known and admitted from the beginning that the "after acquired properties" of DALCO were meant to
be included in the first and second mortgages under foreclosure. 

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or
otherwise, is of no consequence and does not make the rescission valid and legally effective. It must
be stated clearly, however, in justice to Belden, that, as a member of the Board of Directors of
DALCO, he opposed the resolution of December 15, 1952 passed by said Board and the
subsequent rescission of the sales. 

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was
premature because the promissory note sued upon did not fall due until April 1 of the same year,
concluding from this that, when the action was commenced, the plaintiffs had no cause of action.
Upon this question the lower court says the following in the appealed judgment; 

The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of
grace, conceded an extension of time to pay up to 1 April, 1953 while the action was filed on
12 February, 1953, but, as to this, the Court taking it that there is absolutely no debate that
Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should
follow that the debtor thereby lost the benefit to the period. 

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code); 

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the
aggregate, P1,200,000 excluding interest while the aggregate price of the "after-acquired"
chattels claimed by Connell under the rescission contracts was P1,614,675.94, Exh. 1, Exh.
V, report of auditors, and as a matter of fact, almost all the properties were sold afterwards
for only P175,000.00, page 47, Vol. IV, and the Court understanding that when the law
permits the debtor to enjoy the benefits of the period notwithstanding that he is insolvent by
 his giving a guaranty for the debt, that must mean a new and efficient guaranty, must
concede that the causes of action for collection of the notes were not premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no
basis for finding that, when the action was commenced, DALCO was insolvent for purposes related
to Article 1198, paragraph 1 of the Civil Code. We find, however, that the finding of the trial court is
sufficiently supported by the evidence particularly the resolution marked as Exhibit K, which shows
that on December 16, 1952 — in the words of the Chairman of the Board — DALCO was "without
funds, neither does it expect to have any funds in the foreseeable future." (p. 64, record on appeal). 

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after
acquired properties" should have been awarded exclusively to the plaintiffs or to DAMCO and
CONNELL, and if in law they should be distributed among said parties, whether or not the
distribution should be pro-rata or otherwise; whether or not plaintiffs are entitled to damages; and,
lastly, whether or not the expenses incidental to the Receivership should be borne by all the parties
on a pro-rata basis or exclusively by one or some of them are of a secondary nature as they are
already impliedly resolved by what has been said heretofore. 

As regard the proceeds obtained from the sale of the of after acquired properties" and the
"undebated properties", it is clear, in view of our opinion sustaining the validity of the mortgages in
relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in payment of the
money obligations secured by the mortgages under foreclosure. 

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313
and 1314 of the New Civil Code) provides that creditors are protected in cases of contracts intended
to defraud them; and that any third person who induces another to violate his contract shall be liable
for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 —
which may be given retroactive effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil
Code. 

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to
pay the fifth promissory note upon its maturity, conspired jointly with CONNELL to violate the
provisions of the fourth paragraph of the mortgages under foreclosure by attempting to defeat
plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court
to protect their rights thus jeopardized. Defendants' liability for damages is therefore clear. 

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely,
the difference between the alleged total obligation secured by the mortgages amounting to around
P1,200,000.00, plus the stipulated interest and attorney's fees, on the one hand, and the proceeds
obtained from the sale of "after acquired properties", and of those that were not claimed neither by
DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the
mortgages under foreclosure has not been effected, and considering further the lack of evidence
showing that the true value of all the properties already sold was not realized because their sale was
under stress, We feel that We do not have before Us the true elements or factors that should
determine the amount of damages that plaintiffs are entitled recover from defendants. It is, however,
our considered opinion that, upon the facts established, all the expenses of the Receivership, which
was deemed necessary to safeguard the rights of the plaintiffs, should be borne by the defendants,
jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly a
severally, attorney's fees awarded in the appealed judgment. 
In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled
to recover from the defendants, the record of this case shall be remanded below for the
corresponding proceedings. 

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.
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 Compañia General de Tabacos (12 Phil., 690), cited with
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following
doctrine:

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND

FIXTURES. — It is a rule, established by the Civil Code and also by the Mortgage Law, with
which the decisions of the courts of the United States are in accord, that in a mortgage of
real estate, the improvements on the same are included; therefore, all objects permanently
attached to a mortgaged building or land, although they may have been placed there after
the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law,
and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance
Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may be

understood that the machinery and other objects placed upon and used in connection with a
mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that
the improvements, buildings, and machinery that existed thereon were also comprehended,
it is indispensable that the exclusion thereof be stipulated between the contracting parties.

The appellant contends that the installation of the machinery and equipment claimed by him in the
sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as
B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in
the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the
defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said
B.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully
reimbursed for the corporation's indebtedness to him.

Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became
owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid
containers, instruments or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to
meet the requirements of such trade or industry.

If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar
Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them
into real property by reason of their purpose, it cannot be said that their incorporation therewith was
not permanent in character because, as essential and principal elements of a sugar central, without
them the sugar central would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it has been established must
necessarily be permanent.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said
machinery and equipment as security for the payment of the latter's credit and to refrain from
mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of the incorporation of said machinery and equipment
with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from
giving them as security at least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had
been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the
mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery
and equipment had been incorporated, was transferred thereby, subject to the right of the
defendants Cu Unjieng e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a
machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the
purpose of carrying out the industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery and equipment to the
mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the
new machinery and equipment has bound himself to the person supplying him the purchase money
to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest
the creditor with ownership of said machinery and equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the
appellant. So ordered.
G.R. No. L-17898            October 31, 1962

PASTOR D. AGO, petitioner, 
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First
Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.

Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R
entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the
records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering
the execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,
G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is

not appealable and is immediately executory, unless a motion is filed on the ground fraud,
mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-
10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. The
judgment on the compromise agreement rendered by the court below dated January 28,
1959, was given in open court. This alone is a substantial compliance as to notice. (De los
Reyes vs. Ugarte, supra)

IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction
in ordering the execution of the judgment. The petition for certiorari is hereby dismissed and
the writ of preliminary injunction heretofore dissolved, with costs against the petitioner.

IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,
executing a chattel mortgage over said machineries and equipments to secure the payment of
balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on installment
basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc.
instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure,
petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance of Agusan. The
parties to the case arrived at a compromise agreement and submitted the same in court in writing,
signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of
the Court of First Instance of Agusan, then presiding, dictated a decision in open court on January
28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so

Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was granted by
the court on August 15, 1959. A writ of execution, dated September 23, 1959, later followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by the
lower court, levied upon and ordered the sale of the sawmill machineries and equipments in
question. These machineries and equipments had been taken to and installed in a sawmill building
located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom,
petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of the lower
court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with preliminary
injunction with respondent Court of Appeals, alleging that a copy of the aforementioned judgment
given in open court on January 28, 1959 was served upon counsel for petitioner only on September
25, 1959 (writ of execution is dated September 23, 1959); that the order and writ of execution having
been issued by the lower court before counsel for petitioner received a copy of the judgment, its
resultant last order that the "sheriff may now proceed with the sale of the properties levied
constituted a grave abuse of discretion and was in excess of its jurisdiction; and that the respondent
Provincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution by levying
the same upon the sawmill machineries and equipments which have become real properties of the
Golden Pacific sawmill, Inc., and is about to proceed in selling the same without prior publication of
the notice of sale thereof in some newspaper of general circulation as required by the Rules of
Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in question,
on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was the only
bidder for P15,000.00, although the certificate sale was not yet executed. The Court of Appeals
constructed the sheriff to suspend the issuance of a certificate of sale of the said sawmill
machineries and equipment sold by him on December 4, 1959 until the final decision of the case. On
November 9, 1960 the Court of Appeals rendered the aforequoted decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition of
judgment on compromise in open court on January 1959 was a sufficient notice; and (2) in not
resolving the other issues raised before it, namely, (a) the legality of the public auction sale made by
the sheriff, and (b) the nature of the machineries in question, whether they are movables or
immovables.
The Court of Appeals held that as a judgment was entered by the court below in open court upon the
submission of the compromise agreement, the parties may be considered as having been notified of
said judgment and this fact constitutes due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of the court, and is the fact the petitioner
herein was present in open court was the judgment was dictated, sufficient notice thereof? The
provisions of the Rules of Court decree otherwise. Section 1 of Rule 35 describes the manner in
which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases shall
be in writing personally and directly prepared by the judge, and signed by him, stating clearly
and distinctly the facts and the law on which it is based, filed with the clerk of the court.

The court of first instance being a court of record, in order that a judgment may be considered as
rendered, must not only be in writing, signed by the judge, but it must also be filed with the clerk of
court. The mere pronouncement of the judgment in open court with the stenographer taking note
thereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be presumed that the
judgment that was dictated in open court will be the judgment of the court, the court may still modify
said order as the same is being put into writing. And even if the order or judgment has already been
put into writing and signed, while it has not yet been delivered to the clerk for filing it is still subject to
amendment or change by the judge. It is only when the judgment signed by the judge is actually filed
with the clerk of court that it becomes a valid and binding judgment. Prior thereto, it could still be
subject to amendment and change and may not, therefore, constitute the real judgment of the court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment
in open court, is not a valid notice of said judgment. If rendition thereof is constituted by the filing
with the clerk of court of a signed copy (of the judgment), it is evident that the fact that a party or an
attorney heard the order or judgment being dictated in court cannot be considered as notice of the
real judgment. No judgment can be notified to the parties unless it has previously been rendered.
The notice, therefore, that a party has of a judgment that was being dictated is of no effect because
at the time no judgment has as yet been signed by the judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be served
either personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the judgment
merely because he heard the judgment dictating the said judgment in open court; it is necessary that
he be served with a copy of the signed judgment that has been filed with the clerk in order that he
may legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in
open court, is not sufficient to constitute the service of judgement as required by the above-quoted
section 7 of Rule 2 the signed judgment not having been served upon the petitioner, said judgment
could not be effective upon him (petitioner) who had not received it. It follows as a consequence that
the issuance of the writ of execution null and void, having been issued before petitioner her was
served, personally or by registered mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by the Court of Appeals,
concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and
equipments at public auction with a notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries
and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his
subscription to the shares of stock of said corporation. Thereafter the sawmill machinery and
equipments were installed in a building and permanently attached to the ground. By reason of such
installment in a building, the said sawmill machineries and equipment became real estate properties
in accordance with the provision of Art. 415 (5) of the Civil Code, thus:

ART. 415. The following are immovable property:

xxx           xxx           xxx

(5) Machinery, receptacles, instruments or implements tended 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;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu
Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the central of
the Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the company,
converted the said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the sawmill machineries in
the building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried on in said building,
the same became a necessary and permanent part of the building or real estate on which the same
was constructed, converting the said machineries and equipments into real estate within the
meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00
appear to have been sold without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on
execution, notice thereof must be given as follows:

xxx           xxx           xxx

(c) In case of real property, by posting a similar notice particularly describing the property for
twenty days in three public places in the municipality or city where the property is situated,
and also where the property is to be sold, and, if the assessed value of the property exceeds
four hundred pesos, by publishing a copy of the notice once a week, for the same period, in
some newspaper published or having general circulation in the province, if there be one. If
there are newspapers published in the province in both the English and Spanish languages,
then a like publication for a like period shall be made in one newspaper published in the
English language, and in one published in the Spanish language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and
We declare that the issuance of the writ of execution in this case against the sawmill machineries
and equipments purchased by petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as
well as the sale of the same by the Sheriff of Surigao, are null and void. Costs shall be against the
respondent Grace Park Engineering, Inc.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Padilla, J., took no part.
G.R. No. L-19867           May 29, 1968

GOVERNMENT SERVICE INSURANCE SYSTEM, plaintiff-appellee, 

vs.
CALSONS, INC., CESARIO P. CALANOC, and NENITA GODINEZ, defendants-appellants.

The Government Corporate Counsel for plaintiff-appellee.

Juan T. David and Clemente M. Soriano for defendants-appellants.

MAKALINTAL., J.:

Appeal from the decision of the Court of First Instance of Manila..

On April 11, 1957 appellant CALSONS, INC. applied for a loan of P2,000,000.00 to appellee to pay
the balance of the purchase price of certain parcels of land situated at the corner of Globo de Oro
and Elizondo Streets, Quiapo, Manila, and to finance the construction of a two-storey textile market
building on said land. The application was approved by appellee's Board of Trustees on August 26,
1957. In connection with said loan appellants executed on October 31, 1957 a promissory note
binding themselves jointly and severally to pay appellee the sum of P2,000,000.00, with interest at
the rate of 7% per annum compounded monthly, in 120 equal monthly installments of P23,221.69
each. Under said note "the first installment shall be due and payable beginning the month following
the last release and/or the month following the expiration of the period for the construction of the
textile market building, whichever is earlier, and the rest on the 7th day of every month thereafter
until the principal of TWO MILLION PESOS (P2,000,000.00) and the interest shall have been fully
paid." To secure payment of the note "and/or the interest thereon and/or other obligations arising
thereunder", appellants executed on the same date a first mortgage in favor of appellee on five (5)
parcels of land particularly described in the mortgage contract, "together with all the buildings and
improvements now existing thereon or which may hereafter be constructed on the mortgaged
property (ies) of which MORTGAGOR is the absolute owner, free from all liens and encumbrances."
The aforementioned five (5) parcels of land were among the properties acquired by appellant
CALSONS, INC., from Tuason & Sampedro, Inc., for and in consideration of the sum of ONE
MILLION ONE HUNDRED THOUSAND PESOS (P1,100,000.00) under a Deed of Assignment dated
October 29, 1957. 1ªvvphi1.nêt

The conditions of the mortgage contract which are relevant to this case are the following:

2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the
mortgaged property (ies) without the prior written consent of the MORTGAGOR.

4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of the amortizations on the
indebtedness, or the interest when due, or whatever other obligation herein agreed, then all
the amortizations and other obligations of the MORTGAGOR of any nature, shall become
due, payable and defaulted and the MORTGAGEE may immediately foreclose this mortgage
judicially or extrajudicially under Act 3135, as amended and/or under C.A. 186, as amended,
and/or Act No. 1508, as amended....

14. This mortgage shall furthermore be subject to the following ADDITIONAL CONDITIONS:

1) That the applicant shall pay to the system P23,221.70 monthly, including principal
and interest.
 2) That the first release of P819,000.00 on this loan shall be made only after: 

xxx     xxx     xxx

b. The submission of evidence showing payment on realty taxes up to and

including that of the current year; .

c. The submission of evidence showing the reduction of applicant's account

on the lot to at least P819,000.00; .

d. The submission of the certificates of title in the name of the applicant to the
property offered as collateral for this loan; provided, that if the said
certificates of title could not be secured without paying the balance of the
purchase price, said balance shall be paid first from the first release of this
loan;

3) That the check covering the obligation of applicant on the lots offered as collateral
shall be drawn in favor of the vendor of said lots;

4) That subsequent releases on this loan shall be controlled in such manner that the
amount to be released shall depend on the progress of the work done on the
proposed building but in no case shall the amount to be released and the amounts
already released exceed 60% of the appraised value of the lots and the existing
improvements thereon as of every release; 

xxx     xxx     xxx

6) That the proposed building shall be completed within twelve (12) months from the
date the first release of this loan is made;

The first release in the amount of P819,000.00 was made on November 7, 1957, while the second
(and last) release in the amount of P30,000.00 was made on May 15, 1958. The checks covering
both releases were drawn in favor of the vendor of the mortgaged properties.

In accordance with the agreement between the parties, the old building standing on the mortgaged
properties was insured for P300,000.00 on December 1, 1959. Appellee advanced the sum of
P5,628.00 for the annual premium, but appellants failed to reimburse the same.

Appellee filed a complaint for the foreclosure of the mortgage with the Court of First Instance of
Manila on August 11, 1958, alleging a number of violations of the mortgage contract, to wit: (1) that
the mortgaged properties had not been freed by the mortgagor from certain liens and encumbrances
other than the mortgage itself; (2) that without the prior written consent of plaintiff defendants
removed and disposed of the complete band sawmill and filing machine which formed part of the
properties mortgaged; (3) that defendant Calsons, Inc., failed to submit to appellee evidence
showing the reduction of defendant's account on the lot to at least P819,000.00; (4) and that
Calsons, Inc., failed to begin, much less complete, the construction of the supermarket building on
the mortgaged properties. On August 11, 1959, plaintiff filed supplemental complaint, which was
admitted without opposition. Two additional grounds for the foreclosure of the mortgage were
alleged, namely: (1) that defendants failed, despite demands therefor, to pay the amortizations due
and payable, including accrued interest and surcharges, on the portion of the loan released to them;
and (2) that defendants failed to complete the construction of the textile market building on the
mortgaged properties within 12 months from November 7, 1957, the date of the first release of
P819,000.00.

Judgment was rendered on March 3, 1962 in favor of plaintiff, and defendants brought this appeal
directly to this Court in view of the amount involved.

In their brief, appellants make the following assignment of errors:

1. The Trial Court erred in holding that it is not true that defendants have not defaulted in any
of their obligations under the mortgage contract.

2. The Trial Court erred in ruling that with respect to the liens and encumbrances, the
defendants' failure to pay the balance of the purchase price of the mortgaged properties from
their original owners subjected the said properties to a vendor's lien.

3. The Trial Court erred in holding that the machineries on the mortgaged properties are part
of the mortgage and that the removal and subsequent disposal of the same therefrom by the
defendants violated the said mortgage contract.

4. The Trial Court erred in holding that defendant Calsons, Inc., has failed to reduce its
account on the loan to at least P819,000.00 and that such failure is a clear violation of a
contract of mortgage.

5. The Trial Court erred in holding that the defendants failed despite demand therefor, to pay
the amortization due and payable, including interests and surcharges on the portion of the
loan released to them.

6. The Trial Court erred in rendering judgment for plaintiff and against the defendants
ordering the latter to pay jointly and severally the plaintiff of the sum of (1) P819,000.00 with
interests at the rate of 7% per annum compounded monthly from November 8, 1957 until the
same is fully paid; (2) P30,000.00 with interests at the rate of 7% per annum compounded
monthly, from May 16, 1958 until the same is fully paid; (3) P5,628.00 yearly insurance
premium with interests of 7% per annum compounded monthly, from December, 1959 until
the same is fully paid; (4) the sum equivalent to 10% of the foregoing sums as expenses of
collection and attorney's fees, plus the costs of this action.

7. The Trial Court erred in failing and/or neglecting to act and pass upon the counterclaim of
the defendants-appellants notwithstanding the fact that said counterclaim is fully established
by the evidence on records.

The second and fourth errors assigned are interrelated and will first be taken up. The two certificates
of title covering the mortgaged properties do not show any lien or encumbrance thereon other than
the mortgage itself. This is admitted by both parties. Appellee refers, however, to the vendor's lien in
favor of the former owners, representing the unpaid balance of P280,000.00 on the purchase price
of the lots mortgaged. The lien, appellee point out, is a legal encumbrance and therefore effective,
although not recorded. On the other hand, appellants contend that appellee is estopped from
invoking its right to have the mortgaged properties free from the vendor's lien on two grounds,
namely: (1) that appellant had previous knowledge of said lien as evidenced by the two releases of
P819,000 and P30,000 directly to the vendor of the mortgaged properties, and (2) that appellant
committed itself to pay to the said vendor the amount of P280,000.00, balance on the purchase
price, within a period of six (6) months from October 28, 1957.
The contention cannot be sustained on the first ground. One of the reasons why appellant Calsons,
Inc., applied for the P2,000,000.00 loan was precisely to use part thereof to pay the balance of the
purchase price of five (5) parcels of land it mortgaged to appellee. And to assure itself that no
vendor's lien attached to the said properties appellee caused the following conditions to be added to
the original terms of the mortgage contract:

2) That the first release of P819,000.00 on this loan shall be made only after:

e. The submission of evidence showing the reduction of applicant's account on the

lot to at least P819,000.00;

d. The submission of the certificates of title in the name of the applicant to the
property offered as collateral for this loan; provided, that if the said certificates of title
could not be secured without paying the balance of the purchase price, said balance
shall be paid first from the first release of this loan;

3) That the check covering the obligation of applicant on the lots offered as collateral shall be
drawn in favor of the vendor of said lots;

Pursuant to the foregoing conditions the check covering the first release of P819,000.00 was drawn
in favor of the vendor of the properties, and the release was made upon submission of the two
transfer certificates of title already in the name of appellant Calsons, Inc., as vendee, without any
annotation thereon of any lien or encumbrance except the mortgage itself in favor of appellee. It
turned out, however, that appellants had failed to reduce their account on the lot to P819,000.00, as
stipulated in the mortgage contract, since there was still a balance of P280,000 on the purchase
price. With respect to the second release of P30,000.00, the check was also drawn in favor of the
vendor with the understanding that it would be used to pay the real estate taxes due on said
properties and thus remove the corresponding tax lien imposed by law.

The steps taken by appellee negate any inference that it agreed to waive its right to have the
properties "free from all liens and encumbrances," as provided in the mortgage contract.

Estoppel is invoked by appellants on the basis of a letter dated October 28, 1957, sent by the
Manager of appellee's Real Estate Department to the vendor of the properties, to the effect that the
balance of the purchase price in the amount of P280,000.00 would be released within six (6) months
from the date of the said letter. The commitment of said Manager was not recognized by the Board
of Trustees of the appellee as shown by the fact that it was not incorporated in the mortgage
contract, which was executed on a later date — October 31, 1957. While the schedule of
subsequent releases was clearly defined in the mortgage contract, no mention was made about the
said commitment. Thus, Paragraph 14 (4) of the mortgage contract states:

(4) .That subsequent releases on this loan shall be controlled in such manner that the
amount to be released shall depend in the progress of the work done on the proposed
building but in no case shall the amount to be released and the amounts already released
exceed 60% of the appraised value of the lots and the existing improvements thereon as of
every release;

Regarding the third error assigned, appellants do not deny the fact that they removed and disposed
of the machineries installed in the building which were standing on the mortgaged properties.
However, they contend that the said machineries were not included in the mortgage. The contention
is groundless.
The mortgage was on the lands "together with all the buildings and improvements now existing or
which may hereafter be constructed" thereon. And the machineries, as found by the trial court, were
permanently attached to the property, and installed there by the former owner to meet the needs of
certain works or industry therein. They were therefore part of the immovable pursuant to Article 415
of the Civil Code, and need not be the subject of a separate chattel mortgage in order to be deemed
duly encumbered in favor of appellee.

Under the fifth assignment of error, appellants point out that there is no time specified in the
mortgage contract within which the amortizations on the loan should begin to be paid, and conclude
that they should begin only from the time the proposed building started earning rentals. The
provision of Paragraph 14 (13) of the mortgage contract is invoked, to wit:

That rentals from the proposed building equivalent to the monthly amortization on this loan
shall be assigned in favor of and made payable to the System.

As a corollary argument, appellants add that since the present action was instituted three (3) months
before the expiration of the twelve-month period (from November 7, 1957) within which the
construction of the supermarket building should be completed the premature institution of the suit
rendered the construction of said building impossible, and hence no default in payment was
incurred.

Again this contention of appellants is without merit. The promissory note executed by them clearly
provides when the first installment, as well as subsequent ones, would become due, thus:

The first installment shall be due and payable beginning the month following the last release
and/or the month following the expiration of the period for the construction of the textile
market building, whichever is earlier, and the rest on the 7th day of every month thereafter
until the principal of TWO MILLION PESOS (P2,000,000.00) and the interest shall have been
fully paid.

As previously mentioned, the mortgage contract provides that the proposed building should be
completed within twelve (12) months from the date of the first release. Said release having been
made on November 7, 1957, the construction period of 12 months expired on November 7, 1958;
hence, the first installment became due one month thereafter or on December 7, 1958, and the rest
on the 7th day of every month thereafter. Appellants' failure to pay the amortizations, interest and
surcharges demanded of them by appellee, therefore, constitutes a violation of the mortgage
contract and is sufficient ground for the foreclosure of the mortgage.

IN VIEW OF THE FOREGOING, the sixth and seventh assignments of error are without merit.

The judgment appealed from is hereby affirmed, with costs against appellants.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Fernando, J., is on leave.
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. 1awphîl.nèt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied
a motion for reconsideration, petitioner brought the case to this Court assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are
immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. — The following are immovable properties:

xxx     xxx     xxx
 (5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade or industry."

If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on
the sugar industry for which it has been established must necessarily be permanent.
(Emphasis ours.) 

So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they
are essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals
and are not and should not be considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments. Airline companies use forklifts,
jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus
retain their movable nature. On the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals — acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments, its business may be
carried on, as petitioner has carried on, without such equipments, before the war. The transportation
business could be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.

The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

xxx     xxx     xxx
 (5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code of
the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industry or
works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment
in question declared not subject to assessment as real estate for the purposes of the real estate tax.
Without costs.

So ordered.
 [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.:  chanrobles virtual law library

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  chanrobles virtual law library

Before us is a Petition for Review on Certiorari assailing the January

6, 1999 Decision1 of the Court of Appeals (CA)[2 in CA-GR SP No.
47332 and its February 26, 1999 Resolution [3denying
reconsideration. The decretal portion of the CA Decision reads as
follows: 
chanrobles virtual law library

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  chanrobles virtual law library

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  chanrobles virtual law library

The undisputed facts are summarized by the Court of Appeals as

follows:10  chanrobles virtual law library
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.  chanrobles virtual law library

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.  chanrobles virtual law library

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.  chanrobles virtual law library

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. 
chanrobles virtual law library

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.  chanrobles virtual law library

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.  chanrobles virtual law library

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.  chanrobles virtual law library

On April 7, 1998, they went to [the CA] via an original action for
certiorari.

Ruling of the Court of Appeals  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

Hence, this Petition.11

The Issues  chanrobles virtual law library

In their Memorandum, petitioners submit the following issues for

our consideration:  chanrobles virtual law library

A. Whether or not the machineries purchased and imported by

SERGS became real property by virtue of immobilization.  chanrobles virtual law library

B. Whether or not the contract between the parties is a loan or a

lease.12 
chanrobles virtual law library

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  chanrobles virtual law library

The Petition is not meritorious.

Preliminary Matter:Procedural Questions chanrobles virtual law library

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.  chanrobles virtual law library

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  chanrobles virtual law library

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 chanrobles virtual law library

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.  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

On the other hand, Article 415 of the Civil Code enumerates

immovable or real property as follows:  chanrobles virtual law library

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x  chanrobles virtual law library

(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  chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

The Court has held that contracting parties may validly stipulate that
a real property be considered as personal.18After agreeing to such
stipulation, they are consequently estopped from claiming
otherwise. Under the principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of any material fact
found therein.  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

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. 
library
chanrobles virtual law

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  chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

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: chanrobles virtual law library

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  chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

Makati Leasing and Finance Corporation30 is also instructive on this

point. In that case, the Deed of Chattel Mortgage, which
characterized the subject machinery as personal property, was also
assailed because respondent had allegedly been required to sign a
printed form of chattel mortgage which was in a blank form at the
time of signing. The Court rejected the argument and relied on the
Deed, ruling as follows:  chanrobles virtual law library
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   chanrobles virtual law library

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.  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.  chanrobles virtual law library

SO ORDERED.  chanr
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.   Considering that petitioner has reserved its right to question the
1

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.
G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner, 
vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.),
INC., respondents.

Paterno P. Natinga for private respondent. 

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent Judge Tañada 1 in Civil Case No. 10984. The first, dated
September 16, 1970, denied petitioner Yap's motion to set aside execution sale and to quash alias writ of execution. The second, dated
November 21, 1970, denied Yap's motion for reconsideration. The issues concerned the propriety of execution of a judgment claimed to be
"incomplete, vague and non-final," and the denial of petitioner's application to prove and recover damages resulting from alleged
irregularities in the process of execution. 

The antecedents will take some time in the telling. The case began in the City Court of Cebu with the
filing by Goulds Pumps International (Phil.), Inc. of a complaint   against Yap and his wife   seeking
2 3

recovery of P1,459.30 representing the balance of the price and installation cost of a water pump in
the latter's premises.   The case resulted in a judgment by the City Court on November 25, 1968,
4

reading as follows: 

When this case was called for trial today, Atty. Paterno Natinga appeared for the
plaintiff Goulds and informed the court that he is ready for trial. However, none of the
defendants appeared despite notices having been served upon them. 

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence ex-
parte. 

After considering the evidence of the plaintiff, the court hereby renders judgment in
favor of the plaintiff and against the defendant (Yap), ordering the latter to pay to the
former the sum of Pl,459.30 with interest at the rate of 12% per annum until fully
paid, computed from August 12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is equivalent " to 25% of the
unpaid principal obligation; and to pay the costs, if any. 

Yap appealed to the Court of First Instance. The appeal was assigned to the sala of respondent
Judge Tañada. For failure to appear for pre-trial on August 28, 1968, this setting being intransferable
since the pre-trial had already been once postponed at his instance,   Yap was declared in default by
5

Order of Judge Tañada dated August 28, 1969,   reading as follows: 6

When this case was called for pre-trial this morning, the plaintiff and counsel
appeared, but neither the defendants nor his counsel appeared despite the fact that
they were duly notified of the pre-trial set this morning. Instead he filed an Ex-Parte
Motion for Postponement which this Court received only this morning, and on petition
of counsel for the plaintiff that the Ex-Parte Motion for Postponement was not filed in
accordance with the Rules of Court he asked that the same be denied and the
defendants be declared in default; .. the motion for the plaintiff being well- grounded,
the defendants are hereby declared in default and the Branch Clerk of Court ..is
 hereby authorized to receive evidence for the plaintiff and .. submit his report within
ten (10) days after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered the following day by
Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30 representing the unpaid balance of the
pump purchased by him; (2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other expenses in prosecuting
the action. Notice of the judgment was served on Yap on September 1, 1969.  7

On September 16, 1969 Yap filed a motion for reconsideration.   In it he insisted that his motion for
8

postponement should have been granted since it expressed his desire to explore the possibility of an
amicable settlement; that the court should give the parties time to arrive at an amicable settlement
failing which, he should be allowed to present evidence in support of his defenses (discrepancy as to
the price and breach of warranty). The motion was not verified or accompanied by any separate
affidavit. Goulds opposed the motion. Its opposition   drew attention to the eleventh-hour motion for
9

postponement of Yap which had resulted in the cancellation of the prior hearing of June 30, 1969
despite Goulds' vehement objection, and the re-setting thereof on August 28, 1969 with
intransferable character; it averred that Yap had again sought postponement of this last hearing by
another eleventh-hour motion on the plea that an amicable settlement would be explored, yet he had
never up to that time ever broached the matter,   and that this pattern of seeking to obtain last-
10

minute postponements was discernible also in the proceedings before the City Court. In its
opposition, Goulds also adverted to the examination made by it of the pump, on instructions of the
City Court, with a view to remedying the defects claimed to exist by Yap; but the examination had
disclosed the pump's perfect condition. Yap's motion for reconsideration was denied by Order dated
October 10, 1969, notice of which was received by Yap on October 4, 1969.  11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for Issuance of Writ of
Execution dated October 14, 1969, declaring the reasons therein alleged to be meritorious.   Yap 12

forthwith filed an "Urgent Motion for Reconsideration of Order" dated October 17, 1969,   contending
13

that the judgment had not yet become final, since contrary to Goulds' view, his motion for
reconsideration was not pro forma for lack of an affidavit of merit, this not being required under
Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was grounded. Goulds
presented an opposition dated October 22, 1969.   It pointed out that in his motion for
14

reconsideration Yap had claimed to have a valid defense to the action, i.e., ".. discrepancy as to
price and breach of seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's motion
for reconsideration should therefore have been supported by an affidavit of merit respecting said
defenses; the absence thereof rendered the motion for reconsideration fatally defective with the
result that its filing did not interrupt the running of the period of appeal. The opposition also drew
attention to the failure of the motion for reconsideration to specify the findings or conclusions in the
judgment claimed to be contrary to law or not supported by the evidence, making it a pro
forma motion also incapable of stopping the running of the appeal period. On October 23, 1969,
Judge Tañada denied Yap's motion for reconsideration and authorized execution of the
judgment.  Yap sought reconsideration of this order, by another motion dated October 29,
15

1969.   This motion was denied by Order dated January 26, 1970.   Again Yap moved for
16 17

reconsideration, and again was rebuffed, by Order dated April 28, 1970.  18

In the meantime the Sheriff levied on the water pump in question,   and by notice dated November
19

4, 1969, scheduled the execution sale thereof on November 14, 1969.   But in view of the pendency
20

of Yap's motion for reconsideration of October 29, 1969, suspension of the sale was directed by
Judge Tañada in an order dated November 6, 1969. 21
 Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated
October 29, 1969, from receipt of this Order and in the meantime, the Order of
October 23, 1969, insofar as it orders the sheriff to enforce the writ of execution is
hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff "through oversight,
inadvertence and pressure of work" of the Branch Clerk of Court.   So the Deputy Provincial Sheriff
22

went ahead with the scheduled auction sale and sold the property levied on to Goulds as the highest
bidder.   He later submitted the requisite report to the Court dated November 17, 1969,   as well as
23 24

the "Sheriffs Return of Service" dated February 13, 1970,   in both of which it was stated that
25

execution had been "partially satisfied." It should be observed that up to this time, February, 1970,
Yap had not bestirred himself to take an appeal from the judgment of August 29, 1969. 

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution on Gould's ex
parte motion therefor.   Yap received notice of the Order on June 11. Twelve (1 2) days later, he
26

filed a "Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution."   As regards
27

the original, partial execution of the judgment, he argued that — 

1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the judgment
sought to be executed not being final and executory;" and 

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules of Court,"
i.e., notice by publication in case of execution sale of real property, the pump and its accessories
being immovable because attached to the ground with character of permanency (Art. 415, Civil
Code). 

And with respect to the alias writ, he argued that it should not have issued because — 

1) "the judgment sought to be executed is null and void" as "it deprived the defendant of his day in
court" and "of due process;" 

2) "said judgment is incomplete and vague" because there is no starting point for computation of the
interest imposed, or a specification of the "other expenses incurred in prosecuting this case" which
Yap had also been ordered to pay; 

3) "said judgment is defective because it contains no statement of facts but a mere recital of the
evidence; and 

4) "there has been a change in the situation of the parties which makes execution unjust and
inequitable" because Yap suffered damages by reason of the illegal execution. 

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order dated
September 16, 1970. Judge Tañada pointed out that the motion had "become moot and academic"
since the decision of August 29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was promulgated on October
15, 1969." His Honor also stressed that — 

The defendant's Motion for Reconsideration of the Courts decision was in reality one
for new trial. Regarded as motion for new trial it should allege the grounds for new
trial, provided for in the Rules of Court, to be supported by affidavit of merits; and this
the defendant failed to do. If the defendant sincerely desired for an opportunity to
 submit to an amicable settlement, which he failed to do extra judicially despite the
ample time before him, he should have appeared in the pre- trial to achieve the same
purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970 granting a motion of
Goulds for completion of execution of the judgment of August 29, 1969 to be undertaken by the City
Sheriff of Cebu. Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970,   seeking the setting aside not only of this
28

Order of September 21, 1970 but also that dated September 16, 1970, denying his motion to set
aside execution dated June 23, 1970. He contended that the Order of September 21, 1970
(authorizing execution by the City Sheriff) was premature, since the 30-day period to appeal from
the earlier order of September 16, 1970 (denying his motion to set aside) had not yet expired. He
also reiterated his view that his motion for reconsideration dated September 15, 1969 did not require
that it be accompanied by an affidavit of merits. This last motion was also denied for "lack of merits,"
by Order dated November 21, 1970.  29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal to the
Supreme Court on certiorari only on questions of law, "from the Order ... of September 16, 1970 ...
and from the Order ... of November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971, after obtaining an extension
therefor. 
30

The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969 although the
judgment had not then become final and executory and despite its being incomplete and vague; 

2) ignoring the fact that the execution sale was carried out although it (the Court) had itself ordered
suspension of execution on November 6, 1969; 

3) declining to annul the execution sale of the pump and accessories subject of the action although
made without the requisite notice prescribed for the sale of immovables; and 

4) refusing to allow the petitioner to prove irregularities in the process of execution which had
resulted in damages to him. 

Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His motion for
reconsideration thereof was filed 15 days thereafter, on September 16, 1969. Notice of the Order
denying the motion was received by him on October 14, 1969. The question is whether or not the
motion for reconsideration — which was not verified, or accompanied by an affidavit of merits
(setting forth facts constituting his meritorious defenses to the suit) or other sworn statement (stating
facts excusing his failure to appear at the pre-trial was pro forma and consequently had not
interrupted the running of the period of appeal. It is Yap's contention that his motion was notpro
forma for lack of an affidavit of merits, such a document not being required by Section 1 (a) of Rule
37 of the Rules of Court upon which his motion was based. This is incorrect. 

Section 2, Rule 37 precisely requires that when the motion for new trial is founded on Section 1 (a),
it should be accompanied by an affidavit of merit. 

xxx xxx xxx

 When the motion is made for the causes mentioned in subdivisions (a) and (b) of the
preceding section, it shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be attached to a motion for the
cause mentioned in subdivision (a) which may be rebutted by counter-affidavits. 

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of Rule
37,   i.e., fraud, accident, mistake or excusable negligence which ordinary prudence could not have
33

guarded against and by reason of which ... (the) aggrieved party has probably been impaired in his
rights" — this being in any event clear from a perusal of the motion which theorizes that he had
"been impaired in his rights" because he was denied the right to present evidence of his defenses
(discrepancy as to price and breach of warranty) — it was a fatal omission to fail to attach to his
motion an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions) constituting the
valid x x defense which the movant may prove in case a new trial is granted."   The requirement of
34

such an affidavit is essential because obviously "a new trial would be a waste of the court's time if
the complaint turns out to be groundless or the defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a desire to
explore the possibility of an amicable settlement, the Court should have given him time to do so,
instead of declaring him in default and thereafter rendering judgment by default on Gould's ex
parte evidence. 

The bona fides of this desire to compromise is however put in doubt by the attendant circumstances.
It was manifested in an eleventh-hour motion for postponement of the pre-trial which had been
scheduled with intransferable character since it had already been earlier postponed at Yap's
instance; it had never been mentioned at any prior time since commencement of the litigation; such
a possible compromise (at least in general or preliminary terms) was certainly most appropriate for
consideration at the pre-trial; in fact Yap was aware that the matter was indeed a proper subject of a
pre-trial agenda, yet he sought to avoid appearance at said pre-trial which he knew to be
intransferable in character. These considerations and the dilatory tactics thus far attributable to him-
seeking postponements of hearings, or failing to appear therefor despite notice, not only in the Court
of First Instance but also in the City Court — proscribe belief in the sincerity of his avowed desire to
negotiate a compromise. Moreover, the disregard by Yap of the general requirement that "(n)otice of
a motion shall be served by the applicant to all parties concerned at least three (3) days before the
hearing thereof, together with a copy of the motion, and of any affidavits and other papers
accompanying it,"   for which no justification whatever has been offered, also militates against
36

the bona fides of Yap's expressed wish for an amicable settlement. The relevant circumstances do
not therefore justify condemnation, as a grave abuse of discretion, or a serious mistake, of the
refusal of the Trial Judge to grant postponement upon this proferred ground. 

The motion for reconsideration did not therefore interrupt the running of the period of appeal. The
time during which it was pending before the court — from September 16, 1969 when it was filed with
the respondent Court until October 14, 1969 when notice of the order denying the motion was
received by the movant — could not be deducted from the 30-day period of appeal.   This is the
37

inescapable conclusion from a consideration of Section 3 of Rule 41 which in part declares that,
"The "time during which a motion to set aside the judgment or order or for a new trial has been
pending shall be deducted, unless such motion fails to satisfy the requirements of Rule 37.  38

Notice of the judgment having been received by Yap on September 1, 1969, and the period of
appeal therefrom not having been interrupted by his motion for reconsideration filed on September
16, 1969, the reglementary period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then became final and
executory; Yap could no longer take an appeal therefrom or from any other subsequent orders; and
execution of judgment correctly issued on October 15, 1969, "as a matter of right."  39

The next point discussed by Yap, that the judgment is incomplete and vague, is not well taken. It is
true that the decision does not fix the starting time of the computation of interest on the judgment
debt, but this is inconsequential since that time is easily determinable from the opinion, i.e., from the
day the buyer (Yap) defaulted in the payment of his obligation,   on May 31, 1968.   The absence of
40 41

any disposition regarding his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and despite notice, which
caused the declaration of his default, was a waiver of his right to controvert the plaintiff s proofs and
of his right to prove the averments of his answer, inclusive of the counterclaim therein pleaded.
Moreover, the conclusion in the judgment of the merit of the plaintiff s cause of action was
necessarily and at the same time a determination of the absence of merit of the defendant's claim of
untenability of the complaint and of malicious prosecution.

Yap's next argument that the water pump had become immovable property by its being installed in
his residence is also untenable. The Civil Code considers as immovable property, among others,
anything "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 pump does not fit this
42

description. It could be, and was in fact separated from Yap's premises without being broken or
suffering deterioration. Obviously the separation or removal of the pump involved nothing more
complicated than the loosening of bolts or dismantling of other fasteners. 

Yap's last claim is that in the process of the removal of the pump from his house, Goulds' men had
trampled on the plants growing there, destroyed the shed over the pump, plugged the exterior
casings with rags and cut the electrical and conduit pipes; that he had thereby suffered actual-
damages in an amount of not less than P 2,000.00, as well as moral damages in the sum of P
10,000.00 resulting from his deprivation of the use of his water supply; but the Court had refused to
allow him to prove these acts and recover the damages rightfully due him. Now, as to the loss of his
water supply, since this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly is not entitled to claim
moral or any other form of damages therefor. 

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of September
16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs against petitioner. 

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. L-7057           October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner, 

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE
COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from a
decision of the Court of Appeals denying an original petition for certiorari filed by said petitioner
against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the respondents
herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to
seize and take immediate possession of the properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a
crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's
order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro
Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty.
Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in
question, on the ground that they are not personal properties. Contending that the Sheriff's
duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact
that the equipment could not possibly be dismantled without causing damages or injuries to
the wooden frames attached to them. As Roco insisted in dismantling the equipment on his
own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs
directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769,
for the return of the properties seized by the deputy sheriffs. On the same day, the trial court
issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and
equipment to the place where they were installed at the time of the seizure (Appendix 3). On
March 21, 1953, the deputy sheriffs returned the properties seized, by depositing them along
the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory
and without re-installing hem in their former position and replacing the destroyed posts,
which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked
the provincial Sheriff if the machinery and equipment, dumped on the road would be re-
installed tom their former position and condition (letter, Appendix 4). On March 24, 1953, the
 Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked to
furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to
carry into effect the court's order, to return the seized properties in the same way said Roco
found them on the day of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff
of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On March
30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of
the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which
to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial
court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the repeatedly
mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of
Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was alleged
that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with necessary funds,
technical men, laborers, equipment and materials, to effect the installation of the machinery and
equipment" in question, the Court of Firs Instance of Bulacan had committed a grave abuse if
discretion and acted in excess of its jurisdiction, for which reason it was prayed that its order to this
effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the
enforcement o said order of may 4, 1953. Although the aforementioned writ was issued by the Court
of Appeals, the same subsequently dismissed by the case for lack of merit, with costs against the
petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered by the respondent
Court, it is, however, logical to presume that said court did not authorize the petitioner or its
agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting
the same from their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those parts removed, cut
and sawed be replaced, which the petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent
proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of
the respondent Judge to give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue.
The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have
known what is inherently right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms of
the order. While it may be conceded that this was a question of law too technical to decide
on the spot, it would not have costs the Sheriff much time and difficulty to bring the letter to
the court's attention and have the equipment and machinery guarded, so as not to frustrate
the order of seizure issued by the trial court. But acting upon the directives of the president of
the Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled,
had not committed abuse of discretion at all or acted in an arbitrary or despotic manner, by
reason of passion or personal hostility; on the contrary, it issued said order, guided by the
well known principle that of the property has to be returned, it should be returned in as good
a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had
gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
 considering that fact that he acted under the pressure of Ramon S. Roco, and that the order
impugned was issued not by him, but by the respondent Judge, We simply declare that said
Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff not
being an officer exercising judicial functions, the writ may not reach him, for certiorari lies
only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of
the only issue involved in this case. It is a matter of evidence which should be decided in the
hearing of the case on the merits. The question as to whether the machinery or equipment in
litigation are immovable or not is likewise immaterial, because the only issue raised before
the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was
justified in destroying the machinery and in refusing to restore them to their original form , at
the expense of the Petitioner. Whatever might be the legal character of the machinery and
equipment, would not be in any way justify their justify their destruction by the Sheriff's and
the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied , petitioner
has brought the case to Us for review by writ of certiorari. Upon examination of the record, We are
satisfied, however that the Court of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to
"personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully taken
or detained from the owner thereof, provided such property is capable of identification and
delivery; but replevin will not lie for the recovery of real property or incorporeal personal
property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and
equipment in question appeared to be attached to the land, particularly to the concrete foundation of
said premises, in a fixed manner, in such a way that the former could not be separated from the
latter "without breaking the material or deterioration of the object." Hence, in order to remove said
outfit, it became necessary, not only to unbolt the same, but , also, to cut some of its wooden
supports. Moreover, said machinery and equipment were "intended by the owner of the tenement for
an industry" carried on said immovable and tended." For these reasons, they were already
immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines,
which are substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As
such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the

realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to
be part thereof, as, for example, a house or a turbine pump constituting part of a building's
cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent
and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility," stating that.,
precisely, "that is the reason why plaintiff posted a bond ." In this manner, petitioner clearly assumed
the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of
Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return of the
property in dispute upon the filing of a counterbond, as provided therein. In other words, petitioner
knew that the restitution of said property to respondent company might be ordered under said
provision of the Rules of Court, and that, consequently, it may become necessary for petitioner to
meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely in point —
obviously real property are not subject to replevin — it is well settled that, when the restitution of
what has been ordered, the goods in question shall be returned in substantially the same condition
as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and equipment involved in
this case were duly installed and affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it follows that petitioner
must also do everything necessary to the reinstallation of said property in conformity with its original
condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the petitioner.
So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Reyes, J.B.L.,
JJ., concur.
Paras, C.J., concurs in the result.
G.R. No. L-11658            February 15, 1918

LEUNG YEE, plaintiff-appellant, 
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees. 

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees. 

CARSON, J.:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery

company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it stood.
The indebtedness secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was
bought in by the machinery company. The mortgage was registered in the chattel mortgage registry,
and the sale of the property to the machinery company in satisfaction of the mortgage was
annotated in the same registry on December 29, 1913. 

A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company, but
this deed of sale, although executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been executed for the
purpose of curing any defects which might be found to exist in the machinery company's title to the
building under the sheriff's certificate of sale. The machinery company went into possession of the
building at or about the time when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since. 

At or about the time when the chattel mortgage was executed in favor of the machinery company,
the mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the plaintiff upon the
building, separate and apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of
the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured
judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or
about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the
land registry of the Province of Cavite. 

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 "Compañia Agricola Filipina" was real property, and the mere fact that the parties
seem to have dealt with it separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building was concerned. 

We conclude that the ruling in favor of the machinery company cannot be sustained on the ground
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the
ground that the agreed statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made
in good faith, and that the machinery company must be held to be the owner of the property under
the third paragraph of the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were sold to the machinery
company long prior to the date of the sheriff's sale to the plaintiff. 

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"
in express terms, in relation to "possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It could not have been the
intention of the legislator to base the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the language of this section would
open wide the door to fraud and collusion. The public records cannot be converted into instruments
of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect
given by law to an inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription in a public
registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person
who thus makes the inscription. 
Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that: 

This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.) 

Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference, this
provision must always be understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just
to comply with a mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.) 

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the
sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company
had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company
had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same defect. 

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale
to the plaintiff was not made in good faith, we should not be understood as questioning, in any way,
the good faith and genuineness of the plaintiff's claim against the "Compañia Agricola Filipina." The
truth is that both the plaintiff and the defendant company appear to have had just and righteous
claims against their common debtor. No criticism can properly be made of the exercise of the utmost
diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from
the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly possible and
even probable that he thought at that time that he would be able to maintain his position in a contest
with the machinery company. There was no collusion on his part with the common debtor, and no
thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.
He may have hoped, and doubtless he did hope, that the title of the machinery company would not
stand the test of an action in a court of law; and if later developments had confirmed his unfounded
hopes, no one could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of ownership when he
executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he cannot be said to have been
an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in
this sense that we find that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him
an innocent purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like situation.
Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is
that "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a
"freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is
that proof of such knowledge overcomes the presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.) 

We conclude that upon the grounds herein set forth the disposing part of the decision and judgment
entered in the court below should be affirmed with costs of this instance against the appellant. So
ordered. 

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

Torres, Avanceña and Fisher, JJ., took no part.
 G.R. No. 166102, August 05, 2015

MANILA ELECTRIC COMPANY, Petitioner, v. THE CITY ASSESSOR AND CITY

TREASURER OF LUCENA CITY, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court filed by Manila Electric Company (MERALCO), seeking the reversal of the
Decision1 dated May 13, 2004 and Resolution2 dated November 18, 2004 of the
Court of Appeals in CA-G.R. SP No. 67027. The appellate court affirmed the
Decision3 dated May 3, 2001 of the Central Board of Assessment Appeals (CBAA) in
CBAA Case No. L-20-98, which, in turn, affirmed with modification the
Decision4 dated June 17, 19985 of the Local Board of Assessment Appeals (LBAA) of
Lucena City, Quezon Province, as regards Tax Declaration Nos. 019-6500 and 019-
7394, ruling that MERALCO is liable for real property tax on its transformers,
electric posts (or poles), transmission lines, insulators, and electric meters,
beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws to

operate as a public utility engaged in electric distribution. MERALCO has been
successively granted franchises to operate in Lucena City beginning 1922 until
present time, particularly, by: (1) Resolution No. 366 dated May 15, 1922 of the
Municipal Council of Lucena; (2) Resolution No. 1087 dated July 1, 1957 of the
Municipal Council of Lucena; (3) Resolution No. 26798 dated June 13, 1972 of the
Municipal Board of Lucena City;9 (4) Certificate of Franchise10dated October 28,
1993 issued by the National Electrification Commission; and (5) Republic Act No.
920911 approved on June 9, 2003 by Congress.12

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy
of Tax Declaration No. 019-650013 covering the following electric facilities, classified
as capital investment, of the company: (a) transformer and electric post; (b)
transmission line; (c) insulator; and (d) electric meter, located in Quezon Ave. Ext.,
Brgy. Gulang-Gulang, Lucena City. Under Tax Declaration No. 019-6500, these
electric facilities had a market value of P81,811,000.00 and an assessed value of
P65,448,800.00, and were subjected to real property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City,
which was docketed as LBAA-89-2. MERALCO claimed that its capital investment
consisted only of its substation facilities, the true and correct value of which was
only P9,454,400.00; and that MERALCO was exempted from payment of real
property tax on said substation facilities.

The LBAA rendered a Decision14 in LBAA-89-2 on July 5, 1989, finding that under its
franchise, MERALCO was required to pay the City Government of Lucena a tax
equal to 5% of its gross earnings, and "[s]aid tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any kind, nature, or description
levied, established, or collected x x x, on its poles, wires, insulators, transformers
and structures, installations, conductors, and accessories, x x x, from which taxes
the grantee (MERALCO) is hereby expressly exempted."15 As regards the issue of
whether or not the poles, wires, insulators, transformers, and electric meters of
MERALCO were real properties, the LBAA cited the 1964 case of Board of
Assessment Appeals v. Manila Electric Company16 (1964 MERALCO case) in which
the Court held that: (1) the steel towers fell within the term "poles" expressly
exempted from taxes under the franchise of MERALCO; and (2) the steel towers
were personal properties under the provisions of the Civil Code and, hence, not
subject to real property tax. The LBAA lastly ordered that Tax Declaration No. 019-
6500 would remain and the poles, wires, insulators, transformers, and electric
meters of MERALCO would be continuously assessed, but the City Assessor would
stamp on the said Tax Declaration the word "exempt." The LBAA decreed in the
end:cralawlawlibrary

WHEREFORE, from the evidence adduced by the parties, the Board overrules the
claim of the [City Assessor of Lucena] and sustain the claim of [MERALCO].

Further, the Appellant (Meralco) is hereby ordered to render an accounting to the

City Treasurer of Lucena and to pay the City Government of Lucena the amount
corresponding to the Five (5%) per centum of the gross earnings in compliance
with paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from
November 9, 1957 to date, if said tax has not yet been paid.17 chanrobleslaw

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed
as CBAA Case No. 248. In its Decision18 dated April 10, 1991, the CBAA affirmed
the assailed LBAA judgment. Apparently, the City Assessor of Lucena no longer
appealed said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October
16, 1997 from the City Treasurer of Lucena, which stated that the company was
being assessed real property tax delinquency on its machineries beginning 1990, in
the total amount of P17,925,117.34, computed as follows: chanRoblesvirtualLawlibrary

TAX ASSESSED  COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD
019-6500 P65,448,800.00 1990-94 P3,272,440.00
P2,356,156.80 P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
1996 785,385.60 345,569.66 1,130,955.26
lst-3rd/1997 589,039.20 117,807.84 706,847.04
4th 1997 196,346.40(19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
TOTAL TAX DELINQUENCY---- P17,925,117.34
The City Treasurer of Lucena requested that MERALCO settle the payable amount
soon to avoid accumulation of penalties. Attached to the letter were the following
documents: (a) Notice of Assessment20 dated October 20, 1997 issued by the City
Assessor of Lucena, pertaining to Tax Declaration No. 019-7394, which increased
the market value and assessed value of the machinery; (b) Property Record
Form;21 and (c) Tax Declaration No. 019-6500.22

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA
of Lucena City on December 23, 1997 and posted a surety bond23 dated December
10, 1997 to guarantee payment of its real property tax delinquency. MERALCO
asked the LBAA to cancel and nullify the Notice of Assessment dated October 20,
1997 and declare the properties covered by Tax Declaration Nos. 019-6500 and
019-7394 exempt from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and
019-7394, the LBAA declared that Sections 234 and 534(f) of the Local Government
Code repealed the provisions in the franchise of MERALCO and Presidential Decree
No. 55124 pertaining to the exemption of MERALCO from payment of real property
tax on its poles, wires, insulators, transformers, and meters. The LBAA refused to
apply as res judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA,
because it involved collection of taxes from 1985 to 1989, while the present case
concerned the collection of taxes from 1989 to 1997; and LBAA is only an
administrative body, not a court or quasi-judicial body. The LBAA though instructed
that the computation of the real property tax for the machineries should be based
on the prevailing 1991 Schedule of Market Values, less the depreciation cost
allowed by law. The LBAA ultimately disposed: cralawlawlibrary

WHEREFORE, in view of the foregoing, it is hereby ordered that: chanRoblesvirtualLawlibrary

1) MERALCO's appeal be dismissed for lack of merit; ChanRoblesVirtualawlibrary

2) MERALCO be required to pay the realty tax on the questioned properties,

because they are not exempt by law, same to be based on the 1991 level of
assessment, less depreciation cost allowed by law.25 chanrobleslaw

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No.
L-20-98. The CBAA, in its Decision dated May 3, 2001, agreed with the LBAA that
MERALCO could no longer claim exemption from real property tax on its
machineries with the enactment of Republic Act No. 7160, otherwise known as the
Local Government Code of 1991, thus: cralawlawlibrary

Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling
in [MERALCO's] favor in connection with this very same issue. The matter was
settled on April 10, 1991 where this Authority ruled that "wires, insulators,
transformers and electric meters which are mounted on poles and can be separated
from the poles and moved from place to place without breaking the material or
causing [the] deterioration of the object, are deemed movable or personal
property". The same position of MERALCO would have been tenable and that
decision may have stood firm prior to the enactment of R.A. 7160 but not anymore
in this jurisdiction. The Code provides and now sets a more stringent yet broadened
concept of machinery, x x x:chanRoblesvirtualLawlibrary

xxxx

The pivotal point where the difference lie between the former and the current case
is that by the very wordings of [Section 199(0)], the ground being anchored upon
by MERALCO concerning the properties in question being personal in nature does
not hold anymore for the sole reason that these come now within the purview and
new concept of Machineries. The new law has treated these in an unequivocal
manner as machineries in the sense that they are instruments, mechanical
contrivances or apparatus though not attached permanently to the real properties
of [MERALCO] are actually, directly and exclusively used to meet their business of
distributing electricity.

xxxx

Clearly, [Section 234 of the Local Government Code] lists down the instances of
exemption in real property taxation and very apparent is the fact that the
enumeration is exclusive in character in view of the wordings in the last paragraph.
Applying the maxim "Expressio Unius est Exclusio Alterius", we can say that "Where
the statute enumerates those who can avail of the exemption, it is construed as
excluding all others not mentioned therein". Therefore, the above-named company
[had] lost its previous exemptions under its franchise because of non-inclusion in
the enumeration in Section 234. Furthermore, all tax exemptions being enjoyed by
all persons, whether natural or juridical, including all government-owned or
controlled corporations are expressly withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena
passed Resolution No. 108 on July 1, 1957 extending the franchise of MERALCO to
operate in Lucena city an electric light system for thirty-five years, which should
have expired on November 9, 1992 and under Resolution No. 2679 passed on June
13, 1972 by the City Council of Lucena City awarding [MERALCO] a franchise to
operate for twenty years an electric light, heat and power system in Lucena City,
also to expire in the year 1992. Under those franchises, they were only bound to
pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the exemption under
the franchise of [MERALCO] since, unquestionably [MERALCO] is a recipient of
another franchise granted this time by the National Electrification Commission as
evidenced by a certificate issued on October 28, 1993, such conferment does not
automatically include and/or award exemption from taxes, nor does it impliedly
give the franchisee the right to continue the privileges like exemption granted
under its previous franchise. It is just a plain and simple franchise. In countless
times, the Supreme Court has ruled that exemption must be clear in the language
of the law granting such exemption for it is strictly construed and favored against
the person invoking it. In addition, a franchise though in the form of a contract is
also a privilege that must yield to the sublime yet inherent powers of the state, one
of these is the power of taxation.

Looking into the law creating the National Electrification Administration

(Commission), P.D. 269 as amended by P.D. 1645, nowhere in those laws can we
find such authority to bestow upon the grantee any tax exemption of whatever
nature except those of cooperatives. This we believe is basically in consonance with
the provisions of the Local Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234
thereof states that "All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations or part or parts
thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly". Anent this unambiguous mandate, P.D. 551 is
mandatorily repealed due to its contradictory and irreconcilable provisions with R.A.
7160.26
chanrobleslaw

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property
tax deficiency assessment the years 1990 to 1991, considering that: cralawlawlibrary

In the years 1990 and 1991, the exemption granted to MERALCO under its
franchise which incidentally expired upon the effectivity of the Local Government
Code of 1991 was very much in effect and the decision rendered by the Central
Board of Assessment Appeals (CBAA) classifying its poles, wires, insulators,
transformers and electric meters as personal property was still controlling as the
law of the case. So, from 1990 to 1991, it would be inappropriate and illegal to
make the necessary assessment on those properties, much more to impose any
penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City Government of
Lucena is legal, both procedurally and substantially. When R.A. 7160, which
incorporated amended provisions of the Real Property Tax Code, took effect on
January 1, 1992, as already discussed, the nature of the aforecited questioned
properties considered formerly as personal metamorphosed to machineries and the
exemption being invoked by [MERALCO] was automatically withdrawn pursuant to
the letter and spirit of the law. x x x.27
chanrobleslaw

Resultantly, the decretal portion of said CBAA Decision reads: cralawlawlibrary

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby

modified. The City Assessor of Lucena City is hereby directed to make a new
assessment on the subject properties to retroact from the year 1992 and the City
Treasurer to collect the tax liabilities in accordance with the provisions of the cited
Section 222 of the Local Government Code.28 chanrobleslaw

The CBAA denied the Motion for Reconsideration of MERALCO in a

Resolution29 dated August 16, 2001.
Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a
Petition for Review under Rule 43 of the Rules of Court, which was docketed as CA-
G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments
proffered by MERALCO. The appellate court found no deficiency in the Notice of
Assessment issued by the City Assessor of Lucena: cralawlawlibrary

It was not disputed that [MERALCO] failed to provide the [City Assessor and City
Treasurer of Lucena] with a sworn statement declaring the true value of each of the
subject transformer and electric post, transmission line, insulator and electric meter
which should have been made the basis of the fair and current market value of the
aforesaid property and which would enable the assessor to identify the same for
assessment purposes. [MERALCO] merely claims that the assessment made by the
[City Assessor and City Treasurer of Lucena] was incorrect but did not even
mention in their pleading the true and correct assessment of the said properties.
Absent any sworn statement given by [MERALCO], [the City Assessor and City
Treasurer of Lucena] were constrained to make an assessment based on the
materials within [their reach].30 chanrobleslaw

The Court of Appeals further ruled that there was no more basis for the real
property tax exemption of MERALCO under the Local Government Code and that
the withdrawal of said exemption did not violate the non-impairment clause of the
Constitution, thus:cralawlawlibrary

Although it could not be denied that [MERALCO] was previously granted a

Certificate of Franchise by the National Electrification Commission on October 28,
1993 x x x, such conferment does not automatically include an exemption from the
payment of realty tax, nor does it impliedly give the franchisee the right to continue
the privileges granted under its previous franchise considering that Sec. 534(f) of
the Local Government Code of 1991 expressly repealed those provisions which are
inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes
the general rule, viz., tax exemptions or incentives granted to or presently enjoyed
by natural or juridical persons are withdrawn upon the effectivity of the LGC except
with respect to those entities expressly enumerated. In the same vein, We must
hold that the express withdrawal upon effectivity of the LGC of all exemptions
except only as provided therein, can no longer be invoked by MERALCO to disclaim
liability for the local tax." (City Government of San Pablo, Laguna vs. Reyes, 305
SCRA 353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is

accordingly unavailing. The LGC was enacted in pursuance of the constitutional
policy to ensure autonomy to local governments and to enable them to attain fullest
development as self-reliant communities. The power to tax is primarily vested in
Congress. However, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
[a] direct authority conferred by Section 5, Article X of the Constitution. The
important legal effect of Section 5 is that henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in favor of the
municipal corporations. (Ibid. pp. 363-365)31 chanrobleslaw

MERALCO similarly failed to persuade the Court of Appeals that the transformers,
transmission lines, insulators, and electric meters mounted on the electric posts of
MERALCO were not real properties. The appellate court invoked the definition of
"machinery" under Section 199(o) of the Local Government Code and then wrote
that: cralawlawlibrary

We firmly believe and so hold that the wires, insulators, transformers and electric
meters mounted on the poles of [MERALCO] may nevertheless be considered as
improvements on the land, enhancing its utility and rendering it useful in
distributing electricity. The said properties are actually, directly and exclusively
used to meet the needs of [MERALCO] in the distribution of electricity.

In addition, "improvements on land are commonly taxed as realty even though for
some purposes they might be considered personalty. It is a familiar personalty
phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property." (Caltex (Phil) Inc. vs.
Central Board of Assessment Appeals, 114 SCRA 296, 301-302)32 chanrobleslaw

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged: cralawlawlibrary

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001

and Resolution dated August 16, 2001 are hereby AFFIRMED in toto and
the present petition is hereby DENIED DUE COURSE and accordingly
DISMISSED for lack of merit.33
chanrobleslaw

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion
for Reconsideration of MERALCO.

MERALCO is presently before the Court via the instant Petition for Review
on Certiorari grounded on the following lone assignment of error: cralawlawlibrary

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING

IN TOTO THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS
WHICH HELD THAT THE SUBJECT PROPERTIES ARE REAL PROPERTIES SUBJECT TO
REAL PROPERTY TAX; AND THAT ASSESSMENT ON THE SUBJECT PROPERTIES
SHOULD BE MADE TO TAKE EFFECT RETROACTIVELY FROM 1992 UNTIL 1997,
WITH PENALTIES; THE SAME BEING UNJUST, WHIMSICAL AND NOT IN ACCORD
WITH THE LOCAL GOVERNMENT CODE.34 chanrobleslaw
MERALCO argues that its transformers, electric posts, transmission lines, insulators,
and electric meters are not subject to real property tax, given that: (1) the
definition of "machinery" under Section 199(o) of the Local Government Code, on
which real property tax is imposed, must still be within the contemplation of real or
immovable property under Article 415 of the Civil Code because it is axiomatic that
a statute should be construed to harmonize with other laws on the same subject
matter as to form a complete, coherent, and intelligible system; (2) the Decision
dated April 10, 1991 of the CBAA in CBAA Case No. 248, which affirmed the
Decision dated July 5, 1989 of the LBAA in LBAA-89-2, ruling that the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO are
movable or personal properties, is conclusive and binding; and (3) the electric poles
are not exclusively used to meet the needs of MERALCO alone since these are also
being utilized by other entities such as cable and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that
the transformers, electric posts, transmission lines, insulators, and electric meters
are real properties, the assessment of said properties by the City Assessor in 1997
is a patent nullity. The collection letter dated October 16, 1997 of the City
Treasurer of Lucena, Notice of Assessment dated October 20, 1997 of the City
Assessor of Lucena, the Property Record Form dated October 20, 1997, and Tax
Declaration No. 019-6500 simply state a lump sum market value for all the
transformers, electric posts, transmission lines, insulators, and electric meters
covered and did not provide an inventory/list showing the actual number of said
properties, or a schedule of values presenting the fair market value of each
property or type of property, which would have enabled MERALCO to verify the
correctness and reasonableness of the valuation of its properties. MERALCO was not
furnished at all with a copy of Tax Declaration No. 019-7394, and while it received
a copy of Tax Declaration No. 019-6500, said tax declaration did not contain the
requisite information regarding the date of operation of MERALCO and the original
cost, depreciation, and market value for each property covered. For the foregoing
reasons, the assessment of the properties of MERALCO in 1997 was arbitrary,
whimsical, and without factual basis - in patent violation of the right to due process
of MERALCO. MERALCO additionally explains that it cannot be expected to make a
declaration of its transformers, electric posts, transmission lines, insulators, and
electric meters, because all the while, it was of the impression that the said
properties were personal properties by virtue of the Decision dated July 5, 1989 of
the LBAA in LBAA-89-2 and the Decision dated April 10, 1991 of the CBAA in CBAA
Case No. 248.

Granting that the assessment of its transformers, electric posts, transmission lines,
insulators, and electric meters by the City Assessor of Lucena in 1997 is valid,
MERALCO alternatively contends that: (1) under Sections 22135 and 22236 of the
Local Government Code, the assessment should take effect only on January 1, 1998
and not retroact to 1992; (2) MERALCO should not be held liable for penalties and
interests since its nonpayment of real property tax on its properties was in good
faith; and (3) if interest may be legally imposed on MERALCO, it should only begin
to run on the date it received the Notice of Assessment on October 29, 1997 and
not all the way back to 1992.

At the end of its Petition, MERALCO prays: cralawlawlibrary

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed

Decision dated May 13, 2004 of the Court of Appeals, together with its Resolution
dated November 18, 2004 be reversed and set aside, and judgment be rendered x
x x nullifying and cancel[l]ing the Notice of Assessment, dated October 20, 1997,
issued by respondent City Assessor, and the collection letter dated October 16,
1997 of respondent City Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in
the premises.37
chanrobleslaw

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was
obliged to pay the real property tax due, instead of posting a surety bond, while its
appeal was pending, because Section 231 of the Local Government Code provides
that the appeal of an assessment shall not suspend the collection of the real
property taxes; (2) the cases cited by MERALCO can no longer be applied to the
case at bar since they had been decided when Presidential Decree No. 464,
otherwise known as the Real Property Tax Code, was still in effect; (3) under the
now prevailing Local Government Code, which expressly repealed the Real Property
Tax Code, the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO fall within the new definition of "machineries," deemed
as real properties subject to real property tax; and (4) the Notice of Assessment
dated October 20, 1997 covering the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO only retroacts to 1992, which is
less than 10 years prior to the date of initial assessment, so it is in compliance with
Section 222 of the Local Government Code, and since MERALCO has yet to pay the
real property taxes due on said assessment, then it is just right and appropriate
that it also be held liable to pay for penalties and interests from 1992 to present
time. Ultimately, the City Assessor and City Treasurer of Lucena seek judgment
denying the instant Petition and ordering MERALCO to pay the real property taxes
due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO are no longer exempted from real property tax and
may qualify as "machinery" subject to real property tax under the Local
Government Code. Nevertheless, the Court declares null and void the appraisal and
assessment of said properties of MERALCO by the City Assessor in 1997 for failure
to comply with the requirements of the Local Government Code and, thus, violating
the right of MERALCO to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local 
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be
entertained unless the taxpayer first pays the tax." It is settled that the
requirement of "payment under protest" is a condition sine qua non before an
appeal may be entertained.38 Section 231 of the same Code also dictates that
"[a]ppeal on assessments of real property x x x shall, in no case, suspend the
collection of the corresponding realty taxes on the property involved as assessed by
the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal." Clearly, under the Local
Government Code, even when the assessment of the real property is appealed, the
real property tax due on the basis thereof should be paid to and/or collected by the
local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16,
1997, sought to collect from MERALCO the amount of P17,925,l 17.34 as real
property taxes on its machineries, plus penalties, for the period of 1990 to 1997,
based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the City Assessor
of Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 with
the LBAA, but instead of paying the real property taxes and penalties due, it posted
a surety bond in the amount of PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially

complied with Section 252 of the Local Government Code for the said bond already
guarantees the payment to the Office of the City Treasurer of Lucena of the total
amount of real property taxes and penalties due on Tax Declaration Nos. 019-6500
and 019-7394. This is not the first time that the Court allowed a surety bond as an
alternative to cash payment of the real property tax before protest/appeal as
required by Section 252 of the Local Government Code. In Camp John Hay
Development Corporation v. Central Board of Assessment Appeals 39 the Court
affirmed the ruling of the CBAA and the Court of Tax Appeals en bane applying the
"payment under protest" requirement in Section 252 of the Local Government Code
and remanding the case to the LBAA for "further proceedings subject to a full and
up-to-date payment, either in cash or surety, of realty tax on the subject
properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to
the appeal of Tax Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.

Beginning January 1, 1992, 

MERALCO can no longer claim 
exemption from real property tax of
its transformers, electric posts, 
transmission lines, insulators, and 
electric meters based on its 
franchise.
MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA
Case No. 248, which affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-
89-2. Said decisions of the CBAA and the LBAA, in turn, cited Board of Assessment
Appeals v. Manila Electric Co.,40 which was decided by the Court way back in 1964
(1964 MERALCO case). The decisions in CBAA Case No. 248 and the 1964
MERALCO case recognizing the exemption from real property tax of the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO are no longer applicable because of subsequent developments that
changed the factual and legal milieu for MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel
towers of MERALCO as real property and required MERALCO to pay real property
taxes for the said steel towers for the years 1952 to 1956. MERALCO was operating
pursuant to the franchise granted under Ordinance No. 44 dated March 24, 1903 of
the Municipal Board of Manila, which it acquired from the original grantee, Charles
M. Swift. Under its franchise, MERALCO was expressly granted the following tax
exemption privilege: cralawlawlibrary

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. x x x Said percentage shall be due and payable at the times stated in
paragraph nineteen of Part One hereof, x x x  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,  x x x.41 chanrobleslaw

Given the express exemption from taxes and assessments of the "poles,wires,
transformers, and insulators" of MERALCO in the aforequoted paragraph, the sole
issue in the 1964 MERALCO case  was whether or not the steel towers of MERALCO
qualified as "poles" which were exempted from real property tax. The Court ruled in
the affirmative, ratiocinating that: cralawlawlibrary

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 not 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, a 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 consist 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 have 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.

xxxx

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, x x x.42chanrobleslaw

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the
Municipal Board of Lucena City through Resolution No. 2679 dated June 13, 1972,
the transformers, electric posts, transmission lines, insulators, and electric meters
of MERALCO were exempt from real property tax. Paragraph 13 of Resolution No.
2679 is quoted in full below: cralawlawlibrary

13. The grantee shall be liable to pay the same taxes upon its real estate, building,
machinery, and personal property (not including poles, wires, transformers,
and insulators) as other persons are now or may hereafter be required by law to
pay. In consideration of the franchise and rights hereby granted, the grantee shall
pay into the City Treasury of Lucena a tax equal to FIVE (5%) PER CENTUM of
the gross earnings received from electric current sold or supplied under this
franchise. Said tax shall be due and payable quarterly and shall be in lieu of any
and all taxes of any kind, nature or description levied, established, or
collected by any authority whatsoever, municipal, provincial, or national, now or in
the future, on its poles, wires, insulators, switches, transformers and
structures, installations, conductors, and accessories, placed in and over and
under all the private and/or public property, including public streets and highways,
provincial roads, bridges, and public squares, and on its franchise rights, privileges,
receipts, revenues and profits, from which taxes the grantee is hereby
expressly exempted.(Emphases supplied.) chanrobleslaw

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the
transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO located in Lucena City beginning 1985 under Tax Declaration No. 019-
6500. The CBAA in its Decision dated April 10, 1991 in CBAA Case No. 248
sustained the exemption of the said properties of MERALCO from real property tax
on the basis of paragraph 13 of Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local
Government Code took effect on January 1, 1992, Sections 193 and 234 of which
provide:cralawlawlibrary

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided

in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and nonprofit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax: chanRoblesvirtualLawlibrary

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person; ChanRoblesVirtualawlibrary

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes; ChanRoblesVirtualawlibrary

(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations engaged
in the supply and distribution of water and/or generation and transmission of
electric power; ChanRoblesVirtualawlibrary

(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code. chanrobleslaw

The Local Government Code, in addition, contains a general repealing clause under
Section 534(f) which states that "[a]ll general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or
parts thereof which are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the Local
Government Code is to withdraw/repeal all exemptions from local taxes, unless
otherwise provided by the Code. The limited and restrictive nature of the tax
exemption privileges under the Local Government Code is consistent with the State
policy to ensure autonomy of local governments and the objective of the Local
Government Code to grant genuine and meaningful autonomy to enable local
government units to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals. The obvious
intention of the law is to broaden the tax base of local government units to assure
them of substantial sources of revenue.43

Section 234 of the Local Government Code particularly identifies the exemptions
from payment of real property tax, based on the ownership, character, and use of
the property, viz.:cralawlawlibrary

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of

ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city,
(iv) a municipality, (v) a barangay, and (vi) registered cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto, mosques, and (iii) nonprofit
or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the
actual, direct and exclusive use to which they are devoted are: (i) all lands,
buildings and improvements which are actually directly and exclusively used for
religious, charitable or educational purposes; (ii) all machineries and equipment
actually, directly and exclusively used by local water districts or by government-
owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all machinery and
equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the

country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural

or juridical persons including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code.44 chanrobleslaw

The last paragraph of Section 234 had unequivocally withdrawn, upon the
effectivity of the Local Government Code, exemptions from payment of real
property taxes granted to natural or juridical persons, including government-owned
or controlled corporations, except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its

transformers, electric posts, transmission lines, insulators, and electric meters used
commercially do not qualify under any of the ownership, character, and usage
exemptions enumerated in Section 234 of the Local Government Code. It is a basic
precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.45 Not being among the recognized
exemptions from real property tax in Section 234 of the Local Government Code,
then the exemption of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO from real property tax granted under its
franchise was among the exemptions withdrawn upon the effectivity of the Local
Government Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted to

MERALCO, i.e., under the Certificate of Franchise dated October 28, 1993 issued by
the National Electrification Commission and Republic Act No. 9209 enacted on June
9, 2003 by Congress, are completely silent on the matter of exemption from real
property tax of MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer

claiming a tax exemption must point to a specific provision of law conferring on the
taxpayer, in clear and plain terms, exemption from a common burden. Any doubt
whether a tax exemption exists is resolved against the taxpayer.46MERALCO has
failed to present herein any express grant of exemption from real property tax of its
transformers, electric posts, transmission lines, insulators, and electric meters that
is valid and binding even under the Local Government Code.

The transformers, electric posts, 

transmission lines, insulators, and electric 
meters of MERALCO may qualify as 
"machinery" under the Local Government 
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as
real property subject to real property tax. It is the definition of "machinery" that
has been changing and expanding, as the following table will show: chanRoblesvirtualLawlibrary

Real Property 
Incidence of Real Property Tax
Tax Law
The Assessment Section 2. Incidence of real property
Law tax. - Except in chartered cities, there
(Commonwealth shall be levied, assessed, and
Act No. 470) collected, an annual ad valorem tax
on real property, including land,
Effectivity: buildings, machinery, and other
January 1, 1940 improvements not hereinafter
specifically exempted.
Real Property  Section 38. Incidence of Real
Tax Code Property Tax. - There shall be levied, When used in this Code -
Definition of Machinery47
Section 3. Property exempt from tax.
- The exemptions shall be as follows:
xxxx
(f) Machinery, which term shall
embrace machines, mechanical
contrivances, instruments, appliances,
and apparatus attached to the real
estate, used for industrial agricultural
or manufacturing purposes, during
the first five years of the operation of
the machinery.
Section 3. Definition of Terms. -
 assessed and collected in all
Effectivity: June provinces, cities and municipalities
1, 1974 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.
Real Property  Section 38. Incidence of Real
Tax Code, as Property Tax. - There shall be levied,
amended by assessed and collected in all
Presidential provinces, cities and municipalities
Decree No. 1383 an annual ad valorem tax on real
property, such as land, buildings,
Effectivity: May machinery and other improvements
25, 1978 affixed or attached to real property
not hereinafter specifically exempted.
Local Section 232. Power to Levy Real
Government Property Tax. — A province or city
  Code or a municipality within the
Metropolitan Manila Area may levy
Effectivity:  an annual ad valorem tax on real
January 1, 1992 property such as land,
building, machinery, and other
improvement not hereinafter
specifically exempted.
xxxx
(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.
Section 3. Definition of Terms.
  When used in this Code -
xxxx
(m) Machinery - shall embrace
machines, equipment, mechanical
contrivances, instruments, appliances
and apparatus attached to the real
estate. It shall include the physical
facilities available for production, as
well as the installations and
appurtenant service facilities, together
with all those not permanently
attached to the real estate but are
actually, directly and essentially used
to meet the needs of the particular
industry, business, or works, which
by their very nature and purpose are
designed for, or essential to
manufacturing, commercial, mining,
industrial or agricultural purposes.
Section 199. Definitions. - When used
in this Title:
xxxx
(o) "Machinery" embraces machines,
equipment, mechanical contrivances,
instruments, appliances or
apparatus which may or may not be
attached, permanently or
temporarily, to the real property. It
 includes the physical facilities for
production, the installations and
appurtenant service facilities, those
which are mobile, self-powered or
self- propelled, and those not
permanently attached to the real
property which are actually, directly,
and exclusively used to meet the
needs of the particular industry,
business or activity and which by
their very nature and purpose are
designed for, or necessary to its
manufacturing, mining,logging,
commercial, industrial or agricultural 
purposes[.]

MERALCO is a public utility engaged in electric distribution, and its transformers,

electric posts, transmission lines, insulators, and electric meters constitute the
physical facilities through which MERALCO delivers electricity to its consumers. Each
may be considered as one or more of the following: a
"machine,"48 "equipment,"49 "contrivance,"50 "instrument,"51 "appliance,"52"apparatus
,"53 or "installation."54

The Court highlights that under Section 199(o) of the Local Government Code,
machinery, to be deemed real property subject to real property tax, need no longer
be annexed to the land or building as these "may or may not be attached,
permanently or temporarily to the real property," and in fact, such machinery may
even be "mobile."55 The same provision though requires that to be machinery
subject to real property tax, the physical facilities for production, installations, and
appurtenant service facilities, those which are mobile, self-powered or self-
propelled, or not permanently attached to the real property (a) must be actually,
directly, and exclusively used to meet the needs of the particular industry,
business, or activity; and (2) by their very nature and purpose, are designed for, or
necessary for manufacturing, mining, logging, commercial, industrial, or agricultural
purposes. Thus, Article 290(o) of the Rules and Regulations Implementing the Local
Government Code of 1991 recognizes the following exemption: cralawlawlibrary

Machinery which are of general purpose use including but not limited to office
equipment, typewriters, telephone equipment, breakable or easily damaged
containers (glass or cartons), microcomputers, facsimile machines, telex machines,
cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or
racks, fruit juice or beverage automatic dispensing machines which are not directly
and exclusively used to meet the needs of a particular industry, business or activity
shall not be considered within the definition of machinery under this Rule.
(Emphasis supplied.) chanrobleslaw
The 1964 MERALCO case was decided when The Assessment Law was still in effect
and Section 3(f) of said law still required that the machinery be attached to the real
property. Moreover, as the Court pointed out earlier, the ruling in the 1964
MERALCO case - that the electric poles (including the steel towers) of MERALCO are
not subject to real property tax - was primarily based on the express exemption
granted to MERALCO under its previous franchise. The reference in said case to the
Civil Code definition of real property was only an alternative argument: cralawlawlibrary

Granting for the purpose of argument that the steel supports or towers in
question are not embraced within the term poles, the logical question
posited is whether they constitute real properties, so that they can be
subject to a real property tax. The tax law does not provide for a definition of
real property; but Article 415 of the Civil Code does, by stating the following are
immovable property: cralawlawlibrary

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil; ChanRoblesVirtualawlibrary

xxxx

(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; ChanRoblesVirtualawlibrary

xxxx

(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;ChanRoblesVirtualawlibrary

xxxx
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 constructions 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 or 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 on the land in which the steel supports or towers are
constructed.56 (Emphases supplied.) chanrobleslaw
The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold
true anymore under the Local Government Code.

While the Local Government Code still does not provide for a specific definition of
"real property," Sections 199(o) and 232 of the said Code, respectively, gives an
extensive definition of what constitutes "machinery" and unequivocally subjects
such machinery to real property tax. The Court reiterates that the machinery
subject to real property tax under the Local Government Code "may or may not be
attached, permanently or temporarily to the real property;" and the physical
facilities for production, installations, and appurtenant service facilities, those which
are mobile, self-powered or self-propelled, or are not permanently attached must
(a) be actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (2) by their very nature and purpose, be
designed for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real
properties "[l]and, buildings, roads and constructions of all kinds adhered to the
soil." The land, buildings, and roads are immovables by nature "which cannot be
moved from place to place," whereas the constructions adhered to the soil are
immovables by incorporation "which are essentially movables, but are attached to
an immovable in such manner as to be an integral part thereof."57 Article 415,
paragraph (3) of the Civil Code, referring to "[ejverything 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," are likewise
immovables by incorporation. In contrast, the Local Government Code considers as
real property machinery which "may or may not be attached, permanently or
temporarily to the real property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real
properties "[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." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables
by destination, or "those which are essentially movables, but by the purpose for
which they have been placed in an immovable, partake of the nature of the latter
because of the added utility derived therefrom."58 These properties, including
machinery, become immobilized if the following requisites concur: (a) they are
placed in the tenement by the owner of such tenement; (b) they are destined for
use in the industry or work in the tenement; and (c) they tend to directly meet the
needs of said industry or works.59 The first two requisites are not found anywhere in
the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code

and the Local Government Code. The Court disagrees, however, for this would
necessarily mean imposing additional requirements for classifying machinery as real
property for real property tax purposes not provided for, or even in direct conflict
with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations,
and the Local Government Code, a special law granting local government units the
power to impose real property tax, then the latter shall prevail. As the Court
pronounced in Disomangcop v. The Secretary of the Department of Public Works
and Highways Simeon A. Datumanong60: cralawlawlibrary

It is a finely-imbedded principle in statutory construction that a special provision or

law prevails over a general one. Lex specialis derogant generali. As this Court
expressed in the case of Leveriza v. Intermediate Appellate Court,  "another basic
principle of statutory construction mandates that general legislation must give way
to special legislation on the same subject, and generally be so interpreted as to
embrace only cases in which the special provisions are not applicable, that specific
statute prevails over a general statute and that where two statutes are of equal
theoretical application to a particular case, the one designed therefor specially
should prevail." (Citations omitted.) chanrobleslaw

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco

Corporation61 that:cralawlawlibrary

A general law and a special law on the same subject are statutes in pah
materia and should, accordingly, be read together and harmonized, if possible, with
a view to giving effect to both. The rule is that where there are two acts, one of
which is special and particular and the other general which, if standing alone, would
include the same matter and thus conflict with the special act, the special law must
prevail since it evinces the legislative intent more clearly than that of a general
statute and must not be taken as intended to affect the more particular and specific
provisions of the earlier act, unless it is absolutely necessary so to construe it in
order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act does
not change the principle. Where the special law is later, it will be regarded as an
exception to, or a qualification of, the prior general act; and where the general act
is later, the special statute will be construed as remaining an exception to its terms,
unless repealed expressly or by necessary implication. (Citations omitted.) chanrobleslaw

Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment

Appeals,62 the Court acknowledged that "[i]t is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might
be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real

property tax, the definition and requirements under the Local Government Code are
controlling.
MERALCO maintains that its electric posts are not machinery subject to real
property tax because said posts are not being exclusively used by MERALCO; these
are also being utilized by cable and telephone companies. This, however, is a
factual issue which the Court cannot take cognizance of in the Petition at bar as it is
not a trier of facts. Whether or not the electric posts of MERALCO are actually being
used by other companies or industries is best left to the determination of the City
Assessor or his deputy, who has been granted the authority to take evidence under
Article 304 of the Rules and Regulations Implementing the Local Government Code
of 1991.

Nevertheless, the appraisal and 

assessment of the transformers, electric 
posts, transmission lines, insulators, and 
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of 
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of

determining the value of property as of a specific date for a specific purpose."
"Assessment" is "the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing, classification, and
appraisal of the properties[.]"63 When it comes to machinery, its appraisal and
assessment are particularly governed by Sections 224 and 225 of the Local
Government Code, which read: cralawlawlibrary

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of
a brand-new machinery shall be the acquisition cost. In all other cases, the fair
market value shall be determined by dividing the remaining economic life of the
machinery by its estimated economic life and multiplied by the replacement or
reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance,
bank and other charges, brokerage, arrastre and handling, duties and taxes, plus
cost of inland transportation, handling, and installation charges at the present site.
The cost in foreign currency of imported machinery shall be converted to peso cost
on the basis of foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a

depreciation allowance shall be made for machinery at a rate not exceeding five
percent (5%) of its original cost or its replacement or reproduction cost, as the case
may be, for each year of use: Provided, however, That the remaining value for all
kinds of machinery shall be fixed at not less than twenty percent (20%) of such
original, replacement, or reproduction cost for so long as the machinery is useful
and in operation.chanrobleslaw
It is apparent from these two provisions that every machinery must be individually
appraised and assessed depending on its acquisition cost, remaining economic life,
estimated economic life, replacement or reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code
of 1991 expressly authorizes the local assessor or his deputy to receive evidence
for the proper appraisal and assessment of the real property: cralawlawlibrary

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of

obtaining information on which to base the market value of any real property, the
assessor of the province, city, or municipality or his deputy may summon the
owners of the properties to be affected or persons having legal interest therein and
witnesses, administer oaths, and take deposition concerning the property, its
ownership, amount, nature, and value.
chanrobleslaw

The Local Government Code further mandates that the taxpayer be given a notice
of the assessment of real property in the following manner: cralawlawlibrary

Section 223. Notification of New or Revised Assessment. - When real property is

assessed for the first time or when an existing assessment is increased or
decreased, the provincial, city or municipal assessor shall within thirty (30) days
give written notice of such new or revised assessment to the person in whose name
the property is declared. The notice may be delivered personally or by registered
mail or through the assistance of the punong barangay to the last known address of
the person to served. chanrobleslaw

A notice of assessment, which stands as the first instance the taxpayer is officially
made aware of the pending tax liability, should be sufficiently informative to apprise
the taxpayer the legal basis of the tax.64 In Manila Electric Company v. Barlis,65 the
Court described the contents of a valid notice of assessment of real property and
differentiated the same from a notice of collection: cralawlawlibrary

A notice of assessment as provided for in the Real Property Tax Code should
effectively inform the taxpayer of the value of a specific property, or proportion
thereof subject to tax, including the discovery, listing, classification, and appraisal
of properties. The September 3, 1986 and October 31, 1989 notices do not contain
the essential information that a notice of assessment must specify, namely, the
value of a specific property or proportion thereof which is being taxed, nor does it
state the discovery, listing, classification and appraisal of the property subject to
taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid
taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall
authorize the government to auction off the properties subject to taxes x x x. chanrobleslaw

Although the ruling quoted above was rendered under the Real Property Tax Code,
the requirement of a notice of assessment has not changed under the Local
Government Code.
A perusal of the documents received by MERALCO on October 29, 1997 reveals that
none of them constitutes a valid notice of assessment of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which
interestingly precedes the purported Notice of Assessment dated October 20, 1997
of the City Assessor of Lucena) is a notice of collection, ending with the request for
MERALCO to settle the payable amount soon in order to avoid accumulation of
penalties. It only presented in table form the tax declarations covering the
machinery, assessed values in the tax declarations in lump sums for all the
machinery, the periods covered, and the taxes and penalties due again in lump
sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave
a summary of the new/revised assessment of the "machinery" located in "Quezon
Avenue Ext., Brgy. Gulang-Gulang, Lucena City," covered by Tax Declaration No.
019-7394, with total market value of P98,173,200.00 and total assessed value of
P78,538,560.00. The Property Record Form basically contained the same
information. Without specific description or identification of the machinery covered
by said tax declaration, said Notice of Assessment and Property Record Form give
the false impression that there is only one piece of machinery covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under
"Building and Improvements" and not "Machinery." Said tax declaration covered
"capital investment-commercial," specifically: (a) Transformer and Electric Post; (b)
Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market value of
P81,811,000.00, assessment level of 80%, and assessed value of £65,448,800.00.
Conspicuously, the table for "Machinery" - requiring the description, date of
operation, replacement cost, depreciation, and market value of the machinery - is
totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not
refute at all, that MERALCO has not been furnished the Owner's Copy of Tax
Declaration No. 019-7394, in which the total market value of the machinery of
MERALCO was increased by PI6,632,200.00, compared to that in Tax Declaration
No. 019-6500.

The Court cannot help but attribute the lack of a valid notice of assessment to the
apparent lack of a valid appraisal and assessment conducted by the City Assessor
of Lucena in the first place. It appears that the City Assessor of Lucena simply
lumped together all the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO located in Lucena City under Tax Declaration Nos.
019-6500 and 019-7394, contrary to the specificity demanded under Sections 224
and 225 of the Local Government Code for appraisal and assessment of machinery.
The City Assessor and the City Treasurer of Lucena did not even provide the most
basic information such as the number of transformers, electric posts, insulators,
and electric meters or the length of the transmission lines appraised and assessed
under Tax Declaration Nos. 019-6500 and 019-7394. There is utter lack of factual
basis for the assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information
regarding its transformers, electric posts, transmission lines, insulators, and electric
meters for appraisal and assessment purposes because MERALCO failed to file a
sworn declaration of said properties as required by Section 202 of the Local
Government Code. As MERALCO explained, it cannot be expected to file such a
declaration when all the while it believed that said properties were personal or
movable properties not subject to real property tax. More importantly, Section 204
of the Local Government Code exactly covers such a situation, thus: cralawlawlibrary

Section 204. Declaration of Real Property by the Assessor. -When any person,

natural or juridical, by whom real property is required to be declared under Section
202 hereof, refuses or fails for any reason to make such declaration within the time
prescribed, the provincial, city or municipal assessor shall himself declare the
property in the name of the defaulting owner, if known, or against an unknown
owner, as the case may be, and shall assess the property for taxation in accordance
with the provision of this Title. No oath shall be required of a declaration thus made
by the provincial, city or municipal assessor. chanrobleslaw

Note that the only difference between the declarations of property made by the
taxpayer, on one hand, and the provincial/city/municipal assessor, on the other, is
that the former must be made under oath. After making the declaration of the
property himself for the owner, the provincial/city/municipal assessor is still
required to assess the property for taxation in accordance with the provisions of the
Local Government Code.

It is true that tax assessments by tax examiners are presumed correct and made in
good faith, with the taxpayer having the burden of proving otherwise.66 In this case,
MERALCO was able to overcome the presumption because it has clearly shown that
the assessment of its properties by the City Assessor was baselessly and arbitrarily
done, without regard for the requirements of the Local Government Code.

The exercise of the power of taxation constitutes a deprivation of property under

the due process clause, and the taxpayer's right to due process is violated when
arbitrary or oppressive methods are used in assessing and collecting taxes. 67 The
Court applies by analogy its pronouncements in Commissioner of Internal Revenue
v. United Salvage and Towage (Phils.), Inc.,68 concerning an assessment that did
not comply with the requirements of the National Internal Revenue Code: cralawlawlibrary

On the strength of the foregoing observations, we ought to reiterate our earlier

teachings that "in balancing the scales between the power of the State to tax and
its inherent right to prosecute perceived transgressors of the law on one side, and
the constitutional rights of a citizen to due process of law and the equal protection
of the laws on the other, the scales must tilt in favor of the individual, for a citizen's
right is amply protected by the Bill of Rights under the Constitution." Thus, while
"taxes are the lifeblood of the government," the power to tax has its limits, in spite
of all its plenitude. Even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. (Citations omitted.) chanrobleslaw

The appraisal and assessment of the transformers, electric posts, transmission

lines, insulators, and electric meters of MERALCO under Tax Declaration Nos. 019-
6500 and 019-7394, not being in compliance with the Local Government Code, are
attempts at deprivation of property without due process of law and, therefore, null
and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant

Petition and AFFIRMS with MODIFICATION the Decision dated May 13, 2004 of
the Court of Appeals in CA-G.R. SP No. 67027, affirming in toto the Decision dated
May 3, 2001 of the Central Board of Assessment Appeals in CBAA Case No. L-20-
98. The Court DECLARES that the transformers, electric posts, transmission lines,
insulators, and electric meters of Manila Electric Company are NOT
EXEMPTED from real property tax under the Local Government Code. However,
the Court also DECLARES the appraisal and assessment of the said properties
under Tax Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not
complying with the requirements of the Local Government Code and violating the
right to due process of Manila Electric Company,
and ORDERS the CANCELLATION of the collection letter dated October 16, 1997
of the City Treasurer of Lucena and the Notice of Assessment dated October 20,
1997 of the City Assessor of Lucena, butWITHOUT PREJUDICE to the conduct of
a new appraisal and assessment of the same properties by the City Assessor of
Lucena in accord with the provisions of the Local Government Code and guidelines
issued by the Bureau of Local Government Financing.

SO ORDERED. chanroblesvirtuallawlibrary
 [ G.R. No. 180110, May 30, 2016 ]
CAPITOL WIRELESS, INC., PETITIONER, VS. THE PROVINCIAL TREASURER OF
BATANGAS, THE PROVINCIAL ASSESSOR OF BATANGAS, THE MUNICIPAL TREASURER
AND ASSESSOR OF NASUGBU, BATANGAS, RESPONDENTS.

DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set
aside the Court of Appeals' Decision[1] dated May 30, 2007 and Resolution[2] dated October 8, 2007 in CA-G.R. SP
No. 82264, which both denied the appeal of petitioner against the decision of the Regional Trial Court.

Below are the facts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing international
telecommunications services.[3] As such provider, Capwire has signed agreements with other local and foreign
telecommunications companies covering an international network of submarine cable systems such as the Asia
Pacific Cable Network System (APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong Kong,
Taiwan, Korea, Japan, Indonesia and the Philippines); the Brunei-Malaysia-Philippines Cable Network System (BMP-
CNS), the Philippines-Italy (SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS) systems.[4] The agreements
provide for co-ownership and other rights among the parties over the network.[5]

Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the APCN, while the landing
stations or terminals and Segment E of APCN located in Nasugbu, Batangas are allegedly owned by the Philippine
Long Distance Telephone Corporation (PLDT).[6] Moreover, it alleges that the Wet Segment is laid in international,
and not Philippine, waters.[7]

Capwire claims that as co-owner, it does not own any particular physical part of the cable system but, consistent with
its financial contributions, it owns the right to use a certain capacity of the said system.[8] This property right is
allegedly reported in its financial books as "Indefeasible Rights in Cable Systems."[9]

However, for loan restructuring purposes, Capwire claims that "it was required to register the value of its right,"
hence, it engaged an appraiser to "assess the market value of the international submarine cable system and the cost
to Capwire."[10] On May 15, 2000, Capwire submitted a Sworn Statement of True Value of Real Properties at the
Provincial Treasurer's Office, Batangas City, Batangas Province, for the Wet Segment of the system, stating:

System Sound Value

APCN P 203,300,000.00
BMP-CNS P 65,662,000.00
SEA-ME-WE-3 CNS P P 7,540,000.00
GP-CNS P1,789,000.00

Capwire claims that it also reported that the system "interconnects at the PLDT Landing Station in Nasugbu,
Batangas," which is covered by a transfer certificate of title and tax declarations in the name of PLDT.[11]

As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued the following Assessments
of Real Property (ARP) against Capwire:

ARP Cable System Assessed Value

019-00967 BMP-CNS  P 52,529,600.00
019-00968 APCN P 162,640,000.00
 019-00969 SEA-ME-WE3-CNS P 6,032,000.00
019-00970 GP-CNS P 1,431,200.00

In essence, the Provincial Assessor had determined that the submarine cable systems described in Capwire's Sworn
Statement of True Value of Real Properties are taxable real property, a determination that was contested by Capwire
in an exchange of letters between the company and the public respondent.[12] The reason cited by Capwire is that the
cable system lies outside of Philippine territory, i.e., on international waters.[13]

On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a Notice of Auction Sale,
respectively, from the respondent Provincial Treasurer of Batangas (Provincial Treasurer).[14]

On March 10, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy, Notice of
Auction Sale and/or Auction Sale with the Regional Trial Court (RTC) of Batangas City.[15]

Alter the filing of the public respondents' Comment,[16] on May 5, 2003, the RTC issued an Order dismissing the
petition for failure of the petitioner Capwire to follow the requisite of payment under protest as well as failure to appeal
to the Local Board of Assessment Appeals (LBAA), as provided for in Sections 206 and 226 of Republic Act (R.A.)
No. 7160, or the Local Government Code.[17]

Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the RTC in an Order[19] dated
August 26, 2003. It then filed an appeal to the Court of Appeals.[20]

On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed by Capwire and affirming
the order of the trial court. The dispositive portion of the CA's decision states:

WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August 26, 2003 of the Regional
Trial Court, Branch 11 of Batangas City, are AFFIRMED.

SO ORDERED.[21]

The appellate court held that the trial court correctly dismissed Capwire's petition because of the latter's failure to
comply with the requirements set in Sections 226 and 229 of the Local Government Code, that is, by not availing of
remedies before administrative bodies like the LBAA and the Central Board of Assessment Appeals (CBAA).
[22]
Although Capwire claims that it saw no need to undergo administrative proceedings because its petition raises
purely legal questions, the appellate court did not share this view and noted that the case raises questions of fact,
such as the extent to which parts of the submarine cable system lie within the territorial jurisdiction of the taxing
authorities, the public respondents.[23] Further, the CA noted that Capwire failed to pay the tax assessed against it
under protest, another strict requirement under Section 252 of the Local Government Code.[24]

Hence, the instant petition for review of Capwire.

Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or payment of the tax under
protest, is inapplicable to the case at bar since there is no question of fact involved, or that the question involved is
not the reasonableness of the amount assessed but, rather, the authority and power of the assessor to impose the
tax and of the treasurer to collect it.[25] It contends that there is only a pure question of law since the issue is whether
its submarine cable system, which it claims lies in international waters, is taxable.[26] Capwire holds the position that
the cable system is not subject to tax.[27]

Respondents assessors and treasurers of the Province of Batangas ana Municipality of Nasugbu, Batangas disagree
with Capwire and insist that the case presents questions of fact such as the extent and portion of the submarine cable
system that lies within the jurisdiction of the said local governments, as well as the nature of the so-called
indefeasible rights as property of Capwire.[28] Such questions are allegedly resolvable only before administrative
agencies like the Local Board of Assessment Appeals.[29]

The Court confronts the following issues: Is the case cognizable by the administrative agencies and covered by the
requirements in Sections 226 and 229 of the Local Government Code which makes the dismissal of Capwire's
petition by the RTC proper? May submarine communications cables be classified as taxable real property by the local
governments?

The petition is denied. No error attended the ruling of the appellate court that the case involves factual questions that
should have been resolved before the appropriate administrative bodies.

In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative
remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment
itself is alleged to be illegal or is made without legal authority.[30] For example, prior resort to administrative action is
required when among the issues raised is an allegedly erroneous assessment, like when the reasonableness of the
amount is challenged, while direct court action is permitted when only the legality, power, validity or authority of the
assessment itself is in question.[31] Stated differently, the general rule of a prerequisite recourse to administrative
remedies applies when questions of fact are raised, but the exception of direct court action is allowed when purely
questions of law are involved.[32]

This Court has previously and rather succinctly discussed the difference between a question of fact and a question of
law. In Cosmos Bottling Corporation v. Nagrama, Jr.,[33] it held:

The Court has made numerous dichotomies between questions of law and fact. A reading of these dichotomies
shows that labels attached to law and fact are descriptive rather than definitive. We are not alone in Our difficult task
of clearly distinguishing questions of feet from questions of law. The United States Supreme Court has ruled that: "we
[do not| yet know of any other rule or principle that will unerringly distinguish a tactual finding from a legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the P.I., the Court ruled:

There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.

We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

x x x A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence
to a certain set of facts; or when the issue docs not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted. In contrast, a question of fact exists when the doubt or
difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence
considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances
as well as their relation to each other and to the whole, and the probability of the situation.

For the sake of brevity, We shall label this the law application and calibration dichotomy.

In contrast, the dynamic legal scholarship in the United States has birthed many commentaries on the question of law
and question of fact dichotomy. As early as 1944, the law was described as growing downward toward "roots of fact"
which grew upward to meet it. In 1950, the late Professor Louis Jaffe saw fact and law as a spectrum, with one shade
blending imperceptibly into the other. Others have defined questions of law as those that deal with the general body
of legal principles; questions of fact deal with "all other phenomena x x x." Kenneth Gulp Davis also weighed in and
noted that the difference between fact and law has been characterized as that between "ought" questions and "is"
questions.[34]

Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's case is one replete with
questions of fact instead of pure questions of law, which renders its filing in a judicial forum improper because it is
instead cognizable by local administrative bodies like the Board of Assessment Appeals, which are the proper venues
for trying these factual issues. Verily, what is alleged by Capwire in its petition as "the crux of the controversy," that is,
"whether or not an indefeasible right over a submarine cable system that lies in international waters can be subject to
real property tax in the Philippines,"[35] is not the genuine issue that the case presents - as it is already obvious and
fundamental that real property that lies outside of Philippine territorial jurisdiction cannot be subjected to its domestic
and sovereign power of real property taxation - but, rather, such factual issues as the extent and status of Capwire's
ownership of the system, the actual length of the cable/s that lie in Philippine territory, and the corresponding
assessment and taxes due on the same, because the public respondents imposed and collected the assailed real
property tax on the finding that at least a portion or some portions of the submarine cable system that Capwire owns
or co-owns lies inside Philippine territory. Capwire's disagreement with such findings of the administrative bodies
presents little to no legal question that only the courts may directly resolve.

Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they have been already
admitted or established, when they have not, since no evidence of such have yet been presented in the proper
agencies and even in the current petition. As such, it remains unsettled whether Capwire is a mere co-owner, not full
owner, of the subject submarine cable and, if the former, as to what extent; whether all or certain portions of the cable
are indeed submerged in water; and whether the waters wherein the cable/s is/are laid are entirely outside of
Philippine territorial or inland waters, i.e., in international waters. More simply, Capwire argues based on mere legal
conclusions, culminating on its claim of illegality of respondents' acts, but the conclusions are yet unsupported by
facts that should have been threshed out quasi-judicially before the administrative agencies. It has been held that "a
bare characterization in a petition of unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a
legal conclusion unsubstantiated by facts which could give it life, has no standing in any court where issues must be
presented and determined by facts in ordinary and concise language."[36] Therefore, Capwire's resort to judicial
action, premised on its legal conclusion that its cables (the equipment being taxed) lie entirely on international waters,
without first administratively substantiating such a factual premise, is improper and was rightly denied. Its proposition
that the cables lie entirely beyond Philippine territory, and therefore, outside of Philippine sovereignty, is a fact that is
not subject to judicial notice since, on the contrary, and as will be explained later, it is in fact certain that portions of
the cable would definitely lie within Philippine waters. Jurisprudence on the Local Government Code is clear that facts
such as these must be threshed out administratively, as the courts in these types of cases step in at the first instance
only when pure questions of law are involved.

Nonetheless, We proceed to decide on whether submarine wires or cables used for communications may be taxed
like other real estate.

We hold in the affirmative.

Submarine or undersea communications cables are akin to electric transmission lines which this Court has recently
declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City,[37] as "no longer exempted
from real property tax" and may qualify as "machinery" subject to real property tax under the Local Government
Code. To the extent that the equipment's location is determinable to be within the taxing authority's jurisdiction, the
Court sees no reason to distinguish between submarine cables used for communications and aerial or underground
wires or lines used for electric transmission, so that both pieces of property do not merit a different treatment in the
aspect of real property taxation. Both electric lines and communications cables, in the strictest sense, are not directly
adhered to the soil but pass through posts, relays or landing stations, but both may be classified under the term
"machinery" as real property under Article 415(5)[38] of the Civil Code for the simple reason that such pieces of
equipment serve the owner's business or tend to meet the needs of his industry or works that are on real estate.
Even objects in or on a body of water may be classified as such, as "waters" is classified as an immovable under
Article 415(8)[39] of the Code. A classic example is a boathouse which, by its nature, is a vessel and, therefore, a
personal property but, if it is tied to the shore and used as a residence, and since it floats on waters which is
immovable, is considered real property.[40] Besides, the Court has already held that "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."[41]

Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables from real
property taxation, then this interpretation applies and Capwire's submarine cable may be held subject to real property
tax.

Having determined that Capwire is liable, and public respondents have the right to impose a real property tax on its
submarine cable, the issue that is unresolved is how much of such cable is taxable based on the extent of Capwire's
ownership or co-ownership of it and the length that is laid within respondents' taxing jurisdiction. The matter,
however, requires a factual determination that is best performed by the Local and Central Boards of Assessment
Appeals, a remedy which the petitioner did not avail of.

At any rate, given the importance of the issue, it is proper to lay down the other legal bases for the local taxing
authorities' power to tax portions of the submarine cables of petitioner. It is not in dispute that the submarine cable
system's Landing Station in Nasugbu, Batangas is owned by PLDT and not by Capwire. Obviously, Capwire is not
liable for the real property tax on this Landing Station. Nonetheless, Capwire admits that it co-owns the submarine
cable system that is subject of the tax assessed and being collected by public respondents. As the Court takes
judicial notice that Nasugbu is a coastal town and the surrounding sea falls within what the United Nations
Convention on the Law of the Sea (UNCLOS) would define as the country's territorial sea (to the extent of 12 nautical
miles outward from the nearest baseline, under Part II, Sections 1 and 2) over which the country has sovereignty,
including the seabed and subsoil, it follows that indeed a portion of the submarine cable system lies within Philippine
territory and thus falls within the jurisdiction of the said local taxing authorities.[42] It easily belies Capwire's contention
that the cable system is entirely in international waters. And even if such portion does not lie in the 12-nautical-mile
vicinity of the territorial sea but further inward, in Prof. Magallona v. Hon. Ermita, et al.[43] this Court held that "whether
referred to as Philippine 'internal waters' under Article I of the Constitution[44] or as 'archipelagic waters' under
UNCLOS Part III, Article 49(1, 2, 4),[45] the Philippines exercises sovereignty over the body of water lying landward of
(its) baselines, including the air space over it and the submarine areas underneath." Further, under Part VI, Article
79[46] of the UNCLOS, the Philippines clearly has jurisdiction with respect to cables laid in its territory that are utilized
in support of other installations and structures under its jurisdiction.

And as far as local government units are concerned, the areas described above are to be considered subsumed
under the term "municipal waters" which, under the Local Government Code, includes "not only streams, lakes, and
tidal waters within the municipality, not being the subject of private ownership and not comprised within the national
parks, public forest, timber lands, forest reserves or fishery reserves, but also marine waters included between two
lines drawn perpendicularly to the general coastline from points where the boundary lines of the municipality or city
touch the sea at low tide and a third line parallel with the general coastline and fifteen (15) kilometers from
it."[47]Although the term "municipal waters" appears in the Code in the context of the grant of quarrying and fisheries
privileges for a fee by local governments,[48] its inclusion in the Code's Book II which covers local taxation means that
it may also apply as guide in determining the territorial extent of the local authorities' power to levy real property
taxation.

Thus, the jurisdiction or authority over such part of the subject submarine cable system lying within Philippine
jurisdiction includes the authority to tax the same, for taxation is one of the three basic and necessary attributes of
sovereignty,[49] and such authority has been delegated by the national legislature to the local governments with
respect to real property taxation.[50]

As earlier stated, a way for Capwire to claim that its cable system is not covered by such authority is by showing a
domestic enactment or even contract, or an international agreement or treaty exempting the same from real property
taxation. It failed to do so, however, despite the fact that the burden of proving exemption from local taxation is upon
whom the subject real property is declared.[51] Under the Local Government Code, every person by or for whom real
property is declared, who shall claim tax exemption for such property from real property taxation "shall file with the
provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim."[52] Capwire omitted to do so. And even under Capwire's legislative
franchise, RA 4387, which amended RA 2037, where it may be derived that there was a grant of real property tax
exemption for properties that are part of its franchise, or directly meet the needs of its business,[53] such had been
expressly withdrawn by the Local Government Code, which took effect on January 1, 1992, Sections 193 and 234 of
which provide:[54]

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered
under R.A. No. 6938, nonstock and nonprofit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

xxxx

Section 234. Exemptions from Real Property Tax. - The following arc exempted from payment of the real property
tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration of otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable
or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(c) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled
corporations arc hereby withdrawn upon the effectivity of this Code. [55]
Such express withdrawal had been previously held effective upon exemptions bestowed by legislative franchises
granted prior to the effectivity of the Local Government Code.[56] Capwire fails to allege or provide any other privilege
or exemption that were granted to it by the legislature after the enactment of the Local Government Code. Therefore,
the presumption stays that it enjoys no such privilege or exemption. Tax exemptions are strictly construed against the
taxpayer because taxes are considered the lifeblood of the nation.[57]

WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated May 30, 2007 and Resolution dated
October 8, 2007 are AFFIRMED.

SO ORDERED.
G.R. No. 168557             February 16, 2007

FELS ENERGY, INC., Petitioner, 

vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x 

G.R. No. 170628            February 16, 2007

NATIONAL POWER CORPORATION, Petitioner, 

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which
were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution 2 dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision 3 and
November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed
on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW
diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement 5 (Agreement), was for a period of five years.
Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of the
Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to
or in relation to the performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its
employees and (ii) construction permit fees, environmental permit fees and other similar fees and
charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered
those due for 1994, amounted to ₱56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property assessment of
the Provincial Assessor. 

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor’s

decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment. 8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160. 

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount of ₱56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency. The LBAA also pointed out that the owner of
the barges–FELS, a private corporation–is the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not justify the
exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS.
Finally, the LBAA also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant
by Distraint13over the power barges, seeking to collect real property taxes amounting to
₱232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal. 

On November 15, 1996, the CBAA issued an Order 14 lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before
the CBAA. This was approved by the CBAA in an Order 16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that
the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas
is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List
of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby
directed to act accordingly. 

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160. 19 As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution 20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution 22 dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491. 

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-
G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for
reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as
G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No. 67490. The petition
was, however, denied in this Court’s Resolution 25 of November 8, 2004, for NPC’s failure to
sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a Resolution 26 dated January 19,
2005. 

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of
FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since
FELS had lost the right to question the assessment, the right of the Provincial Government to collect
the tax was already absolute. 

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February
5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated
November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution28 dated June 20, 2005. 

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising
the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").

C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax assessment
on the petitioner’s personal properties is imprescriptible. 29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW. 30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006. 1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxes—the lifeblood of our economy—are
involved in the present controversy, the Court was prompted to dispense with the said pleadings,
with the end view of advancing the interests of justice and avoiding further delay. 

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995,
the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the
60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration. 

Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on
the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits
or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file
a motion for reconsideration of the Provincial Assessor’s decision, a remedy not sanctioned by law. 

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination made
by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes subject to appeal before the LBAA. 33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160, 35 the last action of the local
assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals
before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices
of assessment, the owners chose to bring their requests for a review/readjustment before the city
assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then subsequently reduced
upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit
trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

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

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

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

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the filing
of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping. 

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was
not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As
to the issue of forum shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it
to the interest of the 

State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa. A
conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals
and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the
public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court
of Appeals:42

x x x An existing final judgment or decree – rendered upon the merits, without fraud or collusion, by
a court of competent jurisdiction acting upon a matter within its authority – is conclusive on the rights
of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party should
not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter
and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and
the second actions, identity of parties, subject matter and causes of action. The application of the
doctrine of res judicata does not require absolute identity of parties but merely substantial identity of
parties. There is substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first case did not
implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding
real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as
G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court was the decision of the appellate court in
CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is
binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of res judicata. FELS’s argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when,
as a result of an adverse judgment in one forum, a party seeks another and possibly favorable
judgment in another forum other than by appeal or special civil action or certiorari. There is also
forum shopping when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable disposition. 44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after
the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying
to get a favorable decision from one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets
of the courts.46

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

Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case. 

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax
examiners are presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise
in their field, are generally binding and conclusive upon the Court; we will not assume to interfere
with the sensible exercise of the judgment of men especially trained in appraising property. Where
the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find
no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power
company brought an action to review property tax assessment. On the city’s motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation. 

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation,
and transmission of electric power. 

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which have
been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into electricity. 52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from payment of
the real property tax:

xxx

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power
Barges to convert such Fuel into electricity in accordance with Part A of Article 7. 53
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption.
The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of
Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
government’s deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited
in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it.57 The right of local government units to collect taxes due must always be upheld
to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the
autonomy of local governments58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest development as
self-reliant communities and make them effective partners in the attainment of national goals. 59

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

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED.
G.R. No. L-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.  Thereafter, on 18 April
3

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.  On 21 September 1956, the municipal court rendered its decision —
4

... 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,  confirming the
8

earlier finding of the municipal court that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations." 9

It has been held in Supia and Batiaco vs. Quintero and Ayala  that "the answer is a mere statement
10

of the facts which the party filing it expects to prove, but it is not evidence;  and further, that when
11

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,  wherein the
12

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.   There is nothing on record to show that the
14

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., cited in Associated Insurance Surety Co., Inc.
15

vs. Iya, et al.   to the effect that —

16

... 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,  this Court stated that "it is undeniable that the parties to a contract may by
17

agreement treat as personal property that which by nature would be real property", citing Standard
Oil Company of New York vs. Jaramillo.   In the latter case, the mortgagor conveyed and transferred
18

to the mortgagee by way of mortgage "the following described personal property."   The "personal
19

property" consisted of leasehold rights and a building. Again, in the case of Luna vs.
Encarnacion,  the subject of the contract designated as Chattel Mortgage was a house of mixed
20

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,  this Court stated that —
21

The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a mortgaged
house built on a rented land was held to be a personal property, not only because
the deed of mortgage considered it as such, but also because it did not form part of
the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an
object placed on land by one who had only a temporary right to the same, such as
the lessee or usufructuary, does not become immobilized by attachment (Valdez vs.
Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al.,
61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property as so
stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is predicated on statements by the owner declaring
his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374):  22

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

on which it is constructed and participation ..."   Although there is no specific statement referring to
24

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.   and Leung
25

Yee vs. F. L. Strong Machinery and Williamson,   wherein third persons assailed the validity of the
26

chattel mortgage,  it is the defendants-appellants themselves, as debtors-mortgagors, who are

27

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.  Section28

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.   In the instant case, the parties specifically stipulated that "the chattel mortgage will
29

be enforceable in accordance with the provisions of Special Act No. 3135 ... ."  (Emphasis supplied).
30

Section 6 of the Act referred to   provides that the debtor-mortgagor (defendants-appellants herein)
31

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   allows the purchaser of the
32

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.   In the absence of such a compliance, as in the instant case, the purchaser can not claim
33

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   which also applies to properties
34

purchased in extrajudicial foreclosure proceedings.  Construing the said section, this Court stated in
35

the aforestated case of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-
debtor or mortgagor may redeem the property, the purchaser thereof is not entitled,
as a matter of right, to possession of the same. Thus, while it is true that the Rules of
Court allow the purchaser to receive the rentals if the purchased property is occupied
by tenants, he is, nevertheless, accountable to the judgment-debtor or mortgagor as
the case may be, for the amount so received and the same will be duly credited
against the redemption price when the said debtor or mortgagor effects the
redemption. Differently stated, the rentals receivable from tenants, although they
may be collected by the purchaser during the redemption period, do not belong to
the latter but still pertain to the debtor of mortgagor. The rationale for the Rule, it
seems, is to secure for the benefit of the debtor or mortgagor, the payment of the
redemption amount and the consequent return to him of his properties sold at public
auction. (Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe. 36

Since the defendants-appellants were occupying the house at the time of the auction sale, they are
entitled to remain in possession during the period of redemption or within one year from and after 27
March 1956, the date of the auction sale, and to collect the rents or profits during the said period.

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

It follows that the court below erred in requiring the mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner, 

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land. 

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks,
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists,
air compressors and tireflators. The city assessor described the said equipment and machinery in
this manner: 

A gasoline service station is a piece of lot where a building or shed is erected, a

water tank if there is any is placed in one corner of the lot, car hoists are placed in an
adjacent shed, an air compressor is attached in the wall of the shed or at the
concrete wall fence. 

The controversial underground tank, depository of gasoline or crude oil, is dug deep
about six feet more or less, a few meters away from the shed. This is done to prevent
conflagration because gasoline and other combustible oil are very inflammable. 

This underground tank is connected with a steel pipe to the gasoline pump and the
gasoline pump is commonly placed or constructed under the shed. The footing of the
pump is a cement pad and this cement pad is imbedded in the pavement under the
shed, and evidence that the gasoline underground tank is attached and connected to
the shed or building through the pipe to the pump and the pump is attached and
affixed to the cement pad and pavement covered by the roof of the building or shed. 

The building or shed, the elevated water tank, the car hoist under a separate shed,
the air compressor, the underground gasoline tank, neon lights signboard, concrete
fence and pavement and the lot where they are all placed or erected, all of them
used in the pursuance of the gasoline service station business formed the entire
gasoline service-station. 

As to whether the subject properties are attached and affixed to the tenement, it is
clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the gasoline
station and the improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement. 

The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex
(Philippines) Inc. ...
 The underground gasoline tank is attached to the shed by the steel pipe to the pump,
so with the water tank it is connected also by a steel pipe to the pavement, then to
the electric motor which electric motor is placed under the shed. So to say that the
gasoline pumps, water pumps and underground tanks are outside of the service
station, and to consider only the building as the service station is grossly erroneous.
(pp. 58-60, Rollo). 

The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon
demand, shall return to Caltex the machines and equipment in good condition as when received,
ordinary wear and tear excepted. 

The lessor of the land, where the gas station is located, does not become the owner of the machines
and equipment installed therein. Caltex retains the ownership thereof during the term of the lease. 

The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52,
Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to the
Central Board of Assessment Appeals. 

The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community
Development Jose Roño, held in its decision of June 3, 1977 that the said machines and equipment
are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code,
Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil Code are not applicable to this
case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979. 

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal property
not subject to realty tax (p. 16, Rollo). 

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was
as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax
Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment
appeals had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over
decisions of the said local boards of assessment appeals and is, therefore, in the same category as
the Tax Court. 

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt
of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration may be
filed. The Code does not provide for the review of the Board's decision by this Court. 
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc. 

The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment
Law and the Real Property Tax Code. 

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
provision is reproduced with some modification in the Real Property Tax Code which provides: 

SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted. 

The Code contains the following definitions in its section 3: 

k) Improvements — is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adapt it for
new or further purposes. 

m) Machinery — shall embrace machines, mechanical contrivances, instruments,

appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service
facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law). 

We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station would be useless, and which have been
attached or affixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the Real Property Tax
Code. 

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709). 

That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery
that becomes real property by destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by the lessee on leased land should
be regarded as real property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty). 
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the
realty tax. This question is different from the issue raised in the Davao Saw Mill case. 

Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). 

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co.,
119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph
9 of its franchise which exempts its poles from taxation. The steel towers were considered
personalty because they were attached to square metal frames by means of bolts and could be
moved from place to place when unscrewed and dismantled. 

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

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

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals
are affirmed. The petition for certiorari is dismissed for lack of merit. No costs. 

SO ORDERED.
G.R. No. L-41506             March 25, 1935

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

vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants. 
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco
Jarque, appellee.

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.

MALCOLM, J.:

First of all the reason why the case has been decided by the court in banc needs explanation. A
motion was presented by counsel for the appellant in which it was asked that the case be heard and
determined by the court sitting in banc because the admiralty jurisdiction of the court was involved,
and this motion was granted in regular course. On further investigation it appears that this was error.
The mere mortgage of a ship is a contract entered into by the parties to it without reference to
navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction. (Bogart vs.
Steamboat John Jay [1854], 17 How., 399.)

Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and
Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These
documents were recorded in the record of transfers and incumbrances of vessels for the port of
Cebu and each was therein denominated a "chattel mortgage". Neither of the first two mortgages
had appended an affidavit of good faith. The third mortgage contained such an affidavit, but this
mortgage was not registered in the customs house until May 17, 1932, or within the period of thirty
days prior to the commencement of insolvency proceedings against Francisco Jarque; also, while
the last mentioned mortgage was subscribed by Francisco Jarque and M. N. Brink, there was
nothing to disclose in what capacity the said M. N. Brink signed. A fourth mortgage was executed by
Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel
mortgage registry of the register of deeds on May 12, 1932, or again within the thirty-day period
before the institution of insolvency proceedings. These proceedings were begun on June 2, 1932,
when a petition was filed with the Court of First Instance of Cebu in which it was prayed that
Francisco Jarque be declared an insolvent debtor, which soon thereafter was granted, with the result
that an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on
the contrary sustained the special defenses of fatal defectiveness of the mortgages. In so doing we
believe that the trial judge acted advisedly.

Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)
Similarly under the common law, vessels are personal property although occasionally referred to as
a peculiar kind of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic
Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term "personal property"
includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage
Law. (Act No. 1508, section 2.) Indeed, it has heretofore been accepted without discussion that a
mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco Español-Filipino [1909],
13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.) The only difference between a chattel
mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a
chattel mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that
a record of documents affecting the title to a vessel be entered in the record of the Collector of
Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de
Sane, supra.) Otherwise a mortgage on a vessel is generally like other chattel mortgages as to its
requisites and validity. (58 C.J., 92.)

The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to
constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended
to the mortgage and recorded therewith. The absence of the affidavit vitiates a mortgage as against
creditors and subsequent encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216;
Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros [1923],
46 Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the affidavit of good faith
required by the Chattel Mortgage Law is lacking, is unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not constitute
chattel mortgages or at least to gloss over the failure to include the affidavit of good faith made a
requisite for a good chattel mortgage by the Chattel Mortgage Law. Counsel would further have us
disregard article 585 of the Code of Commerce, but no reason is shown for holding this article not in
force. Counsel would further have us revise doctrines heretofore announced in a series of cases,
which it is not desirable to do since those principles were confirmed after due liberation and
constitute a part of the commercial law of the Philippines. And finally counsel would have us make
rulings on points entirely foreign to the issues of the case. As neither the facts nor the law remains in
doubt, the seven assigned errors will be overruled.

Judgment affirmed, the costs of this instance to be paid by the appellant.

G.R. No. L-15260             August 18, 1920

FAUSTO RUBISO, plaintiff-appellant, 
vs.
FLORENTINO RIVERA, ET AL., defendants-appellees.

Canillas and Cardenas for appellant.

M. P. Leuterio for appellees. 

VILLAMOR, J.:

About April, 1915, Fausto Rubiso and Florentino Rivera had a litigation concerning the ownership of
the pilot boat Valentina. Rivera acquired it on January 4, 1915, from its original owner the Chinaman
Sy Qui, but did not inscribe his title in the mercantile registry according to article 573 of the Code of
Commerce in relation to article 2 of Act No. 1900. Subsequently Rubiso bought said pilot boat in a
sale at public auction for the sum of P55.45 on January 23, 1915, and inscribed his title in the
mercantile registry on March 4th of the same year. The suit was decided by the Court of First
Instance of Manila in favor of the plaintiff Rubiso on September 6, 1915. On the 11th day of said
month the court issued a writ of execution, upon the petition of the plaintiff, in order to proceed, as
said plaintiff alleged, to the salvage of the pilot boat which at that time was stranded in the sitio of
Tingloy, Batangas. The order of execution was stayed upon the filing of a bond for P1,800 by the
defendant Rivera who alleged in support of his objection, that the pilot boat was already salvaged
and had been taken to Maricaban, Batangas. The judgment having been brought to this court by
appeal it was affirmed in a judgment rendered on October 30, 1917 (R.G. N. 11407). 1 The cause
having been sent to the Court of First Instance for the execution of judgment the sheriff of Batangas
who undertook to enforce the writ of execution was able to deliver to the plaintiff Rubiso nothing but
the pilot boat itself in a seriously damaged condition and two useless sails. 

Such are the facts which gave rise to the present action for the recovery of the damages in the sum
of P1,200 which the plaintiff and appellant Fausto Rubiso alleges he has suffered by the destruction
and loss of the pilot boat Valentina and its equipment which were caused, according to the
complaint, by the fault and negligence of the defendants Florentino Rivera and others.

The answer having been filed and the trial having taken place, the court rendered judgment in favor
of the defendants without any special pronouncement as to costs. From this judgment the plaintiff
appealed. The motion for new trial having been overruled, the appellant presented the
corresponding bill of exceptions assigning in his brief the following a errors: (a) The finding that there
was not sufficient evidence to establish the amount of the expenses sought to be recovered; (b) the
finding that the pilot boat Valentina had no legal value in August, 1915; (c) in rendering judgment
absolving the defendants in this case; and (d) in overruling the motion for new trial presented by the
plaintiff on the ground that the judgment is against the weight of the evidence. 

In a series of uninterrupted decision before and after the promulgation of the Civil Code, the doctrine
has been established that all judgment for damages whether arising from a breach of contract or
resulting from some provision of law, must be based upon satisfactory evidence of the real existence
of the damages alleged to have been suffered. (Sanz vs. Lavin and Bros., 6 Phil., 299.)

Has the existence of the damages sought to be recovered in this case been satisfactorily
established? The court below decided this question of fact adversely to the plaintiff and we are of the
opinion that this findings is sustained by the evidence. Plaintiff declares that in February, 1915, he
visited and examined the pilot boat Valentina in the barrio of Tingloy and that on said day he found it
in good condition, and that he saw all of its tackle and rigging; but on cross-examination by the
attorney for the defendants he admitted that on said date he was unable to take possession of the
vessel because the person in charge of it would not permit him even to approach. Estanislao Jili who
accompanied Fausto Rubiso in order to see the pilot boat Valentina in February, 1915, affirms that
they did not go on board the vessel because the person in charge of it would not permit them to do
so. This same witness and Jose Soriano as a witness of the plaintiff state that at that time the boat
was not in a seaworthy condition, because its bottom was damaged and it had no equipments. 

If what has been said is not yet sufficient to find that the pretense of the appellant as to his first
assignment of error is unsustainable, we still have the uncontradicted testimony of Juan Velino,
Irineo Martinez and Mariano Villas, witnesses for the defendants, who declared on the seriously
damaged condition of the pilot boat long before its acquisition by the appellant. 

Juan Velino declared that in August, 1914, the boat was aground in Dayhagan, Mindoro; it was
somewhat repaired and about November of the same year it sailed from that place and suffered on
the way such damages and troubles that it had to be taken to Tingloy for new repair, some vessels'
tools and equipments having been borrowed from another boat because those of the Valentina had
been destroyed; and the storm destroyed the vessel so much that it could not be taken to the Island
of Maricaban except by means of rafts. To the same effect is the testimony of Irineo Martinez.
Mariano Villas testified that in December, 1914, the Valentina anchored in Tingloy alongside his
vessel and as he was interested in the purchase of this pilot boat, the sale of which was advertised
in Manila, he examined it and then saw that he would not buy it even for P400, because it was
completely destroyed. There can be no doubt as to the competency of this witness to testify on the
question of the price of the pilot boat Valentina because according to him he had ordered the
construction of boats of the same size and condition during that period. The lower court declares in
its judgment that this witness appears to it as sufficiently trustworthy, and we find no basis whatever
on the record to doubt the correctness of the finding of the trial judge who saw and observed him
while he was testifying. 

We, therefore, are of the opinion that the finding of the court that there was not sufficient proof to
establish the amount of the defendants' claim is in accordance with the merits of the case. 

As to the second error assigned by the appellant it should be noted that, as appears in the record
the pilot boat Valentina was stranded in Tingloy since the month of November, 1914, that is, two
months before it had been acquired by the plaintiff at public auction and ten months before the
judgment declaring him to be the owner thereof, was rendered. The appellant, in his first complaint
of April 10, 1915, for the recovery of the pilot boat Valentina, affirms that the boat was then in the
same worthless condition in which it was in 1914, and the evidence we have examined in this case
show that in fact in August or September, 1915, it was in the worse of conditions and was utterly
worthless. Without attempting to determine the durability of a boat made of wood stranded for a
period of ten months, as is the case with the boat in question, we are of the opinion, and so declare,
that according to the proofs adduced in this case, the court did not err in declaring in its judgment
that the pilot boat Valentina did not have any legal value in August, 1915. 

The defendant in his brief interposes the defense of res judicata based upon the judgment of this
court in the action between Fausto Rubiso et al. and Florentino Rivera who are the parties in the
present case.

In that case it was held: 

With respect to the indemnification for damages claimed by the plaintiff, besides the fact [that
according to the proceedings taken subsequently to the date on which the judgment
 appealed from was rendered, it appears that the pilot boat has already left in good condition
the place where it had been stranded and is at present found anchored in the port of
Maricaban,] the truth is that the record does not offer positive proof of the amount of the
damages caused, and on the other hand it cannot be declared that the defendant had acted
in bad faith for he acquired the vessel previous to its acquisition at public auction by the
plaintiff Rubiso who, for the reason already given, is the true and sole owner of said pilot
boat. (Decision of October 30, 1917, R. G. No. 11407 [Rubiso and Gelito vs. Rivera, 37 Phil.,
72].)

It having been declared in a previous action that the defendant Rivera did not act in bad faith and
that therefore he was not liable for damages, it would be necessary to show in the present case that
the destruction of the boat and the loss of its equipments took place after the final judgment was
rendered in that case and by reason of the fault and negligence of the defendants, which is not the
case here. What appears from the evidence presented by the defendant and uncontradicted by that
presented by the adverse parties, is that from September, 1915, to March 7, 1918, which was the
date of the execution of the judgment of this court affirming that of the lower court, the boat
continued aground in the Island of Maricaban awaiting the final judgment in the action with respect to
ownership and naturally exposed to the action of sea water and the inclemencies of the weather,
things which were beyond the control of the defendant Rivera. 

It thus now appears that the damages claimed by the plaintiff are the same damages that he claimed
in the first action. To speak more accurately, the appellant first sued for the recovery of the vessel
and damages in the sum of P1,750. Judgment was rendered as to the first in his favor but against
him as to the second. And now he comes back again claiming damages. 

The case now under consideration is analogous to that of Palanca Tanguinlay vs. Quiros (10 Phil.,
360). In that case the question was extensively discussed whether a previous judgment constitutes
an adjudication of the subject-matter of a new suit between the same parties to such extent that it
can not again be tried anew. It was held that according to articles 306 and 307 of the Code of Civil
Procedure, a judgment rendered in an action for the recovery damages for property lost is a bar to
any other action between the same parties for the recovery of the same property or its value. In the
course of the decision the court held: 

The American books are full of similar cases, an instance being Hatch vs. Coddington (32
Minn., 92), in which it was held that a former action between the same parties to recover
damages for a wrongful conversion of personal property was a bar to a subsequent suit to
recover possession of the specific property itself, notwithstanding the difference of form and
that the relief sought and the subject-matter of the cause of action were regarded as the
same. Nor is it altogether clear that the law of Spain was different. Señor Manresa, in his
commentary on article 1252 of the Civil Code, cites a decision of the supreme court of 25th
of April, 1900 (vol. 8, p. 555), holding that in a real action a judgment in a former personal
suit between the same parties for indemnity for the use of the same property operated
as cosa juzgada.

From what has been said the judgment appealed from should be, and is hereby, affirmed, with costs
against the appellant. So ordered. 
G.R. No. 6295           September 1, 1911

THE UNITED STATES, plaintiff-appellee, 

vs.
IGNACIO CARLOS, defendant-appellant. 

A. D. Gibbs for appellant. 

Acting Attorney-General Harvey for appellee. 

PER CURIAM:

The information filed in this case is as follows: 

The undersigned accuses Ignacio Carlos of the crime of theft, committed as follows: 

That on, during, and between the 13th day of February, 1909, and the 3d day of March,
1910, in the city of Manila, Philippine Islands, the said Ignacio Carlos, with intent of gain and
without violence or intimidation against the person or force against the thing, did then and
there, willfully, unlawfully, and feloniously, take, steal , and carry away two thousand two
hundred and seventy-three (2,273) kilowatts of electric current, of the value of nine hundred
and nine (909) pesos and twenty (20) cents Philippine currency, the property of the Manila
Electric Railroad and Light Company, a corporation doing business in the Philippine Islands,
without the consent of the owner thereof; to the damage and prejudice of the said Manila
Electric Railroad and Light Company in the said sum of nine hundred and nine (909) pesos
and twenty (20) cents Philippine currency, equal to and equivalent of 4,546 pesetas
Philippine currency. All contrary to law. 

(Sgd.) L. M. SOUTWORTH, 
Prosecuting Attorney. 

Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila,
Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila. 

(Sgd.) CHARLES S. LOBINGIER, 

Judge, First Instance. 

A preliminary investigation has heretofore been conducted in this case, under my direction,
having examined the witness under oath, in accordance with the provisions of section 39 of
Act No. 183 of the Philippine Commission, as amended by section 2 of Act No. 612 of the
Philippine Commission. 

(Sgd) L. M. SOUTHWORTH, 
Prosecuting Attorney. 

Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila,
Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila. 

(Sgd.) CHARLES LOBINGIER, 

Judge, First Instance.
A warrant for the arrest of the defendant was issued by the Honorable J. C. Jenkins on the 4th of
March and placed in the hands of the sheriff. The sheriff's return shows that the defendant gave
bond for his appearance. On the 14th of the same month counsel for the defendant demurrer to the
complaint on the following grounds: 

1 That the court has no jurisdiction over the person of the accused nor of the offense
charged because the accused has not been accorded a preliminary investigation or
examination as required by law and no court, magistrate, or other competent authority has
determined from a sworn complaint or evidence adduced that there is probable cause to
believe that a crime has been committed, or that this defendant has committed any crime. 

2 That the facts charged do not constitute a public offense.

The demurrer was overruled on the same day and the defendant having refused to plead, a plea of
not guilty was entered by direction of the court for him and the trial proceeded. 

After due consideration of all the proofs presented and the arguments of counsel the trial court found
the defendant guilty of the crime charged and sentenced him to one year eight months and twenty-
one days' presidio correccional, to indemnify the offended party, The Manila Electric Railroad and
Light Company, in the sum of P865.26, to the corresponding subsidiary imprisonment in case of
insolvency and to the payment of the costs. From this judgment the defendant appealed and makes
the following assignments of error: 

I. 

The court erred in overruling the objection of the accused to the jurisdiction of the court,
because he was not given a preliminary investigation as required by law, and in overruling
his demurrer for the same reason. 

II. 

The court erred in declaring the accused to be guilty, in view of the evidence submitted. 

III. 

The court erred in declaring that electrical energy may be stolen. 

IV.

The court erred in not declaring that the plaintiff consented to the taking of the current. 

V. 

The court erred in finding the accused guilty of more than one offense. 

VI. 

The court erred in condemning the accused to pay P865.26 to the electric company as
damages.
Exactly the same question as that raised in the first assignment of error, was after a through
examination and due consideration, decided adversely to appellant's contention in the case of U.
S. vs. Grant and Kennedy (18 Phil. Rep., 122). No sufficient reason is presented why we should not
follow the doctrine enunciated in that case. 

The question raised in the second assignment of error is purely one fact. Upon this point the trial
court said: 

For considerably more than a year previous to the filing of this complaint the accused had
been a consumer of electricity furnished by the Manila Electric Railroad and Light Company
for a building containing the residence of the accused and three other residences, and which
was equipped, according to the defendant's testimony, with thirty electric lights. On March
15, 1909, the representatives of the company, believing that more light was being used than
their meter showed, installed an additional meter (Exhibit A) on a pole outside of defendant's
house, and both it and the meter (Exhibit B) which had been previously installed in the house
were read on said date. Exhibit A read 218 kilowatt hours; Exhibit B, 745 kilowatt hours. On
March 3, 1910 each was read again, Exhibit A showing 2,718 kilowatt hours and Exhibit B,
968. It is undisputed that the current which supplied the house passed through both meters
and the city electrician testifies that each meter was tested on the date of the last reading
and was "in good condition." The result of this registration therefore is that while the outsider
meter (Exhibit A) showed a consumption in defendant's building of 2,500 kilowatt hours of
electricity, this inside meter (Exhibit B) showed but 223 kilowatt hours. In other words the
actual consumption, according to the outside meter, was more than ten times as great as
that registered by the one inside. Obviously this difference could not be due to normal
causes, for while the electrician called by the defense (Lanusa) testifies to the possibility of a
difference between two such meters, he places the extreme limit of such difference between
them 5 per cent. Here, as we have seen, the difference is more than 900 per cent. Besides,
according to the defendant's electrician, the outside meter should normally run faster, while
according to the test made in this case the inside meter (Exhibit B) ran the faster. The city
electrician also testifies that the electric current could have been deflected from the inside
meter by placing thereon a device known as a "jumper" connecting the two outside wires,
and there is other testimony that there were marks on the insulation of the meter Exhibit B
which showed the use of such a device. There is a further evidence that the consumption of
223 kilowatt hours, registered by the inside meter would not be a reasonable amount for the
number of lights installed in defendant's building during the period in question, and the
accused fails to explain why he should have had thirty lights installed if he needed but four or
five. 

On the strength of this showing a search warrant was issued for the examination of
defendant's premises and was duly served by a police officer (Hartpence). He was
accompanied at the time by three employees of the Manila Electric Railroad and Light
Company, and he found there the accused, his wife and son, and perhaps one or two others.
There is a sharp conflict between the several spectators on some points but on one there is
no dispute. All agree that the "jumper" (Exhibit C) was found in a drawer of a small cabinet in
the room of defendant's house where the meter was installed and not more than 20 feet
therefrom. In the absence of a satisfactory explanation this constituted possession on
defendant's part, and such possession, under the Code of Civil Procedure, section 334 (10),
raises the presumption that the accused was the owner of a device whose only use was to
deflect the current from the meter. 

Is there any other "satisfactory explanation" of the "jumper's" presence? The only one sought
to be offered is the statement by the son of the accused, a boy of twelve years, that he saw
 the "jumper" placed there by the witness Porter, an employee of the Light Company. The boy
is the only witness who so testifies and Porter himself squarely denies it. We can not agree
with counsel for the defense that the boy's interest in the outcome of this case is less than
that of the witness for the prosecution. It seems to us that his natural desire to shield his
father would far outweight any interest such an employee like Porter would have and which,
at most, would be merely pecuniary. 

There is, however, one witness whom so far as appears, has no interest in the matter
whatsoever. This is officer Hartpence, who executed the search warrant. He testifies that
after inspecting other articles and places in the building as he and the other spectators,
including the accused, approached the cabinet in which the "jumper" was found, the officer's
attention was called to the defendant's appearance and the former noticed that the latter was
becoming nervous. Where the only two witnesses who are supposed to know anything of the
matter thus contradict each other this item of testimony by the officer is of more than ordinary
significance; for if, as the accused claims, the "jumper" was placed in the cabinet for the first
time by Porter there would be no occasion for any change of demeanor on the part of the
accused. We do not think that the officer's declination to wait until defendant should secure a
notary public shows bias. The presence of such an official was neither required nor
authorized by law and the very efficacy of a search depends upon its swiftness. 

We must also agree with the prosecuting attorney that the attending circumstances do not
strengthen the story told by the boy; that the latter would have been likely to call out at the
time he saw the "jumper" being placed in the drawer, or at least directed his father's attention
to it immediately instead of waiting, as he says, until the latter was called by the officer.
Finally, to accept the boy's story we must believe that this company or its representatives
deliberately conspired not merely to lure the defendant into the commission of a crime but to
fasten upon him a crime which he did not commit and thus convict an innocent man by
perjured evidence. This is a much more serious charge than that contained in the complaint
and should be supported by very strong corroborating circumstances which we do not find
here. We are, accordingly, unable to consider as satisfactory defendant's explanation of the
"jumper's" presence. 

The only alternative is the conclusion that the "jumper" was placed there by the accused or
by some one acting for him and that it was the instrument by which the current was deflected
from the matter Exhibit B and the Light Company deprived of its lawful compensation.

After a careful examination of the entire record we are satisfied beyond peradventure of a doubt that
the proofs presented fully support the facts as set forth in the foregoing finding. 

Counsel for the appellant insists that the only corporeal property can be the subject of the crime of
larceny, and in the support of this proposition cites several authorities for the purpose of showing
that the only subjects of larceny are tangible, movable, chattels, something which could be taken in
possession and carried away, and which had some, although trifling, intrinsic value, and also to
show that electricity is an unknown force and can not be a subject of larceny. 

In the U. S. vs. Genato (15 Phi. Rep., 170) the defendant, the owner of the store situated at No. 154
Escolta, Manila, was using a contrivance known as a "jumper" on the electric meter installed by the
Manila Electric Railroad and the Light Company. As a result of the use of this "jumper" the meter,
instead of making one revolution in every four seconds, registered one in seventy-seven seconds,
thereby reducing the current approximately 95 per cent. Genato was charged in the municipal court
with a violation of a certain ordinance of the city of Manila, and was sentenced to pay a fine of P200.
He appealed to the Court of First Instance, was again tried and sentenced to pay the same fine. An
appeal was taken from the judgment of the Court of First Instance to the Supreme Court on the
ground that the ordinance in question was null and void. It is true that the only question directly
presented was of the validity of the city ordinance. The court, after holding that said ordinance was
valid, said: 

Even without them (ordinances), the right of ownership of electric current is secured by
articles 517 and 518 of the Penal Code; the application of these articles in case of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is
confirmed by the rule laid down in the decisions of the supreme court of Spain January 20,
1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of
the penal code of that country, articles identical with articles 517 and 518 of the code in force
in these Islands.

Article 517 of the Penal Code above referred to reads as follows: 

The following are guilty of larceny: 

(1) Those who with intent of gain and without violence or intimidation against the person, or
force against things, shall take another's personal property without the owner's consent.

And article 518 fixes the penalty for larceny in proportion to the value of the personal property
stolen. 

It is true that electricity is no longer, as formerly, regarded by electricians as a fluid, but its
manifestation and effects, like those of gas, may be seen and felt. The true test of what is a proper
subject of larceny seems to be not whether the subject is corporeal, but whether it is capable of
appropriation by another than the owner. 

It is well-settled that illuminating gas may be the subject of larceny, even in the absence of a statute
so providing. (Decisions of supreme court of Spain, January 20, 1887, and April 1, 1897, supra; also
(England) Queen vs. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234; Queen vs. White, 3 C. & K., 363, 6
Cox C. C., 213; Woods vs. People, 222 III., 293, 7 L. R. A., 520; Commonwealth vs. Shaw, 4 Allen
(Mass), 308; State vs. Wellman, 34 Minn., 221, N. W. Rep., 385, and 25 Cyc., p. 12, note 10.) 

In the case of Commonwealth vs. Shaw, supra, the court, speaking through Chief Justice Bigelow,
said: 

There is nothing in the nature of gas used for illuminating purposes which renders it
incapable of being feloniously taken and carried away. It is a valuable article of merchandise,
bought and sold like other personal property, susceptible of being severed from a mass or
larger quantity, and of being transported from place to place. In the present case it appears
that it was the property of the Boston Gas Light Company; that it was in their possession by
being confined in conduits and tubes which belonged to them, and that the defendant
severed a portion of that which was in the pipes of the company by taking it into her house
and there consuming it. All this being proved to have been done by her secretly and with
intent to deprive the company of their property and to appropriate it to her own use, clearly
constitutes the crime of larceny.

Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other personal
property and is capable of appropriation by another. So no error was committed by the trial court in
holding that electricity is a subject of larceny. 
It is urged in support of the fourth assignment of error that if it be true that the appellant did
appropriate to his own use the electricity as charged he can not be held guilty of larceny for any part
of the electricity thus appropriated, after the first month, for the reason that the complaining party,
the Manila Electric Road and Light Company, knew of this misappropriation and consented thereto. 

The outside meter was installed on March 15, 1909, and read 218 kilowatt hours. On the same day
the inside meter was read and showed 745 kilowatt hours. Both meters were again read on March 3,
1910, and the outside one showed 2,718 kilowatt hours while the one on the inside only showed
968, the difference in consumption during this time being 2,277 kilowatt hours. The taking of this
current continued over a period of one year, less twelve days. Assuming that the company read both
meters at the end of each month; that it knew the defendant was misappropriating the current to that
extent; and that t continued to furnish the current, thereby giving the defendant an opportunity to
continue the misppropriation, still, we think, that the defendant is criminally responsible for the taking
of the whole amount, 2,277 kilowatt hours. The company had a contract with the defendant to furnish
him with current for lighting purposes. It could not stop the misappropriation without cutting off the
current entirely. It could not reduce the current so as to just furnish sufficient for the lighting of two,
three, or five lights, as claimed by the defendant that he used during the most of this time, but the
current must always be sufficiently strong to furnish current for the thirty lights, at any time the
defendant desired to use them. 

There is no pretense that the accused was solicited by the company or any one else to commit the
acts charged. At most there was a mere passive submission on the part of the company that the
current should be taken and no indication that it wished it to be taken, and no knowledge by the
defendant that the company wished him to take the current, and no mutual understanding between
the company and the defendant, and no measures of inducement of any kind were employed by the
company for the purpose of leading the defendant into temptation, and no preconcert whatever
between him and company. The original design to misappropriate this current was formed by the
defendant absolutely independent of any acts on the part of the company or its agents. It is true, no
doubt, as a general proposition, that larceny is not committed when the property is taken with the
consent of its owner. It may be difficult in some instances to determine whether certain acts
constitute, in law, such "consent." But under the facts in the case at bar it is not difficult to reach a
conclusion that the acts performed by the plaintiff company did not constitute a consent on its part
the defendant take its property. We have been unable to find a well considered case holding
contrary opinion under similar facts, but, there are numerous cases holding that such acts do not
constitute such consent as would relieve the taker of criminal responsibility. The fourth assignment
of error is, therefore, not well founded. 

It is also contended that since the "jumper" was not used continuously, the defendant committed not
a single offense but a series of offenses. It is, no doubt, true that the defendant did not allow the
"jumper" to remain in place continuously for any number of days as the company inspected monthly
the inside meter. So the "jumper" was put on and taken off at least monthly, if not daily, in order to
avoid detection, and while the "jumper" was off the defendant was not misappropriating the current.
The complaint alleged that the defendant did on, during, and between the 13th day of February,
1909, and the 3d of March, 1910. willfully, unlawfully, and feloniously take, steal, and carry away
2,277 kilowatts of electric current of the value of P909. No demurrer was presented against this
complaint on the ground that more than one crime was charged. The Government had no
opportunity to amend or correct this error, if error at all. In the case of U. S. vs. Macaspac (12 Phil.
Rep., 26), the defendant received from one Joquina Punu the sum of P31.50, with the request to
deliver it to Marcelina Dy-Oco. The defendant called upon Marcelina, but instead of delivering the
said amount she asked Marcelina for P30 in the name of Joaquina who had in no way authorized
her to do so. Marcelina gave her P30, believing that Joaquina had sent for it. Counsel for the
defendant insisted that the complaint charged his client with two different crimes 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.º 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.

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 he wish, and if he desires to punish him very severely he
will bring it in the Court of First Instance, which he can generally do if he cares to. It is incoceivable
that the legislature intended that such a condition should exist. It is in violation of every sense of
fairness, is against every rule of statutory construction, and is clearly inimical to public policy. To
assert that the complaining in which he shall prosecute the accused but also, in effect, the crime of
which he shall be charged, as the decision in this case holds in effect, is to assert a proposition, the
bare statement of which is its own completest refutation. 

For these reasons the judgment of conviction should be reversed.

G.R. No. L-16513             January 18, 1921

THE UNITED STATES, plaintiff-appellee, 

vs.
MANUEL TAMBUNTING, defendant-appellant.

Manuel Garcia Goyena for appellant.

Acting Attorney-General Feria for appellee.

STREET, J.:

This appeal was instituted for the purpose of reversing a judgment of the Court of First Instance of
the city of Manila, finding the accused, Manuel Tambunting, guilty of stealing a quantity of gas
belonging to the Manila Gas Corporation, and sentencing him to undergo imprisonment for two
months and one day, of arresto mayor, with the accessories prescribed by law; to indemnify the said
corporation in the sum of P2, with subsidiary imprisonment in case of insolvency; and to pay the
costs.

The evidence submitted in behalf of the prosecution shows that in January of the year 1918, the
accused and his wife became occupants of the upper floor of the house situated at No. 443, Calle
Evangelista, in the city of Manila. In this house the Manila Gas Corporation had previously installed
apparatus for the delivery of gas on both the upper and lower floors, consisting of the necessary
piping and a gas meter, which last mentioned apparatus was installed below. When the occupants at
whose request this installation had been made vacated the premises, the gas company
disconnected the gas pipe and removed the meter, thus cutting off the supply of gas from said
premises.

Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and
found that gas was being used, without the knowledge and consent of the gas company, for cooking
in the quarters occupied by the defendant and his wife: to effect which a short piece of iron pipe had
been inserted in the gap where the gas meter had formerly been placed, and piece of rubber tubing
had been used to connect the gas pipe of rubber tubing had been used to connect the gas pipe in
kitchen with the gas stove, or plate, used for cooking.

At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he
presently arrived and admitted to the agent to the gas company that he had made the connection
with the rubber tubing between the gas pipe and the stove, though he denied making the connection
below. He also admitted that he knew he was using gas without the knowledge of the company and
that he had been so using it for probably two or three months.

The clandestine use of gas by the accused in the manner stated is thus established in our opinion
beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only remains to consider, first,
whether gas can be the subject to larceny and, secondly, whether the quantity of gas appropriated in
the two months, during which the accused admitted having used the same, has been established
with sufficient certainty to enable the court to fix an appropriate penalty.

Some legal minds, perhaps more academic than practical, have entertained doubt upon the question
whether gas can be the subject of larceny; but no judicial decision has been called to our attention
wherein any respectable court has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175),
this court, speaking through Mr. Justice Torres, said ". . . the right of the ownership of electric current
is secured by article 517 and 518 of the Penal Code; the application of these articles in cases of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed
by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and April 1,
1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of that
country, articles identical with articles 517 and 518 of the code in force in these Islands." These
expressions were used in a case which involved the subtraction and appropriation of electrical
energy and the court held, in accordance with the analogy of the case involving the theft of gas, that
electrical energy could also be the subject of theft. The same conclusion was reached in U.S. vs.
Carlos (21 Phil., 553), which was also a case of prosecution for stealing electricity.

The precise point whether the taking of gas may constitute larceny has never before, so far as the
present writer is aware, been the subject of adjudication in this court, but the decisions of Spanish,
English, and American courts all answer the question in the affirmative. (See U.S. vs. Carlos, 21
Phil., 553, 560.)

In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol. 17, of
Ruling Case Law:

There is nothing in the nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or larger quantity and of being
transported from place to place. Likewise water which is confined in pipes and electricity which is
conveyed by wires are subjects of larceny."

As to the amount and value of the gas appropriated by the accused in the period during which he
admits having used it, the proof is not entirely satisfactory. Nevertheless we think the trial court was
justified in fixing the value of the gas at P2 per month, which is the minimum charge for gas made by
the gas company, however small the amount consumed. That is to say, no person desiring to use
gas at all for domestic purposes can purchase the commodity at a lower rate per month than P2.
There was evidence before the court showing that the general average of the monthly bills paid by
consumers throughout the city for the use of gas in a kitchen equipped like that used by the accused
is from P18 to 20, while the average minimum is about P8 per month. We think that the facts above
stated are competent evidence; and the conclusion is inevitable that the accused is at least liable to
the extent of the minimum charge of P2 per month. The market value of the property at the time and
place of the theft is of court the proper value to be proven (17 R.C.L., p. 66); and when it is found
that the least amount that a consumer can take costs P2 per months, this affords proof that the
amount which the accused took was certainly worth that much. Absolute certainty as to the full
amount taken is of course impossible, because no meter wad used; but absolute certainty upon this
point is not necessary, when it is certain that the minimum that could have been taken was worth a
determinable amount.

It appears that before the present prosecution was instituted, the accused had been unsuccessfully
prosecuted for an infraction of section 504 of the Revised Ordinances of the city of Manila, under a
complaint charging that the accused, not being a registered installer of gas equipment had placed a
gas installation in the house at No. 443, Calle Evangelista. Upon this it is argued for the accused
that, having been acquitted of that charge, he is not now subject to prosecution for the offense of
theft, having been acquitted of the former charge. The contention is evidently not well-founded, since
the two offenses are of totally distinct nature. Furthermore, a prosecution for violation of a city
ordinance is not ordinarily a bar to a subsequent prosecution for the same offense under the general
law of the land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)
The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518 of
the Penal Code, for the gas taken in the course of two months a the rate of P2 per month. There
being no aggravating or attenuating circumstance to be estimated, it results that the proper penalty
is two months and one day of arresto mayor, as fixed by the trial court. The judgment will therefore
be affirmed, with costs against the appellant, it being understood that the amount of the indemnity
which the accused shall pay to the gas company is P4, instead of P2, with subsidiary imprisonment
for one day in case of insolvency. So ordered.
G.R. No. 18520           September 26, 1922

INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, appellee, 

vs.
ILDEFONSO RAMIREZ, creditor and appellant. 
WILLIAM EDMONDS, assignee.

Lim & Lim for appellant.

Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity & Surety Co.

ROMUALDEZ, J.:

The question at issue in this appeal is, which of the two mortgages here in question must be given
preference? Is it the one in favor of the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez.
The first was declared by the trial court to be entitled to preference.

In the lower court there were three mortgagees each of whom claimed preference. They were the
two above mentioned and Concepcion Ayala. The latter's claim was rejected by the trial court, and
from that ruling she did not appeal.

There is no question as to the priority in time of the mortgage in favor of the Fidelity & Surety Co.
which was executed on March 10, 1919, and registered in due time in the registry of property, that in
favor of the appellant being dated September 22, 1919, and registered also in the registry.

The appellant claims preference on these grounds: (a) That the first mortgage above-mentioned is
not valid because the property which is the subject-matter thereof is not capable of being mortgaged,
and the description of said property is not sufficient; and (b) that the amount due the appellant is a
purchase price, citing article 1922 of the Civil Code in support thereof, and that his mortgage is but a
modification of the security given by the debtor on February 15, 1919, that is, prior to the mortgage
executed in favor of the Fidelity & Surety Co.

As to the first ground, the thing that was mortgaged to this corporation is described in the document
as follows:

. . . his half interest in the drug business known as Antigua Botica Ramirez (owned by Srta.
Dolores del Rosario and the mortgagor herein referred to as the partnership), located at
Calle Real Nos. 123 and 125, District of Intramuros, Manila, Philippine Islands.

With regard to the nature of the property thus mortgaged, which is one-half interest in the business
above described, such interest is a personal property capable of appropriation and not included in
the enumeration of real properties in article 335 of the Civil Code, and may be the subject of
mortgage. All personal property may be mortgaged. (Sec. 2, Act No. 1508.)

The description contained in the document is sufficient. The law (sec. 7, Act No. 1508) requires only
a description of the following nature:

The description of the mortgaged property shall be such as to enable the parties to the
mortgage, or any other person, after reasonable inquiry and investigation, to identify the
same.
Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the Civil Code invoked
by the appellant are not applicable. Neither he, as debtor, nor the debtor himself, is in possession of
the property mortgaged, which is, and since the registration of the mortgage has been, legally in
possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.)

In no way can the mortgage executed in favor of the appellant on September 22, 1919, be given
effect as of February 15, 1919, the date of the sale of the drug store in question. On the 15th of
February of that year, there was a stipulation about a persons security, but not a mortgage upon any
property, and much less upon the property in question.

Moreover, the appellant cannot deny the preferential character of the mortgage in favor of the
Fidelity & Surety Co. because in the very document executed in his favor it was stated that his
mortgage was a second mortgage, subordinate to the one made in favor of the Fidelity & Surety Co.

The judgment appealed from is affirmed with costs against the appellant. So ordered.
G.R. No. 155076             February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner, 

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, Branch
150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals (CA) in CA-
G.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar, Regional Trial Court
(RTC), Makati City, Branch 150, which denied the "Motion to Quash (With Motion to Defer
Arraignment)" in Criminal Case No. 99-2425 for theft.

Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative franchise to
render local and international telecommunication services under Republic Act No. 7082. 2 Under said
law, PLDT is authorized to establish, operate, manage, lease, maintain and purchase
telecommunication systems, including transmitting, receiving and switching stations, for both
domestic and international calls. For this purpose, it has installed an estimated 1.7 million telephone
lines nationwide. PLDT also offers other services as authorized by Certificates of Public
Convenience and Necessity (CPCN) duly issued by the National Telecommunications Commission
(NTC), and operates and maintains an International Gateway Facility (IGF). The PLDT network is
thus principally composed of the Public Switch Telephone Network (PSTN), telephone handsets
and/or telecommunications equipment used by its subscribers, the wires and cables linking said
telephone handsets and/or telecommunications equipment, antenna, the IGF, and other
telecommunications equipment which provide interconnections. 3  1avvphil.net

PLDT alleges that one of the alternative calling patterns that constitute network fraud and violate its
network integrity is that which is known as International Simple Resale (ISR). ISR is a method of
routing and completing international long distance calls using International Private Leased Lines
(IPL), cables, antenna or air wave or frequency, which connect directly to the local or domestic
exchange facilities of the terminating country (the country where the call is destined). The IPL is
linked to switching equipment which is connected to a PLDT telephone line/number. In the process,
the calls bypass the IGF found at the terminating country, or in some instances, even those from the
originating country.4

One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which sells "Bay
Super Orient Card" phone cards to people who call their friends and relatives in the Philippines. With
said card, one is entitled to a 27-minute call to the Philippines for about ¥37.03 per minute. After
dialing the ISR access number indicated in the phone card, the ISR operator requests the subscriber
to give the PIN number also indicated in the phone card. Once the caller’s identity (as purchaser of
the phone card) is confirmed, the ISR operator will then provide a Philippine local line to the
requesting caller via the IPL. According to PLDT, calls made through the IPL never pass the toll
center of IGF operators in the Philippines. Using the local line, the Baynet card user is able to place
a call to any point in the Philippines, provided the local line is National Direct Dial (NDD) capable. 5

PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its incoming
international long distance calls from Japan. The IPL is linked to switching equipment, which is then
connected to PLDT telephone lines/numbers and equipment, with Baynet as subscriber. Through the
use of the telephone lines and other auxiliary equipment, Baynet is able to connect an international
long distance call from Japan to any part of the Philippines, and make it appear as a call originating
from Metro Manila. Consequently, the operator of an ISR is able to evade payment of access,
termination or bypass charges and accounting rates, as well as compliance with the regulatory
requirements of the NTC. Thus, the ISR operator offers international telecommunication services at
a lower rate, to the damage and prejudice of legitimate operators like PLDT. 6

PLDT pointed out that Baynet utilized the following equipment for its ISR activities: lines, cables, and
antennas or equipment or device capable of transmitting air waves or frequency, such as an IPL and
telephone lines and equipment; computers or any equipment or device capable of accepting
information applying the prescribed process of the information and supplying the result of this
process; modems or any equipment or device that enables a data terminal equipment such as
computers to communicate with other data terminal equipment via a telephone line; multiplexers or
any equipment or device that enables two or more signals from different sources to pass through a
common cable or transmission line; switching equipment, or equipment or device capable of
connecting telephone lines; and software, diskettes, tapes or equipment or device used for recording
and storing information.7

PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls passing through
Baynet’s ISR network which bypass the IGF toll center, PLDT incurred an estimated monthly loss of
P10,185,325.96.9 Records at the Securities and Exchange Commission (SEC) also revealed that
Baynet was not authorized to provide international or domestic long distance telephone service in
the country. The following are its officers: Yuji Hijioka, a Japanese national (chairman of the board of
directors); Gina C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a
Filipino (board member and corporate secretary); Ricky Chan Pe, a Filipino (board member and
treasurer); and Yasushi Ueshima, also a Japanese national (board member).

Upon complaint of PLDT against Baynet for network fraud, and on the strength of two search
warrants10 issued by the RTC of Makati, Branch 147, National Bureau of Investigation (NBI) agents
searched its office at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City on November 8,
1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando J. Villegas were
arrested by NBI agents while in the act of manning the operations of Baynet. Seized in the premises
during the search were numerous equipment and devices used in its ISR activities, such as
multiplexers, modems, computer monitors, CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of accounts, parabolic antennae and
voltage regulators.

State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a Resolution 11 on
January 28, 2000, finding probable cause for theft under Article 308 of the Revised Penal Code and
Presidential Decree No. 40112against the respondents therein, including Laurel.

On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati City
charging Matsuura, Miyake, Lacson and Villegas with theft under Article 308 of the Revised Penal
Code. After conducting the requisite preliminary investigation, the State Prosecutor filed an
Amended Information impleading Laurel (a partner in the law firm of Ingles, Laurel, Salinas, and,
until November 19, 1999, a member of the board of directors and corporate secretary of Baynet),
and the other members of the board of directors of said corporation, namely, Yuji Hijioka, Yasushi
Ueshima, Mukaida, Lacson and Villegas, as accused for theft under Article 308 of the Revised Penal
Code. The inculpatory portion of the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City, and within the jurisdiction of this
Honorable Court, the accused, conspiring and confederating together and all of them mutually
helping and aiding one another, with intent to gain and without the knowledge and consent of the
Philippine Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously
take, steal and use the international long distance calls belonging to PLDT by conducting
International Simple Resale (ISR), which is a method of routing and completing international long
distance calls using lines, cables, antennae, and/or air wave frequency which connect directly to the
local or domestic exchange facilities of the country where the call is destined, effectively stealing this
business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the
damage and prejudice of PLDT, in the said amount.

CONTRARY TO LAW.13

Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the ground that the
factual allegations in the Amended Information do not constitute the felony of theft under Article 308
of the Revised Penal Code. He averred that the Revised Penal Code, or any other special penal law
for that matter, does not prohibit ISR operations. He claimed that telephone calls with the use of
PLDT telephone lines, whether domestic or international, belong to the persons making the call, not
to PLDT. He argued that the caller merely uses the facilities of PLDT, and what the latter owns are
the telecommunication infrastructures or facilities through which the call is made. He also asserted
that PLDT is compensated for the caller’s use of its facilities by way of rental; for an outgoing
overseas call, PLDT charges the caller per minute, based on the duration of the call. Thus, no
personal property was stolen from PLDT. According to Laurel, the P20,370,651.92 stated in the
Information, if anything, represents the rental for the use of PLDT facilities, and not the value of
anything owned by it. Finally, he averred that the allegations in the Amended Information are already
subsumed under the Information for violation of Presidential Decree (P.D.) No. 401 filed and pending
in the Metropolitan Trial Court of Makati City, docketed as Criminal Case No. 276766.

The prosecution, through private complainant PLDT, opposed the motion, 14 contending that the
movant unlawfully took personal property belonging to it, as follows: 1) intangible telephone services
that are being offered by PLDT and other telecommunication companies, i.e., the connection and
interconnection to their telephone lines/facilities; 2) the use of those facilities over a period of time;
and 3) the revenues derived in connection with the rendition of such services and the use of such
facilities.15

The prosecution asserted that the use of PLDT’s intangible telephone services/facilities allows
electronic voice signals to pass through the same, and ultimately to the called party’s number. It
averred that such service/facility is akin to electricity which, although an intangible property, may,
nevertheless, be appropriated and be the subject of theft. Such service over a period of time for a
consideration is the business that PLDT provides to its customers, which enables the latter to send
various messages to installed recipients. The service rendered by PLDT is akin to merchandise
which has specific value, and therefore, capable of appropriation by another, as in this case, through
the ISR operations conducted by the movant and his co-accused.

The prosecution further alleged that "international business calls and revenues constitute personal
property envisaged in Article 308 of the Revised Penal Code." Moreover, the intangible telephone
services/facilities belong to PLDT and not to the movant and the other accused, because they have
no telephone services and facilities of their own duly authorized by the NTC; thus, the taking by the
movant and his co-accused of PLDT services was with intent to gain and without the latter’s consent.

The prosecution pointed out that the accused, as well as the movant, were paid in exchange for their
illegal appropriation and use of PLDT’s telephone services and facilities; on the other hand, the
accused did not pay a single centavo for their illegal ISR operations. Thus, the acts of the accused
were akin to the use of a "jumper" by a consumer to deflect the current from the house electric
meter, thereby enabling one to steal electricity. The prosecution emphasized that its position is
fortified by the Resolutions of the Department of Justice in PLDT v. Tiongson, et al. (I.S. No. 97-
0925) and in PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which were issued on
August 14, 2000 finding probable cause for theft against the respondents therein.

On September 14, 2001, the RTC issued an Order 16 denying the Motion to Quash the Amended
Information. The court declared that, although there is no law that expressly prohibits the use of ISR,
the facts alleged in the Amended Information "will show how the alleged crime was committed by
conducting ISR," to the damage and prejudice of PLDT.

Laurel filed a Motion for Reconsideration17 of the Order, alleging that international long distance calls
are not personal property, and are not capable of appropriation. He maintained that business or
revenue is not considered personal property, and that the prosecution failed to adduce proof of its
existence and the subsequent loss of personal property belonging to another. Citing the ruling of the
Court in United States v. De Guzman,18 Laurel averred that the case is not one with telephone calls
which originate with a particular caller and terminates with the called party. He insisted that
telephone calls are considered privileged communications under the Constitution and cannot be
considered as "the property of PLDT." He further argued that there is no kinship between telephone
calls and electricity or gas, as the latter are forms of energy which are generated and consumable,
and may be considered as personal property because of such characteristic. On the other hand, the
movant argued, the telephone business is not a form of energy but is an activity.

In its Order19 dated December 11, 2001, the RTC denied the movant’s Motion for Reconsideration.
This time, it ruled that what was stolen from PLDT was its "business" because, as alleged in the
Amended Information, the international long distance calls made through the facilities of PLDT
formed part of its business. The RTC noted that the movant was charged with stealing the business
of PLDT. To support its ruling, it cited Strochecker v. Ramirez, 20where the Court ruled that interest in
business is personal property capable of appropriation. It further declared that, through their ISR
operations, the movant and his co-accused deprived PLDT of fees for international long distance
calls, and that the ISR used by the movant and his co-accused was no different from the "jumper"
used for stealing electricity.

Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He alleged that
the respondent judge gravely abused his discretion in denying his Motion to Quash the Amended
Information.21 As gleaned from the material averments of the amended information, he was charged
with stealing the international long distance calls belonging to PLDT, not its business. Moreover, the
RTC failed to distinguish between the business of PLDT (providing services for international long
distance calls) and the revenues derived therefrom. He opined that a "business" or its revenues
cannot be considered as personal property under Article 308 of the Revised Penal Code, since a
"business" is "(1) a commercial or mercantile activity customarily engaged in as a means of
livelihood and typically involving some independence of judgment and power of decision; (2) a
commercial or industrial enterprise; and (3) refers to transactions, dealings or intercourse of any
nature." On the other hand, the term "revenue" is defined as "the income that comes back from an
investment (as in real or personal property); the annual or periodical rents, profits, interests, or
issues of any species of real or personal property." 22

Laurel further posited that an electric company’s business is the production and distribution of
electricity; a gas company’s business is the production and/or distribution of gas (as fuel); while a
water company’s business is the production and distribution of potable water. He argued that the
"business" in all these cases is the commercial activity, while the goods and merchandise are the
products of such activity. Thus, in prosecutions for theft of certain forms of energy, it is the electricity
or gas which is alleged to be stolen and not the "business" of providing electricity or gas. However,
since a telephone company does not produce any energy, goods or merchandise and merely
renders a service or, in the words of PLDT, "the connection and interconnection to their telephone
lines/facilities," such service cannot be the subject of theft as defined in Article 308 of the Revised
Penal Code.23

He further declared that to categorize "business" as personal property under Article 308 of the
Revised Penal Code would lead to absurd consequences; in prosecutions for theft of gas, electricity
or water, it would then be permissible to allege in the Information that it is the gas business, the
electric business or the water business which has been stolen, and no longer the merchandise
produced by such enterprise. 24

Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza, 25 where it was
ruled that the Revised Penal Code, legislated as it was before present technological advances were
even conceived, is not adequate to address the novel means of "stealing" airwaves or airtime. In
said resolution, it was noted that the inadequacy prompted the filing of Senate Bill 2379 (sic) entitled
"The Anti-Telecommunications Fraud of 1997" to deter cloning of cellular phones and other forms of
communications fraud. The said bill "aims to protect in number (ESN) (sic) or Capcode, mobile
identification number (MIN), electronic-international mobile equipment identity (EMEI/IMEI), or
subscriber identity module" and "any attempt to duplicate the data on another cellular phone without
the consent of a public telecommunications entity would be punishable by law." 26 Thus, Laurel
concluded, "there is no crime if there is no law punishing the crime."

On August 30, 2002, the CA rendered judgment dismissing the petition. 27 The appellate court ruled
that a petition for certiorari under Rule 65 of the Rules of Court was not the proper remedy of the
petitioner. On the merits of the petition, it held that while business is generally an activity

which is abstract and intangible in form, it is nevertheless considered "property" under Article 308 of
the Revised Penal Code. The CA opined that PLDT’s business of providing international calls is
personal property which may be the object of theft, and cited United States v. Carlos 28 to support
such conclusion. The tribunal also cited Strochecker v. Ramirez, 29 where this Court ruled that one-
half interest in a day’s business is personal property under Section 2 of Act No. 3952, otherwise
known as the Bulk Sales Law. The appellate court held that the operations of the ISR are not
subsumed in the charge for violation of P.D. No. 401.

Laurel, now the petitioner, assails the decision of the CA, contending that -

THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY

ALLEGEDLY STOLEN PER THE INFORMATION IS NOT THE "INTERNATIONAL LONG
DISTANCE CALLS" BUT THE "BUSINESS OF PLDT."

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS

PERSONAL PROPERTY WITHIN THE MEANING OF ART. 308 OF THE REVISED PENAL
CODE.30

Petitioner avers that the petition for a writ of certiorari may be filed to nullify an interlocutory order of
the trial court which was issued with grave abuse of discretion amounting to excess or lack of
jurisdiction. In support of his petition before the Court, he reiterates the arguments in his pleadings
filed before the CA. He further claims that while the right to carry on a business or an interest or
participation in business is considered property under the New Civil Code, the term "business,"
however, is not. He asserts that the Philippine Legislature, which approved the Revised Penal Code
way back in January 1, 1932, could not have contemplated to include international long distance
calls and "business" as personal property under Article 308 thereof.

In its comment on the petition, the Office of the Solicitor General (OSG) maintains that the amended
information clearly states all the essential elements of the crime of theft. Petitioner’s interpretation as
to whether an "international long distance call" is personal property under the law is inconsequential,
as a reading of the amended information readily reveals that specific acts and circumstances were
alleged charging Baynet, through its officers, including petitioner, of feloniously taking, stealing and
illegally using international long distance calls belonging to respondent PLDT by conducting ISR
operations, thus, "routing and completing international long distance calls using lines, cables,
antenna and/or airwave frequency which connect directly to the local or domestic exchange facilities
of the country where the call is destined." The OSG maintains that the international long distance
calls alleged in the amended information should be construed to mean "business" of PLDT, which,
while abstract and intangible in form, is personal property susceptible of appropriation. 31 The OSG
avers that what was stolen by petitioner and his co-accused is the business of PLDT providing
international long distance calls which, though intangible, is personal property of the PLDT. 32

For its part, respondent PLDT asserts that personal property under Article 308 of the Revised Penal
Code comprehends intangible property such as electricity and gas which are valuable articles for
merchandise, brought and sold like other personal property, and are capable of appropriation. It
insists that the business of international calls and revenues constitute personal property because the
same are valuable articles of merchandise. The respondent reiterates that international calls involve
(a) the intangible telephone services that are being offered by it, that is, the connection and
interconnection to the telephone network, lines or facilities; (b) the use of its telephone network, lines
or facilities over a period of time; and (c) the income derived in connection therewith. 33

PLDT further posits that business revenues or the income derived in connection with the rendition of
such services and the use of its telephone network, lines or facilities are personal properties under
Article 308 of the Revised Penal Code; so is the use of said telephone services/telephone network,
lines or facilities which allow electronic voice signals to pass through the same and ultimately to the
called party’s number. It is akin to electricity which, though intangible property, may nevertheless be
appropriated and can be the object of theft. The use of respondent PLDT’s telephone network, lines,
or facilities over a period of time for consideration is the business that it provides to its customers,
which enables the latter to send various messages to intended recipients. Such use over a period of
time is akin to merchandise which has value and, therefore, can be appropriated by another.
According to respondent PLDT, this is what actually happened when petitioner Laurel and the other
accused below conducted illegal ISR operations. 34

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for certiorari is the proper
remedy of the petitioner in the Court of Appeals; (b) whether or not international telephone calls
using Bay Super Orient Cards through the telecommunication services provided by PLDT for such
calls, or, in short, PLDT’s business of providing said telecommunication services, are proper
subjects of theft under Article 308 of the Revised Penal Code; and (c) whether or not the trial court
committed grave abuse of discretion amounting to excess or lack of jurisdiction in denying the
motion of the petitioner to quash the amended information.

On the issue of whether or not the petition for certiorari instituted by the petitioner in the CA is
proper, the general rule is that a petition for certiorari under Rule 65 of the Rules of Court, as
amended, to nullify an order denying a motion to quash the Information is inappropriate because the
aggrieved party has a remedy of appeal in the ordinary course of law. Appeal and certiorari are
mutually exclusive of each other. The remedy of the aggrieved party is to continue with the case in
due course and, when an unfavorable judgment is rendered, assail the order and the decision on
appeal. However, if the trial court issues the order denying the motion to quash the Amended
Information with grave abuse of discretion amounting to excess or lack of jurisdiction, or if such order
is patently erroneous, or null and void for being contrary to the Constitution, and the remedy of
appeal would not afford adequate and expeditious relief, the accused may resort to the extraordinary
remedy of certiorari.35 A special civil action for certiorari is also available where there are special
circumstances clearly demonstrating the inadequacy of an appeal. As this Court held in Bristol
Myers Squibb (Phils.), Inc. v. Viloria: 36

Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where, despite
availability of appeal after trial, there is at least a prima facie showing on the face of the petition and
its annexes that: (a) the trial court issued the order with grave abuse of discretion amounting to lack
of or in excess of jurisdiction; (b) appeal would not prove to be a speedy and adequate remedy; (c)
where the order is a patent nullity; (d) the decision in the present case will arrest future litigations;
and (e) for certain considerations such as public welfare and public policy. 37

In his petition for certiorari in the CA, petitioner averred that the trial court committed grave abuse of
its discretion amounting to excess or lack of jurisdiction when it denied his motion to quash the
Amended Information despite his claim that the material allegations in the Amended Information do
not charge theft under Article 308 of the Revised Penal Code, or any offense for that matter. By so
doing, the trial court deprived him of his constitutional right to be informed of the nature of the charge
against him. He further averred that the order of the trial court is contrary to the constitution and is,
thus, null and void. He insists that he should not be compelled to undergo the rigors and tribulations
of a protracted trial and incur expenses to defend himself against a non-existent charge.

Petitioner is correct.

An information or complaint must state explicitly and directly every act or omission constituting an
offense38 and must allege facts establishing conduct that a penal statute makes criminal; 39 and
describes the property which is the subject of theft to advise the accused with reasonable certainty
of the accusation he is called upon to meet at the trial and to enable him to rely on the judgment
thereunder of a subsequent prosecution for the same offense. 40 It must show, on its face, that if the
alleged facts are true, an offense has been committed. The rule is rooted on the constitutional right
of the accused to be informed of the nature of the crime or cause of the accusation against him. He
cannot be convicted of an offense even if proven unless it is alleged or necessarily included in the
Information filed against him.

As a general prerequisite, a motion to quash on the ground that the Information does not constitute
the offense charged, or any offense for that matter, should be resolved on the basis of said
allegations whose truth and veracity are hypothetically committed; 41 and on additional facts admitted
or not denied by the prosecution.42 If the facts alleged in the Information do not constitute an offense,
the complaint or information should be quashed by the court. 43

We have reviewed the Amended Information and find that, as mentioned by the petitioner, it does
not contain material allegations charging the petitioner of theft of personal property under Article 308
of the Revised Penal Code. It, thus, behooved the trial court to quash the Amended Information. The
Order of the trial court denying the motion of the petitioner to quash the Amended Information is a
patent nullity.

On the second issue, we find and so hold that the international telephone calls placed by Bay Super
Orient Card holders, the telecommunication services provided by PLDT and its business of providing
said services are not personal properties under Article 308 of the Revised Penal Code. The
construction by the respondents of Article 308 of the said Code to include, within its coverage, the
aforesaid international telephone calls, telecommunication services and business is contrary to the
letter and intent of the law.

The rule is that, penal laws are to be construed strictly. Such rule is founded on the tenderness of
the law for the rights of individuals and on the plain principle that the power of punishment is vested
in Congress, not in the judicial department. It is Congress, not the Court, which is to define a crime,
and ordain its punishment.44 Due respect for the prerogative of Congress in defining crimes/felonies
constrains the Court to refrain from a broad interpretation of penal laws where a "narrow
interpretation" is appropriate. The Court must take heed to language, legislative history and purpose,
in order to strictly determine the wrath and breath of the conduct the law forbids. 45 However, when
the congressional purpose is unclear, the court must apply the rule of lenity, that is, ambiguity
concerning the ambit of criminal statutes should be resolved in favor of lenity. 46

Penal statutes may not be enlarged by implication or intent beyond the fair meaning of the language
used; and may not be held to include offenses other than those which are clearly described,
notwithstanding that the Court may think that Congress should have made them more
comprehensive.47 Words and phrases in a statute are to be construed according to their common
meaning and accepted usage.

As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the principle that a
case which is within the reason or

mischief of a statute is within its provision, so far as to punish a crime not enumerated in the statute
because it is of equal atrocity, or of kindred character with those which are enumerated. 48 When
interpreting a criminal statute that does not explicitly reach the conduct in question, the Court should
not base an expansive reading on inferences from subjective and variable understanding. 49

Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft.– Theft is committed by any person who, with intent to gain but
without violence, against or intimidation of persons nor force upon things, shall take personal
property of another without the latter’s consent.

The provision was taken from Article 530 of the Spanish Penal Code which reads:

1. Los que con ánimo de lucrarse, y sin violencia o intimidación en las personas ni fuerza en las
cosas, toman las cosas muebles ajenas sin la voluntad de su dueño. 50

For one to be guilty of theft, the accused must have an intent to steal (animus furandi) personal
property, meaning the intent to deprive another of his ownership/lawful possession of personal
property which intent is apart from and concurrently with the general criminal intent which is an
essential element of a felony of dolo (dolus malus).

An information or complaint for simple theft must allege the following elements: (a) the taking of
personal property; (b) the said property belongs to another; (c) the taking be done with intent to gain;
and (d) the taking be accomplished without the use of violence or intimidation of person/s or force
upon things.51
One is apt to conclude that "personal property" standing alone, covers both tangible and intangible
properties and are subject of theft under the Revised Penal Code. But the words "Personal property"
under the Revised Penal Code must be considered in tandem with the word "take" in the law. The
statutory definition of "taking" and movable property indicates that, clearly, not all personal properties
may be the proper subjects of theft. The general rule is that, only movable properties which have
physical or material existence and susceptible of occupation by another are proper objects of
theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal, material,
susceptible de ser aprehendida que tenga un valor cualquiera." 53

According to Cuello Callon, in the context of the Penal Code, only those movable properties which
can be taken and carried from the place they are found are proper subjects of theft. Intangible
properties such as rights and ideas are not subject of theft because the same cannot be "taken" from
the place it is found and is occupied or appropriated.

Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustracción de cosas
inmuebles y la cosas incorporales (v. gr., los derechos, las ideas) no puede integrar este delito,
pues no es posible asirlas, tomarlas, para conseguir su apropiación. El Codigo emplea la expresión
"cosas mueble" en el sentido de cosa que es susceptible de ser llevada del lugar donde se
encuentra, como dinero, joyas, ropas, etcétera, asi que su concepto no coincide por completo con el
formulado por el Codigo civil (arts. 335 y 336). 54

Thus, movable properties under Article 308 of the Revised Penal Code should be distinguished from
the rights or interests to which they relate. A naked right existing merely in contemplation of law,
although it may be very valuable to the person who is entitled to exercise it, is not the subject of theft
or larceny.55 Such rights or interests are intangible and cannot be "taken" by another. Thus, right to
produce oil, good will or an interest in business, or the right to engage in business, credit or
franchise are properties. So is the credit line represented by a credit card. However, they are not
proper subjects of theft or larceny because they are without form or substance, the mere "breath" of
the Congress. On the other hand, goods, wares and merchandise of businessmen and credit cards
issued to them are movable properties with physical and material existence and may be taken by
another; hence, proper subjects of theft.

There is "taking" of personal property, and theft is consummated when the offender unlawfully
acquires possession of personal property even if for a short time; or if such property is under the
dominion and control of the thief. The taker, at some particular amount, must have obtained
complete and absolute possession and control of the property adverse to the rights of the owner or
the lawful possessor thereof.56 It is not necessary that the property be actually carried away out of
the physical possession of the lawful possessor or that he should have made his escape with
it.57 Neither asportation nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough. 58

The essence of the element is the taking of a thing out of the possession of the owner without his
privity and consent and without animus revertendi. 59

Taking may be by the offender’s own hands, by his use of innocent persons without any felonious
intent, as well as any mechanical device, such as an access device or card, or any agency, animate
or inanimate, with intent to gain. Intent to gain includes the unlawful taking of personal property for
the purpose of deriving utility, satisfaction, enjoyment and pleasure. 60

We agree with the contention of the respondents that intangible properties such as electrical energy
and gas are proper subjects of theft. The reason for this is that, as explained by this Court in United
States v. Carlos61 and United States v. Tambunting, 62 based on decisions of the Supreme Court of
Spain and of the courts in England and the United States of America, gas or electricity are capable
of appropriation by another other than the owner. Gas and electrical energy may be taken, carried
away and appropriated. In People v. Menagas,63 the Illinois State Supreme Court declared that
electricity, like gas, may be seen and felt. Electricity, the same as gas, is a valuable article of
merchandise, bought and sold like other personal property and is capable of appropriation by
another. It is a valuable article of merchandise, bought and sold like other personal property,
susceptible of being severed from a mass or larger quantity and of being transported from place to
place. Electrical energy may, likewise, be taken and carried away. It is a valuable commodity, bought
and sold like other personal property. It may be transported from place to place. There is nothing in
the nature of gas used for illuminating purposes which renders it incapable of being feloniously taken
and carried away.

In People ex rel Brush Electric Illuminating Co. v. Wemple, 64 the Court of Appeals of New York held
that electric energy is manufactured and sold in determinate quantities at a fixed price, precisely as
are coal, kerosene oil, and gas. It may be conveyed to the premises of the consumer, stored in cells
of different capacity known as an accumulator; or it may be sent through a wire, just as gas or oil
may be transported either in a close tank or forced through a pipe. Having reached the premises of
the consumer, it may be used in any way he may desire, being, like illuminating gas, capable of
being transformed either into heat, light, or power, at the option of the purchaser. In Woods v.
People,65 the Supreme Court of Illinois declared that there is nothing in the nature of gas used for
illuminating purposes which renders it incapable of being feloniously taken and carried away. It is a
valuable article of merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity and of being transported from place to place.

Gas and electrical energy should not be equated with business or services provided by business
entrepreneurs to the public. Business does not have an exact definition. Business is referred as that
which occupies the time, attention and labor of men for the purpose of livelihood or profit. It
embraces everything that which a person can be employed. 66 Business may also mean employment,
occupation or profession. Business is also defined as a commercial activity for gain benefit or
advantage.67 Business, like services in business, although are properties, are not proper subjects of
theft under the Revised Penal Code because the same cannot be "taken" or "occupied." If it were
otherwise, as claimed by the respondents, there would be no juridical difference between the taking
of the business of a person or the services provided by him for gain, vis-à-vis, the taking of goods,
wares or merchandise, or equipment comprising his business.68 If it was its intention to include
"business" as personal property under Article 308 of the Revised Penal Code, the Philippine
Legislature should have spoken in language that is clear and definite: that business is personal
property under Article 308 of the Revised Penal Code. 69

We agree with the contention of the petitioner that, as gleaned from the material averments of the
Amended Information, he is charged of "stealing the international long distance calls belonging to
PLDT" and the use thereof, through the ISR. Contrary to the claims of the OSG and respondent
PLDT, the petitioner is not charged of stealing P20,370,651.95 from said respondent. Said amount
of P20,370,651.95 alleged in the Amended Information is the aggregate amount of access,
transmission or termination charges which the PLDT expected from the international long distance
calls of the callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.

In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property
without the consent of the owner thereof, the Philippine legislature could not have contemplated the
human voice which is converted into electronic impulses or electrical current which are transmitted to
the party called through the PSTN of respondent PLDT and the ISR of Baynet Card Ltd. within its
coverage. When the Revised Penal Code was approved, on December 8, 1930, international
telephone calls and the transmission and routing of electronic voice signals or impulses emanating
from said calls, through the PSTN, IPL and ISR, were still non-existent. Case law is that, where a
legislative history fails to evidence congressional awareness of the scope of the statute claimed by
the respondents, a narrow interpretation of the law is more consistent with the usual approach to the
construction of the statute. Penal responsibility cannot be extended beyond the fair scope of the
statutory mandate.70

Respondent PLDT does not acquire possession, much less, ownership of the voices of the
telephone callers or of the electronic voice signals or current emanating from said calls. The human
voice and the electronic voice signals or current caused thereby are intangible and not susceptible of
possession, occupation or appropriation by the respondent PLDT or even the petitioner, for that
matter. PLDT merely transmits the electronic voice signals through its facilities and equipment.
Baynet Card Ltd., through its operator, merely intercepts, reroutes the calls and passes them to its
toll center. Indeed, the parties called receive the telephone calls from Japan.

In this modern age of technology, telecommunications systems have become so tightly merged with
computer systems that it is difficult to know where one starts and the other finishes. The telephone
set is highly computerized and allows computers to communicate across long distances. 71 The
instrumentality at issue in this case is not merely a telephone but a telephone inexplicably linked to a
computerized communications system with the use of Baynet Cards sold by the Baynet Card Ltd.
The corporation uses computers, modems and software, among others, for its ISR. 72

The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang term for the
action of making a telephone system to do something that it normally should not allow by "making
the phone company bend over and grab its ankles"). A "phreaker" is one who engages in the act of
manipulating phones and illegally markets telephone services.73 Unless the phone company replaces
all its hardware, phreaking would be impossible to stop. The phone companies in North America
were impelled to replace all their hardware and adopted full digital switching system known as the
Common Channel Inter Office Signaling. Phreaking occurred only during the 1960’s and 1970’s,
decades after the Revised Penal Code took effect.

The petitioner is not charged, under the Amended Information, for theft of telecommunication or
telephone services offered by PLDT. Even if he is, the term "personal property" under Article 308 of
the Revised Penal Code cannot be interpreted beyond its seams so as to include
"telecommunication or telephone services" or computer services for that matter. The word "service"
has a variety of meanings dependent upon the context, or the sense in which it is used; and, in some
instances, it may include a sale. For instance, the sale of food by restaurants is usually referred to as
"service," although an actual sale is involved. 74 It may also mean the duty or labor to be rendered by
one person to another; performance of labor for the benefit of another. 75 In the case of PLDT, it is to
render local and international telecommunications services and such other services as authorized by
the CPCA issued by the NTC. Even at common law, neither time nor services may be taken and
occupied or appropriated.76 A service is generally not considered property and a theft of service
would not, therefore, constitute theft since there can be no caption or asportation. 77 Neither is the
unauthorized use of the equipment and facilities of PLDT by the petitioner theft under the
aforequoted provision of the Revised Penal Code. 78

If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of theft,
it should have incorporated the same in Article 308 of the Revised Penal Code. The Legislature did
not. In fact, the Revised Penal Code does not even contain a definition of services.

If taking of telecommunication services or the business of a person, is to be proscribed, it must be by

special statute79 or an amendment of the Revised Penal Code. Several states in the United States,
such as New York, New Jersey, California and Virginia, realized that their criminal statutes did not
contain any provisions penalizing the theft of services and passed laws defining and penalizing theft
of telephone and computer services. The Pennsylvania Criminal Statute now penalizes theft of
services, thus:

(a) Acquisition of services. --

(1) A person is guilty of theft if he intentionally obtains services for himself or for another which he
knows are available only for compensation, by deception or threat, by altering or tampering with the
public utility meter or measuring device by which such services are delivered or by causing or
permitting such altering or tampering, by making or maintaining any unauthorized connection,
whether physically, electrically or inductively, to a distribution or transmission line, by attaching or
maintaining the attachment of any unauthorized device to any cable, wire or other component of an
electric, telephone or cable television system or to a television receiving set connected to a cable
television system, by making or maintaining any unauthorized modification or alteration to any
device installed by a cable television system, or by false token or other trick or artifice to avoid
payment for the service.

In the State of Illinois in the United States of America, theft of labor or services or use of property is
penalized:

(a) A person commits theft when he obtains the temporary use of property, labor or services of
another which are available only for hire, by means of threat or deception or knowing that such use
is without the consent of the person providing the property, labor or services.

In 1980, the drafters of the Model Penal Code in the United States of America arrived at the
conclusion that labor and services, including professional services, have not been included within
the traditional scope of the term "property" in ordinary theft statutes. Hence, they decided to
incorporate in the Code Section 223.7, which defines and penalizes theft of services, thus:

(1) A person is guilty of theft if he purposely obtains services which he knows are available only for
compensation, by deception or threat, or by false token or other means to avoid payment for the
service. "Services" include labor, professional service, transportation, telephone or other public
service, accommodation in hotels, restaurants or elsewhere, admission to exhibitions, use of
vehicles or other movable property. Where compensation for service is ordinarily paid immediately
upon the rendering of such service, as in the case of hotels and restaurants, refusal to pay or
absconding without payment or offer to pay gives rise to a presumption that the service was
obtained by deception as to intention to pay; (2) A person commits theft if, having control over the
disposition of services of others, to which he is not entitled, he knowingly diverts such services to his
own benefit or to the benefit of another not entitled thereto.

Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund v.
Commonwealth,80declaring that neither time nor services may be taken and carried away and are not
proper subjects of larceny, the General Assembly of Virginia enacted Code No. 18-2-98 which reads:

Computer time or services or data processing services or information or data stored in connection
therewith is hereby defined to be property which may be the subject of larceny under § § 18.2-95 or
18.2-96, or embezzlement under § 18.2-111, or false pretenses under § 18.2-178.

In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975 penalizes
theft of services:
"A person commits the crime of theft of services if: (a) He intentionally obtains services known by
him to be available only for compensation by deception, threat, false token or other means to avoid
payment for the services …"

In the Philippines, Congress has not amended the Revised Penal Code to include theft of services or
theft of business as felonies. Instead, it approved a law, Republic Act No. 8484, otherwise known as
the Access Devices Regulation Act of 1998, on February 11, 1998. Under the law, an access device
means any card, plate, code, account number, electronic serial number, personal identification
number and other telecommunication services, equipment or instrumentalities-identifier or other
means of account access that can be used to obtain money, goods, services or any other thing of
value or to initiate a transfer of funds other than a transfer originated solely by paper instrument.
Among the prohibited acts enumerated in Section 9 of the law are the acts of obtaining money or
anything of value through the use of an access device, with intent to defraud or intent to gain and
fleeing thereafter; and of effecting transactions with one or more access devices issued to another
person or persons to receive payment or any other thing of value. Under Section 11 of the law,
conspiracy to commit access devices fraud is a crime. However, the petitioner is not charged of
violation of R.A. 8484.

Significantly, a prosecution under the law shall be without prejudice to any liability for violation of any
provisions of the Revised Penal Code inclusive of theft under Rule 308 of the Revised Penal Code
and estafa under Article 315 of the Revised Penal Code. Thus, if an individual steals a credit card
and uses the same to obtain services, he is liable of the following: theft of the credit card under
Article 308 of the Revised Penal Code; violation of Republic Act No. 8484; and estafa under Article
315(2)(a) of the Revised Penal Code with the service provider as the private complainant. The
petitioner is not charged of estafa before the RTC in the Amended Information.

Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:

Sec. 33. Penalties.— The following Acts shall be penalized by fine and/or imprisonment, as follows:

a) Hacking or cracking which refers to unauthorized access into or interference in a computer

system/server or information and communication system; or any access in order to corrupt, alter,
steal, or destroy using a computer or other similar information and communication devices, without
the knowledge and consent of the owner of the computer or information and communications
system, including the introduction of computer viruses and the like, resulting on the corruption,
destruction, alteration, theft or loss of electronic data messages or electronic documents shall be
punished by a minimum fine of One hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3)
years.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the
Regional Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The
Regional Trial Court is directed to issue an order granting the motion of the petitioner to quash the
Amended Information.

SO ORDERED.