G.R. Nos. L-10817-18 February 28, 1958
O-391 was
ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE,
INC., respondents.
Enrique Lopez is a resident of Balayan, Batangas,
doing business under the trade name of Lopez-
Castelo Sawmill. Sometime in May, 1946, Vicente
Orosa, Jr., also a resident of the same province,
dropped at Lopez' house and invited him to make
an investment in the theatre business. It was
intimated that Orosa, his family and close friends
were organizing a corporation to be known as
Plaza Theatre, Inc., that would engage in such
venture. Although Lopez expressed his
unwillingness to invest of the same, he agreed to
supply the lumber necessary for the construction of
the proposed theatre, and at Orosa's behest and
assurance that the latter would be personally liable
for any account that the said construction might
incur, Lopez further agreed that payment therefor
would be on demand and not cash on delivery
basis. Pursuant to said verbal agreement, Lopez
delivered the lumber which was used for the
construction of the Plaza Theatre on May 17, 1946,
up to December 4 of the same year. But of the total
cost of the materials amounting to P62,255.85,
Lopez was paid only P20,848.50, thus leaving a
balance of P41,771.35.
We may state at this juncture that the Plaza
Theatre was erected on a piece of land with an
area of 679.17 square meters formerly owned by
Vicente Orosa, Jr., and was acquired by the
corporation on September 25, 1946, for P6,000. As
Lopez was pressing Orosa for payment of the
remaining unpaid obligation, the latter and
Belarmino Rustia, the president of the corporation,
promised to obtain a bank loan by mortgaging the
properties of the Plaza Theatre., out of which said
amount of P41,771.35 would be satisfied, to which
assurance Lopez had to accede. Unknown to him,
however, as early as November, 1946, the
corporation already got a loan for P30,000 from the
Philippine National Bank with the Luzon Surety
Company as surety, and the corporation in turn
executed a mortgage on the land and building in
favor of said company as counter-security. As the
land at that time was not yet brought under the
operation of the Torrens System, the mortgage on
the same was registered on November 16, 1946,
under Act No. 3344. Subsequently, when the
corporation applied for the registration of the land
under Act 496, such mortgage was not revealed
and thus Original Certificate of Title No.
correspondingly issued on October 25, 1947,
without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of
the amount due him caused Vicente Orosa, Jr. to
execute on March 17, 1947, an alleged "deed of
assignment" of his 420 shares of stock of the Plaza
Theater, Inc., at P100 per share or with a total
value of P42,000 in favor of the creditor, and as the
obligation still remained unsettled, Lopez filed on
November 12, 1947, a complaint with the Court of
First Instance of Batangas (Civil Case No. 4501
which later became R-57) against Vicente Orosa,
Jr. and Plaza Theater, Inc., praying that defendants
be sentenced to pay him jointly and severally the
sum of P41,771.35, with legal interest from the
firing of the action; that in case defendants fail to
pay the same, that the building and the land
covered by OCT No. O-391 owned by the
corporation be sold at public auction and the
proceeds thereof be applied to said indebtedness;
or that the 420 shares of the capital stock of the
Plaza Theatre, Inc., assigned by Vicente Orosa, Jr.,
to said plaintiff be sold at public auction for the
same purpose; and for such other remedies as may
be warranted by the circumstances. Plaintiff also
caused the annotation of a notice of lis pendens on
said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre,
Inc., filed separate answers, the first denying that
the materials were delivered to him as a promoter
and later treasurer of the corporation, because he
had purchased and received the same on his
personal account; that the land on which the movie
house was constructed was not charged with a lien
to secure the payment of the aforementioned
unpaid obligation; and that the 420 shares of stock
of the Plaza Theatre, Inc., was not assigned to
plaintiff as collaterals but as direct security for the
payment of his indebtedness. As special defense,
this defendant contended that as the 420 shares of
stock assigned and conveyed by the assignor and
accepted by Lopez as direct security for the
payment of the amount of P41,771.35 were
personal properties, plaintiff was barred from
recovering any deficiency if the proceeds of the
sale thereof at public auction would not be sufficient
to cover and satisfy the obligation. It was thus
prayed that he be declared exempted from the
payment of any deficiency in case the proceeds
from the sale of said personal properties would not
be enough to cover the amount sought to be
collected.
Defendant Plaza Theatre, Inc., on the other hand,
practically set up the same line of defense by
alleging that the building materials delivered to
Orosa were on the latter's personal account; and
that there was no understanding that said materials
would be paid jointly and severally by Orosa and
the corporation, nor was a lien charged on the
properties of the latter to secure payment of the
same obligation. As special defense, defendant
corporation averred that while it was true that the
materials purchased by Orosa were sold by the
latter to the corporation, such transactions were in
good faith and for valuable consideration thus when
plaintiff failed to claim said materials within 30 days
from the time of removal thereof from Orosa,
lumber became a different and distinct specie and
plaintiff lost whatever rights he might have in the
same and consequently had no recourse against
the Plaza Theatre, Inc., that the claim could not
have been refectionary credit, for such kind of
obligation referred to an indebtedness incurred in
the repair or reconstruction of something already
existing and this concept did not include an entirely
new work; and that the Plaza Theatre, Inc., having
been incorporated on October 14, 1946, it could not
have contracted any obligation prior to said date. It
was, therefore, prayed that the complaint be
dismissed; that said defendant be awarded the sum
P 5,000 for damages, and such other relief as may
be just and proper in the premises.
The surety company, in the meantime, upon
discovery that the land was already registered
under the Torrens System and that there was a
notice of lis pendens thereon, filed on August 17,
1948, or within the 1-year period after the issuance
of the certificate of title, a petition for review of the
decree of the land registration court dated October
18, 1947, which was made the basis of OCT No. O-
319, in order to annotate the rights and interests of
the surety company over said properties (Land
Registration Case No. 17 GLRO Rec. No. 296).
Opposition thereto was offered by Enrique Lopez,
asserting that the amount demanded by him
constituted a preferred lien over the properties of
the obligors; that the surety company was guilty of
negligence when it failed to present an opposition
to the application for registration of the property;
and that if any violation of the rights and interest of
said surety would ever be made, same must be
subject to the lien in his favor.
The two cases were heard jointly and in a decision
dated October 30, 1952, the lower Court, after
making an exhaustive and detailed analysis of the
respective stands of the parties and the evidence
adduced at the trial, held that defendants Vicente
Orosa, Jr., and the Plaza Theatre, Inc.,
were jointly liable for the unpaid balance of the cost
of lumber used in the construction of
the building and the plaintiff thus acquired the
materialman's lien over the same. In making the
pronouncement that the lien was merely confined to
the building and did not extend to the land on which
the construction was made, the trial judge took into
consideration the fact that when plaintiff started the
delivery of lumber in May, 1946, the land was not
yet owned by the corporation; that the mortgage in
favor of Luzon Surety Company was previously
registered under Act No. 3344; that the codal
provision (Art. 1923 of the old Spanish Civil Code)
specifying that refection credits are preferred could
refer only to buildings which are also classified as
real properties, upon which said refection was
made. It was, however, declared that plaintiff's lien
on the building was superior to the right of the
surety company. And finding that the Plaza
Theatre, Inc., had no objection to the review of the
decree issued in its favor by the land registration
court and the inclusion in the title of the
encumbrance in favor of the surety company, the
court a quo granted the petition filed by the latter
company. Defendants Orosa and the Plaza
Theatre, Inc., were thus required to pay jointly the
amount of P41,771.35 with legal interest and costs
within 90 days from notice of said decision; that in
case of default, the 420 shares of stock assigned
by Orosa to plaintiff be sold at public auction and
the proceeds thereof be applied to the payment of
the amount due the plaintiff, plus interest and costs;
and that the encumbrance in favor of the surety
company be endorsed at the back of OCT No. O-
391, with notation I that with respect to the building,
said mortgage was subject to the materialman's
lien in favor of Enrique Lopez.
Plaintiff tried to secure a modification of the
decision in so far as it declared that the obligation
of therein defendants was joint instead of solidary,
and that the lien did not extend to the land, but
same was denied by order the court of December
23, 1952. The matter was thus appealed to the
Court of appeals, which affirmed the lower court's
ruling, and then to this Tribunal. In this instance,
plaintiff-appellant raises 2 issues: (1) whether a
materialman's lien for the value of the materials
used in the construction of a building attaches to
said structure alone and does not extend to the
land on which the building is adhered to; and (2)
whether the lower court and the Court of Appeals
erred in not providing that the material mans liens is
superior to the mortgage executed in favor surety
company not only on the building but also on the
land.
It is to be noted in this appeal that Enrique Lopez
has not raised any question against the part of the
decision sentencing defendants Orosa and Plaza
Theatre, Inc., to pay jointly the sum of P41,771.35,
so We will not take up or consider anything on that
point. Appellant, however, contends that the lien
created in favor of the furnisher of the materials
used for the construction, repair or refection of a
building, is also extended to the land which the
construction was made, and in support thereof he
relies on Article 1923 of the Spanish Civil Code,
pertinent law on the matter, which reads as follows:
ART. 1923. With respect to determinate real
property and real rights of the debtor, the
following are preferred:
5. Credits for refection, not entered or
recorded, with respect to the estate upon
which the refection was made, and only with
respect to other credits different from those
mentioned in four preceding paragraphs.
It is argued that in view of the employment of the
phrase real estate, or immovable property, and
inasmuch as said provision does not contain any
specification delimiting the lien to the building, said
article must be construed as to embrace both the
land and the building or structure adhering thereto.
We cannot subscribe to this view, for while it is true
that generally, real estate connotes the land and
the building constructed thereon, it is obvious that
the inclusion of the building, separate and distinct
from the land, in the enumeration of what may
constitute real properties1 could mean only one
thing — that a building is by itself an immovable
property, a doctrine already pronounced by this
Court in the case of Leung Yee vs. Strong
Machinery Co., 37 Phil., 644. Moreover, and in view
of the absence of any specific provision of law to
the contrary, a building is an immovable property,
irrespective of whether or not said structure and the
land on which it is adhered to belong to the same
owner.
A close examination of the provision of the Civil
Code invoked by appellant reveals that the law
gives preference to unregistered refectionary
credits only with respect to the real estate upon
which the refection or work was made. This being
so, the inevitable conclusion must be that the lien
so created attaches merely to the immovable
property for the construction or repair of which the
obligation was incurred. Evidently, therefore, the
lien in favor of appellant for the unpaid value of the
lumber used in the construction of the building
attaches only to said structure and to no other
property of the obligors.
Considering the conclusion thus arrived at, i.e., that
the materialman's lien could be charged only to the
building for which the credit was made or which
received the benefit of refection, the lower court
was right in, holding at the interest of the
mortgagee over the land is superior and cannot be
made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing
considerations, the decision appealed from is
hereby affirmed, with costs against appellant. It is
so ordered.
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY
COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and
ASSOCIATED INSURANCE and SURETY
COMPANY. INC., defendants.
Adriano Valino and Lucia A. Valino, husband and
wife, were the owners and possessors of a house
of strong materials constructed on Lot No. 3, Block
No. 80 of the Grace Park Subdivision in Caloocan,
Rizal, which they purchased on installment basis
from the Philippine Realty Corporation. On
November 6, 1951, to enable her to purchase on
credit rice from the NARIC, Lucia A. Valino filed a
bond in the sum of P11,000.00 (AISCO Bond No.
G-971) subscribed by the Associated Insurance
and Surety Co., Inc., and as counter-guaranty
therefor, the spouses Valino executed an
alleged chattel mortgage on the aforementioned
house in favor of the surety company, which
encumbrance was duly registered with the Chattel
Mortgage Register of Rizal on December 6, 1951. It
is admitted that at the time said undertaking took
place, the parcel of land on which the house is
erected was still registered in the name of the
Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the
Valinos were able to secure on October 18, 1958, a
certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952,
the Valinos, to secure payment of an indebtedness
in the amount of P12,000.00, executed a real
estate mortgage over the lot and the house in favor
of Isabel Iya, which was duly registered and
annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to
satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant
to the undertaking of the bond. In turn, the surety
company demanded reimbursement from the
spouses Valino, and as the latter likewise failed to
do so, the company foreclosed the chattel
mortgage over the house. As a result thereof, a
public sale was conducted by the Provincial Sheriff
of Rizal on December 26, 1952, wherein the
property was awarded to the surety company for
P8,000.00, the highest bid received therefor. The
surety company then caused the said house to be
declared in its name for tax purposes (Tax
Declaration No. 25128).
Sometime in July, 1953, the surety company
learned of the existence of the real estate mortgage
over the lot covered by T.C.T. No. 26884 together
with the improvements thereon; thus, said surety
company instituted Civil Case No. 2162 of the
Court of First Instance of Manila naming Adriano
and Lucia Valino and Isabel Iya, the mortgagee, as
defendants. The complaint prayed for the exclusion
of the residential house from the real estate
mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to
ownership over the same in virtue of the award
given by the Provincial Sheriff of Rizal during the
public auction held on December 26, 1952. Plaintiff
likewise asked the Court to sentence the spouses
Valino to pay said surety moral and exemplary
damages, attorney's fees and costs. Defendant
Isabel Iya filed her answer to the complaint alleging
among other things, that in virtue of the real estate
mortgage executed by her co-defendants, she
acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly
conducted by the Provincial Sheriff of Rizal as a
result of the foreclosure of the chattel mortgage on
the house was null and void for non-compliance
with the form required by law. She, therefore,
prayed for the dismissal of the complaint and
anullment of the sale made by the Provincial
Sheriff. She also demanded the amount of
P5,000.00 from plaintiff as counterclaim, the sum of
P5,000.00 from her co-defendants as crossclaim,
for attorney's fees and costs.
Defendants spouses in their answer admitted some
of the averments of the complaint and denied the
others. They, however, prayed for the dismissal of
the action for lack of cause of action, it being
alleged that plaintiff was already the owner of the
house in question, and as said defendants admitted
this fact, the claim of the former was already
satisfied.
On October 29, 1953, Isabel Iya filed another civil
action against the Valinos and the surety company
(Civil Case No. 2504 of the Court of First Instance
of Manila) stating that pursuant to the contract of
mortgage executed by the spouses Valino on
October 24, 1952, the latter undertook to pay a loan
of P12,000.00 with interest at 12% per annum or
P120.00 a month, which indebtedness was payable
in 4 years, extendible for only one year; that to
secure payment thereof, said defendants
mortgaged the house and lot covered by T.C.T. No.
27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a
party defendant because it claimed to have an
interest on the residential house also covered by
said mortgage; that it was stipulated in the
aforesaid real estate mortgage that default in the
payment of the interest agreed upon would entitle
the mortgagee to foreclose the same even before
the lapse of the 4-year period; and as defendant
spouses had allegedly failed to pay the interest for
more than 6 months, plaintiff prayed the Court to
order said defendants to pay the sum of
P12,000.00 with interest thereon at 12% per annum
from March 25, 1953, until fully paid; for an
additional sum equivalent to 20% of the total
obligation as damages, and for costs. As an
alternative in case such demand may not be met
and satisfied plaintiff prayed for a decree of
foreclosure of the land, building and other
improvements thereon to be sold at public auction
and the proceeds thereof applied to satisfy the
demands of plaintiff; that the Valinos, the surety
company and any other person claiming interest on
the mortgaged properties be barred and foreclosed
of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the
proceeds of the sale of the mortgaged property
would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this
complaint insisted on its right over the building,
arguing that as the lot on which the house was
constructed did not belong to the spouses at the
time the chattel mortgage was executed, the house
might be considered only as a personal property
and that the encumbrance thereof and the
subsequent foreclosure proceedings made
pursuant to the provisions of the Chattel Mortgage
Law were proper and legal. Defendant therefore
prayed that said building be excluded from the real
estate mortgage and its right over the same be
declared superior to that of plaintiff, for damages,
attorney's fees and costs.
Taking side with the surety company, defendant
spouses admitted the due execution of the
mortgage upon the land but assailed the allegation
that the building was included thereon, it being
contended that it was already encumbered in favor
of the surety company before the real estate
mortgage was executed, a fact made known to
plaintiff during the preparation of said contract and
to which the latter offered no objection. As a special
defense, it was asserted that the action was
premature because the contract was for a period of
4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement
of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered
judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated
Insurance and Surety Co., Inc., was preferred and
superior over the real estate mortgage
subsequently executed in favor of Isabel Iya. It was
ruled that as the Valinos were not yet the registered
owner of the land on which the building in question
was constructed at the time the first encumbrance
was made, the building then was still a personality
and a chattel mortgage over the same was proper.
However, as the mortgagors were already the
owner of the land at the time the contract with
Isabel Iya was entered into, the building was
transformed into a real property and the real estate
mortgage created thereon was likewise adjudged
as proper. It is to be noted in this connection that
there is no evidence on record to sustain the
allegation of the spouses Valino that at the time
they mortgaged their house and lot to Isabel Iya,
the latter was told or knew that part of the
mortgaged property, i.e., the house, had previously
been mortgaged to the surety company.
The residential building was, therefore, ordered
excluded from the foreclosure prayed for by Isabel
Iya, although the latter could exercise the right of a
junior encumbrance. So the spouses Valino were
ordered to pay the amount demanded by said
mortgagee or in their default to have the parcel of
land subject of the mortgage sold at public auction
for the satisfaction of Iya's claim.
There is no question as to appellant's right over the
land covered by the real estate mortgage; however,
as the building constructed thereon has been the
subject of 2 mortgages; controversy arise as to
which of these encumbrances should receive
preference over the other. The decisive factor in
resolving the issue presented by this appeal is the
determination of the nature of the structure litigated
upon, for where it be considered a personality, the
foreclosure of the chattel mortgage and the
subsequent sale thereof at public auction, made in
accordance with the Chattel Mortgage Law would
be valid and the right acquired by the surety
company therefrom would certainly deserve prior
recognition; otherwise, appellant's claim for
preference must be granted. The lower Court,
deciding in favor of the surety company, based its
ruling on the premise that as the mortgagors were
not the owners of the land on which the building is
erected at the time the first encumbrance was
made, said structure partook of the nature of a
personal property and could properly be the subject
of a chattel mortgage. We find reason to hold
otherwise, for as this Court, defining the nature or
character of a building, has said:
. . . while it is true that generally, real estate
connotes the land and the building
constructed thereon, it is obvious that the
inclusion of the building, separate and
distinct from the land, in the enumeration of
what may constitute real properties (Art.
415, new Civil Code) could only mean one
thing — that a building is by itself an
immovable property . . . Moreover, and in
view of the absence of any specific
provision to the contrary, a building is an
immovable property irrespective of whether
or not said structure and the land on which it
is adhered to belong to the same owner.
(Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its
character of a realty by the fact that the land on
which it is constructed belongs to another. To hold
it the other way, the possibility is not remote that it
would result in confusion, for to cloak the building
with an uncertain status made dependent on the
ownership of the land, would create a situation
where a permanent fixture changes its nature or
character as the ownership of the land changes
hands. In the case at bar, as personal properties
could only be the subject of a chattel mortgage
(Section 1, Act 3952) and as obviously the structure
in question is not one, the execution of the chattel
mortgage covering said building is clearly invalid
and a nullity. While it is true that said document
was correspondingly registered in the Chattel
Mortgage Register of Rizal, this act produced no
effect whatsoever for where the interest conveyed
is in the nature of a real property, the registration of
the document in the registry of chattels is merely a
futile act. Thus, the registration of the chattel
mortgage of a building of strong materials produce
no effect as far as the building is concerned (Leung
Yee vs. Strong Machinery Co., 37 Phil., 644). Nor
can we give any consideration to the contention of
the surety that it has acquired ownership over the
property in question by reason of the sale
conducted by the Provincial Sheriff of Rizal, for as
this Court has aptly pronounced:
A mortgage creditor who purchases real
properties at an extrajudicial foreclosure
sale thereof by virtue of a chattel mortgage
constituted in his favor, which mortgage has
been declared null and void with respect to
said real properties, acquires no right
thereto by virtue of said sale (De la Riva vs.
Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower
Court in these two cases appealed from holding the
rights of the surety company, over the building
superior to that of Isabel Iya and excluding the
building from the foreclosure prayed for by the latter
is reversed and appellant Isabel Iya's right to
foreclose not only the land but also the building
erected thereon is hereby recognized, and the
proceeds of the sale thereof at public auction (if the
land has not yet been sold), shall be applied to the
unsatisfied judgment in favor of Isabel Iya. This
decision however is without prejudice to any right
that the Associated Insurance and Surety Co., Inc.,
may have against the spouses Adriano and Lucia
Valino on account of the mortgage of said building
they executed in favor of said surety company.
Without pronouncement as to costs. It is so
ordered.
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.
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.
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO.,
INC., respondent.
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.
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO.,
INC., respondent.
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.
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY
and J. G. WILLIAMSON, defendants-appellees.
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.
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.
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-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
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
—
It appears from the record:
(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:
(5) In condemning the plaintiff and his
sureties to pay to the defendant the sum of
P9,439.08.
(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).

(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) 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
2,000.0
..........................................
0
...........................
3
.......................................... 120.93
...........................

(2) In holding that parcels 1 and 2 of the 4

1,000.0
complaint belonged to Valdez, as well as ..........................................
0
parcels 7 and 8, and that the palay therein ...........................
was planted by Valdez;
5
.......................................... 1.00
(3) In holding that Valdez, by reason of the
...........................
preliminary injunction failed to realized
P6,757.40 from the sugar cane and 6
P1,435.68 from sugar-cane shoots (puntas .......................................... 1.00
de cana dulce); ...........................

(4) In holding that, for failure of plaintiff to 7 with the house thereon
150.00
gather the sugar cane on time, the ..........................
defendant was unable to raise palay on the
8
land, which would have netted him the sum
.......................................... 1,000.0
of P600; and.
........................... 0
 ======
====
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
The foregoing statement of facts shows:
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).
(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;
for the palay harvested by
323.00
plaintiff in parcels 1 and 2;
for the palay which
600.00 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.
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 . . .
(b) Sixteen sets (16) Vayrow Knitting
Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .

"Annex A" IV. Any and all replacements, substitutions,

additions, increases and accretions to
(Real and Chattel Mortgage executed by above properties.
Ever Textile Mills in favor of
PBCommunications — continued) xxx xxx xxx3

LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting
Machines-Tompkins made in Hongkong:
Serial Numbers Size of Machines
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.

xxx xxx xxx After April 23, 1979, the date of the execution of the
second mortgage mentioned above, EVERTEX
B. Sixteen (16) sets of Vayrow Knitting purchased various machines and equipments.
Machines made in Taiwan.
On November 19, 1982, due to business reverses,
xxx xxx xxx EVERTEX filed insolvency proceedings docketed
as SP Proc. No. LP-3091-P before the defunct
C. Two (2) Circular Knitting Machines made Court of First Instance of Pasay City, Branch
in West Germany. XXVIII. The CFI issued an order on November 24,
1982 declaring the corporation insolvent. All its
xxx xxx xxx assets were taken into the custody of the
Insolvency Court, including the collateral, real and
D. Four (4) Winding Machines. personal, securing the two mortgages as
abovementioned.
xxx xxx xxx
In the meantime, upon EVERTEX's failure to meet
its obligation to PBCom, the latter commenced
SCHEDULE "A"
extrajudicial foreclosure proceedings against
EVERTEX under Act 3135, otherwise known as
I. TCT # 372097 - RIZAL "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real
xxx xxx xxx Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was
II. Any and all buildings and improvements issued on December 1, 1982.
now existing or hereafter to exist on the
above-mentioned lot. On December 15, 1982, the first public auction was
held where petitioner PBCom emerged as the
III. MACHINERIES & EQUIPMENT situated, highest bidder and a Certificate of Sale was issued
located and/or installed on the above- in its favor on the same date. On December 23,
mentioned lot located at . . . 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued
(a) Forty eight sets (48) Vayrow Knitting a Certificate of Sale on the same day.
Machines . . .
On March 7, 1984, PBCom consolidated its
ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory
premises to petitioner Ruby L. Tsai for P50,000.00
a month. On May 3, 1988, PBCom sold the factory,
lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for
annulment of sale, reconveyance, and damages
with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure
of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights
having been transmitted to PBCom over the assets
of insolvent EVERTEX, therefore Tsai acquired no
rights over such assets sold to her, and should
reconvey the assets.
Further, EVERTEX averred that PBCom, without
any legal or factual basis, appropriated the
contested properties, which were not included in
the Real and Chattel Mortgage of November 26,
1975 nor in the Chattel Mortgage of April 23, 1979,
and neither were those properties included in the
Notice of Sheriff's Sale dated December 1, 1982
and Certificate of Sale . . . dated December 15,
1982.
The disputed properties, which were valued at
P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset
Equipment.
The RTC found that the lease and sale of said
personal properties were irregular and illegal
because they were not duly foreclosed nor sold at
the December 15, 1982 auction sale since these
were not included in the schedules attached to the
mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff corporation and
against the defendants:
1. Ordering the annulment of the sale
executed by defendant Philippine Bank of
Communications in favor of defendant Ruby
L. Tsai on May 3, 1988 insofar as it affects
the personal properties listed in par. 9 of the
complaint, and their return to the plaintiff
corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10)
days from finality of this decision;
2. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P5,200,000.00 as compensation for
the use and possession of the properties in
question from November 1986 to February
1991 and P100,000.00 every month
thereafter, with interest thereon at the legal
rate per annum until full payment;
3. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P50,000.00 as and for attorney's
fees and expenses of litigation;
4. Ordering the defendants to pay jointly
and severally the plaintiff corporation the
sum of P200,000.00 by way of exemplary
damages;
5. Ordering the dismissal of the
counterclaim of the defendants; and
6. Ordering the defendants to
proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the
Court of Appeals, which issued its decision dated
August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the deletion therefrom of
the award; for exemplary damages, and reduction
of the actual damages, from P100,000.00 to
P20,000.00 per month, from November 1986 until
subject personal properties are restored to
appellees, the judgment appealed from is hereby
AFFIRMED, in all other respects. No
pronouncement as to costs.5
Motion for reconsideration of the above decision
having been denied in the resolution of April 28,
1995, PBCom and Tsai filed their separate petitions
for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the
following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE
PARTIES BY TREATING THE 1981
 ACQUIRED MACHINERIES AS CHATTELS
INSTEAD OF REAL PROPERTIES WITHIN
THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979
DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN HOLDING
THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE
MORTGAGE — DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE
SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD
FAITH.
IV
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEY'S FEES AND
EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL
BASIS.
V instead of real properties within their earlier 1975
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
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 198631 until subject personal properties
are restored to respondent corporation; (2)
P100,000.00 by way of exemplary damages, and
(3) P50,000.00 as attorney's fees and litigation
expenses. Costs against petitioners.
SO ORDERED.
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.
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 2 against Yap and his wife 3 seeking
recovery of P1,459.30 representing the balance of
the price and installation cost of a water pump in
the latter's premises. 4 The case resulted in a
judgment by the City Court on November 25, 1968,
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, 5 Yap was declared in
default by Order of Judge Tañada dated August 28,
1969, 6 reading as follows:
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. 8 In it he insisted that his motion
for 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 9 drew attention to the eleventh-hour
motion for 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, 10 and that this pattern of seeking to obtain
last-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. 12 Yap
forthwith filed an "Urgent Motion for
Reconsideration of Order" dated October 17,
1969, 13 contending 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. 14 It pointed out that in his motion for
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.15 Yap sought reconsideration of this
order, by another motion dated October 29,
1969. 16 This motion was denied by Order dated
January 26, 1970. 17 Again Yap moved for
reconsideration, and again was rebuffed, by Order
dated April 28, 1970. 18
In the meantime the Sheriff levied on the water
pump in question, 19 and by notice dated November
4, 1969, scheduled the execution sale thereof on
November 14, 1969. 20 But in view of the pendency
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. 22 So the Deputy Provincial Sheriff
went ahead with the scheduled auction sale and
sold the property levied on to Goulds as the highest
bidder. 23 He later submitted the requisite report to
the Court dated November 17, 1969, 24 as well as
the "Sheriffs Return of Service" dated February 13,
1970, 25 in both of which it was stated that
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. 26 Yap received notice of the
Order on June 11. Twelve (1 2) days later, he filed
a "Motion to Set Aside Execution Sale and to
Quash Alias Writ of Execution." 27 As regards
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, 28 seeking the setting aside not only of this
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 not pro
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, 33 i.e., fraud, accident, mistake or
excusable negligence which ordinary prudence
could not have 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." 34 The requirement
of 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," 36 for which no
justification whatever has been offered, also
militates against 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. 37 This is the 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, 40 on May 31, 1968. 41 The absence of
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." 42 The pump does not fit
this 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.
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.
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:
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner
(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
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:
(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:
(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. 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 Decision1 of the
Court of Appeals (CA) in CA-G.R. SP No. 67490
and its Resolution2 dated June 20, 2005; the
second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision3 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 Agreement5 (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 Distraint13 over 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
Order14 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 Order16 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
Resolution20 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 Resolution22 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
Resolution23 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 Resolution25 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 Resolution26 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 Resolution27 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:
I
THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN
NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY
TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN
NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both
cases are similar, the Court ordered the
consolidation of the two cases in a
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.
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-58469 May 16, 1983
MAKATI LEASING and FINANCE
CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and
HONORABLE COURT OF
APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating
counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of
the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R.
No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as
Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as
wen as the resolution dated September 22, 1981 of
the said appellate court, denying petitioner's motion
for reconsideration.
It appears that in order to obtain financial
accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted
and assigned several receivables with the former
under a Receivable Purchase Agreement. To
secure the collection of the receivables assigned,
private respondent executed a Chattel Mortgage
over certain raw materials inventory as well as a
machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a
petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy
Sheriff assigned to implement the foreclosure failed
to gain entry into private respondent's premises
and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter
filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI,
docketed as Civil Case No. 36040, the case before
the lower court.
Acting on petitioner's application for replevin, the
lower court issued a writ of seizure, the
enforcement of which was however subsequently
restrained upon private respondent's filing of a
motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981,
an order lifting the restraining order for the
enforcement of the writ of seizure and an order to
break open the premises of private respondent to
enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further
motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure
order, repaired to the premises of private
respondent and removed the main drive motor of
the subject machinery.
The Court of Appeals, in certiorari and prohibition
proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court
and ordered the return of the drive motor seized by
the sheriff pursuant to said Orders, after ruling that
the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because
it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the
ground by means of bolts and the only way to
remove it from respondent's plant would be to drill
out or destroy the concrete floor, the reason why all
that the sheriff could do to enfore the writ was to
take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that
private respondent is estopped from claiming that
the machine is real property by constituting a
chattel mortgage thereon.
A motion for reconsideration of this decision of the
Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ
of certiorari. It is contended by private respondent,
however, that the instant petition was rendered
moot and academic by petitioner's act of returning
the subject motor drive of respondent's machinery
after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without
merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said
action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as
shown by the receipt duly signed by respondent's
representative. 1 Considering that petitioner has
reserved its right to question the propriety of the
Court of Appeals' decision, the contention of private
respondent that this petition has been mooted by
such return may not be sustained.
The next and the more crucial question to be
resolved in this Petition is whether the machinery in
suit is real or personal property from the point of
view of the parties, with petitioner arguing that it is
a personality, while the respondent claiming the
contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage
constituted thereon is null and void, as contended
by said respondent.
A similar, if not Identical issue was raised
in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes,
ruled:
Although there is no specific
statement referring to the subject
house as personal property, yet by
ceding, selling or transferring a
property by way of chattel mortgage
defendants-appellants could only
have meant to convey the house as
chattel, or at least, intended to treat
the same as such, so that they
should not now be allowed to make
an inconsistent stand by claiming
otherwise. Moreover, the subject
house stood on a rented lot to which
defendants-appellants merely had a
temporary right as lessee, and
although this can not in itself alone
determine the status of the property,
it does so when combined with other
factors to sustain the interpretation
that the parties, particularly the
mortgagors, intended to treat the
house as personality. Finally, unlike
in the Iya cases, Lopez vs. Orosa,
Jr. & Plaza Theatre, Inc. & Leung
Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons
assailed the validity of the chattel
mortgage, it is the defendants-
appellants themselves, as debtors-
mortgagors, who are attacking the
validity of the chattel mortgage in
this case. The doctrine of estoppel
therefore applies to the herein
defendants-appellants, having
treated the subject house as
personality.
Examining the records of the instant case, We find
no logical justification to exclude the rule out, as the
appellate court did, the present case from the
application of the abovequoted pronouncement. If a
house of strong materials, like what was involved in
the above Tumalad case, may be considered as
personal property for purposes of executing a
chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party
will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its
nature and becomes immobilized only by
destination or purpose, may not be likewise treated
as such. This is really because one who has so
agreed is estopped from denying the existence of
the chattel mortgage.
In rejecting petitioner's assertion on the applicability
of the Tumalad doctrine, the Court of Appeals lays
stress on the fact that the house involved therein
was built on a land that did not belong to the owner
of such house. But the law makes no distinction
with respect to the ownership of the land on which
the house is built and We should not lay down
distinctions not contemplated by law.
It must be pointed out that the characterization of
the subject machinery as chattel by the private
respondent is indicative of intention and impresses
upon the property the character determined by the
parties. As stated in Standard Oil Co. of New York
v. Jaramillo, 44 Phil. 630, it is undeniable that the
parties to a contract may by agreement treat as
personal property that which by nature would be
real property, as long as no interest of third parties
would be prejudiced thereby.
Private respondent contends that estoppel cannot
apply against it because it had never represented
nor agreed that the machinery in suit be considered
as personal property but was merely required and
dictated on by herein petitioner to sign a printed
form of chattel mortgage which was in a blank form
at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the
subject machinery as movable or immovable was
never placed in issue before the lower court and
the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the
appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither
is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the
latter has indubitably benefited from said contract.
Equity dictates that one should not benefit at the
expense of another. Private respondent could not
now therefore, be allowed to impugn the efficacy of
the chattel mortgage after it has benefited
therefrom,
From what has been said above, the error of the
appellate court in ruling that the questioned
machinery is real, not personal property, becomes
very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to
the case at bar, the nature of the machinery and
equipment involved therein as real properties never
having been disputed nor in issue, and they were
not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity
with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and
resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the
private respondent.
SO ORDERED.
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 term poles, the logical question posited is
whether they constitute real properties, so that they
can be subject to a real property tax. The tax law
does not provide for a definition of real property; but
Article 415 of the Civil Code does, by stating the
following are immovable property:
(1) Land, buildings, roads, and
constructions of all kinds adhered to the
soil;
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.
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.
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE
HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for
resolution is whether or not respondent Court erred
in denying the Motion to Set Case for Pre-trial with
respect to respondent Remedios Vda. de
Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr.,
was the former registered owner of a parcel of land
consisting of 340 square meters situated in
Bamban, Tarlac. In 1963, petitioner mortgaged said
land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said
amount, the property was foreclosed on December
16, 1970. Respondent PNB (Tarlac Branch) was
the highest bidder in said foreclosure proceedings.
However, the bank secured title thereto only on
December 14, 1977.
In the meantime, in 1974, while the properly was
still in the alleged possession of petitioner and with
the alleged acquiescence of respondent PNB
(Tarlac Branch), and upon securing a permit from
the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared
said warehouse for tax purposes for which he was
issued Tax Declaration No. 5619. Petitioner then
leased the warehouse to one Hermogenes Sibal for
a period of 10 years starting January 1975.
On July 26, 1978, a Deed of Sale was executed
between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This
contract was amended on July 31, 1978,
particularly to include in the sale, the building and
improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the
property in her name (TCT No. 173744) as well as
separate tax declarations for the land and
building. 1
On November 22, 1979, petitioner commenced suit
for "Annulment of Deed of Sale with Damages"
against herein respondents PNB and Lacsamana
before respondent Court of First Instance of Rizal,
Branch XXXI, Quezon City, essentially impugning
the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection,
petitioner alleged:
 xxx xxx xxx
22. That defendant, Philippine
National Bank, through its Branch
Manager ... by virtue of the request
of defendant ... executed a
document dated July 31, 1978,
entitled Amendment to Deed of
Absolute Sale ... wherein said
defendant bank as Vendor sold to
defendant Lacsamana the building
owned by the plaintiff under Tax
Declaration No. 5619,
notwithstanding the fact that said
building is not owned by the bank
either by virtue of the public auction
sale conducted by the Sheriff and
sold to the Philippine National Bank
or by virtue of the Deed of Sale
executed by the bank itself in its
favor on September 21, 1977 ...;
23. That said defendant bank
fraudulently mentioned ... that the
sale in its favor should likewise have
included the building,
notwithstanding no legal basis for
the same and despite full knowledge
that the Certificate of Sale executed
by the sheriff in its favor ... only
limited the sale to the land, hence,
by selling the building which never
became the property of defendant,
they have violated the principle
against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the
building in favor of respondent Lacsamana be
declared null and void and that damages in the total
sum of P230,000.00, more or less, be awarded to
him.2
In her Answer filed on March 4, 1980,-respondent
Lacsamana averred the affirmative defense of lack
of cause of action in that she was a purchaser for
value and invoked the principle in Civil Law that the
"accessory follows the principal".3
On March 14, 1980, respondent PNB filed a Motion
to Dismiss on the ground that venue was
improperly laid considering that the building was
real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should
apply. 4
Opposing said Motion to Dismiss, petitioner
contended that the action for annulment of deed of
sale with damages is in the nature of a personal
action, which seeks to recover not the title nor
possession of the property but to compel payment
of damages, which is not an action affecting title to
real property.
On April 25, 1980, respondent Court granted
respondent PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss'
of the defendant Philippine National
Bank dated March 13, 1980,
considered against the plaintiff's
opposition thereto dated April 1,
1980, including the reply therewith of
said defendant, this Court resolves
to DISMISS the plaintiff's complaint
for improper venue considering that
the plaintiff's complaint which seeks
for the declaration as null and void,
the amendment to Deed of Absolute
Sale executed by the defendant
Philippine National Bank in favor of
the defendant Remedios T. Vda. de
Lacsamana, on July 31, 1978,
involves a warehouse allegedly
owned and constructed by the
plaintiff on the land of the defendant
Philippine National Bank situated in
the Municipality of Bamban,
Province of Tarlac, which warehouse
is an immovable property pursuant
to Article 415, No. 1 of the New Civil
Code; and, as such the action of the
plaintiff is a real action affecting title
to real property which, under Section
2, Rule 4 of the New Rules of Court,
must be tried in the province where
the property or any part thereof lies.5
In his Motion for Reconsideration of the aforestated
Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title
to property but is limited to the validity of the deed
of sale and emphasized that the case should
proceed with or without respondent PNB as
respondent Lacsamana had already filed her
Answer to the Complaint and no issue on venue
had been raised by the latter.
On September 1, 1980,.respondent Court denied
reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-
trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined
with the filing of respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent
Court denied said Motion to Set Case for Pre-trial
as the case was already dismissed in the previous
Orders of April 25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave
due course.
We affirm respondent Court's Order denying the
setting for pre-trial.
The warehouse claimed to be owned by petitioner
is an immovable or real property as provided in
article 415(l) of the Civil Code. 6 Buildings are
always immovable under the Code. 7 A building
treated separately from the land on which it stood is
immovable property and the mere fact that the
parties to a contract seem to have dealt with it
separate and apart from the land on which it stood
in no wise changed its character as immovable
property. 8
While it is true that petitioner does not directly seek
the recovery of title or possession of the property in
question, his action for annulment of sale and his
claim for damages are closely intertwined with the
issue of ownership of the building which, under the
law, is considered immovable property, the
recovery of which is petitioner's primary objective.
The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property
does not operate to efface the fundamental and
prime objective and nature of the case, which is to
recover said real property. It is a real action. 9
Respondent Court, therefore, did not err in
dismissing the case on the ground of improper
venue (Section 2, Rule 4) 10, which was timely
raised (Section 1, Rule 16) 11.
Petitioner's other contention that the case should
proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer,
which did not allege improper venue and, therefore,
issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable
party as the validity of the Amended Contract of
Sale between the former and respondent
Lacsamana is in issue. It would, indeed, be futile to
proceed with the case against respondent
Lacsamana alone.
WHEREFORE, the petition is hereby denied
without prejudice to the refiling of the case by
petitioner Antonio Punsalan, Jr. in the proper forum.
Costs against petitioner.
SO ORDERED.
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 Mortgagors as herein stated is released or issued
conveyed by way of MORTGAGE by the Bureau of Lands, the Mortgagors hereby
includes the right of occupancy on authorize the Register of Deeds to hold the
the lot where the above property is Registration of same until this Mortgage is
erected, and more particularly cancelled, or to annotate this encumbrance on the
described and bounded, as follows: Title upon authority from the Secretary of
Agriculture and Natural Resources, which title with
A first class annotation, shall be released in favor of the herein
residential land Mortgage.
Identffied as Lot No.
720, (Ts-308, From the aforequoted stipulation, it is obvious that
Olongapo Townsite the mortgagee (defendant Prudential Bank) was at
Subdivision) Ardoin the outset aware of the fact that the mortgagors
Street, East Bajac- (plaintiffs) have already filed a Miscellaneous Sales
Bajac, Olongapo City, Application over the lot, possessory rights over
containing an area of which, were mortgaged to it.
465 sq. m. more or
less, declared and Exhibit "A" (Real Estate Mortgage) was registered
assessed in the name under the Provisions of Act 3344 with the Registry
of FERNANDO of Deeds of Zambales on November 23, 1971.
MAGCALE under Tax
Duration No. 19595 On May 2, 1973, plaintiffs secured an additional
issued by the loan from defendant Prudential Bank in the sum of
Assessor of P20,000.00. To secure payment of this additional
Olongapo City with an loan, plaintiffs executed in favor of the said
assessed value of defendant another deed of Real Estate Mortgage
P1,860.00; bounded over the same properties previously mortgaged in
on the Exhibit "A." (Exhibit "B;" also Exhibit "2" for
defendant). This second deed of Real Estate
NORTH: By No. 6, Ardoin Street Mortgage was likewise registered with the Registry
of Deeds, this time in Olongapo City, on May
SOUTH: By No. 2, Ardoin Street 2,1973.

EAST: By 37 Canda Street, and On April 24, 1973, the Secretary of

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
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.
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO
SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals
(CA-G.R. No. 27824-R) for the reason that only
questions of law are involved.
This case was originally commenced by
defendants-appellants in the municipal court of
Manila in Civil Case No. 43073, for ejectment.
Having lost therein, defendants-appellants
appealed to the court a quo (Civil Case No. 30993)
which also rendered a decision against them, the
dispositive portion of which follows:
WHEREFORE, the court hereby
renders judgment in favor of the
plaintiffs and against the defendants,
ordering the latter to pay jointly and
severally the former a monthly rent
of P200.00 on the house, subject-
matter of this action, from March 27,
1956, to January 14, 1967, with
interest at the legal rate from April
18, 1956, the filing of the complaint,
until fully paid, plus attorney's fees in
the sum of P300.00 and to pay the
costs.
It appears on the records that on 1 September
1955 defendants-appellants executed a chattel
mortgage in favor of plaintiffs-appellees over their
house of strong materials located at No. 550 Int. 3,
Quezon Boulevard, Quiapo, Manila, over Lot Nos.
6-B and 7-B, Block No. 2554, which were being
rented from Madrigal & Company, Inc. The
mortgage was registered in the Registry of Deeds
of Manila on 2 September 1955. The herein
mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees,
payable within one year at 12% per annum. The
mode of payment was P150.00 monthly, starting
September, 1955, up to July 1956, and the lump
sum of P3,150 was payable on or before August,
1956. It was also agreed that default in the
payment of any of the amortizations, would cause
the remaining unpaid balance to
becomeimmediately due and Payable and —
the Chattel Mortgage will be
enforceable in accordance with the
provisions of Special Act No. 3135,
and for this purpose, the Sheriff of
the City of Manila or any of his
deputies is hereby empowered and
authorized to sell all the Mortgagor's
property after the necessary
publication in order to settle the
financial debts of P4,800.00, plus
12% yearly interest, and attorney's
fees... 2
When defendants-appellants defaulted in paying,
the mortgage was extrajudicially foreclosed, and on
27 March 1956, the house was sold at public
auction pursuant to the said contract. As highest
bidder, plaintiffs-appellees were issued the
corresponding certificate of sale.3 Thereafter, on 18
April 1956, plaintiffs-appellant commenced Civil
Case No. 43073 in the municipal court of Manila,
praying, among other things, that the house be
vacated and its possession surrendered to them,
and for defendants-appellants to pay rent of
P200.00 monthly from 27 March 1956 up to the
time the possession is surrendered.4 On 21
September 1956, the municipal court rendered its
decision —
... ordering the defendants to vacate
the premises described in the
complaint; ordering further to pay
monthly the amount of P200.00 from
March 27, 1956, until such (time
that) the premises is (sic) completely
vacated; plus attorney's fees of
P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the
municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they
are still the owners of the house; but they waived
the right to introduce evidence, oral or
documentary. Instead, they relied on their
memoranda in support of their motion to dismiss,
predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and
decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior
possession; and (b) failure to prove prior demand
pursuant to Section 2, Rule 72, of the Rules of
Court.6
During the pendency of the appeal to the Court of
First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first
10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January
1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees
could not be executed because the subject house
had been already demolished on 14 January 1957
pursuant to the order of the court in a separate civil
case (No. 25816) for ejectment against the present
defendants for non-payment of rentals on the land
on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal,
execution of the supersedeas bond and withdrawal
of deposited rentals was denied for the reason that
the liability therefor was disclaimed and was still
being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final
disposition of the appeal.7
On 7 October 1957, the appellate court of First
Instance rendered its decision, the dispositive
portion of which is quoted earlier. The said decision
was appealed by defendants to the Court of
Appeals which, in turn, certified the appeal to this
Court. Plaintiffs-appellees failed to file a brief and
this appeal was submitted for decision without it.
Defendants-appellants submitted numerous
assignments of error which can be condensed into
two questions, namely: .
(a) Whether the municipal court from
which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are,
under the law, legally bound to pay
rentals to the plaintiffs during the
period of one (1) year provided by
law for the redemption of the
extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the
jurisdiction of the municipal court from which the
case originated, and consequently, the appellate
jurisdiction of the Court of First Instance a quo, on
the theory that the chattel mortgage is void ab initio;
whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent
auction sale, are also void. Thus, the ownership of
the house still remained with defendants-appellants
who are entitled to possession and not plaintiffs-
appellees. Therefore, it is argued by defendants-
appellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt
is contended further that ownership being in issue,
it is the Court of First Instance which has
jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of
nullity of the chattel mortgage on two grounds,
which are: (a) that, their signatures on the chattel
mortgage were obtained through fraud, deceit, or
trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being
an immovable, it can only be the subject of a real
estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court
of First Instance found defendants-appellants'
contentions as not supported by evidence and
accordingly dismissed the charge,8 confirming the
earlier finding of the municipal court that "the
defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero
and Ayala10 that "the answer is a mere statement of
the facts which the party filing it expects to
prove, but it is not evidence;11 and further, that
when the question to be determined is one of title,
the Court is given the authority to proceed with the
hearing of the cause until this fact is clearly
established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a
successful bidder in an auction sale, it was likewise
held by this Court that in detainer cases the aim of
ownership "is a matter of defense and raises an
issue of fact which should be determined from the
evidence at the trial." What determines jurisdiction
are the allegations or averments in the complaint
and the relief asked for. 13
Moreover, even granting that the charge is true,
fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the
contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the
basis of a voidable contract which has not been
voided fails.
It is claimed in the alternative by defendants-
appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and
void ab initio because only personal properties can
be subject of a chattel mortgage. The rule about the
status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre
Inc.,15 cited in Associated Insurance Surety Co.,
Inc. vs. Iya, et al. 16 to the effect that —
... it is obvious that the inclusion of
the building, separate and distinct
from the land, in the enumeration of
what may constitute real properties
(art. 415, New Civil Code) could only
mean one thing — that a building is
by itself an immovable
property irrespective of whether or
not said structure and the land on
which it is adhered to belong to the
same owner.
Certain deviations, however, have been allowed for
various reasons. In the case of Manarang and
Manarang vs. Ofilada,17 this Court stated that "it is
undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter
case, the mortgagor conveyed and transferred to
the mortgagee by way of mortgage "the following
described personal property." 19 The "personal
property" consisted of leasehold rights and a
building. Again, in the case of Luna vs.
Encarnacion,20 the subject of the contract
designated as Chattel Mortgage was a house of
mixed materials, and this Court hold therein that it
was a valid Chattel mortgage because it was
so expressly designated and specifically that the
property given as security "is a house of mixed
materials, which by its very nature is considered
personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —
The view that parties to a deed of
chattel mortgage may agree to
consider a house as personal
property for the purposes of said
contract, "is good only insofar as the
contracting parties are concerned. It
is based, partly, upon the principle of
estoppel" (Evangelista vs. Alto
Surety, No. L-11139, 23 April 1958).
In a case, a mortgaged house built
on a rented land was held to be a
personal property, not only because
the deed of mortgage considered it
as such, but also because it did not
form part of the land (Evangelists vs.
Abad, [CA]; 36 O.G. 2913), for it is
now settled that an object placed on
land by one who had only a
temporary right to the same, such as
the lessee or usufructuary, does not
become immobilized by attachment
(Valdez vs. Central Altagracia, 222
U.S. 58, cited in Davao Sawmill Co.,
Inc. vs. Castillo, et al., 61 Phil. 709).
Hence, if a house belonging to a
person stands on a rented land
belonging to another person, it may
be mortgaged as a personal
property as so stipulated in the
document of mortgage. (Evangelista
vs. Abad, Supra.) It should be noted,
however that the principle is
predicated on statements by the
owner declaring his house to be a
chattel, a conduct that may
conceivably estop him from
subsequently claiming otherwise.
(Ladera vs. C.N. Hodges, [CA] 48
O.G. 5374): 22
In the contract now before Us, the house on rented
land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the
mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the
property together with its leasehold rights over the
lot on which it is constructed and participation
..." 24 Although there is no specific statement
referring to the subject house as personal property,
yet by ceding, selling or transferring a property by
way of chattel mortgage defendants-appellants
could only have meant to convey the house as
chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot
to which defendats-appellants merely had a
temporary right as lessee, and although this can
not in itself alone determine the status of the
property, it does so when combined with other
factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the
house as personalty. Finally unlike in the Iya
cases, Lopez vs. Orosa, Jr. and Plaza Theatre,
Inc. 25 and Leung Yee vs. F. L. Strong Machinery
and Williamson, 26 wherein third persons assailed
the validity of the chattel mortgage,27 it is the
defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as
personalty.
(b) Turning to the question of possession and
rentals of the premises in question. The Court of
First Instance noted in its decision that nearly a
year after the foreclosure sale the mortgaged
house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor
of the land on which the house stood. For this
reason, the said court limited itself to sentencing
the erstwhile mortgagors to pay plaintiffs a monthly
rent of P200.00 from 27 March 1956 (when the
chattel mortgage was foreclosed and the house
sold) until 14 January 1957 (when it was torn down
by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award,
claiming that they were entitled to remain in
possession without any obligation to pay rent
during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this
issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by
the Chattel Mortgage Law, Act No. 1508.28 Section
14 of this Act allows the mortgagee to have the
property mortgaged sold at public auction through a
public officer in almost the same manner as that
allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law
relative to notice and registration are complied
with. 29 In the instant case, the parties specifically
stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of
Special Act No. 3135 ... ." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that the
debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the
date of the auction sale, redeem the property sold
at the extra judicial foreclosure sale. Section 7 of
the same Act 32 allows the purchaser of the
property to obtain from the court the possession
during the period of redemption: but the same
provision expressly requires the filing of a petition
with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the
proper motion and the approval of the
corresponding bond that the order for a writ of
possession issues as a matter of course. No
discretion is left to the court. 33 In the absence of
such a compliance, as in the instant case, the
purchaser can not claim possession during the
period of redemption as a matter of right. In such a
case, the governing provision is Section 34, Rule
39, of the Revised Rules of Court 34 which also
applies to properties purchased in extrajudicial
foreclosure proceedings.35 Construing the said
section, this Court stated in the aforestated case
of Reyes vs. Hamada.
In other words, before the expiration
of the 1-year period within which the
judgment-debtor or mortgagor may
redeem the property, the purchaser
thereof is not entitled, as a matter of
right, to possession of the same.
Thus, while it is true that the Rules
of Court allow the purchaser to
receive the rentals if the purchased
property is occupied by tenants, he
is, nevertheless, accountable to the
judgment-debtor or mortgagor as the
case may be, for the amount so
received and the same will be duly
credited against the redemption
price when the said debtor or
mortgagor effects the
redemption. Differently stated, the
rentals receivable from tenants,
although they may be collected by
the purchaser during the redemption
period, do not belong to the latter but
still pertain to the debtor of
mortgagor. The rationale for the
Rule, it seems, is to secure for the
benefit of the debtor or mortgagor,
the payment of the redemption
amount and the consequent return
to him of his properties sold at public
auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling
in Chan vs. Espe.36
Since the defendants-appellants were occupying
the house at the time of the auction sale, they are
entitled to remain in possession during the period of
redemption or within one year from and after 27
March 1956, the date of the auction sale, and to
collect the rents or profits during the said period.
It will be noted further that in the case at bar the
period of redemption had not yet expired when
action was instituted in the court of origin, and that
plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties
to govern the extrajudicial foreclosure of the chattel
mortgage. Neither was there an allegation to that
effect. Since plaintiffs-appellees' right to possess
was not yet born at the filing of the complaint, there
could be no violation or breach thereof. Wherefore,
the original complaint stated no cause of action and
was prematurely filed. For this reason, the same
should be ordered dismissed, even if there was no
assignment of error to that effect. The Supreme
Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that
their consideration is necessary in arriving at a just
decision of the cases. 37
It follows that the court below erred in requiring the
mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision
appealed from is reversed and another one
entered, dismissing the complaint. With costs
against plaintiffs-appellees.
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[3 denying
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
Questionschanrobles 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
Machinerychanrobles 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.18 After agreeing to
such stipulation, they are consequently
estopped from claiming otherwise. Under the
principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of
any material fact found therein. 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. chanrobles virtual law library
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. chanrobles virtual law library
MANUEL C. MANARANG and LUCIA D.
MANARANG, Petitioners-Appellants, vs.
MACARIO M. OFILADA, Sheriff of the City of
Manila and ERNESTO ESTEBAN, Respondents-
Appellees.
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; chan
roblesvirtualawlibraryStandard Oil Co. of New York
vs. Jaranillo, 44 Phil., 630; chan
roblesvirtualawlibraryand De Jesus vs. Guan Dee
Co., Inc., 72 Phil., 464. The matter depends on the
circumstances and the intention of the parties.
“ cralaw The general principle of law is that a
building permanently fixed to the freehold becomes
a part of it, that prima facie a house is real estate,
belonging to the owner of the land on which it
stands, even though it was erected against the will
of the landowner, or without his consent cralaw .
The general rule is otherwise, however, where the
improvement is made with the consent of the
landowner, and pursuant to an understanding either
expressed or implied that it shall remain personal
property. Nor does the general rule apply to a
building which is wrongfully removed from the land
and placed on the land of the person removing it.”
(42 Am. Jur. 199-200.)
“ cralaw Among the principal criteria for determining
whether property remains personally or becomes
realty are annexation to the soil, either actual or
construction, and the intention of the parties cralaw
“Personal property may retain its character as such
where it is so agreed by the parties interested even
though annexed to the realty, or where it is affixed
in the soil to be used for a particular purpose for a
short period and then removed as soon as it has
served its purpose cralaw .” (Ibid., 209-210.)
The question now before us, however,
is:chanroblesvirtuallawlibrary Does the fact that the
parties entering into a contract regarding a house
gave said property the consideration of personal
property in their contract, bind the sheriff in
advertising the 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; chan roblesvirtualawlibraryand when real
property is spoken of, it means property which is
generally known as real property. The regulations
were never intended to suit the consideration that
parties, may have privately given to the property
levied upon. Enforcement of regulations would be
difficult were the convenience or agreement of
private parties to determine or govern the nature of
the proceedings. We, therefore, hold that the mere
fact that a house was the subject of a chattel
mortgage and was considered as personal property
by the parties does not make said house personal
property for purposes of the notice to be given for
its sale at public auction. This ruling is demanded
by the need for a definite, orderly and well- defined
regulation for official and public guidance and which
would prevent confusion and misunderstanding.
We, therefore, declare that the house of mixed
materials levied upon on execution, although
subject of a contract of chattel mortgage between
the owner and a third person, is real property within
the purview of Rule 39, section 16, of the Rules of
Court as it has become a permanent fixture on the
land, which is real property. (42 Am. Jur. 199-
200; chan roblesvirtualawlibraryLeung Yee vs.
Strong Machinery Co., 37 Phil., 644; chan
roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90
Phil., 544; chan roblesvirtualawlibraryLadera, et al.
vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.).
The judgment appealed from is hereby affirmed,
with costs. SO ORDERED.
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.
G.R. No. L-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on
two oil storage tanks installed in 1969 by Manila
Electric Company on a lot in San Pascual, Batangas
which it leased in 1968 from Caltex (Phil.), Inc. The
tanks are within the Caltex refinery compound. They
have a total capacity of 566,000 barrels. They are
used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of
steel plates welded and assembled on the spot. Their
bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous
asphalt stratum as the top layer. The bottom of each
tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported
underneath by a circular wall made of concrete,
eighteen inches thick, to prevent the tank from sliding.
Hence, according to Meralco, the tank is not attached
to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached
to any part of the foundation by bolts, screws or
similar devices. The tank merely sits on its foundation.
Each empty tank can be floated by flooding its dike-
inclosed location with water four feet deep. (pp. 29-
30, Rollo.)
On the other hand, according to the hearing
commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles
on top thereof and is divided into two parts as the site
of each tank. The foundation of the tanks is elevated
from the remaining area. On both sides of the earthen
dikes are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation with
an asphalt lining about an inch thick. Pipelines were
installed on the sides of each tank and are connected
to the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are
near Tank No. 2.
The Board concludes that while the tanks rest or sit
on their foundation, the foundation itself and the walls,
dikes and steps, which are integral parts of the tanks,
are affixed to the land while the pipelines are attached
to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal
treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor,
required Meralco to pay realty taxes on the two tanks.
For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27,
Rollo). The Board required Meralco to pay the tax and
penalties as a condition for entertaining its appeal
from the adverse decision of the Batangas board of
assessment appeals.
The Central Board of Assessment Appeals
(composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice
Vicente Abad Santos and Secretary of Local
Government and Community Development Jose
Roño as members) in its decision dated November 5,
1976 ruled that the tanks together with the foundation,
walls, dikes, steps, pipelines and other appurtenances
constitute taxable improvements.
Meralco received a copy of that decision on February
28, 1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its
resolution of November 25, 1977, a copy of which
was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil
action of certiorari to annul the Board's decision and
resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in
holding that its storage tanks are taxable real
property.
Meralco contends that the said oil storage tanks do
not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by
nature, by incorporation, by destination nor by
analogy. Stress is laid on the fact that the tanks are
not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or
penumbral cases on the classification of property
where strong divergent opinions are inevitable. The
issue raised by Meralco has to be resolved in the light
of the provisions of the Assessment Law,
Commonwealth Act No. 470, and the Real Property
Tax Code, Presidential Decree No. 464 which took
effect on June 1, 1974.
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. — They 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 definition 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.
We hold that while the two storage tanks are not
embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It is
undeniable that the two tanks have been installed with
some degree of permanence as receptacles for the
considerable quantities of oil needed by Meralco for
its operations.
Oil storage tanks were held to be taxable realty in
Standard Oil Co. of New Jersey vs. Atlantic City, 15
Atl. 2nd 271.
For purposes of taxation, the term "real property" may
include things which should generally be regarded as
personal property(84 C.J.S. 171, Note 8). 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).
The case of Board of Assessment Appeals vs. Manila
Electric Company, 119 Phil. 328, wherein Meralco's
steel towers were held not to be subject to realty tax,
is not in point because in that case the steel towers
were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover,
the steel towers were not attached to any land or
building. They were removable from their metal
frames.
Nor is there any parallelism between this case and
Mindanao Bus Co. vs. City Assessor, 116 Phil. 501,
where the tools and equipment in the repair, carpentry
and blacksmith shops of a transportation company
were held not subject to realty tax because they were
personal property.
WHEREFORE, the petition is dismissed. The Board's
questioned decision and resolution are affirmed. No
costs.
SO ORDERED.
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.
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.
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day of March, 1910, in the city of Manila, oath, in accordance with the provisions of
Philippine Islands, by L. M. Southworth, section 39 of Act No. 183 of the Philippine
prosecuting attorney for the city of Manila. Commission, as amended by section 2 of Act
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appearance. On the 14th of the same month counsel
Subscribed and sworn to before me this 4th for the defendant demurrer to the complaint on the
day of March, 1910, in the city of Manila, following grounds:
Philippine Islands, by L. M. Southworth,
prosecuting attorney for the city of Manila. 1 That the court has no jurisdiction over the
person of the accused nor of the offense
( charged because the accused has not been
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After due consideration of all the proofs presented
N
and the arguments of counsel the trial court found the
G
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 condition different
from a body at sea level or at the center of the earth.
It has the quality of being able to do something, to
perform some service by the mere change of location.
It has potential energy, measured by the amount of
work required to elevated it. The weight or monkey of
a pile driver is the same weight when elevated 50 feet
in air as it is when it lies on top of the pile 50 feet
below, but it has altogether a different quality. When
elevated it is capable of working for man by driving a
pile. When lying on top of the pile, or at sea level, it
has no such quality. The question is, "can
you steal that quality?"
Two pile drivers, owned by different persons, are
located near each other. The one owner has, by
means of his engine and machinery, raised his weight
to its highest elevation, ready to deliver a blow. While
this owner is absent over night the owner of the other
pile driver, surreptiously and with evil design and
intent, unlocks the weight and, by means of some
mechanical contrivance, takes advantage of its fall in
such a way that the energy thus produced raised the
weight of his own pile driver to an elevation of forty
feet, where it remains ready, when released, to
perform service for him. What has happened? Exactly
the same thing, essentially, as happened when the
electric charge of one battery is transferred to
another. The condition which was inherent in the
elevated weight was transferred to the weight which
was not elevated; that is, the potential energy which
was a condition or quality of the elevated weight was
by a wrongful act transferred to another. But was
that condition or quality stolen in the sense that it was
a subject of lacerny as that crime is defined the world
over? Would the one who stole the battery after it had
been elevated to the ceiling, or the weight of the pile
driver after it had been elevated 50 feet in the air, be
guilty of a different offense than if he stole those
chattels before such elevation? Not at all. The weight
elevated had more value, in a sense, than one not
elevated; and the quality of elevation is considered
only in fixing value. It has nothing whatever to do with
the nature of the crime committed. It is impossible to
steal a quality or 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 up the
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 used something. In
larceny there must be a taking. Here there is only a
use. Electricity is a utility, not a thing. The company,
in the cease at bar, lost no more than did the owner of
the irrigation system in the example heretofore given.
As no water was taken, so no electricity was taken.
The same amount of water remained to the owner
after its use by A. The same amount of electricity
remained to the company after its use by the
defendant.
The well-known Italian author, Avv. Umberto Pipia, in
his very able work entitled "L' Electricita nel Diritto"
puts the question thus (translation of Mr. Percy R.
Angell, Manila, 1911):
From the point of view of the jurist can
electricity be stolen? A person connects a
deflecting wire to the main conduit of
electricity; he thus makes a secondary circuit
in which he introduces a resistance and profits
by the electro-motive power which is
developed, to supply his lamps or put his
motor in movement. In such case can we
apply article 402 of the Penal Code, which
provides that whoever takes possession of
movable property of another in order to derive
profit thereby, taking it from the place where
he finds it without the consent of the owner, is
punished with reclusion up to three years?
The author then refers to the decisions of certain
course of Europe which hold that electricity is
stealable, and continues:
The Roman court of cassation has lost sight of
that fundamental principle of interpretation of
law (a principle which it ought to have had well
in mind before applying to a new
manifestations of force legislative provisions
enacted in view of totally different cases) by
which penal laws do not extend beyond the
cases and the times in them expressed. Nulla
poena sine lege, is the rule in terms of penal
law, unless we wish to bring about a
deplorable confusion of powers, and the
judiciary desires to usurp the authority of the
legislator. If in the written laws gaps or breaks
are encountered, it is the duty of the court to
point them out to the legislator, to the end that
he take the necessary measures; but it is not
lawful for him by analogous interpretation to
apply a penal provision where such has not
been explicitly enacted.
In the unanimous opinion of jurist, two
elements are necessary to constitute the
crime of theft, legally speaking; the first is the
taking possession of the personal (movable)
property of another, contrectatio, and the
taking away of the thing from the place where
it is found without the consent of the person to
whom it belongs, ablatio.
Now we have conclusively shown that electric
current is not a thing, but a state, a vibration
following certain converging waves. It can not
therefore be taken possession of as the
personal property of another. A person who
unlawfully uses electric current for his
personal enjoyment places himself in a state
of unlawful enjoyment of a utility, but he does
not take possession of personal property. It
was a grave error, that of the court of
cassation, in holding electric current to be a
thing imprisoned in wires, and composed of
particles that can be subtracted. In connecting
a second circuit one does not subtract electric
current; not a particle of electric energy enters
into the possession of the so-called thief ; the
same amount in amperes that was found and
derived on connecting the second circuit, is
found at the end of this circuit. The current
has only suffered a diminution of potential;
while continuing to be of the same volume, it
becomes less adapted for the use intended,
because having overcome a resistance, it has
lost in potential, its electro-motive power.
. . . It leaves the circuit in the same amount in
which it entered. Only its power for work has
diminished. Not a single particle or molecule
of electric current is taken by such abusive
use, only the state of undulation. The
movement that first follows the principal, and
then the second circuit, and by these
undulations the so-called thief illegally derives
benefit. But the extraordinary provisions of
crime are not applicable to all illegal actions.
Another powerful argument in favor of my
position is this: That in no case of usurpation,
the using of things protected by law (diritto)
that are not material things , do we speak of
theft. To repress abuses the legislator has
been obliged to establish special provisions of
law, but has explicitly recognized those
relating to theft to be inapplicable. A trade-
mark, trade-name, modello de fabrica, a
scientific or artistic work, undoubtedly
constitute objects of law similar to things; form
the contents of various juridical relations; have
more or less economic value; pertain to the
patrimony of the person who has produced
them or brought them into being. If a third
person makes use of the trade-mark or trade-
name, the scientific work or artistic production
of another, nobody denies that he takes
possession of a utility that does not belong to
him; that by the very illegal act he derives
profit, and at the same time diminishes the
patrimony of the person having legitimate
rights herein. But with all that, it has never
occurred to anyone to bring an action for theft
against the usurper of the firm name, the
counterfeit of the trade-mark or the plagiarist.
The legislator, desiring to protect this new
species of property, has provided special
repressive measures; but in their absence, the
courts can not apply the actio furti, because it
is not applicable to cases and conditions other
than those provided for.
If this be so, why different conceptions on the
score of electricity? Here likewise, there is no
subtraction of personal property, but the illegal
use of an advantage, of the right pertaining to
another, which remain however unchanged.
Hence the legal solution should be the same.
The second and not less essential condition of
theft is that of the ablatio, the necessity of
taking the thing from the place where it is
found. But here we have nothing of that; the
current is deviated from its course, true, but it
returns to the place where it was
undiminished. The statement in the foregoing
decision that there are particles transportable
from place to place is exact; the undulation is
in itself, it has its own efficiency, but it is
neither taken away nor subtracted. It has been
justly said that all that is done is to erect a
bridge over which the undulations of the
particles are transported in the wire attached,
but nothing corporeal passes from one wire to
another, since not one of the vibrating
particles moves with the current which flows
through the connected wire.
Consequently, in whatever aspect the
question is considered the presumption of
theft grows less. In fine, although there be a
usurpation of a utility to the prejudice of
another, it should not be held to constitute
theft, because that is the vulgar, not the legal
conception. That in civil and commercial law
we may resort to analogous interpretation,
and that, in the absence of special provisions
we should apply the rules which govern
similar matters and analogous cases, there is
no doubt. The courts can not refuse to say
what the law is (dire ie diritto) nor dismiss the
litigants on the pretext that the law had made
no provision for their case; and it is from this
concept that electricity, as a rule, in the
various relations where it constitutes the
object, is considered to be a thing, with all the
attributes of such. But the penal law is
restrictive; under certain aspects it is
exceptional. Here we have to do with
limitations and restrictions on the most sacred
rights of persons, the right to liberty, the right
to honor. And these rights can not be abridged
without definite and explicit provisions of the
law. Where these are lacking we can pray, as
I do, that they be supplied, but a decision in
such case is an arbitrary act (arbitro), not
justice: nulla poena sine lege.
xxx xxx xxx
So on the wrongful use of electric current;
profit is derived from its high potential which is
produced by the work and expenditure of
money on the part of the furnishing company;
the current is returned exactly as it was
delivered except it has lost a certain amount
of electromotive power that was illegally
(antigiuridicamente) employed to overcome
the resistance introduced by the third party.
xxx xxx xxx
. . . Penal law must be strictly construed (e di
interpretazione restrittiva). It punishes the
contractatio of a movable thing which is taken
from the place where it is found without the
consent of the owner. In the proposition under
discussion, we have not to do with movable
things, there is no true transporting to another
place; therefore the figura giuridica of theft is
wanting.
It can not be doubted that by movable things
is meant even liquids and fluids, because
these are material, concrete, and corporeal
things, but their physical external
manifestations can not affect the juridical
relation . But in our case there is not a thing,
fluid or liquid; there is a state of undulation, of
movement, which one uses illegally, assuming
however the obligation to indemnify for all the
damages resulting from his illicit action, but
there is no theft, any more than there would
be where a person applied a pulley to the
shaft of an engine in order to put his own
machinery in motion, so far as there would be
no appropriation. The current which injuriously
traverse the lamp or electric motor is not
appropriated or destroyed by the person who
uses it; it flows out from the lights and
continues its course in the
circuit undiminished in intensity; it has only
lost part of its power, because, having
encountered a resistance, it has developed
certain energy to overcome it, energy which
has produced light, traction, or mechanical
work.
Nor may it be said that electricity would then
be deprived of any legal protection. Do we not
have articles 1511 et seq. of the Civil Code
that provide for fraud? Is there not the civil
crime and quasi crime? To protect electric
energy is it necessary to imprison one who
uses it antigiuridicamente, while the letter of
the law does not consent? In any case it is
known that adducere inconveniens non est
solvere argumentum. As in the laws of our
country provision is made for the illegal use of
a firm name, trade-mark and works of genius
(l' ingegno); in England, where provision has
been made for the matter we are discussing
they have enacted a law imposing severe
penalties upon persons who illegally use
electric energy, and I am of the first to applaud
them. But let there be laws, not merely judicial
opinion (arbitria di interpretati).
Nor does it avail to urge that when we have to
do with benefits that are useful to man, which
serve his ends, that he can appropriate, these
benefits are considered as things in the eyes
of the law. But it is necessary to make a
distinction. From the standpoint of the civil
law, they are, because a wide and analogous
construction is permissible and permitted; but
from that of the penal law, they are not,
because such construction is expressly
forbidden by article 4 of the preliminary
provisions of the Civil Code.
If a trade-mark is not a benefit to man, in what
does it serve him? Is not a literary or artistic
production such? Does not the counterfeiter
illegally appropriate such benefits? But if it is
required to inflict criminal penalties upon him,
a special law must be enacted; the provisions
relative to theft can be applied in his case.
xxx xxx xxx
Nor is it a conclusive argument to say that the
manufacturer spends large sums of money
and erects costly machinery to generate the
 electricity, and when others steal it from him,
such action, according to juridical conscience
and social morals, constitutes theft.
Let us suppose an individual acquires a ticket
of admission, and enters a hall where there is
being produced a play of some sort. He, on
the strength of the legal negotiation with the
impresario and the acquisition of the ticket has
a right to the most ample enjoyment that his
optical and acoustic senses are able to
realize. But he arranges a phonograph and a
cinematograph, and surreptitiously fixes and
appropriates part of the acoustic and visual
enjoyment that does not belong to him, takes
it outside of the theater and later avails
himself thereof to his benefit by reproducing
the harmony of the sounds and the optical
illusion of the scene. Is he liable for theft?
From the standpoint of the doctrine I am
combating, he is. The impresario has
sacrificed money or work to produce the
spectacle. Our friend has the right to enjoy it
to the limit of the capacity of his organs of
vision and hearing, but beyond that. By means
of suitable instruments he has caught up the
sounds, movements, and colors for the
purpose of gain, and he commits a theft
because there enter the correctatio and
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 Santiago F. Alidio for plaintiffs-appellants.
statutes. As we have seen already there is, relatively Marcos Mangubat in his own behalf and for co-
speaking, an enormous difference in the penalties defendant-appellee Conrado S. David.
prescribed by said law. That imposed by the
ordinance of the city of Manila can not in any event CONCEPCION, J.:
exceed six months' imprisonment and a fine of P200;
while that provided in the Penal Code may be as This is an appeal from an order of the Court of First
severe as four years and two months imprisonment, Instance of Manila in Civil Case No. 47664 thereof.
with indemnity equal to the value of the property The pertinent facts are set forth in said order from
stolen, with corresponding subsidiary imprisonment in which we quote:
case of nonpayment. To this must be added all those
accessory penalties prescribed by the code, such as
It appears from the complaint that on
suspension from any public office, profession or trade,
December 11, 1948, defendant herein
and from the right the suffrage. To me it is wholly
Conrado S. David received a loan of P3,000
unbelievable that, under the circumstances of this
with interest at 12% per annum from Claudia
case and the nature of the offense itself, it was the
B. Vda. de Uy Kim, one of the plaintiffs, and to
intention of the legislative authority to permit the
secure the payment of the same, Conrado S.
concurrent existence of two laws, both in force,
David executed a chattel mortgage on a
punishing the same crime with penalties which bear
house situated at 1259 Sande Street, Tondo,
no relation to each other and which are widely
Manila; that the chattel mortgage was
different in severity. Note what results from such a
registered with the Register of Deeds of
holding. Prosecution under the ordinance must be in
Manila on December 19, 1948; that on
the municipal court. Prosecution under the Penal
February 10, 1953, the mortgaged house was
Code may be in the municipal court or it may be and
sold at public auction to satisfy the
generally must be, as in this case, in the Court of First
indebtedness to Claudia B. Vda. de Uy Kim,
Instance. But it is certain that, under the
and the house was sold to Claudia B. Vda. de
ordinance, every case may be prosecuted in the
Uy Kim in the said foreclosure proceedings;
municipal court, whatever the value of the electricity
that on March 22, 1954, Claudia B. Vda. de
taken; or, if the value is sufficient, the prosecution
Uy Kim sold the said house to Marcos
may be brought in the Court of First Instance. The
Mangubat, and on March 1, 1956. Marcos
selection of the court is left to the complaint. This
Mangubat filed a complaint against Conrado
means that the complaint is able to say within certain
S. David, Civil Case No. 29078, in the Court of
limits what punishment shall be inflicted; for, if he
First Instance of Manila, for the collection of
desires that the accused shall be lightly punished he
the loan of P2,000; that on March 24, 1956,
will bring the action in the municipal court, which he
the complaint was amended to include the
always can do if he wish, and if he desires to punish
plaintiffs herein Salvador Piansay and Claudia
him very severely he will bring it in the Court of First
B. Vda. de Uy Kim as party defendants and
Instance, which he can generally do if he cares to. It
praying that auction sale executed by the
is incoceivable that the legislature intended that such
Sheriff on February 10, 1953, and the deed of
a condition should exist. It is in violation of every
absolute sale executed by Claudia B. Vda. de
sense of fairness, is against every rule of statutory
Uy Kim in favor of Salvador Piansay be
construction, and is clearly inimical to public policy. To
annulled; that decision was rendered in Civil
assert that the complaining in which he shall
Case No. 29078 ordering Conrado S. David to
prosecute the accused but also, in effect, the crime of
pay the plaintiff the sum of P2,000, damages
which he shall be charged, as the decision in this
and attorney's fees, and dismissing the
case holds in effect, is to assert a proposition, the
complaint with respect to Claudia B. Vda. de
bare statement of which is its own completest
Uy Kim, Leonardo Uy Kim and Salvador
refutation.
Piansay; that upon appeal, the Court of
Appeals affirmed the decision but setting
For these reasons the judgment of conviction should aside the award of damages in favor of
be reversed. Claudia B. Vda. de Uy Kim; that in the
execution of Civil Case No. 29078, which was
G.R. No. L-19468 October 30, 1964 affirmed by the Court of Appeals in CA-G.R.
No. 21797-R, the house, which had been
SALVADOR PIANSAY and CLAUDIA V. VDA. DE bought by Uy Kim at the foreclosure
UY KIM, plaintiffs-appellants, proceedings and sold by her to Salvador
vs. Piansay, was levied upon at the instance of
CONRADO S. DAVID and MARCOS the defendant Marcos Mangubat; that to
MANGUBAT, defendants-appellees. 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.
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. 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
Decision1 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 1avv phil.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 Resolution11 on January
28, 2000, finding probable cause for theft under
Article 308 of the Revised Penal Code and
Presidential Decree No. 40112 against the
respondents therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an
Information with the RTC of Makati City charging
Matsuura, Miyake, Lacson and Villegas with theft
under Article 308 of the Revised Penal Code. After
conducting the requisite preliminary investigation, the
State Prosecutor filed an Amended Information
impleading Laurel (a partner in the law firm of Ingles,
Laurel, Salinas, and, until November 19, 1999, a
member of the board of directors and corporate
secretary of Baynet), and the other members of the
board of directors of said corporation, namely, Yuji
Hijioka, Yasushi Ueshima, Mukaida, Lacson and
Villegas, as accused for theft under Article 308 of the
Revised Penal Code. The inculpatory portion of the
Amended Information reads:
On or about September 10-19, 1999, or prior thereto,
in Makati City, and within the jurisdiction of this
Honorable Court, the accused, conspiring and
confederating together and all of them mutually
helping and aiding one another, with intent to gain
and without the knowledge and consent of the
Philippine Long Distance Telephone (PLDT), did then
and there willfully, unlawfully and feloniously take,
steal and use the international long distance calls
belonging to PLDT by conducting International Simple
Resale (ISR), which is a method of routing and
completing international long distance calls using
lines, cables, antennae, and/or air wave frequency
which connect directly to the local or domestic
exchange facilities of the country where the call is
destined, effectively stealing this business from PLDT
while using its facilities in the estimated amount of
P20,370,651.92 to the damage and prejudice of
PLDT, in the said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion
to Defer Arraignment)" on the ground that the factual
allegations in the Amended Information do not
constitute the felony of theft under Article 308 of the
Revised Penal Code. He averred that the Revised
Penal Code, or any other special penal law for that
matter, does not prohibit ISR operations. He claimed
that telephone calls with the use of PLDT telephone
lines, whether domestic or international, belong to the
persons making the call, not to PLDT. He argued that
the caller merely uses the facilities of PLDT, and what
the latter owns are the telecommunication
infrastructures or facilities through which the call is
made. He also asserted that PLDT is compensated
for the 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
Order16 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,20 where the Court ruled that interest in
business is personal property capable of
appropriation. It further declared that, through their
ISR operations, the movant and his co-accused
deprived PLDT of fees for international long distance
calls, and that the ISR used by the movant and his co-
accused was no different from the "jumper" used for
stealing electricity.
Laurel then filed a Petition for Certiorari with the CA,
assailing the Order of the RTC. He alleged that the
respondent judge gravely abused his discretion in
denying his Motion to Quash the Amended
Information.21 As gleaned from the material averments
of the amended information, he was charged with
stealing the international long distance calls belonging
to PLDT, not its business. Moreover, the RTC failed to
distinguish between the business of PLDT (providing
services for international long distance calls) and the
revenues derived therefrom. He opined that a
"business" or its revenues cannot be considered as
personal property under Article 308 of the Revised
Penal Code, since a "business" is "(1) a commercial
or mercantile activity customarily engaged in as a
means of livelihood and typically involving some
independence of judgment and power of decision; (2)
a commercial or industrial enterprise; and (3) refers to
transactions, dealings or intercourse of any nature."
On the other hand, the term "revenue" is defined as
"the income that comes back from an investment (as
in real or personal property); the annual or periodical
rents, profits, interests, or issues of any species of
real or personal property."22
Laurel further posited that an electric 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. Carlos28 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,80 declaring that neither time nor
services may be taken and carried away and are not
proper subjects of larceny, the General Assembly of
Virginia enacted Code No. 18-2-98 which reads:
Computer time or services or data processing
services or information or data stored in connection
therewith is hereby defined to be property which may
be the subject of larceny under § § 18.2-95 or 18.2-
96, or embezzlement under § 18.2-111, or false
pretenses under § 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the
Penal Code of Alabama of 1975 penalizes theft of
services:
"A person commits the crime of theft of services if: (a)
He intentionally obtains services known by him to be
available only for compensation by deception, threat,
false token or other means to avoid payment for the
services …"
In the Philippines, Congress has not amended the
Revised Penal Code to include theft of services or
theft of business as felonies. Instead, it approved a
law, Republic Act No. 8484, otherwise known as the
Access Devices Regulation Act of 1998, on February
11, 1998. Under the law, an access device means
any card, plate, code, account number, electronic
serial number, personal identification number and
other telecommunication services, equipment or
instrumentalities-identifier or other means of account
access that can be used to obtain money, goods,
services or any other thing of value or to initiate a
transfer of funds other than a transfer originated
solely by paper instrument. Among the prohibited acts
enumerated in Section 9 of the law are the acts of
obtaining money or anything of value through the use
of an access device, with intent to defraud or intent to
gain and fleeing thereafter; and of effecting
transactions with one or more access devices issued
to another person or persons to receive payment or
any other thing of value. Under Section 11 of the law,
conspiracy to commit access devices fraud is a crime.
However, the petitioner is not charged of violation of
R.A. 8484.
Significantly, a prosecution under the law shall be
without prejudice to any liability for violation of any
provisions of the Revised Penal Code inclusive of
theft under Rule 308 of the Revised Penal Code and
estafa under Article 315 of the Revised Penal Code.
Thus, if an individual steals a credit card and uses the
same to obtain services, he is liable of the following:
theft of the credit card under Article 308 of the
Revised Penal Code; violation of Republic Act No.
8484; and estafa under Article 315(2)(a) of the
Revised Penal Code with the service provider as the
private complainant. The petitioner is not charged of
estafa before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic
Commerce Act of 2000 provides:
Sec. 33. Penalties.— The following Acts shall be
penalized by fine and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized
access into or interference in a computer
system/server or information and communication
system; or any access in order to corrupt, alter, steal,
or destroy using a computer or other similar
information and communication devices, without the
knowledge and consent of the owner of the computer
or information and communications system, including
the introduction of computer viruses and the like,
resulting on the corruption, destruction, alteration,
theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of
One hundred thousand pesos (P100,000.00) and a
maximum commensurate to the damage incurred and
a mandatory imprisonment of six (6) months to three
(3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is
GRANTED. The assailed Orders of the Regional Trial
Court and the Decision of the Court of Appeals are
REVERSED and SET ASIDE. The Regional Trial
Court is directed to issue an order granting the motion
of the petitioner to quash the Amended Information.
SO ORDERED.
VALDES v. CENTRAL
ALTAGRACIA(1912)
No. 193
Argued: Decided: May 27, 1912
Messrs. F. Kingsbury Curtis,
[225 U.S. 58, 59]
Hugo Kohlmann, and Martin Travieso, Jr., for
Valdes.
Messrs. N. B. K. Pettingill and Frederick L.
Cornwell for Central Altagracia.
Mr. Francis H. Dexter for Nevers & Callaghan.
Mr. Chief Justice White delivered the opinion of
the court:
These cases were consolidated below, tried
together, a like statement of facts was made
applicable to both, and the court disposed of
them in one opinion. We shall do likewise.
Stating only things deemed to be essential as
shown by the pleadings and documents
annexed to them and the finding of facts made
below, the case is this: Joaquin Sanchez
owned in Porto Rico a tract of land of about 22
acres (cuerdas) on which was a sugar house
containing a mill for crushing cane and an
evaporating apparatus for manufacturing the
juice of the cane into sugar. All of the
machinery was antiquated and of a limited
capacity. The establishment was known as the
Central Altagracia, and Sanchez, while not a
cane grower, carried on the business of a
central,-that is, of acquiring cane grown by
others and manufacturing it into sugar at his
factory. On the 18th day of January, 1905,
Sanchez leased his land and plant to Salvador
Castello for a period of ten years. The lease
gave to the tenant (Castello), the right to install
in the plant 'such machinery as he may deem
convenient, which said machinery, at the
end [225 U.S. 58, 60] of the years mentioned
(the term of the lease) shall become the
exclusive property' of the lessor, Sanchez. The
tenant was given one year in which to begin
the work of repairing and improving the plant,
and it was provided that 'upon the expiration of
this term, if the necessary improvements shall
not have been begun by him (Castello), then
this contract shall be null and void, and no
cause of action shall accrue to any of the
contracting parties by reason thereof.' Further
agreeing on the subject of the improved
machinery which was to be placed in the plant,
the contract provided: 'Upon the expiration of
the term agreed on under this contract, any
improvement or machinery installed in the said
central shall remain for the benefit of Don
Joaquin Sanchez, and Don Salvador Castello
shall have no right to claim anything for the
improvements made.' The rental was thus
provided for: 'After each crop such profits as
may be produced by the Central Altagracia
shall be distributed and twenty-five per cent
(25%) thereof shall be immediately paid to Don
Joaquin Sanchez as equivalent for the rental of
said central and of the twenty-two (22) cuerdas
of land surrounding the same. The remaining
seventy-five per cent ( 75%) shall belong to
Don Salvador Castello, who may interest
therein whomsoever he may wish, either for
the whole or part thereof.' It was stipulated,
however, that in fixing the profits no charge
should be made for repairs of the existing
machinery or for new machinery put in, as the
entire cost of these matters was to be borne by
the lessee, Castello. The lease provided,
moreover, that in case of the death of Sanchez
the obligations of the contract should be
binding on his heirs, and in the case of the
death of Castello, his brother, Gerardo
Castello, should take his place 'and be a
contracting party if he so desired. Otherwise
the plantation, in such a condition at it may be
at his death, shall immediately pass into the
possession of its owner, Don Joaquin
Sanchez.' In June, [225 U.S. 58, 61] 1905, by a
supplementary contract, the lease was
extended without change of its terms and
conditions for an additional period of ten years,
making the total term twenty years. Although
executed under private signature, this lease,
conformably to the laws of Porto Rico, was
produced before, a notary and made authentic,
and in such form was duly registered on the
public records, as required by the Porte Rican
laws.
On the 1st day of July, 1905, Salvador and
Gerardo Castello transferred all their rights
acquired under the lease, as above stated, to
Frederick L. Cornwell for 'the corporation to be
organized under the name of Central
Altagracia, of which he is the trustee.' This
transfer bound the corporation to all the
obligations in favor of the original lessor,
Sanchez, provided that the corporation should
issue to Castello a certain number of paid-up
shares of its capital stock and a further number
of shares as the output of sugar from the plant
increased as the result of its enlarged capacity
consequent upon the improvement of the
machinery by the corporation. The lease
further provided for the employment of Castello
as superintendent at a salary, for a substitution
of Gerardo Castello, in the event of the
absence or death of his brother Salvador, and,
for this reason, it is to be assumed Gerardo
made himself a party to the transfer of the
lease. This transfer of the lease to the
corporation was never put upon the public
records. The corporation was organized under
the laws of the state of Maine, and under the
transfer took charge of the plant. The season
for grinding cane and the manufacture of sugar
in Porto Rico usually commences 'about the
month of December of each year, and
terminates in the months of May, June, or July
of the year following, according to the amount
of cane to be ground.' Central factories in Porto
Rico usually 'make contracts with the people
(colonos) growing cane, so that growers of
cane will deliver the same to be ground, and
such contracts [225 U.S. 58, 62] are usually
made and entered into in the months of June,
July, and August.' In other words, on the
termination of one grinding season, in the
months of June or July, it is usual in the
ensuing August to make new contracts for the
cane to be delivered in the following grinding
season, which, as we have said, commences
in December. The contract transferring the
lease to the Central Altagracia, Incorporated,
was made in July, 1905, at the end, therefore,
of the grinding season of that year. To what
extent the corporation contracted for cane to
be delivered to it for grinding during the season
of 1905-06, which began in December, 1905,
does not appear. It is inferable, however, that
the corporation began the work of installing
new machinery to give the plant a larger
capacity within the year stipulated in the lease
from Sanchez to Castello. We say this because
it is certain that in the fall of 1906 (October) the
corporation borrowed from the commercial firm
of Nevers & Callaghan in New York city, the
sum of twenty-five thousand dollars ($25,000)
to enable the corporation to pay for new and
enlarged machinery which it had ordered, and
which was placed in the factory in time to be
used in the grinding season of 1906-07, which
began in December, 1906. While such grinding
season was progressing, on April 11, 1907, the
corporation, through its president, under the
authority of its board of directors, sold to one
Ramon Valdes all its rights acquired under the
lease transferred by Castello. This transfer
expressly included all the machinery previously
placed by the corporation in the sugar house,
as well as machinery which might be thereafter
installed during the term of redemption
hereafter to be referred to, and which, it was
declared, conformably to the original lease,
'shall be a part of said factory for the
manufacture of sugar.' The consideration for
the sale was stated in the contract to be 'thirty-
five thousand dollars ($ 35,000) received by
the corporation, twenty-five thousand four
hundred dol- [225 U.S. 58, 63] lars ($25,400)
whereof had been paid prior to this act (of
sale), and to its entire satisfaction, and the
balance of nine thousand six hundred dollars
($9,600) shall be turned over to the vendor
corporation by Senor Valdes immediately upon
being required to do so by the former.' This
sale was made subject to a right to redeem the
property within a year on paying Valdes the
entire amount of his debt. There was a
stipulation that Valdes assumed all the
obligations of the lease transferred by Castello
to the company.
The undoubted purpose was not to interfere
with the operation of the plant by the
corporation, since there was a provision in the
contract binding Valdes to lease the property to
the corporation pending the period of
redemption. This sale was passed in Porto
Rico before a notary public, but was never put
upon the public records. At the time it was
made there was a very considerable sum
unpaid on the debt of Nevers & Callaghan.
This fact, joined with the period when the sale
with the right to redeem was made, that is, the
approaching end of the sugar-making season
of 1906 and 1907, coupled with other facts to
which we shall hereafter make reference, all
tend to establish that at that time, either
because insufficient capital had been put into
the venture, or because the business had been
carried on at a loss, the affairs of the
corporation were embarrassed, if it was not
insolvent. A short while before the
commencement of the grinding season of
1907-1908, in October, 1907, in the city of New
York, the corporation, through its president,
declaring himself to be authorized by the board
of directors, sanctioned by a vote of the
stockholders, apparently made an absolute
sale of all the rights of the corporation under
the lease, and all its title to the machinery
which the corporation had put into the plant.
This sale was declared to be for a
consideration of sixty-five thousand ($65,000)
dollars which the company acknowledged to
have received from Valdes, first, by the
payment of the thirty- [225 U.S. 58, 64] five
($35,000) dollars cash, as stated in the
previous sale made subject to the equity of
redemption, and thirty thousand ($30,000)
dollars which 'the company has received
afterwards in cash from Valdes.' There was a
provision in the contract to the effect that as
the purpose of the previous contract of sale,
which had been made subject to the equity of
redemption, was accomplished by the new
sale, the previous sale was declared to be no
longer operative.
A few days afterwards, likewise in the city of
New York (on November 2, 1907), Valdes sold
to the company all the rights which he had
acquired from it by the previous sale, the price
being sixty-five thousand ($65,000) dollars,
payable in instalments falling due in the years
1908, 1909, 1910, and 1911, respectively. This
transfer was put in the form of a conditional
sale which reserved the title in Valdes until the
payment of the deferred price, and upon the
stipulation that any default by the corporation
entitled Valdes ipso facto to take possession of
the property. Neither this act of sale from
Valdes to the corporation nor the one made by
the corporation to Valdes were ever put upon
the public records.
Prior to the making of the sales just stated, or
about that time, the corporation defaulted in the
payment of a note held by Nevers & Callaghan
for a portion of the money which they had
loaned the corporation under the
circumstances which we have previously
stated, and that firm sued in the court below
the corporation to recover the debt.
The grinding season of 1907-1908 commenced
in December, 1907, and was obviously not a
successful one, for the debt of Nevers &
Callaghan was not paid, and in May, 1908, a
judgment was recovered by them against the
corporation for about $17,000, with interest,
and in the same month execution was issued
and levied upon the machinery in the sugar
house. Previous to, or not long subsequent to,
the time Nevers & Cal- [225 U.S. 58, 65] laghan
commenced their suit, the precise date not
being stated in the record, the heirs of
Sanchez, the original lessor, brought a suit in
the court below against the corporation. The
nature of the suit and the relief sought is not
disclosed, but it is inferable from the facts
stated that the suit either sought to recover the
property on the ground that there was no
power in Castello to transfer the lease, or upon
the ground of default in the conditions as to
payment of profits as rental which the lease
stipulated. It would seem also at about the
same time either one or both of the Castellos
brought a suit against the company,
presumably upon the theory that there had
been a default in the obligations assumed in
their favor by the corporation at the time it took
the transfer of the lease. In the meanwhile
also, probably as the result of the want of
success of the corporation, discord arose
between its stockholders, and a suit growing
out of that state of things was brought in the
lower court.
This litigation was commenced in June, 1908,
by the bringing by Valdes of an action at law in
the court below to recover the plant on the
ground that, by the default in paying one of the
instalments of the price stated in the
conditional sale, the right to the relief prayed
had arisen. On the same day Valdes
commenced a suit in equity against the
corporation in aid of the suit at law. The bill
alleged the default of the corporation, the
bringing of the suit at law, the confusion in the
affairs of the corporation, the judgment and
levy of the execution by Nevers and Callaghan,
and the threat to sell the machinery under such
execution; the refusal of the corporation to
deliver possession of the property, the waste
and destruction of the value of the property
which would result if there was no one
representing the corporation having power to
contract for cane to be delivered during the
next grinding season, etc., etc. The prayer was
for the appointment of a receiver to take
charge of the property, with au- [225 U.S. 58,
66] thority to carry on the same, make the
necessary contracts for cane for the future, it
being prayed that the receiver should be
empowered to issue receiver's certificates to
the extent necessary to the accomplishment of
the purposes which the bill had in view.
On the same day a bill was filed on behalf of
the corporation against Valdes. This bill
atacked the sale made to Valdes and by him to
the corporation. It was charged that the price
stated to have been paid by Valdes as a
consideration of the conditional sale was
fictitious, and that the only sum he had
advanced at that time was the $35,000 which it
was the purpose to secure by means of the
sale with the equity of redemption. That at that
time Valdes exacted as a consideration for his
loan that he be made a director and vice
president of the company. The bill then stated
that, it having become evident in the following
autumn that the corporation would require
more money to increase its plant, to pay off the
sum due Nevers & Callaghan, and for the
operation of the plant, Valdes agreed to
advance the money if he were made president
of the company at a stipulated salary, given a
bonus in the stock of the company, and upon
the condition that the papers be executed
embodying the socalled sale of the company to
Valdes and the practically simultaneous
conditional sale by Valdes to the company. The
bill then alleged that Valdes, having thus
become the president of the company, failed to
carry out his agreement to advance the money,
failed to provide for the debt of Nevers &
Callaghan, mismanaged the affairs of the
property in many alleged particulars, and did
various acts to the prejudice of the company
and to his own wrongful enrichment, which it is
unnecessary to recapitulate. The necessity of
contracting for cane during the contract
season, in order that the plant might continue
during the next operating season to be a going
concern, and the waste and loss which would
otherwise [225 U.S. 58, 67] be occasioned, were
fully alleged. Valdes and the firm of Nevers &
Callaghan and the individual members of that
firm were made defendants. The prayer was
for the appointment of a receiver and with
power to carry on the business of the central,
with power, for that purpose, to contract for
cane for the coming season, with authority to
issue receiver's certificates for the purpose of
borrowing the money which might be required.
The judge, being about to leave Porto Rico for
a brief period, declined to appoint a permanent
receiver, but named a temporary one to keep
the property together until a further hearing
could be had, interference in the meanwhile
with the custodian being enjoined. Shortly
thereafter creditors of the corporation
intervened and joined in the prayer made by
both of the complainants for the appointment of
a receiver. In July the two suits were by order
consolidated, and after a hearing a receiver
was appointed and authority given him to
continue the property as a going concern and
to borrow a limited amount of money on
receiver's certificates, if necessary, to secure
contracts for cane for the coming crop season.
The execution of the Nevers & Callaghan
judgment was stayed pending an appeal which
had been taken to this court. The only
difference which seems to have arisen
concerning the appointment of the receiver
grew out of the fact that a prayer of the Central
Altagracia, asking the court to appoint as
receiver Mr. Pettingill, a member of the bar and
one of the counsel of the corporation, and who
was also its treasurer, was denied. Despite
this, the fair inference is that the ultimate action
of the court was not objected to by anyone,
because of the hope that the result of a
successful operation of the plant during the
coming crop season might ameliorate the
affairs of the corporation, and thus prevent
further controversies. We say this, not only
because of the conduct of the parties prior to
the order appointing the receiver, but
because, [225 U.S. 58, 68] after that order, the
solicitors of the Altagracia Company and
Valdes put a stipulation of record that until the
following October no steps whatever should be
taken in the proceedings, and not even then
unless the attorneys for both parties should be
in Porto Rico.
The hope of a beneficial result from the
operation of the plant by the receiver proved
delusive. As a result of such operation there
was a considerable loss represented by
outstanding receiver's certificates, with no
means of paying except out of the property.
Obviously, for this reason, the record contains
a statement that on July 12, 1909, a
conference was had between the court and all
parties concerned, to determine what steps
should be taken to meet the situation. It
appears that at that conference the counsel
representing the heirs of Sanchez and of
Nevers & Callaghan stated their opposition to a
continuance of the receivership.
On July 17, 1909, the court placed a
memorandum on the files, indicating its
purpose to bring the litigation, receivership,
etc., to an end, and to cause 'immediate issue
to be raised on the pleadings for that purpose.'
This memorandum was entitled in all the
pending causes concerning the property. It
directed that demurrers which had been filed in
the consolidated cause of Valdes against the
corporation and of the corporation against
Valdes be overruled, and the defendants were
required to answer on or before Monday, July
26, in order that upon the following day, the
27th of July, the issues raised might be tried
before the court without the intervention of a
master. It was provided in the order, however,
that nothing in this direction should prevent the
parties from filing such additional pleadings as
it is deemed necessary for the protection of
their rights by way of cross bill or amendment,
etc. To make the order efficacious it was
declared that nothing would be done in the suit
of the heirs of Sanchez against Castello and
the Altagracia, [225 U.S. 58, 69] which was
pending on appeal, and that a demurrer filed to
the suit of Castello against the central would be
overruled; that the demurrer in the suit at law of
Valdes would remain in abeyance to await the
final action of the court on the trial of all the
issues in the equity causes, and that a stay of
the Nevers & Callaghan execution would be
also disposed of when the equity cases came
to be decided. This order was followed by a
memorandum opinion filed on July the 21st,
stating very fully the position of the respective
suits, the necessity for action in order to
preserve the property from waste, and
reiterating the view that whatever might be the
rights of the Central Altagracia or of Valdes
under the lease, those rights would be
subordinate to the ultimate determination of the
suit brought by the heirs of Sanchez. To the
action of the court, as above stated, no
objection appears to have been made. On the
contrary, between the time of that order and
the perior fixed for the commencement of a
hearing, the Central Altagracia, Valdes, and
Nevers & Callaghan modified their pleadings to
the extent deemed by them necessary to
present for trial the issues upon which they
relied. In the case of the Central Altagracia this
was done by filing, on July 22, an amended bill
of complaint in its suit against Valdes, and on
July 26 its answer in the suit of Valdes. The
acceptance by Valdes of the terms of the order
was shown by an answer filed to the bill in the
suit of the company and the cross bill in the
same cause; and Nevers & Callaghan
manifested their acquiescence by obtaining
leave to make themselves parties, and
asserting their rights by cross bill and answers,
which it is unnecessary to detail.
When the consolidated cause was called for
trial on the morning of July 27, the counsel for
the Central Altagracia moved a continuance in
order to take the testimony of certain witnesses
in Philadelphia and New York for the purpose
of proving some of the allegations of the
complaint [225 U.S. 58, 70] as to the wrongdoing
of Valdes in administering the affairs of the
corporation. This application was supported by
the affidavit of Mr. Pettingill, the counsel of the
corporation. The record states that the request
for continuance was opposed by all the other
counsel, and the application was denied. In
doing so the court stated: 'That the matter has
been pending for more than a year, and that
counsel had full notice of the court's intention
to press the matters to issue and trial, and that
it is not disposed to delay matters at this time,
when the admissions of the pleadings are so
broad that the proofs available here in Porto
Rico are probably sufficient, and the amended
complaint already on file in suit No. 565,-
Valdes v. Central Altagracia,-and the answer
thereto and the answer recently filed in suit No.
564,-Central Altagracia v. Valdes [5 Porto Rico
Fed. Rep. 155],-as well as the cross bill also
recently filed in suit No. 465, make so many
allegations and admissions as that the real
issue between the parties can be plainly seen,
and that, in the opinion of the court, enough
proof is available here in Porto Rico.' The court
thereupon declared that the Altagracia
Company might by the next day, if it so
desired, file exceptions to the answer in suit
565 and an answer to the cross complaint;
indeed, that the corporation might, if it wished,
treat them as filed, and proceed with the cause
and file them at any convenient time thereafter.
Thereupon the record states: 'Said counsel for
the Central Altagracia stated that he desired
time to file exceptions to the answer and an
answer to the cross bill in suit No. 565; and the
court granted until the morning of July 28 for
such purpose. Later in the day of July 27, one
of the counsel for Valdes having requested the
court to postpone the hearing of the cause until
the morning of the 29th, because of an
unexpected professional engagement
elsewhere, the request was communicated by
the court to the other counsel in the cause.'
Thereupon the record again recites: 'Messrs.
Pettingill & [225 U.S. 58, 71] Cornwell, attorneys
for the Central Altagracia, stated that they
withdrew any statement they have hitherto
made in the cause in that regard, and desired
to be understood that they would not except to
the answer in suit No. 565, or plead or answer
to the cross bill therein, save and except within
the time which they contended the rules
governing this court of equity gave them, and
would stand upon what they considered their
rights in that regard.' When the court
assembled the next day, on the morning of the
28th, a statement concerning the occurrence of
the previous day as to the continuance, etc.,
just reviewed, was read by the court in the
presence of all the counsel, whereupon the
record recites: 'N. B. Pettingill, counsel for the
Central Altagracia, in response to the same,
stated that he objected to proceeding to take
any evidence in any of the causes at that time,
or the testimony of any witnesses, because the
same was not at issue or in condition for the
taking of evidence, and objected to the taking
of such evidence until the issues of said
causes are made up in accordance with the
rules of practice applicable to equity causes.'
The record further recites: 'Which objection
was overruled by the court on the ground that
the action called for thereby is not necessary.
That the bill was amended within three days;
an answer was immediately filed to it and a
cross bill also filed, the said cross bill making
only the same claims as were made in suit No.
563 at law, and that any way the issue could
be tried on the bill and answer in both suits.' . .
. This ruling of the court having been excepted
to, the trial proceeded from day to day, the
counsel for the Central Altagracia taking no
part in the same, and virtually treating the
proceedings as though they did not concern
that corporation.
In substance, the court decided: First, that as
the result of the contracts between Valdes and
the Central Altagracia, he was not the owner of
the rights of that corporation under the lease,
or of the machinery which [225 U.S. 58, 72] had
been placed in the sugar house by the
Altagracia Company, or of the other assets of
the corporation, but that he was merely a
secured creditor. The sum of the secured debt
was fixed after making allowances for some
not very material credits which the corporation
was held to be entitled to. Second, that the
judgment in favor of Nevers & Callaghan was
valid, and that that firm, by virtue of its
execution and levy upon the machinery, had a
prior right to Valdes. Third, the sums due to
various creditors of the corporation were fixed
and the equities or priorities were classified as
follows: (a) Taxes due by the corporation and
the sum of the receiver's certificates and
certain costs; (b) the judgment of Nevers &
Callaghan; and (c) the debt of Valdes; (d)
debts due the other creditors. Without going
into details it suffices to say that for the
purpose of enforcing these conclusions the
decree directed a sale of all the rights of the
Central Altagracia in and to the lease,
machinery, contract, etc., and imposed the
duty upon Valdes, if he became the purchaser,
to pay enough cash to discharge the costs,
taxes, receiver's certificates, and the claim of
Nevers & Callaghan.
These appeals were then prosecuted, the one
by the Central Altagracia and the other by
Valdes. We shall endeavor as briefly as may
be to dispose of the contentions relied upon to
secure a reversal.
1. The Central Altagracia appeal.-The alleged
errors insisted on in behalf of that company
relate to the asserted arbitrary action of the
court in forcing the cause to trial without
affording the time which it is insisted the
corporation was entitled to under the equity
rules applicable to the subject; and, second,
the refusal of the court to grant a continuance
upon the affidavit as to the absence of material
witnesses.
We think all the contentions on this subject are
demonstrated to be devoid of merit by the
statement of the case which we have made. In
the first place, it is mani- [225 U.S. 58, 73] fest
from that statement that the proceeding leading
up to the appointment of a receiver and the
power given to administer the property was
largely the result of the assent of the
corporation. In the second place, when the
unsuccessful financial issue of the receivership
had become manifest, we think the statement
makes it perfectly clear that the steps taken by
the court for the purpose of bringing the case
to a speedy conclusion, and thus avoiding the
further loss which would result to all interests
concerned, were also acquiesced in by all the
parties in interest who complied with the terms
of that order and took advantage of the rights
which it conferred. We think also the statement
makes it apparent that the refusal on the part
of the corporation to proceed with the trial,
upon the theory that the time to plead allowed
by the equity rules had not elapsed, was the
result of a change of view because of the
action of the court in refusing the continuance
on account of the absent witnesses,-a change
of front which was inconsistent with the rights
which the corporation had exercised in accord
with the order setting the cause for trial, and
with the rights of all the other parties to the
cause which had arisen from that order and
from the virtual approval of it, or at least
acquiescence in it, by all concerned.
Considering the assignments of error in so far
as they relate alone to overruling of the
application for continuance, based upon the
absence of witnesses, it suffices to say that the
elementary rule is that the granting of a
continuance of the cause was peculiarly within
the sound discretion of the court below,-a
discretion not subject to be reviewed on appeal
except in case of such clear error as to amount
to a plain abuse springing from an arbitrary
exercise of power. Instead of coming within this
latter category, we think the facts as to the
refusal to continue and the conduct of the
parties make it clear that there was not only no
abuse but a just exercise of discretion. [225 U.S.
58, 74] 2. As to the Appeal of Valdes.-Two
propositions are relied upon: First, that error
was committed in treating Valdes merely as a
secured creditor, and in not holding him to be
the absolute owner of the rights and property
alleged to have been transferred by the so-
called conditional sale. Second, that in any
event error was committed in awarding to
Nevers & Callaghan priority over Valdes.
The first proposition is supported by a
reference to the Porto Rican Code and
decisions of the Supreme Court of Spain and
the opinions of Spanish law writers. But the
contention is not relevant, and the authorities
cited to sustain it are inapposite to the case to
be here decided, because the argument rests
upon an imaginary premise; that is, that the
ruling of the court below denied that right under
the Spanish law to make a conditional sale, or
held that such a sale if made would not have
the effect which the argument insists it was
entitled to. This is true because the action of
the court was solely based upon a premise of
fact; viz., that under the circumstances of the
case, and in view of the prior sale with the
equity of redemption, the cancelation of that
sale, and the transfer made by the corporation
to Valdes, and the immediate transfer of the
same rights by him to the corporation in the
form of a conditional sale, the failure to register
any of the contracts, and the relation of Valdes
to the corporation at the time the contracts
were made, it resulted that whatever might be
the mere form, in substance and effect no
conditional sale was made, but a mere contract
was entered into which the parties intended to
be a mere security to Valdes for money
advanced and to be advanced by him. This
being the case, it is manifest that it is wholly
irrelevant to argue that error was committed in
not applying the assumed principles of the
Porto Rican and Spanish law governing in the
case of a conditional sale, when the ruling
which the court made proceeded upon the
conclusion that there was no conditional
sale. [225 U.S. 58, 75] The contention that,
under the Porto Rican law, the form was
controlling because proof of the substance was
not admissible, seems not to have been raised
below, but, if it had been, is obviously without
merit, as the case as presented involved not a
controversy alone between the parties to the
contract, but the effect and operation of the
contract upon third parties, the creditors of the
corporation. The contention is additionally
without merit, since it assumes that the mere
form of the contract excluded the power of
creditors to inquire into its reality and
substance, even although the contract was
never inscribed upon the public records so as
to bind third parties. That its character was
such as to require inscription we shall in a few
moments demonstrate in coming to consider
the second proposition; that is, upon the
hypothesis that Valdes was but a secured
creditor, was error committed in subordinating
his claim to the prior claim of Nevers &
Callaghan under their judgment and
execution?
To determine this question involves fixing the
nature and character of the property from the
point of view of the rights of Valdes, and its
nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of
the Altagracia Company, and the rights derived
by them from the execution levied on the
machinery placed by the corporation in the
plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real)
property, not only land and buildings, but also
attributes immovability in some cases to
property of a movable nature; that is, personal
property, because of the destination to which it
is applied. 'Things,' says 334 of the Porto
Rican Code, 'may be immovable either by their
own nature or by their destination, or the object
to which they are applicable.' Numerous
illustrations are given in the 5th subdivision of
article 335, which is as follows: 'Machinery,
vessels, instruments, or [225 U.S. 58,
76] implements intended by the owner of the
tenements for the industry or works that they
may carry on in any building or upon any land,
and which tend directly to meet the needs of
the said industry or works.' See also Code
Napoleon, articles 516, 518, et seq., to and
inclusive of article 534, recapitulating the things
which, though in themselves movable, may be
immobilized. So far as the subject-matter with
which we are dealing,- machinery placed in the
plant,-it is plain, both under the provisions of
the Porto Rican law and of the Code Napoleon,
that machinery which is movable in its nature
only becomes immobilized when placed in a
plant by the owner of the property or plant.
Such result would not be accomplished,
therefore, by the placing of machinery in a
plant by a tenant or a usufructuary or any
person having only a temporary right.
Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit.
2, p. 12, 164; Laurent, Tit. 5, No. 447; and
decisions quoted in Fuzier-Herman ed. Code
Napoleon, under article 522 et seq. The
distinction rests, as pointed out by
Demolombe, upon the fact that one only having
a temporary right to the possession or
enjoyment of property is not presumed by the
law to have applied movable property
belonging to him so as to deprive him of it by
causing it, by an act of immobilization, to
become the property of another. It follows that,
abstractly speaking, the machinery put by the
Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable
property and become immovable by
destination. But, in the concrete, immobilization
took place because of the express provisions
of the lease under which the Altagracia held,
since the lease in substance required the
putting in of improved machinery, deprived the
tenant of any right to charge against the lessor
the cost of such machinery, and it was
expressly stipulated that the machinery so put
in should become a part of the plant belonging
to the owner without compensation to the
lessee. [225 U.S. 58, 77] Under such conditions
the tenant, in putting in the machinery, was
acting but as the agent of the owner, in
compliance with the obligations resting upon
him, and the immobilization of the machinery
which resulted arose in legal effect from the act
of the owner in giving by contract a permanent
destination to the machinery. It is true, says
Aubry and Rau, vol. 2, 164, 2, p. 12, that 'the
immobilization with which the article is
concerned can only arise from an act of the
owner himself or his representative. Hence the
objects which are dedicated to the use of a
piece of land or a building by a lessee cannot
be considered as having become immovable
by destination except in the case where they
have been applied for account of the
proprietor, or in execution of an obligation
imposed by the lease.' It follows that the
machinery placed by the corporation in the
plant, by the fact of its being so placed, lost its
character as a movable, and became united
with and a part of the plant as an immovable by
destination. It also follows that as to Valdes,
who claimed under the lease, and who had
expressly assumed the obligations of the
lease, the machinery, for all the purposes of
the exercise of his rights, was but a part of the
real estate,-a conclusion which cannot be
avoided without saying that Valdes could at
one and the same time assert the existence in
himself of rights, and yet repudiate the
obligations resulting from the rights thus
asserted.
Nevers & Callaghan were creditors of the
corporation. They were not parties to nor had
they legal notice of the lease and its conditions
from which alone it arose that machinery put in
the premises by the Altagracia became
immovable property. The want of notice arose
from the failure to record the transfer from
Castello to the Altagracia, or from the
Altagracia to Valdes, and from Valdes
apparently conditionally back to the
corporation,-a clear result of 613 of the Civil
Code of Porto Rico, providing, 'The titles of
ownership or of other real rights relating [225
U.S. 58, 78] to immovables which are not
properly inscribed or annotated in the registry
of property shall not be prejudicial to third
parties.' It is not disputable that the duty to
inscribe the lease by necessary implication
resulted from the general provisions of article 2
of the mortgage law of Porto Rico, as stated in
paragraphs 1, 2, and 3 thereof, and explicitly
also arose from the express requirement of
paragraph 6, relating to the registry of
'contracts for the lease of real property for a
period exceeding six years. . . .' It is true that,
in a strict sense, the contracts between
Castello and the Altagracia Company and with
Valdes were not contracts of lease, but for the
transfer of a contract of that character. But
such a transfer was clearly a contract
concerning real rights to immovable property
within the purview of article 613 of the Civil
Code, just previously quoted. Especially is this
the case in view of the stipulations of the lease
as to the immobilization of movable property
placed in the plant, and the other obligations
imposed upon the lessee. 'The sale which a
lessee makes to a third person to whom he
transfers his right of lease is the sale of an
immovable right, and not simply a sale of a
movable one.' See numerous decisions of the
courts of France, beginning with the decision
on February 2, 1842, of the court of cassation
(Journal du Palais [225 U.S. 58, 1842] vol. 1,
171). See also numerous authorities collected
under the heading above stated in paragraph
21, under articles 516, 517, and 518 of the
Code Napoleon. Fuzier-Herman ed. of that
Code, p. 643.
The machinery levied upon by Nevers &
Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as
regards Nevers & Callaghan, movable
property, it follows that they had the right to
levy on it under the execution upon the
judgment in their favor, and the exercise of that
right did not in a legal sense conflict with the
claim of Valdes, since as to him the property
was a part of the realty, which, as the
result [225 U.S. 58, 79] of his obligations under
the lease, he could not, for the purpose of
collecting his debt, proceed separately against.
As a matter of precaution we say that nothing
we have said affects the rights, whatever they
may be, of the heirs of Sanchez, the original
lessor.
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.