Property Cases for HW No. 1 07.08.15

Assigned Cases

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-16513 January 18, 1921

THE UNITED STATES, plaintiff-appellee, vs.MANUEL TAMBUNTING, defendant-appellant.

Manuel Garcia Goyena for appellant.Acting Attorney-General Feria for appellee.

STREET, J.:

This appeal was instituted for the purpose of reversing a judgment of the Court of First Instance of the city of Manila, finding the accused, Manuel Tambunting, guilty of stealing a quantity of gas belonging to the Manila Gas Corporation, and sentencing him to undergo imprisonment for two months and one day, of arresto mayor, with the accessories prescribed by law; to indemnify the said corporation in the sum of P2, with subsidiary imprisonment in case of insolvency; and to pay the costs.

The evidence submitted in behalf of the prosecution shows that in January of the year 1918, the accused and his wife became occupants of the upper floor of the house situated at No. 443, Calle Evangelista, in the city of Manila. In this house the Manila Gas Corporation had previously installed apparatus for the delivery of gas on both the upper and lower floors, consisting of the necessary piping and a gas meter, which last mentioned apparatus was installed below. When the occupants at whose request this installation had been made vacated the premises, the gas company disconnected the gas pipe and removed the meter, thus cutting off the supply of gas from said premises.

Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and found that gas was being used, without the knowledge and consent of the gas company, for cooking in the quarters occupied by the defendant and his wife: to effect which a short piece of iron pipe had been inserted in the gap where the gas meter had formerly been placed, and piece of rubber tubing had been used to connect the gas pipe of rubber tubing had been used to connect the gas pipe in kitchen with the gas stove, or plate, used for cooking.

At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he presently arrived and admitted to the agent to the gas company that he had made the connection with the rubber tubing between the gas pipe and the stove, though he denied making the connection below. He also admitted that he knew he was using gas without the knowledge of the company and that he had been so using it for probably two or three months.

The clandestine use of gas by the accused in the manner stated is thus established in our opinion beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only remains to consider, first, whether gas can be the subject to larceny and, secondly, whether the quantity of gas appropriated in the two months, during which the accused admitted having used the same, has been established with sufficient certainty to enable the court to fix an appropriate penalty.

Some legal minds, perhaps more academic than practical, have entertained doubt upon the question whether gas can be the subject of larceny; but no judicial decision has been called to our attention wherein any respectable court has refused to treat it as such. In U.S. vs. Genato (15 Phil., 170, 175), this court, speaking through Mr. Justice Torres, said ". . . the right of the ownership of electric current is secured by article 517 and 518 of the Penal Code; the application of these articles in cases of subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of that country, articles identical with articles 517 and 518 of the code in force in these Islands." These

expressions were used in a case which involved the subtraction and appropriation of electrical energy and the court held, in accordance with the analogy of the case involving the theft of gas, that electrical energy could also be the subject of theft. The same conclusion was reached in U.S. vs. Carlos (21 Phil., 553), which was also a case of prosecution for stealing electricity.

The precise point whether the taking of gas may constitute larceny has never before, so far as the present writer is aware, been the subject of adjudication in this court, but the decisions of Spanish, English, and American courts all answer the question in the affirmative. (See U.S. vs. Carlos, 21 Phil., 553, 560.)

In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol. 17, of Ruling Case Law:

There is nothing in the nature of gas used for illuminating purposes which renders it incapable of being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like other personal property, susceptible of being severed from a mass or larger quantity and of being transported from place to place. Likewise water which is confined in pipes and electricity which is conveyed by wires are subjects of larceny."

As to the amount and value of the gas appropriated by the accused in the period during which he admits having used it, the proof is not entirely satisfactory. Nevertheless we think the trial court was justified in fixing the value of the gas at P2 per month, which is the minimum charge for gas made by the gas company, however small the amount consumed. That is to say, no person desiring to use gas at all for domestic purposes can purchase the commodity at a lower rate per month than P2. There was evidence before the court showing that the general average of the monthly bills paid by consumers throughout the city for the use of gas in a kitchen equipped like that used by the accused is from P18 to 20, while the average minimum is about P8 per month. We think that the facts above stated are competent evidence; and the conclusion is inevitable that the accused is at least liable to the extent of the minimum charge of P2 per month. The market value of the property at the time and place of the theft is of court the proper value to be proven (17 R.C.L., p. 66); and when it is found that the least amount that a consumer can take costs P2 per months, this affords proof that the amount which the accused took was certainly worth that much. Absolute certainty as to the full amount taken is of course impossible, because no meter wad used; but absolute certainty upon this point is not necessary, when it is certain that the minimum that could have been taken was worth a determinable amount.

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

The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518 of the Penal Code, for the gas taken in the course of two months a the rate of P2 per month. There being no aggravating or attenuating circumstance to be estimated, it results that the proper penalty is two months and one day of arresto mayor, as fixed by the trial court. The judgment will therefore be affirmed, with costs against the appellant, it being understood that the amount of the indemnity which the accused shall pay to the gas company is P4, instead of P2, with subsidiary imprisonment for one day in case of insolvency. So ordered.

Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.


Manila

EN BANC

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G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant, vs.CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.No appearance for the other appellees.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court erred in declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional machinery and equipment was approximately P100,000. In order to carry out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now in litigation.

On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment acquired by said B.A. Green and installed in the sugar central after the execution of the original mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not collected when the obligation falls due, and the amount of any indemnities paid or due the owner by the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the declarations, amplifications, and limitations established by law, whether the estate continues in the possession of the person who mortgaged it or whether it passes into the hands of a third person.

In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following doctrine:

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

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may be understood that the machinery and other objects placed upon and used in connection with a mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that the improvements, buildings, and machinery that existed thereon were also comprehended, it is indispensable that the exclusion thereof be stipulated between the contracting parties.

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

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

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

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

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

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

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

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.


Manila

EN BANC

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.

Avanceña, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ., concur.


Manila

EN BANC

G.R. No. L-17870 September 29, 1962

MINDANAO BUS COMPANY, petitioner, vs.THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City,respondents.

Binamira, Barria and Irabagon for petitioner.Vicente E. Sabellina for respondents.

LABRADOR, J.:

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This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts:

1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real properties are the following:

(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";

(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";

(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";

(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".

4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached photographs which form part of this agreed stipulation of facts;

5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable in the TPU land transportation business it operates;

6. That these machineries have never been or were never used as industrial equipments to produce finished products for sale, nor to repair machineries, parts and the like offered to the general public indiscriminately for business or commercial purposes for which petitioner has never engaged in, to date.1awphîl.nèt

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

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

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

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

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

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

Art. 415. — The following are immovable properties:

x x x x x x x x x

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

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

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

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

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

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other hand, machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said industries; but the delivery trucks and adding machines which they usually own and use and are found within their industrial compounds are merely incidental and retain their movable nature.

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

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

Art. 415. The following are immovable property:

x x x x x x x x x

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

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

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

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

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

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.Regala, Concepcion and Barrera JJ., took no part.


Manila

EN BANC

G.R. No. L-40411 August 7, 1935

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

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

MALCOLM, J.:

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

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

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

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

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of —

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

x x x x x x x x x

5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade of industry.

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

In the first place, it must again be pointed out that the appellant should have registered its protest before or at the time of the sale of this property. It must

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further be pointed out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.

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

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

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

x x x x x x x x x

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the Altagracia Company, being,

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

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance to be paid by the appellant.

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


Manila

FIRST DIVISION

G.R. No. L-50008 August 31, 1987

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

PARAS, J.:

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

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

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of defendant on the aforesaid date a deed of Real Estate Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total floor area of 263 sq. meters, more or less, generally constructed of mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed value of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot where the above property is erected, and more particularly described and bounded, as follows:

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A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the Assessor of Olongapo City with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

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

Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a rider typed at the bottom of the reverse side of the document under the lists of the properties mortgaged which reads, as follows:

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

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

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of Deeds of Zambales on November 23, 1971.

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

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

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

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

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

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

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

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

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

In its Memorandum, petitioner raised the following issues:

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

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

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

The answer is in the affirmative.

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

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

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot where the building was erected, was executed on November 19, 1971 and registered under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage was executed before the issuance of the final patent and before the government was divested of its title to the land, an event which takes effect only on the issuance of the sales

7

patent and its subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage executed by private respondent on his own building which was erected on the land belonging to the government is to all intents and purposes a valid mortgage.

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

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

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

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

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

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

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

SO ORDERED.

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


Manila

EN BANC

G.R. No. L-30173 September 30, 1971

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees, vs.ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J.:

Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only questions of law are involved.

This case was originally commenced by defendants-appellants in the municipal court of Manila in Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive portion of which follows:

WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and against the defendants, ordering the latter to pay jointly and severally the former a monthly rent of P200.00 on the house, subject-matter of this action, from March 27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956, the filing of the complaint, until fully paid, plus attorney's fees in the sum of P300.00 and to pay the costs.

It appears on the records that on 1 September 1955 defendants-appellants executed a chattel mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was payable on or before August, 1956. It was also agreed that default in the payment of any of the amortizations, would cause the remaining unpaid balance to becomeimmediately due and Payable and —

the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or any of his deputies is hereby empowered and authorized to sell all the Mortgagor's property after the necessary publication in order to settle the financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to the said contract. As highest bidder, plaintiffs-appellees were issued the corresponding certificate of sale. 3 Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying, among other things, that the house be

8

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 Ayala 10 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

9

In the contract now before Us, the house on rented land is not only expressly designated as Chattel Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage 23 the property together with its leasehold rights over the lot on which it is constructed and participation ..." 24Although 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.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Footnotes

1 Exhibit "A," page 1, Folder of Exhibits.

2 See paragraph "G," Exhibit "A," supra.

3 Exhibit "B," page 4, Folder of Exhibits.

4 Page 2, Defendants' Record on appeal, page 97, Rollo.

5 Page 20, Id., page 115, Rollo.

6 Now Section 2, Rule 70, Revised Rules of Court, which reads that —

"SEC. 2. Landlord, to proceed against tenant only after demand. — No landlord, or his legal representative or assign, shall bring such action against a tenant for failure to pay rent due or to comply with the conditions of his lease, unless the tenant shall have failed to pay such rent or comply with such conditions for a period of ... five (5) days in the case of building, after demand therefor, made upon him personally, or by serving written notice of such demand upon the person found on the premises, or by posting such notice on the premises if no persons be found thereon."

7 See CFI order of 20 February 1957, pages 21-25, Defendants' Record on Appeal.

8 Page 31, Defendants' Record on Appeal, page 213, Rollo.

10

9 See Municipal court decision, pages 17-18, Defendants' Record on Appeal, pages 199-200, Rollo.

10 59 Phil. 320-321.

11 Emphasis supplied.

12 L-19200, 27 February 1958, 22 SCRA 834; See also Aquino vs. Deala, 63 Phil. 582 and De los Reyes vs. Elepaño, et al., G.R. No. L-3466, 13 October 1950.

13 See Canaynay vs. Sarmiento, L-1246, 27 August 1947, 79 Phil. 36.

14 Last paragraph, Article 1290, N.C.C., supra.

15 No. L-10817-18, 28 February 1958, 103 Phil. 98.

16 No. L-10827-38, 30 May 1958, 103 Phil. 972.

17 No. L-8133, 18 May 1956, 99 Phil. 109.

18 No. L-20329, 16 March 1923, 44 Phil. 632.


20 No. L-4637, 30 June 1952, 91 Phil. 531.

21 No. L-18456, 30 November 1963, 9 SCRA 631.



24 See paragraph 2 of Exhibit "A," page 1, Folder of Exhibits.

25 Supra.

26 Supra.

27 See Navarro vs. Pineda, supra.

28 Effective 1 August 1906.

29 See Luna vs. Encarnacion, et al., No. L-4637, 30 June 1952, 91 Phil. 531.

30 See paragraph "G," Exhibit "A," supra.

31 Section 6, Act No. 3135, as amended, provides:

"In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successor in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundredand sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act." (Emphasis supplied) .

32 Section 7, Act No. 3135, as amended, states: .

"In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act..." (Emphasis supplied) .

33 See De Gracia vs. San Jose, et al., No. L-6493, 25 March 1954.

34 "SEC. 34. Rents and profits pending redemption. Statement thereof and credit therefor on redemption. — The purchaser, from the time of the sale until a redemption, and a redemptioner, from the time of his redemption until another redemption, is entitled to receive the rents of the property sold or the value of the use and occupation thereof when such property is in possession of a tenant. But when any such rents and profits have been received by the judgment creditor or purchaser, or by a redemptioner, or by the assignee or either of them, from property thus sold preceding such redemption, the amounts of such rents and profits shall be a credit upon the redemption money to be paid; ..."

35 See Reyes vs. Hamada, No. L-19967, 31 May 1965, 14 SCRA 215; Emphasis supplied.

36 No. L-16777, 20 April 1961, 1 SCRA 1004.

37 Saura Import & Export Co. vs. Philippine International Surety Co., et al., No. L-15184, 31 May 1963, 8 SCRA 143, 148; Hernandez vs. Andal, 78 Phil.198, See also Sec. 7, Rule 51, of the Revised Rules of Court. Cf. Santaells vs.Otto Lange Co., 155 Fed. 719; Mast vs. Superior Drill Co., 154 Fed., 45, Francisco, Rules of Court (1965 Ed), Vol. 3, page 765.


Manila

EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner, vs.CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN MARCELINO, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

CRUZ, J.:

The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on the petitioner's tailings dam and the land thereunder over its protest.

The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties as taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the petitioner's "failure to pay the realty taxes that fell due during the pendency of the appeal."

11

The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals, 1 one of the herein respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, on the merits, agreed that "the tailings dam and the lands submerged thereunder (were) subject to realty tax."

For purposes of taxation the dam is considered as real property as it comes within the object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a construction adhered to the soil which cannot be separated or detached without breaking the material or causing destruction on the land upon which it is attached. The immovable nature of the dam as an improvement determines its character as real property, hence taxable under Section 38 of the Real Property Tax Code. (P.D. 464).

Although the dam is partly used as an anti-pollution device, this Board cannot accede to the request for tax exemption in the absence of a law authorizing the same.

xxx xxx xxx

We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos.002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e., that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent Appellee Provincial Assessor of Zambales on the properties of Petitioner-Appellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266.

This petition for certiorari now seeks to reverse the above ruling.

The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it is not an "improvement" upon the land within the meaning of the Real Property Tax Code. More particularly, it is claimed —

(1) as regards the tailings dam as an "improvement":

(a) that the tailings dam has no value separate from and independent of the mine; hence, by itself it cannot be considered an improvement separately assessable;

(b) that it is an integral part of the mine;

(c) that at the end of the mining operation of the petitioner corporation in the area, the tailings dam will benefit the local community by serving as an irrigation facility;

(d) that the building of the dam has stripped the property of any commercial value as the property is submerged under water wastes from the mine;

(e) that the tailings dam is an environmental pollution control device for which petitioner must be commended rather than penalized with a realty tax assessment;

(f) that the installation and utilization of the tailings dam as a pollution control device is a requirement imposed by law;

(2) as regards the valuation of the tailings dam and the submerged lands:

(a) that the subject properties have no market value as they cannot be sold independently of the mine;

(b) that the valuation of the tailings dam should be based on its incidental use by petitioner as a water reservoir and not on the alleged cost of construction of the dam and the annual build-up expense;

(c) that the "residual value formula" used by the Provincial Assessor and adopted by respondent CBAA is arbitrary and erroneous; and

(3) as regards the petitioner's liability for penalties fornon-declaration of the tailings dam and the submerged lands for realty tax purposes:

(a) that where a tax is not paid in an honest belief that it is not due, no penalty shall be collected in addition to the basic tax;

(b) that no other mining companies in the Philippines operating a tailings dam have been made to declare the dam for realty tax purposes.

The petitioner does not dispute that the tailings dam may be considered realty within the meaning of Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and independent property because it does not constitute an "assessable improvement" on the mine although a considerable sum may have been spent in constructing and maintaining it.

To support its theory, the petitioner cites the following cases:

1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond.

2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on the road primarily for two reasons:

In the first place, it cannot be disputed that the ownership of the road that was constructed by appellee belongs to the government by right of accession not only because it is inherently incorporated or attached to the timber land . . . but also because upon the expiration of the concession said road would ultimately pass to the national government. . . . In the second place, while the road was constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot prevent the use of portions of the concession for homesteading purposes. It is also duty bound to allow the free use of forest products within the concession for the personal use of individuals residing in or within the vicinity of the land. . . . In other words, the government has practically reserved the rights to use the road to promote its varied activities. Since, as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2 of C.A.No. 470.

Apparently, the realty tax was not imposed not because the road was an integral part of the lumber concession but because the government had the right to use the road to promote its varied activities.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared that the reservoir dam went with and formed part of the reservoir and that the dam would be "worthless and useless except in connection with the outlet canal, and the water rights in the reservoir represent and include whatever utility or value there is in the dam and headgates."

12

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved drain tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a constantly increasing flow of water in the said mine. It was held that:

Whatever value they have is connected with and in fact is an integral part of the mine itself. Just as much so as any shaft which descends into the earth or an underground incline, tunnel, or drift would be which was used in connection with the mine.

On the other hand, the Solicitor General argues that the dam is an assessable improvement because it enhances the value and utility of the mine. The primary function of the dam is to receive, retain and hold the water coming from the operations of the mine, and it also enables the petitioner to impound water, which is then recycled for use in the plant.

There is also ample jurisprudence to support this view, thus:

. . . The said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA, 114 SCRA 273).

The pipeline system in question is indubitably a construction adhering to the soil. It is attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to form the pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA 261).

The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).

The oil tanks are structures within the statute, that they are designed and used by the owner as permanent improvement of the free hold, and that for such reasons they were properly assessed by the respondent taxing district as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)

The Real Property Tax Code does not carry a definition of "real property" and simply says that the realty tax is imposed on "real property, such as lands, buildings, machinery and other improvements affixed or attached to real property." In the absence of such a definition, we apply Article 415 of the Civil Code, the pertinent portions of which state:

Art. 415. The following are immovable property.

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

xxx xxx xxx

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

Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due "on the real property, including land,

buildings, machinery and other improvements" not specifically exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the petitioner does not fall under any of the classes of exempt real properties therein enumerated.

Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines improvement as follows:

(k) Improvements — is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adopt it for new or further purposes.

The term has also been interpreted as "artificial alterations of the physical condition of the ground that arereasonably permanent in character." 2

The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not be operated without the aid of the drain tunnels, which were indispensable to the successful development and extraction of the minerals therein. This is not true in the present case.

Even without the tailings dam, the petitioner's mining operation can still be carried out because the primary function of the dam is merely to receive and retain the wastes and water coming from the mine. There is no allegation that the water coming from the dam is the sole source of water for the mining operation so as to make the dam an integral part of the mine. In fact, as a result of the construction of the dam, the petitioner can now impound and recycle water without having to spend for the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine is shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas, again unlike in the Ontario case.

As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast, the tailings dam in question is being used exclusively for the benefit of the petitioner.

Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just as vigorously contends that at the end of the mining operation the tailings dam will serve the local community as an irrigation facility, thereby implying that it can exist independently of the mine.

From the definitions and the cases cited above, it would appear that whether a structure constitutes an improvement so as to partake of the status of realty would depend upon the degree of permanence intended in its construction and use. The expression "permanent" as applied to an improvement does not imply that the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still used for the said purpose.

The Court is convinced that the subject dam falls within the definition of an "improvement" because it is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the immovable nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it taxable under Section 38 of the Real Property Tax Code.

The Court will also reject the contention that the appraisal at P50.00 per square meter made by the Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary and erroneous.

Respondent Provincial Assessor explained the use of the "residual value formula" as follows:

A 50% residual value is applied in the computation because, while it is true that when slime fills the dike, it will then be covered by another dike or stage, the stage covered is still there and still exists and since only one face of the dike is filled, 50% or the other face is unutilized.

In sustaining this formula, the CBAA gave the following justification:

13

We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos.002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San Marcelino, Zambales, which is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17, July 5, 1989) and Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e, that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent-Appellee Provincial Assessor of Zambales on the properties of Petitioner-Appellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266.

It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has developed expertise in the resolution of assessment problems. The only exception to this rule is where it is clearly shown that the administrative body has committed grave abuse of discretion calling for the intervention of this Court in the exercise of its own powers of review. There is no such showing in the case at bar.

We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue of the propriety of the penalties imposed upon it, which was raised by the petitioner for the first time only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation with the local sanggunian . . ., and in case of an adverse decision by either the Local Board or the local sanggunian, (it can) elevate the same to this Board for appropriate action."

There is no need for this time-wasting procedure. The Court may resolve the issue in this petition instead of referring it back to the local authorities. We have studied the facts and circumstances of this case as above discussed and find that the petitioner has acted in good faith in questioning the assessment on the tailings dam and the land submerged thereunder. It is clear that it has not done so for the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the petitioner is not subject to penalty for itsnon-declaration of the tailings dam and the submerged lands for realty tax purposes.

WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion except as to the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the petitioner. It is so ordered.

Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur.

Feliciano, J., took no part.


Manila

SECOND DIVISION

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

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

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas stations located on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The city assessor described the said equipment and machinery in this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is attached in the wall of the shed or at the concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet more or less, a few meters away from the shed. This is done to prevent conflagration because gasoline and other combustible oil are very inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is commonly placed or constructed under the shed. The footing of the pump is a cement pad and this cement pad is imbedded in the pavement under the shed, and evidence that the gasoline underground tank is attached and connected to the shed or building through the pipe to the pump and the pump is attached and affixed to the cement pad and pavement covered by the roof of the building or shed.

The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline service station business formed the entire gasoline service-station.

As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for the tenement we consider in this particular case are (is) the pavement covering the entire lot which was constructed by the owner of the gasoline station and the improvement which holds all the properties under question, they are attached and affixed to the pavement and to the improvement.

The pavement covering the entire lot of the gasoline service station, as well as all the improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...

The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water tank it is connected also by a steel pipe to the pavement, then to the electric motor which electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and underground tanks are outside of the service station, and to consider only the building as the service station is grossly erroneous. (pp. 58-60, Rollo).

The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals.

14

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 forpurposes 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.

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

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


Manila

SECOND DIVISION

15

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 inStandard 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

16

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.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.


Manila

EN BANC

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

SANTOS EVANGELISTA, petitioner, vs.ALTO SURETY & INSURANCE CO., INC., respondent.

Gonzalo D. David for petitioner.Raul A. Aristorenas and Benjamin Relova for respondent.

CONCEPCION, J.:

This is an appeal by certiorari from a decision of the Court of Appeals.

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance

Co., Inc. — respondent herein — and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said house, securing possession thereof, apart from recovering damages.

In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property, although in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment . . . should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:

The property of the defendant shall be attached by the officer executing the order in the following manner:

(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having in his possession or under his control, such credits or other personal property, or with, his agent, a copy of the order, and a notice that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control, belonging to the defendant, are attached in pursuance of such order. (Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof at the time he sold it at a public auction."

Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale to the respondent preceded that made to Evangelists, the latter would have a better right if the writ of attachment, issued in his favor before the sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any there be."

Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal property, the levy upon which must be made in conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed the lessee of the land on which it is built, should be dealt with, for purpose, of attachment, as immovable property, or as personal property.

It is, our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is

17

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 thecontracting 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 contractwhatsoever, 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 notinterpret 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, andthe 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.

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Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia and Felix, JJ.,concur.


Manila

FIRST DIVISION

G.R. No. 120098 October 2, 2001

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

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

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

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:

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

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

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

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

"Annex A"

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

LIST OF MACHINERIES & EQUIPMENT

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

Serial Numbers Size of Machines

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

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

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

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

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

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

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

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

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

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises

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to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:

I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE — DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR WANT OF VALID FACTUAL AND LEGAL BASIS.

V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

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

I.

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

II

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

20

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

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

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

In opposition, private respondents argue that the controverted units of machinery are not "real properties" but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.13 This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) the "controverted machineries" are not covered by, or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants' posture. It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel." So also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word "building" by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered

thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely tochattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom.

Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property.19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne out by the records, she received the letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers

21

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.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.


Manila

THIRD DIVISION

G.R. No. 137705 August 22, 2000

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs.PCI LEASING AND FINANCE, INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

22

After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper subject of a writ of replevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution3 denying reconsideration. The decretal portion of the CA Decision reads as follows:

"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED."4

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch 218)6 issued a Writ of Seizure.7 The March 18, 1998 Resolution8 denied petitioners’ Motion for Special Protective Order, praying that the deputy sheriff be enjoined "from seizing immobilized or other real properties in (petitioners’) factory in Cainta, Rizal and to return to their original place whatever immobilized machineries or equipments he may have removed."9

The Facts

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

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an application for a writ of replevin docketed as Civil Case No. Q-98-33500.

"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries and equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.

"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s factory, seized one machinery with [the] word that he [would] return for the other machineries.

"On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’), invoking the power of the court to control the conduct of its officers and amend and control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin.

"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties [were] still personal and therefore still subject to seizure and a writ of replevin.

"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in Article 415 of the Civil Code, the parties’ agreement to the contrary notwithstanding. They argued that to give effect to the agreement would be prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped from treating these machineries as personal because the contracts in which the alleged agreement [were] embodied [were] totally sham and farcical.

"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the remaining properties. He was able to take two more, but was prevented by the workers from taking the rest.

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

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were personal property, and that they had only been leased, not owned, by petitioners. It also ruled that the "words of the contract are clear and leave no doubt upon the true intention of the contracting parties."

Observing that Petitioner Goquiolay was an experienced businessman who was "not unfamiliar with the ways of the trade," it ruled that he "should have realized the import of the document he signed." The CA further held:

"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case below, since the merits of the whole matter are laid down before us via a petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial, necessitating presentation of evidence by both parties. The contract is being enforced by one, and [its] validity is attacked by the other – a matter x x x which respondent court is in the best position to determine."

Hence, this Petition.11

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:

"A. Whether or not the machineries purchased and imported by SERG’S became real property by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease."12

In the main, the Court will resolve whether the said machines are personal, not immovable, property which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the procedural points raised by respondent.

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter: Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of the Petition, which is "Petition for Review on Certiorari."13

While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires that such lapse by itself should not warrant the dismissal of the present Petition. In this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ issued by the RTC, because they were in fact real property. Serious policy considerations, they argue, militate against a contrary characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only.15Section 3 thereof reads:

"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an order and the corresponding writ of replevin describing the personal property alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody."

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:

23

"ART. 415. The following are immovable property:

x x x x x x x x x

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

x x x x x x x x x"

In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in the factory built on their own land. Indisputably, they were essential and principal elements of their chocolate-making industry. Hence, although each of them was movable or personal property on its own, all of them have become "immobilized by destination because they are essential and principal elements in the industry."16 In that sense, petitioners are correct in arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code.17

Be that as it may, we disagree with the submission of the petitioners that the said machines are not proper subjects of the Writ of Seizure.

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

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a personal property because it had been made the subject of a chattel mortgage. The Court ruled:

"x x x. Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise."

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills20 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 Court’s ruling are reproduced hereunder:

"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage."

In the present case, the Lease Agreement clearly provides that the machines in question are to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as follows:21

"12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or attached to or embedded in, or permanently resting upon, real property or any building thereon, or attached in any manner to what is permanent."

Clearly then, petitioners are estopped from denying the characterization of the subject machines as personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should be deemed personal property pursuant to the Lease Agreement – is good only insofar as the contracting parties are concerned.22 Hence, while the parties are bound by the Agreement, third persons acting in good faith are

not affected by its stipulation characterizing the subject machinery as personal.23 In any event, there is no showing that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.24 Submitting documents supposedly showing that they own the subject machines, petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity which places in serious doubt the intention of the parties and the validity of the lease agreement itself."25 In their Reply to respondent’s Comment, they further allege that the Agreement is invalid.26

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the civil action pending before the RTC. A resolution of these questions, therefore, is effectively a resolution of the merits of the case. Hence, they should be threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondeña 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 plaintiff’s bond. They were not allowed, however, to invoke the title to the subject property. The Court ruled:

"In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue the matter of the title or right of possession over the specific chattel being replevied, the policy apparently being that said matter should be ventilated and determined only at the trial on the merits."28

Besides, these questions require a determination of facts and a presentation of evidence, both of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under Rule 45.29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed valid and binding as the law between the parties.

Makati Leasing and Finance 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:

"x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x"

Alleged Injustice Committed on the Part of Petitioners

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

Petitioners’ arguments do not preclude the implementation of the Writ.1âwphi1 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:

24

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicant’s 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 applicant’s affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as may be recovered against the adverse party, and by serving a copy bond on the applicant."

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

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.


Manila

EN BANC

G.R. No. L-64261 December 26, 1984

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

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

The Solicitor General for respondents.

ESCOLIN, J.:

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

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

In our Resolution dated June 21, 1983, respondents were required to answer the petition. The plea for preliminary mandatory and prohibitory

injunction was set for hearing on June 28, 1983, later reset to July 7, 1983, on motion of the Solicitor General in behalf of respondents.

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

Respondents would have this Court dismiss the petition on the ground that petitioners had come to this Court without having previously sought the quashal of the search warrants before respondent judge. Indeed, petitioners, before impugning the validity of the warrants before this Court, should have filed a motion to quash said warrants in the court that issued them. 3 But this procedural flaw notwithstanding, we take cognizance of this petition in view of the seriousness and urgency of the constitutional issues raised not to mention the public interest generated by the search of the "We Forum" offices, which was televised in Channel 7 and widely publicized in all metropolitan dailies. The existence of this special circumstance justifies this Court to exercise its inherent power to suspend its rules. In the words of the revered Mr. Justice Abad Santos in the case of C. Vda. de Ordoveza v. Raymundo, 4 "it is always in the power of the court [Supreme Court] to suspend its rules or to except a particular case from its operation, whenever the purposes of justice require it...".

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

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

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

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

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

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

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

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

Respondents also submit the theory that since petitioner Jose Burgos, Jr. had used and marked as evidence some of the seized documents in Criminal Case No. Q- 022872, he is now estopped from challenging the

25

validity of the search warrants. We do not follow the logic of respondents. These documents lawfully belong to petitioner Jose Burgos, Jr. and he can do whatever he pleases with them, within legal bounds. The fact that he has used them as evidence does not and cannot in any way affect the validity or invalidity of the search warrants assailed in this petition.

Several and diverse reasons have been advanced by petitioners to nullify the search warrants in question.

1. Petitioners fault respondent judge for his alleged failure to conduct an examination under oath or affirmation of the applicant and his witnesses, as mandated by the above-quoted constitutional provision as wen as Sec. 4, Rule 126 of the Rules of Court . 6 This objection, however, may properly be considered moot and academic, as petitioners themselves conceded during the hearing on August 9, 1983, that an examination had indeed been conducted by respondent judge of Col. Abadilla and his witnesses.

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

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

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

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

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

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

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

[a] Property subject of the offense;

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

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

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

4. Neither is there merit in petitioners' assertion that real properties were seized under the disputed warrants. Under Article 415[5] of the Civil Code of the Philippines, "machinery, receptables, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works" are considered immovable property. In Davao Sawmill Co. v. Castillo 9 where this legal provision was invoked, this Court ruled that machinery which is movable by nature becomes immobilized when placed by the owner of the tenement, property or plant, but not so when placed by a tenant, usufructuary, or any other person having only a temporary right, unless such person acted as the agent of the owner.

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

5. The questioned search warrants were issued by respondent judge upon application of Col. Rolando N. Abadilla Intelligence Officer of the P.C. Metrocom. 10 The application was accompanied by the Joint Affidavit of Alejandro M. Gutierrez and Pedro U. Tango, 11 members of the Metrocom Intelligence and Security Group under Col. Abadilla which conducted a surveillance of the premises prior to the filing of the application for the search warrants on December 7, 1982.

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

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

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

Equally insufficient as basis for the determination of probable cause is the statement contained in the joint affidavit of Alejandro M. Gutierrez and Pedro U. Tango, "that the evidence gathered and collated by our unit clearly shows that the premises above- mentioned and the articles and things above-

26

described were used and are continuously being used for subversive activities in conspiracy with, and to promote the objective of, illegal organizations such as the Light-a-Fire Movement, Movement for Free Philippines, and April 6 Movement." 13

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

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

1] All printing equipment, paraphernalia, paper, ink, photo (equipment, typewriters, cabinets, tables, communications/recording equipment, tape recorders, dictaphone and the like used and/or connected in the printing of the "WE FORUM" newspaper and any and all documents communication, letters and facsimile of prints related to the "WE FORUM" newspaper.

2] Subversive documents, pamphlets, leaflets, books, and other publication to promote the objectives and piurposes of the subversive organization known as Movement for Free Philippines, Light-a-Fire Movement and April 6 Movement; and,

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

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

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

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

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

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

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

In the Stanford case, the U.S. Supreme Courts calls to mind a notable chapter in English history: the era of disaccord between the Tudor Government and the English Press, when "Officers of the Crown were given roving commissions to search where they pleased in order to suppress and destroy the literature of dissent both Catholic and Puritan Reference herein to such historical episode would not be relevant for it is not the policy of our government to suppress any newspaper or publication that speaks with "the

voice of non-conformity" but poses no clear and imminent danger to state security.

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

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

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

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

The President denied a request flied by government prosecutors for sequestration of the WE FORUM newspaper and its printing presses, according to Information Minister Gregorio S. Cendana.

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

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

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

2. Contrary to reports, President Marcos turned down the recommendation of our authorities to close the paper's printing facilities and confiscate the equipment and materials it uses. 21

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

SO ORDERED.

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

Aquino, J., took no part.

27

Separate Opinions

ABAD SANTOS, J., concurring

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

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

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

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

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

The search warrants are also void for lack of particularity. Both search warrants authorize Col. Rolando Abadilla to seize and take possession, among other things, of the following:

Subversive documents, pamphlets, leaflets, books and other publication to promote the objectives and purposes of the subversive organizations known as Movement for Free Philippines, Light-a-Fire Movement and April 6 Movement.

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

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

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

Teehankee, J., concur.

Separate Opinions

ABAD SANTOS, J., concurring

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

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

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

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

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

The search warrants are also void for lack of particularity. Both search warrants authorize Col. Rolando Abadilla to seize and take possession, among other things, of the following:

Subversive documents, pamphlets, leaflets, books and other publication to promote the objectives and purposes of the subversive organizations known as Movement for Free Philippines, Light-a-Fire Movement and April 6 Movement.

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

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

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

Teehankee, J., concur.

28


Manila

EN BANC

G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner, vs.VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province, dropped at Lopez' house and invited him to make an investment in the theatre business. It was intimated that Orosa, his family and close friends were organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for the construction of the proposed theatre, and at Orosa's behest and assurance that the latter would be personally liable for any account that the said construction might incur, Lopez further agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre., out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown to him, however, as early as November, 1946, the corporation already got a loan for P30,000 from the Philippine National Bank with the Luzon Surety Company as surety, and the corporation in turn executed a mortgage on the land and building in favor of said company as counter-security. As the land at that time was not yet brought under the operation of the Torrens System, the mortgage on the same was registered on November 16, 1946, under Act No. 3344. Subsequently, when the corporation applied for the registration of the land under Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the action; that in case defendants fail to pay the same, that the building and the land covered by OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff

also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the materials were delivered to him as a promoter and later treasurer of the corporation, because he had purchased and received the same on his personal account; that the land on which the movie house was constructed was not charged with a lien to secure the payment of the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his indebtedness. As special defense, this defendant contended that as the 420 shares of stock assigned and conveyed by the assignor and accepted by Lopez as direct security for the payment of the amount of P41,771.35 were personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale thereof at public auction would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted from the payment of any deficiency in case the proceeds from the sale of said personal properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by alleging that the building materials delivered to Orosa were on the latter's personal account; and that there was no understanding that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on the properties of the latter to secure payment of the same obligation. As special defense, defendant corporation averred that while it was true that the materials purchased by Orosa were sold by the latter to the corporation, such transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said materials within 30 days from the time of removal thereof from Orosa, lumber became a different and distinct specie and plaintiff lost whatever rights he might have in the same and consequently had no recourse against the Plaza Theatre, Inc., that the claim could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the repair or reconstruction of something already existing and this concept did not include an entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14, 1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P 5,000 for damages, and such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered under the Torrens System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for review of the decree of the land registration court dated October 18, 1947, which was made the basis of OCT No. O-319, in order to annotate the rights and interests of the surety company over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez, asserting that the amount demanded by him constituted a preferred lien over the properties of the obligors; that the surety company was guilty of negligence when it failed to present an opposition to the application for registration of the property; and that if any violation of the rights and interest of said surety would ever be made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after making an exhaustive and detailed analysis of the respective stands of the parties and the evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid balance of the cost of lumber used in the construction of the building and the plaintiff thus acquired the materialman's lien over the same. In making the pronouncement that the lien was merely confined to the building and did not extend to the land on which the construction was made, the trial judge took into consideration the fact that when plaintiff started the delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor of Luzon Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which are also classified as real properties, upon which said refection was made. It was, however, declared that plaintiff's lien on the building was superior to the right of the surety company. And finding that the Plaza Theatre, Inc., had no objection to the review of the decree issued in its favor by the land registration court and the inclusion in the title of the encumbrance in favor of the surety company, the court a quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs within 90 days from notice of said decision; that in case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to the payment of the amount due the plaintiff, plus

29

interest and costs; and that the encumbrance in favor of the surety company be endorsed at the back of OCT No. O-391, with notation I that with respect to the building, said mortgage was subject to the materialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of therein defendants was joint instead of solidary, and that the lien did not extend to the land, but same was denied by order the court of December 23, 1952. The matter was thus appealed to the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the materials used in the construction of a building attaches to said structure alone and does not extend to the land on which the building is adhered to; and (2) whether the lower court and the Court of Appeals erred in not providing that the material mans liens is superior to the mortgage executed in favor surety company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will not take up or consider anything on that point. Appellant, however, contends that the lien created in favor of the furnisher of the materials used for the construction, repair or refection of a building, is also extended to the land which the construction was made, and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the following are preferred:

x x x x x x x x x

5. Credits for refection, not entered or recorded, with respect to the estate upon which the refection was made, and only with respect to other credits different from those mentioned in four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, and inasmuch as said provision does not contain any specification delimiting the lien to the building, said article must be construed as to embrace both the land and the building or structure adhering thereto. We cannot subscribe to this view, for while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real 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.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.

Footnotes

1 Article 415 of the new Civil Code (Art. 334 of the old) enumerates what are considered immovable property, among which are land, buildings, roads and constructions of all kinds adhered to the soil.


Manila

FIRST DIVISION

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

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

Paterno P. Natinga for private respondent.

NARVASA, J.:

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

The antecedents will take some time in the telling. The case began in the City Court of Cebu with the filing by Goulds Pumps International (Phil.), Inc. of a complaint 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:

30

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

31

be accompanied by an affidavit of merits. This last motion was also denied for "lack of merits," by Order dated November 21, 1970. 29

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

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

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

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

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of Rule 37, 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.

32

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

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


Manila

EN BANC

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

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

Vicente J. Francisco for petitioner.Capistrano and Capistrano for respondents.

CONCEPCION, J.:

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

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

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the recovery of the machinery and equipment sold and delivered to said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner company, and upon approval of petitioner's bond in the sum of P15,769.00, on March 13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to seize and take immediate possession of the properties specified in the order (Appendix I, Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in question, on the ground that they are not personal properties. Contending that the Sheriff's duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact that the equipment could not possibly be dismantled without causing damages or injuries to the wooden frames attached to them. As Roco insisted in dismantling the equipment on his own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769, for the return of the properties seized by the deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and equipment to the place where they were installed at the time of the seizure (Appendix 3). On March 21, 1953, the

deputy sheriffs returned the properties seized, by depositing them along the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory and without re-installing hem in their former position and replacing the destroyed posts, which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked the provincial Sheriff if the machinery and equipment, dumped on the road would be re-installed tom their former position and condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked to furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to carry into effect the court's order, to return the seized properties in the same way said Roco found them on the day of seizure, but said Roco absolutely refused to do so, and asking the court that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment removed by them in their original condition in which they were found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the necessary funds, technical men, laborers, equipment and materials to effect the repeatedly mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

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

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

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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, forcertiorari lies only to review judicial actions.

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

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

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

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

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

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the realty, it is not the subject for personality; . . . .

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

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

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

become necessary for petitioner to meet the liabilities incident to such return.

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

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

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Reyes, J.B.L., JJ., concur.Paras, C.J., concurs in the result.

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Property Cases for HW No. 1 07.08.15

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Transcript of Property Cases for HW No. 1 07.08.15