1.Ladera vs. Hodges

No. 8027-R. September 23, 1952.

Reyes, J.B.L., J.

Doctrine: Article 315 of the Civil Code (now Article 415, New Civil Code) makes no distinction as to whether the owner of the land is or is not the owner of the building.

Facts: Ladera entered into a contract with Hodges whereby the latter promised to sell a lot subject to certain terms and conditions. In case of failure of the purchaser to make a monthly payment within 60 days after it fell due, “this contract may be taken and considered as rescinded and annulled,” in which case all sums of money paid would be considered rentals and the vendor shall be at liberty to dispose of the parcel of land with all the improvements theron to any other person in a manner as if this contract had never been made. After the execution of the contract, Ladera built on a lot a house of mixed materials assessed at P4500.

Unfortunately, Ladera failed to pay the agreed installments, whereupon the appellant rescinded the contract and filed an action for ejectment. The MTC rendered a decision upon agreement of the parties- Ladera to vacate and surrender possession of the lot and pay P10 a month until delivery of the premises. The court issued an alias writ of execution and pursuant thereto the sheriff levied upon all rights, interests, and participation over your house standing on the lot. The sheriff posted the notices of the sale but did not publish the same in a newspaper of general circulation.

At the auction sale Ladera did not attend because she had gone to Manila and the sheriff sold the property to Avelina Magno as the highest bidder. On July 6, 1948, Hodges sold the lot to Manuel Villa and on the same day the latter purchased the house from Magno for P200 but this last transaction was not recorded.

Ladera returned to Iloilo after the sale and learned of its results. She went to see the sheriff and upon the latter’s representation that she could redeem the property, she paid him P230 and the sheriff issued a receipt. It does not appear, however, that this money was turned over to Hodges. Thereupon, Ladera spouses filed an action against Hodges, the sheriff, and the judgment sale purchasers, Magno and Villa to set aside the sale and recover the house. The lower court ruled in favor of Ladera. Hodges et al

contend that the house being built on land owned by another person should be regarded in law as movable or personal property.

Issue: Whether the house being built on land owned by another should be regarded as movable property.

Held: According to Article 334 of the Civil Code (now 415), Immovable property are the following: “Lands, building, roads, and constructions of all kinds adhering to the soil;” Applying the principle Ubi lex non distinguit nec nos distinguere debemu, the law makes no distinction as to whether the owner of the land is or is not the owner of the building. In view of the plain terms of the statute, the only possible doubt could arise in the case of a house sold for demolition.

In the case of immovables by destination, the code requires that they be placed by the owner of the tenement, in order to acquire the same nature or consideration of real property. In cases of immovable by incorporation, the code nowhere requires that the attachment or incorporation be made by the owner of the land. The only criterion is union or incorporation with the soil.

Ladera did not declare his house to be a chattel mortgage. The object of the levy or sale was real property. The publication in a newspaper of general circulation was indispensible. It being admitted that no publication was ever made, the execution sale was void and conferred no title on the purchaser.

The alleged purchaser at the auction sale, Magno, is a mere employee of the creditor Hodges and the low bid made by her as well as the fact that she sold the house to Villa on the same day that Hodges sold him the land, proves that she was merely acting for and in behalf of Hodges.

It should be noted that in sales of immovables, the lack of title of the vendor taints the rights of subsequent purchasers. Unlike in sales of chattels and personalty, in transactions covering real property, possession in good faith is not equivalent to title.

2.Santos Evangelista vs. Alto Surety & Insurance Co., Inc.G.R. No. L-11139. April 23, 1958

Concepcion, J.

Doctrine: Parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract. However, this view is good only insofar as the contracting parties are concerned.FACTS: Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila for a sum of money. He also obtained a writ of attachment, which was levied upon a house, built by Rivera on a land situated in Manila and leased to him by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila on June 8, 1949. Judgment was rendered in favor of Evangelista. On October 8, 1951, he bought the house at a public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him 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. 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 Alto Surety, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case 6268 of the same court in which judgment, for the sum of money, had been rendered in favor of Alto Surety. As such, Evangelista instituted an action against Alto Surety and Ricardo Rivera, for the purpose of establishing his title over said house, and securing possession thereof, apart from recovering damages. After due trial, the CFI Manila rendered judgment for Evangelista. The Court of Appeals reversed the decision and absolved Alto Surety 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 Alto Surety, 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.” Thus, 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. Evangelista filed an appeal by Certiorari with the Supreme Court.

Issue: Whether a house, constructed by the lessee of the land on which it is built, should be dealt with, for purposes of attachment, as immovable property, or a personal property.

Held: Said house is not personal property, much less a debt or credit or other personal property not capable of manual delivery, but immovable property. As held in Laddera v. Hodges, “a true building is immovable or real property, whether it is erected by the owner of the land or by a usufructuary or lessee”. 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. However, this view is good only insofar as the contracting parties are concerned. It is based partly upon the principle of estoppel. Neither is this principle nor said view applicable to strangers to said contract. Much less is it in point where there has been no contract whatsoever, with respect to the status of the house involved as in the case at bar. The rules on execution do not allow, and should not be interpreted as to allow, the special consideration that parties to a contract may have desired to impart to real estate 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. 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.

3.Julian S. Yap vs. Hon. Santiago O. Tañada andGoulds Pumps International (Phil), Inc.,G.R. No. L-32917, July 18, 1988

Narvasa, J.

Doctrine: Article 415, par. 3 of the Civil Code considers and immovable property as “everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deteriorating the object.” The pump does not fit this description. It could be, and was, in fact,separated from Yap’s premises without being broken of suffering deterioration. Obviously, the separation or removal of the pump involved nothing more complicated that the loosening of bolts or dismantling of other fasteners.

Facts: The case began in the City Court of Cebu with the filing of Goulds Pumps International (Phil), Inc. of a complaint against Yap and his wife seeking recovery of P1,459.30, representing the balance of the price and installation cost of a water pump in the latter’s premises. The Court rendered judgment in favor of herein respondent after they presented evidence ex-parte due to failure of petitioner Yap to appear before the Court. Petitioner then appealed to the CFI, particularly to the sale of Judge Tanada. For again failure to appear for pre-trial, Yap was declared in default. He filed for a motion for reconsideration which was denied by Judge Tanada. On October 15, 1969, Tanada granted Gould’s Motion for Issuance of Writ of Execution. Yap forthwith filed an Urgent Motion for Reconsideration of the said Order. In the meantime, the Sheriff levied on the water pump in question and by notice scheduled the execution sale thereof. But in view of the pendency of Yap’s motion, suspension of sale was directed by Judge Tanada. It appears, however, that this was not made known to the Sheriff whocontinued with the auction sale and sold the property to the highest bidder, Goulds. Because of such, petitioner filed a Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution. One of his arguments was that the sale was made without the notice required by Sec. 18, Rule 29 of the New Rules of Court, “i.e. notice by publication in case of execution of sale of real property, the pump and its accessories being immovable because attached to the ground with the character of permanency.” Such motion was denied by the CFI.

Issue: Whether or not the pump and its accessories are immovable property

Held: No. The water pump and its accessories are NOT immovable properties. The argument of Yap that the water pump had become immovable property by its being installed in his residence is untenable. Article 415, par. 3 of the Civil Code considers and immovable property as “everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deteriorating the object.” The pump does not fit this description. It could be, and was, in fact,separated from Yap’s premises without being

broken of suffering deterioration. Obviously, the separation or removal of the pump involved nothing more complicated that the loosening of bolts or dismantling of other fasteners.

4.Serg’s Products, Inc. vs. Pci Leasing and Finance, Inc.G.R. No. 137705. August 22, 2000.

Panganiban, J.:

Doctrine: 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.

Facts: 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, with an application for a writ of replevin.

On March 6, 1998, respondent judge issued a writ of replevin 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. Petitioners then filed a motion for special protective order, invoking the power of the court to control the conduct of its officers and amend and control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin. This motion was opposed by PCI Leasing, on the ground that the properties [were] still personal and therefore still subject to seizure and a writ of replevin.

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.

Issue: Whether the said machines are personal, not immovable, property which may be a proper subject of a writ of replevin.

Held: Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only. Section 3 thereof reads:“SEC. 3. Order. — Upon the filing of such affidavit and approval of the bond, the court shall

issue an order and the corresponding writ of replevin describing the personal property alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody.”On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:“ART. 415. The following are immovable property:x x x………………………………x x x………………………………x x x(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;x x x………………………………x x x………………………………x x x”In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in the factory built on their own land. Indisputably, they were essential and principal elements of their chocolate-making industry. Hence, although each of them was movable or personal property on its own, all of them have become “immobilized by destination because they are essential and principal elements in the industry.” 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.

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. After agreeing to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any material fact found therein.

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:“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. Hence, while the parties are bound by the Agreement, third persons acting in good faith are not affected by its stipulation characterizing the subject machinery as personal. In any event, there is no showing that any specific third party would be adversely affected.

5. Ruby Tsai vs. Court of Appeals, Ever Textile Mills, Inc. and Mamerto VillaluzG.R. No. 120109, October 2, 2001

Quisumbing, J.

Doctrine: Nothing detracts the parties from treating it [the property that is immovable by nature as chattels to secure an obligation under the principle of estoppel.

Facts: On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a P3,000,000.00 loan from 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 where its factory stands and the chattels located therein as enumerated in a schedule attached to the mortgage contract. 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 which 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, EVERTEX purchased various machines and equipments. Then, due to business reverses, EVERTEX filed insolvency proceedings. The CFI issued an order declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court. In the meantime, upon EVERTEX’s failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX. On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. PBCom then leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month and subsequently 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 that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. 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 nor in the Chattel Mortgage and neither were those properties included in the Notice of Sheriff’s. 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 trial court rendered in favor of EVERTEX. PBCom and Tsai appealed to the Court of Appeals which affirmed RTC’s decision. Their Motion for reconsideration was also denied. Thus, PBCom and Tsai filed their separate petitions for review with this Court.

Issue: Whether the nature of the disputed machineries make them immovable under Article 415 (3) and (5) of the Civil Code.

Held: No. 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.

6. Mindanao Bus Co. vs. City Assessor and TreasurerG.R. No. L-17870. September 29, 1962.

Labrador, J.

Doctrine: Movable equipment, to be immobilized in contemplation of Article 415 of the Civil Code, must be the essential and principal elements of an industry or works which are carried on in a building or on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools and equipment in its repair shop which appear movable are merely incidentals and may not be considered immovables , and, hence, not subject to assessment as real estate for purposes of the real estate tax.

Facts: Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner’s equipment in its repair or service shop. 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. 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.

Issue: Whether 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.

Held: Yes. Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code, must be the essential and principal elements of an industry or works which are carried on in a building or on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools and equipments in its repair shop which appear movable are merely incidentals and may not be considered immovables, and, hence, not subject to assessment as real estate for purposes of the real estate tax.

Similarly, the tool and equipment in question in this instant case are, by their nature, not essential and principal 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 equipment, 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.

Article 415 of the Civil Code requires that the industry or works be carried on in a building or on a piece of land. 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 equipment may not, therefore, be deemed as real property.