G.R. No. L-17870             September 29, 1962MINDANAO BUS COMPANY,vs.THE CITY ASSESSOR

          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; and4. 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 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.

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          So ordered.

LEON SIBAL vs. EMILIANO J. VALDEZ

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

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

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

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

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

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

(a) That the sugar cane in question had the nature of personal property and was not, therefore, subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the complaint;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.

It appears from the record:

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

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

Parcel1 ..................................................................... P1.002 ..................................................................... 2,000.003 ..................................................................... 120.934 ..................................................................... 1,000.005 ..................................................................... 1.006 ..................................................................... 1.007 with the house thereon .......................... 150.008 .....................................................................1,000.00==========

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4,273.93(3) That within one year from the sale of said parcel of land, and on the 24th day of September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc., for the account of the redemption price of said parcels of land, without specifying the particular parcels to which said amount was to applied. The redemption price said eight parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1.º — the same parties in the present case), attached the personal property of said Leon Sibal located in Tarlac, among which was included the sugar cane now in question in the seven parcels of land described in the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

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

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

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

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

The foregoing statement of facts shows:

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

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

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

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

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

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

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

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

x x x x x x x x x

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)

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

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

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

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(Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

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

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

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

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

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

From an examination of the reports and codes of the State of California and other states we find that the settle doctrine followed in said states in connection with the attachment of property and execution of judgment is, that growing crops raised by yearly labor and cultivation are considered personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and then title will vest in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)

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

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

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

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

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products" have the nature of personal property. The lower court, therefore, committed no error in holding that the sugar cane in question was personal property and, as such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated, relate to questions of fact only. Before entering upon a discussion of said assignments of error, we deem it opportune to take special notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by the defendant. His absence from the trial and his failure to cross-examine the defendant have lent considerable weight to the evidence then presented for the defense.

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

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

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

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

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

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

Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990. Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the trial when the defendant offered his evidence, we are inclined to give more weight to the evidence adduced by him that to the evidence adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the complaint belong to the defendant, having acquired the same from Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190 cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of the crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.

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

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

In this connection the following facts are worthy of mention:

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

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

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

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

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

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

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

P6,757.40 for the sugar cane;1,220.40 for the sugar cane shoots;323.00 for the palay harvested by plaintiff in parcels 1 and 2;600.00 for the palay which defendant could have raised.8,900.80============In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.

G.R. No. L-20329 March 16, 1923THE STANDARD OIL COMPANY OF NEW YORK vs. JOAQUIN JARAMILLO

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seeking a peremptory mandamus to compel the respondent to record in the proper register a document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.

It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila and owner of the house of strong materials built thereon, upon which date she executed a document in the form of a chattel mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold interest in said lot and the building which stands thereon.

The clauses in said document describing the property intended to be thus mortgage are expressed in the following words:

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Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of mortgage, the following described personal property, situated in the City of Manila, and now in possession of the mortgagor, to wit:

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.

After said document had been duly acknowledge and delivered, the petitioner caused the same to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for the purpose of having the same recorded in the book of record of chattel mortgages. Upon examination of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for the reason that the interest therein mortgaged did not appear to be personal property, within the meaning of the Chattel Mortgage Law, and registration was refused on this ground only.

We are of the opinion that the position taken by the respondent is untenable; and it is his duty to accept the proper fee and place the instrument on record. The duties of a register of deeds in respect to the registration of chattel mortgage are of a purely ministerial character; and no provision of law can be cited which confers upon him any judicial or quasi-judicial power to determine the nature of any document of which registration is sought as a chattel mortgage.

The original provisions touching this matter are contained in section 15 of the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198 of the Administrative Code, where they are now found. There is nothing in any of these provisions conferring upon the register of deeds any authority whatever in respect to the "qualification," as the term is used in Spanish law, of chattel mortgage. His duties in respect to such instruments are ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it operates as constructive notice of the existence of the contract, and the legal effects of the contract must be discovered in the instrument itself in relation with the fact of notice. Registration adds nothing to the instrument, considered as a source of title, and affects nobody's rights except as a specifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real property and personal property for purpose of the application of the Chattel Mortgage Law. Those articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must not be forgotten that under given conditions property may have character different from that imputed to it in said articles. It is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property; and it is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property. Other situations are constantly arising, and from time to time are presented to this court, in which the proper classification of one thing or another as real or personal property may be said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here added to the observations contained in said ruling. We accordingly quote therefrom as follows:

It is unnecessary here to determine whether or not the property described in the document in question is real or personal; the discussion may be confined to the point as to whether a register of deeds has authority to deny the registration of a document purporting to be a chattel mortgage and executed in the manner and form prescribed by the Chattel Mortgage Law.

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

Based principally upon the provisions of section quoted the Attorney-General of the Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to pass upon the capacity of the parties to a chattel mortgage which is presented to him for record. A fortiori a register of

deeds can have no authority to pass upon the character of the property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real instead of personal the chattel mortgage would no doubt be held ineffective as against third parties, but this is a question to be determined by the courts of justice and not by the register of deeds.

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

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

The demurrer is overruled; and unless within the period of five days from the date of the notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus will be issued, as prayed, but without costs. So ordered.

G.R. No. L-11658 February 15, 1918LEUNG YEE, plaintiff vs. FRANK L. STRONG MACHINERY COMPANY

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

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

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

At the time when the execution was levied upon the building, the defendant machinery company, which was in possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the sheriff's sale.

This action was instituted by the plaintiff to recover possession of the building from the machinery company.

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The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on the ground that the company had its title to the building registered prior to the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may have the first taken possession thereof in good faith, if it should be personal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.

Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The registry her referred to is of course the registry of real property, and it must be apparent that the annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real property. By its express terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the manner and form prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was installed by the "Compañia Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as real property. It follows that neither the original registry in the chattel mortgage of the building and the machinery installed therein, not the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as the building was concerned.

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

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

Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the 13th of May, 1908, that:

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

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

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

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

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

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

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which can only be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

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

G.R. No. L-50008 August 31, 1987PRUDENTIAL BANK vs. HONORABLE DOMINGO D. PANIS

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

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

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

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

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

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

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

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

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

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold the Registration of same until this Mortgage is cancelled, or to

annotate this encumbrance on the Title upon authority from the Secretary of Agriculture and Natural Resources, which title with annotation, shall be released in favor of the herein Mortgage.

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

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

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

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

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

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

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

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

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

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

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

In its Memorandum, petitioner raised the following issues:

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

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY

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15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

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

The answer is in the affirmative.

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 120098 October 2, 2001RUBY L. TSAI vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC.

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

[G.R. No. 120109. October 2, 2001.]PHILIPPINE BANK OF COMMUNICATIONS vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ,

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"

9

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

LIST OF MACHINERIES & EQUIPMENT

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

Serial Numbers Size of Machines

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

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

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

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

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

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

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

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

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

xxx xxx xxx3

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

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

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

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

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

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

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

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

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

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

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

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

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

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

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

10

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

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.

11

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

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

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

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

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

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

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

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

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

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

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

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

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom's name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua's projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.23 However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the following dispositions of the respondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments.

12

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.25

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

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

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

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in question from November 198631 until subject personal properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.

SO ORDERED.

G.R. No. L-40411 August 7, 1935DAVAO SAW MILL CO., INC., vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC.,

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

13

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.

G.R. No. L-41506 March 25, 1935

PHILIPPINE REFINING CO., INC., vs. FRANCISCO JARQUE,

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

14

law of the Philippines. And finally counsel would have us make rulings on points entirely foreign to the issues of the case. As neither the facts nor the law remains in doubt, the seven assigned errors will be overruled.

Judgment affirmed, the costs of this instance to be paid by the appellant.

G.R. No. 168557 February 16, 2007FELS ENERGY, INC., vs. THE PROVINCE OF BATANGAS

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor’s decision to assess real property taxes on the power barges. However, the motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount of P56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges–FELS, a private corporation–is the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by Distraint13 over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

15

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No. 67490. The petition was, however, denied in this Court’s Resolution25 of November 8, 2004, for NPC’s failure to sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC").

C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioner’s personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating the following errors committed by the CA:

I

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted their respective memoranda. Considering that taxes—the lifeblood of our economy—are involved in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view of advancing the interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration.

Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:

16

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessor’s decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It follows then that the determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayer’s property becomes absolute upon the expiration of the period to appeal.38 It also bears stressing that the taxpayer’s failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping could have been committed since the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42

x x x An existing final judgment or decree – rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority – is conclusive on the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.

x x x

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELS’s argument that it is not bound by the erroneous petition filed by NPC is thus unavailing.

17

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one or the other court would make a favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a power company brought an action to review property tax assessment. On the city’s motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from payment of the real property tax:

x x x

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

Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local government’s deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for it.57 The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.60

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WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED.

G.R. No. L-15334 January 31, 1964BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON CITY, vs. MANILA ELECTRIC COMPANY,

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

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

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

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

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

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

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's petition to cancel these declarations, an appeal was taken by respondent to the Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of P11,651.86 as real property tax on the said

steel towers for the years 1952 to 1956. Respondent paid the amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for short) which rendered a decision on December 29, 1958, ordering the cancellation of the said tax declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant petition for review was filed.

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

The tax exemption privilege of the petitioner is quoted hereunder:

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

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

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

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

The term "poles" was also used to denominate the steel supports or towers used by an association used to convey its electric power furnished to subscribers and members, constructed for the purpose of fastening high voltage and dangerous electric wires alongside public highways. The steel supports or towers were made of iron or other metals consisting of two pieces running from the ground up some thirty feet high, being wider at the bottom than at the top, the said two metal pieces being connected with criss-cross iron running from the bottom to the top, constructed like ladders and loaded with high voltage electricity. In

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form and structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

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

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

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

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

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

x x x x x x x x x

(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;

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 in a building or on a piece of land, and which tends directly to meet the needs of the said industry or works;

x x x x x x x x x

The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because they do not constitute buildings or constructions adhered to the soil. They are not construction analogous to buildings nor adhering to the soil. As per description, given by the lower court, they are removable and merely attached to a square metal frame by means of bolts, which when unscrewed could easily be dismantled and moved from place to place. They can not be included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they can be separated without breaking the material or causing deterioration upon the object to which they are attached. Each of these steel towers or supports consists of steel bars or metal strips, joined together by means of bolts, which can be

disassembled by unscrewing the bolts and reassembled by screwing the same. These steel towers or supports do not also fall under paragraph 5, for they are not machineries, receptacles, instruments or implements, and even if they were, they are not intended for industry or works on the land. Petitioner is not engaged in an industry or works in the land in which the steel supports or towers are constructed.

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

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.

[G.R. No. 137705. August 22, 2000]SERG’S PRODUCTS, INC.,vs. PCI LEASING AND FINANCE, INC.

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

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26, 1999 Resolution[3] denying reconsideration. The decretal portion of the CA Decision reads as follows:

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

In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City (Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied petitioners’ Motion for Special Protective Order, praying that the deputy sheriff be enjoined “from seizing immobilized or other real properties in (petitioners’) factory in Cainta, Rizal and to return to their original place whatever immobilized machineries or equipments he may have removed.”[9]

The Facts

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

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

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

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

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“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.[15] Section 3 thereof reads:

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

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

“ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

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

x x x....................................x x x....................................x x x”

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

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

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

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

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

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Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills[20] also held that the machinery used in a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin because it was treated as personal property in a contract. Pertinent portions of the 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 Corporation[30] is also instructive on this point. In that case, the Deed of Chattel Mortgage, which characterized the subject machinery as personal property, was also assailed because respondent had allegedly been required “to sign a printed form of chattel mortgage which was in a blank form at the time of signing.” The Court rejected the argument and relied on the Deed, ruling as follows:

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

Alleged Injustice Committed on the Part of Petitioners

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

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

“SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the 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.

G.R. No. L-47943 May 31, 1982MANILA ELECTRIC COMPANY, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF BATANGAS

This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom of each tank is in contact with the asphalt layer,

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The steel sides of the tank are directly supported underneath by a circular wall made of concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not attached to its foundation. It is not anchored or welded to the concrete circular wall. Its bottom plate is not attached to any part of the foundation by bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank can be floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of Assessment Appeals, the area where the two tanks are located is enclosed with earthen dikes with electric steel poles on top thereof and is divided into two parts as the site of each tank. The foundation of the tanks is elevated from the remaining area. On both sides of the earthen dikes are two separate concrete steps leading to the foundation of each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial Corporation whose buildings and pumping station are near Tank No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and penalties as a condition for entertaining its appeal from the adverse decision of the Batangas board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and Community Development Jose Roño as members) in its decision dated November 5, 1976 ruled that the tanks together with the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a motion for reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was received by Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and resolution. It contends that the Board acted without jurisdiction and committed a grave error of law in holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized as realty by nature, by incorporation, by destination nor by analogy. Stress is laid on the fact that the tanks are not attached to the land and that they were placed on leased land, not on the land owned by Meralco.

This is one of those highly controversial, borderline or penumbral cases on the classification of property where strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential Decree No. 464 which took effect on June 1, 1974.

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced with some modification in the Real Property Tax Code which provides:

Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted.

The Code contains the following definition in its section 3:

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

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

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things which should generally be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein Meralco's steel towers were held not to be subject to realty tax, is not in point because in that case the steel towers were regarded as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached to any land or building. They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not subject to realty tax because they were personal property.

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

SO ORDERED.

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