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STAR TWO SPV-AMC INC. VS.

PAPER CORPORATION OF THE PHILIPPINES


FACTS
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation
now substituted by Star Two (SPV-AMC), Inc.

Respondent Paper City is a domestic corporation engaged in the manufacture of paper


products. Paper City applied for and was granted loans and credit accommodations in peso and
dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel Mortgages on its
machineries and equipments found inside its paper plants.

However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory


of Merchandise/Stocks-in-Trade was executed by RCBC over the merchandise and stocks-intrade covered by the continuing chattel mortgages.

RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee
bank) entered into a Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City
acquired an additional P170, 000,000.00 from the creditor banks in addition to the previous loan
from RCBC amounting to P110, 000,000.00.

The old loan of P110,000,000.00 was partly secured by various parcels of land situated in
Valenzuela City. The new loan obligation of P170,000,000.00 would be secured by the same five (5)
Deeds of Real Estate Mortgage and additional real and personal properties described in an annex to
MTI, Annex "B" which covered the machineries and equipments of Paper City.
Annex "A"
A.
Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
B.

Power Plants Nos. 1 and 2


Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
C.

Annex "B"
D.
D. Material Handling Equipment
Paper Plant No. 3

The MTI was later amended to increase the contributions of the RCBC and Union Bank.
As a consequence, they executed a Deed of Amendment to MTI but still included as part of the
mortgaged properties by way of a first mortgage the various machineries and equipments
located in and bolted to and/or forming part of buildings.

A Second Supplemental Indenture to the MTI was executed to increase the amount of
the loan secured against the existing properties composed of land, building, machineries and
equipments and inventories described in Annexes "A" and "B."

Finally, a Third Supplemental Indenture to the MTI was executed to increase the existing
loan obligation with an additional security composed of a newly constructed two-storey building
and other improvements, machineries and equipments located in the existing plant site.

Paper City was able to comply with its loan obligations but economic crisis ensued which
made it difficult for Paper City to meet the terms of its obligations leading to payment
defaults. Consequently, RCBC filed a Petition for Extrajudicial Foreclosure.

The petition was for the extra-judicial foreclosure of eight parcels of land including all
improvements thereon which were sold in favor of the creditor banks RCBC, Union Bank and
Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging
that the extra-judicial sale of the properties and plants was null and void due to lack of prior
notice and attendance of gross and evident bad faith on the part of the creditor banks.
Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the
machineries and equipments were included in the annexes and form part of the MTI.
Paper City filed its Motion for Reconsideration which was favorably granted by the trial court with
justification that the disputed machineries and equipments are chattels by agreement of the
parties through their inclusion in the four Deeds of Chattel Mortgage and the deed of cancellation
executed by RCBC was not valid because it was done unilaterally and without the consent of
Paper City.
The CA affirmed the Order.
ISSUE
Whether the subject machineries and equipments were included in the mortgage, extrajudicial
foreclosure and in the consequent sale.
RULING
Yes. By contracts, all uncontested in this case, machineries and equipments are included in the
mortgage in favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on
foreclosure also in favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are
various parcels of land including the buildings and existing improvements thereon as well as the
machineries and equipments, which as stated in the granting clause of the original mortgage, are
"more particularly described and listed that is to say, the real and personal properties listed in
Annexes A and B.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other
creditor banks and Paper City intended from the very first execution of the indentures that the
machineries and equipments enumerated in Annexes "A" and "B" are included. Obviously, with
the continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper
City had to offer all valuable properties acceptable to the creditor banks.

The MTIs did not describe the equipments and machineries as personal property. Notably, while
"personal" appeared in the granting clause of the original MTI, the subsequent Deed of
Amendment specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the Mortgage Trust
Indenture and the Real Estate Mortgage.
Considering that the Indenture which is the instrument of the mortgage that was foreclosed
exactly states through the Deed of Amendment that the machineries and equipments listed in
Annexes "A" and "B" form part of the improvements listed and located on the parcels of land
subject of the mortgage, such machineries and equipments are surely part of the foreclosure of
the "real estate properties, including all improvements thereon" as prayed for in the petition.

The real estate mortgage over the machineries and equipments is even in full accord with the
classification of such properties by the Civil Code of the Philippines as immovable property.
Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(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;
CONCLUSION
The petition is GRANTED.

LAUREL VS. ABROGAR


Facts: Baynet Co., Ltd. Is being sued for network fraud. Laurel is the board member
and corporate secretary of Baynet. 2 other filipinos and two japanese composed the
board. (Baynet) sells "Bay Super Orient Card" which uses an alternative calling patterns
called International Simple Resale (ISR). ISR is a method of routing and completing
international long distance calls using International Private Leased Lines (IPL), cables,
antenna or air wave or frequency, which connect directly to the local or domestic
exchange facilities of the terminating country (the country where the call is destined).
The operator of an ISR is able to evade payment of access, termination or bypass
charges and accounting rates, as well as compliance with the regulatory requirements of
the NTC. Thus, the ISR operator offers international telecommunication services at a
lower rate, to the damage and prejudice of legitimate operators like PLDT.
Search warrants were issued against baynet through PLDT's complaint. The seach was
followed by an inquest investigation. The prosecutor found probable cause for THEFT and
filed Information. After preliminary investigation the information was amended to include
Laurel and the other members of the board for THEFT using ISR.
Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the
groundS that RPC does not punish use of ISR, The telephone calls belong to the person
calling not to PLDT, and that no personal property was stolen from PLDT. There is
no crime when there is no law punishing the crime

Issue: whether or not international telephone calls using Bay Super Orient Cards
through the telecommunication services provided by PLDT for such calls, or, in short,
PLDTs business of providing said telecommunication services, are proper subjects of
theft under Article 308 of the Revised Penal Code.
Held: RTC denied MQ MR denied. Petition for Certiorari with CA, dismissed. SC,
granted.The petition is meritorious.
An information or complaint must state explicitly and directly every act or omission
constituting an offense and must allege facts establishing the conduct. the Amended
Information does not contain material allegations charging the petitioner of
theft of personal property under Article 308 of the Revised Penal Code.
The international telephone calls placed by Bay Super Orient Card holders, the
telecommunication services provided by PLDT and its business of providing said
services are not personal properties under Article 308 of the Revised Penal
Code.
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person who, with
intent to gain but without violence, against or intimidation of persons nor force
upon things, shall take personal property of another without the latters
consent.
For one to be guilty of theft the accused must have an intent to steal (animus
furandi) personal property, meaning the intent to deprive another of his
ownership/lawful possession of personal property which intent is apart from
and concurrently with the general criminal intent which is an essential element
of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements:
(a) the taking of personal property;
(b) the said property belongs to another;
(c) the taking be done with intent to gain; and
(d) the taking be accomplished without the use of violence or intimidation of person/s or
force upon things.
"Personal property" under the Revised Penal Code must be considered in
tandem with the word "take" in the law. The statutory definition of "taking" and
movable property indicates that, clearly, not all personal properties may be the proper
subjects of theft. The general rule is that, only movable properties which have
physical or material existence and susceptible of occupation by another are
proper objects of theft. only those movable properties which can be taken and
carried from the place they are found are proper subjects of theft.
Intangible properties such as rights and ideas are not subject of theft because the same
cannot be "taken" from the place it is found and is occupied or appropriated. movable
properties under Article 308 of the Revised Penal Code should be distinguished from the
rights or interests to which they relate. A naked right existing merely in contemplation of
law, although it may be very valuable to the person who is entitled to exercise it, is not
the subject of theft or larceny. Such rights or interests are intangible and cannot be
"taken" by another.

There is "taking" of personal property, and theft is consummated when the offender
unlawfully acquires possession of personal property even if for a short time; or if such
property is under the dominion and control of the thief. The taker, at some particular
amount, must have obtained complete and absolute possession and control of the
property adverse to the rights of the owner or the lawful possessor thereof.t is not
necessary that the property be actually carried away out of the physical
possession of the lawful possessor or that he should have made his escape with
it. Neither asportation nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough. The essence of the element is the
taking of a thing out of the possession of the owner without his privity and
consent and without animus revertendi.

gas and electricity are susceptible of taking since they can be appropritated.
Business and services cannot be taken thus, not a subject of theft. They both have
different definitions.
RPC could not have included human voice or ISR in theft since such was not existing at
that time.

Respondent PLDT does not acquire possession, much less, ownership of the voices of the
telephone callers or of the electronic voice signals or current emanating from said calls.
The human voice and the electronic voice signals or current caused thereby are
intangible and not susceptible of possession, occupation or appropriation by the
respondent PLDT or even the petitioner, for that matter. PLDT merely transmits the
electronic voice signals through its facilities and equipment.
Congress did not amend the definition of theft rather they passed RA 8484 and 8792.

Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of 1998,
on February 11, 1998. Under the law, an access device means any card, plate, code,
account number, electronic serial number, personal identification number and other
telecommunication services, equipment or instrumentalities-identifier or other means of
account access that can be used to obtain money, goods, services or any other thing of
value or to initiate a transfer of funds other than a transfer originated solely by paper
instrument. Among the prohibited acts enumerated in Section 9 of the law are the acts
of obtaining money or anything of value through the use of an access device, with intent
to defraud or intent to gain and fleeing thereafter; and of effecting transactions with one
or more access devices issued to another person or persons to receive payment or any
other thing of value. Under Section 11 of the law, conspiracy to commit access devices
fraud is a crime. However, the petitioner is not charged of violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to any
liability for violation of any provisions of the Revised Penal Code inclusive of
theft under Rule 308 of the Revised Penal Code and estafa under Article 315 of
the Revised Penal Code. Thus, if an individual steals a credit card and uses the same to
obtain services, he is liable of the following: theft of the credit card under Article 308 of
the Revised Penal Code; violation of Republic Act No. 8484; and estafa under Article
315(2)(a) of the Revised Penal Code with the service provider as the private
complainant.

The petitioner is not charged of estafa before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or imprisonment,
as follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a
computer system/server or information and communication system; or any access in
order to corrupt, alter, steal, or destroy using a computer or other similar information
and communication devices, without the knowledge and consent of the owner of the
computer or information and communications system, including the introduction of
computer viruses and the like, resulting on the corruption, destruction, alteration, theft
or loss of electronic data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory imprisonment of six (6) months
to three (3) years.

BPI FAMILY BANK VS. FRANCO


LEUNG YEE VS. STRONG MACHINERY

Facts:
The Compania Agricola Filipina (CAF) bought rice-cleaning machines from Strong
Machinery Company (SMC). These machines were installed in one of the CAFs
buildings, which was made out of strong materials.
A chattel mortgage was executed to secure payment of the purchase price. The
chattel mortgage included the building and the machines; the land on which it
stood was not included. When CAF failed to pay their debt, the property was sold
by the sheriff and the same was bought by SMC. The mortgage was registered in
the chattel mortgage registry and the sale of the property to SMC was annotated
on the same registry on December 29, 1913.
On January 14, 1913, CAF executed a deed of sale of the land, where the building
stood, to SMC. The sale was in the form of a public instrument, but the same was
not registered. SMC went into possession of the building at or about the same
time when the sale took place.
At or about the same time when the chattel mortgage was executed in favor of
SMC, CAF executed another mortgage to herein plaintiff (Leung Yee) upon the
building to secure payment of the balance of its indebtedness. Upon CAFs failure
to pay, Leung Yee secured judgment for the amount and levied execution upon
the building, bought it at the sheriffs sale on or about Dec 18, 1914 and had the
sheriffs certificate of sale duly registered in the land registry of Cavite.
At the time of the execution, SMC, who 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. Accordingly, an action to recover possession of the
building was filed by Leung Yee. RTC ruled in favor of SMC on the ground that the
company had its title to the building registered prior to the date of the registry of
Leung Yees certificate. Thus, this appeal.

Issue: Who has a better right to the property?


Ruling: RTC ruling in favor of SMC is affirmed; ground modified.
Ratio Decidendi:
The building made out of strong materials is real property. The mere fact that the
parties dealt with it as separate and apart from the land (or as personal property)
does not change its character as real property. In this case, it follows that neither
the original registry in the chattel mortgage of the building and the machinery
installed therein, nor the annotation in the registry of the sale of the mortgaged
property had any legal effect.
However, since the facts disclose that the purchase by Leung Yee and the
inscription on the sheriffs certificate of sale were not made in good faith, it must
be held that SMC is the owner of the property pursuant to the third (3 rd)
paragraph of Article 1473 of the NCC, 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.

PRUDENTIAL BANK VS. PANIS


FACTS: Spouses Magcale secured a loan from Prudential Bank. To secure
payment of this loan, plaintiffs executed in favor of defendant a deed of Real
Estate Mortgage over the following described properties:
A residential building which 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,
Apart from the stipulations in the printed portion of the aforestated deed of
mortgage, there appears a rider which alludes to an application of a sales patent.
From the aforequoted stipulation, it is obvious 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.
Real Estate Mortgage was registered under the Provisions of Act 3344 with the
Registry of Deeds of plaintiffs secured an additional loan from defendant
Prudential Bank and executed in favor of the said defendant another deed of Real
Estate Mortgage over the same properties previously mortgaged. This second
deed of Real Estate Mortgage was likewise registered with the Registry of Deeds.
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. For failure of plaintiffs to pay their
obligation to defendant Bank after it became due, the deeds of Real Estate
Mortgage were extrajudicially foreclosed and sold at auction to the bank.

Respondent Court, declared the deeds of Real Estate Mortgage as null and void.
Petitioner filed a Motion for Reconsideration which was denied for lack of merit.
Hence, the instant petition
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-1081718, 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]).
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.
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.
But it is a different matter, as regards the second mortgage executed over the
same properties on for an additional loan 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.
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,
SERGS PRODUCTS VS. PCI LEASING

Facts:
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short)
filed with the RTC-QC a complaint for a sum of money, with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500. Upon an ex-parte application of PCI Leasing, respondent
judge issued a writ of replevin directing its sheriff to seize and deliver the machineries and equipment
to PCI Leasing. On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with the word that he would return for the other
machineries.
Petitioners (SERGs Products Inc.) filed a motion for special protective order, invoking the
power of the court to control the conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of replevin. This motion was opposed by
PCI Leasing, on the ground that the properties were still personal and therefore still subject to seizure
and a writ of replevin. In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the agreement would be prejudicial to innocent
third parties. They further stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were] embodied [were] totally sham
and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest. On April 7, 1998, they went to [the CA] via an original action for certiorari. The
appellate Court held that the subject machines were personal property, and that they had only been
leased, not owned by petitioners. Hence, this petition.
Issue:
Whether the said machines are personal, not immovable, property which may be a proper subject of a
writ of replevin.(which are issued for the recovery of personal property)
Ruling:
In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although each of them was movable or personal
property on its own, all of them have become immobilized by destination because they are essential
and principal elements in the industry. In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code.
But the Court disagree with the submission of the petitioners that the said machines are not proper
subjects of the Writ of Seizure. It has held that contracting parties may validly stipulate that a real
property be considered as personal. After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein. In the present case, the Lease
Agreement clearly provides that the machines in question are to be considered as personal property.
Specifically, Section 12.1 of the Agreement reads as follows:
12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization of the subject machines as
personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that the Courts holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the contracting parties
are concerned. Hence, while the parties are bound by the Agreement, third persons acting in good
faith are not affected by its stipulation characterizing the subject machinery as personal.
DOCTRINE: Principle of Estoppel- 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.
EVANGELISTA VS. ALTO SURETY & INSURANCE CO.

Facts:
In 1949, Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila
(Santos Evangelista vs. Ricardo Rivera) for a sum of money. On the same date,
he obtained a writ of attachment, which was levied upon a house, built by Rivera
on a land situated in Manila and leased to him, by filing copy of said writ and the
corresponding notice of attachment with the Office of the Register of Deeds of
Manila. In due course, judgment was rendered in favor of Evangelista, who
bought the house at public auction held in compliance with the writ of execution
issued in said case on 8 October 1951. The corresponding definite deed of sale
was issued to him on 22 October 1952, upon expiration of the period of
redemption. When Evangelista sought to take possession of the house, Rivera
refused to surrender it, upon the ground that he had leased the property from
the Alto Surety & Insurance Co., Inc. and that the latter is now the true owner of
said property. It appears that on 10 May 1952, a definite deed of sale of the
same house had been issued to Alto Surety, as the highest bidder at an auction
sale held, on 29 September 1950, in compliance with a writ of execution issued
in Civil Case 6268 of the same court (Alto Surety & Insurance vs. Maximo
Quiambao, Rosario Guevara and Ricardo Rivera)" in which judgment for the sum
of money, had been rendered in favor of Alto Surety. Hence, on 13 June 1953,
Evangelista instituted an action against Alto Surety and Ricardo Rivera, for the
purpose of establishing his title over said house, and securing possession
thereof, apart from recovering damages. After due trial, the CFI Manila rendered
judgment for Evangelista, sentencing Rivera and Alto Surety to deliver the house
in question to Evangelista and to pay him, jointly and severally, P40.00 a month
from October 1952, until said delivery. The decision was however reversed by the
Court of Appeals, which absolved Alto Surety from the complaint on account that
although the writ of attachment in favor of Evangelista had been filed with the
Register of Deeds of Manila prior to the sale in favor of Alto Surety, Evangelista
did not acquire thereby a preferential lien, the attachment having been levied as
if
the
house
in
question
were
immovable
property.
Issue:
Whether or not a house constructed by the lessee of the land on which it is built,
should be dealt with, for purpose of attachment, as immovable property?
Held:

The court ruled that the house is not personal property, much less a debt, credit
or other personal property not capable of manual delivery, but immovable
property. As held in Laddera vs. Hodges (48 OG 5374), "a true building is
immovable or real property, whether it is erected by the owner of the land or by
a usufructuary or lessee. The opinion that the house of Rivera should have been
attached, as "personal property capable of manual delivery, by taking and safely
keeping in his custody", for it declared that "Evangelista could not have validly
purchased Ricardo Rivera's house from the sheriff as the latter was not in
possession thereof at the time he sold it at a public auction is untenable. Parties
to a deed of chattel mortgage may agree to consider a house as personal
property for purposes of said contract. However, this view is good only insofar as
the contracting parties are concerned. It is based, partly, upon the principle of
estoppel. Neither this principle, nor said view, is applicable to strangers to said
contract. The rules on execution do not allow, and should not be interpreted as to
allow, the special consideration that parties to a contract may have desired to
impart to real estate as personal property, when they are not ordinarily so. Sales
on execution affect the public and third persons. The regulation governing sales
on execution are for public officials to follow. The form of proceedings prescribed
for each kind of property is suited to its character, not to the character which the
parties have given to it or desire to give it. The regulations were never intended
to suit the consideration that parties, may have privately given to the property
levied upon. The court therefore affirms the decision of the CA with cost against
Alto Surety.
DAVAO SAWMILL VS. CASTILLO
Facts:
The Davao Saw Mill is the holder of a lumber concession from the Government. 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 stipulated that on the expiration of the
period agreed upon, or if the Lessee should leave or abandon the land leased, all the improvements
and buildings introduced and erected by the Lessee shall pass to the exclusive ownership of the
Lessor without any obligation on its part to pay any amount for said improvements and buildings;
which do not include the machineries and accessories in the improvements.
In another action, Davao Light & Power Co., Inc., vs. Davao Saw Mill Co., Inc., a judgment was
rendered in favor of the Davao Light and a writ of execution issued for the properties now in question
to be levied upon as personalty by the sheriff. Davao Light, the winning bidder, proceeded to take,
possession of the machinery and other properties described in the certificates of sale executed in its
favor by the, sheriff of Davao.
As connecting up with the facts, Davao Saw Mill Co. 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 Castillo, an appellee by assignment from the original mortgagees.
Issue:
Whether or not the machinery real or personal?

Held:
As a rule, the machinery should be considered as personal, since it wan not placed on the land by the
owner of the said land. Immobilization by destination or purpose cannot generally be made by a
person, whose possession of the property is only temporary, other wise we will be forced to presume
that he intended to give the property permanently away in favor of the owner of the premises.
In the case at bar, when Davao Saw placed the machinery in a building erected on land belonging to
another, with the understanding that the machinery was not included in the improvements which
would pass to the lessor on the expiration or abandonment of the land leased, it in effect shows that
the lessee also treated the machinery as personal property by executing chattel mortgages in favor of
third persons. The machinery was levied upon by the sheriff as personalty pursuant to a writ of
execution obtained without any protest being registered, therefore the machinery must be classified
as personal property.
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.

TSAI VS. COURT OF APPEALS


FACTS:
Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of
Communications (PBCom), secured by a deed of Real and Chattel Mortgage over
the lot where its factory stands, and the chattels located therein as enumerated
in a schedule attached to the mortgage contract. PBCom again granted a
second loan to EVERTEX which was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. These listed properties were
similar to those listed in the first mortgage deed. After the date of the execution
of the second mortgage mentioned above, EVERTEX purchased various machines
and
equipments.
Upon
EVERTEX's
failure
to
meet
its obligation to PBCom, the latter commenced extrajudicial foreclosure
proceedings against EVERTEX under Act 3135 and Act 1506 or "The Chattel
Mortgage Law". PBCom then consolidated its ownership over the lot and all the
properties in it. It leased the entire factory premises to Ruby Tsai and sold to the
same the factory, lock, stock and barrel including the contested machineries.

EVERTEX filed a complaint for annulment of sale, reconveyance, and


damages against PBCom, alleging inter alia that the extrajudicial foreclosure of
subject mortgage was not valid, and that PBCom, without any legal or factual
basis, appropriated the contested properties which were not included in the Real
and Chattel Mortgage of the first mortgage contract nor in the second contract
which is a Chattel Mortgage, and neither were those properties included in the
Notice of Sheriff's Sale.
ISSUES:
1) W/N the contested properties are personal or movable properties
2) W/N the sale of these properties to a third person (Tsai) by the bank through
an
irregular
foreclosure
sale
is
valid.

HELD:
1) Nature of the Properties and Intent of the Parties
The nature of the disputed machineries, i.e., that they were heavy, bolted or
cemented on the real property mortgaged does not make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. While it is
true that the properties appear to be immobile, a perusal of the contract of Real
and Chattel Mortgage executed by the parties herein reveal their intent, that is to treat machinery and equipment as chattels.
In the first mortgage contract, reflective of the true intention of PBCOM and
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 second 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 63 individually described machineries
while the schedule listed only machines and 2,996,880.50 worth of finished
cotton fabrics and natural cotton fabrics.
UNDER PRINCIPLE OF STOPPEL
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, 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.
2) Sale of the Properties Not Included in the Subject of Chattel Mortgage is Not
Valid

The auction sale of the subject properties to PBCom is void. 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.
Section 7 provides 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." Since the disputed machineries were acquired later after the
two mortgage contracts were executed, 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 lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the auction, no valid title
passed in its favor. Consequently, the sale thereof to Ruby Tsai is also a nullity
under the elementary principle of nemo dat quod non habet, one cannot give
what one does not have.

MINDANAO BUS CO. VS. CITY ASSESSOR

Facts:
Petitioner, Mindanao Bus Company, 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. Its main office and shop is at Cagayan de Oro City and maintains
Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del
Sur, Davao City and Kibawe, Bukidnon Province. The petitioner likewise owned a
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.
The machineries that the respondent assessed as real properties are sitting on
cement or wooden platforms and 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.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's
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.
Issue:
Whether or not the machineries and
immobilized and thus subject to a realty tax.

equipments

are

considered

Held:
The Supreme Court decided otherwise and held that said machineries and
equipments are not subject to the assessment of real estate tax.
Said equipments are not considered immobilized as they are merely incidental,
not esential and principal to the business of the petitioner. The transportation
business could be carried on without repair or service shops of its rolling
equipment as they can be repaired or services in another shop belonging to
another, so said equipment may not be considered real estate within the
meaning of Article 415 (c) of the Civil Code.

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