Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER

OF QUEZON CITY,petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.

Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

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

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

Meralco's electric power is generated by its hydro-electric plant located at Botocan

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

The first steel tower is located in South Tatalon, Espaa 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
1 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.

Property
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-) 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.)
2

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

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

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

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

The term "poles" was also used to denominate the steel supports or towers used by
an association used to convey its electric power furnished to subscribers and
members, constructed for the purpose of fastening high voltage and dangerous
electric wires alongside public highways. The steel supports or towers were made of
iron or other metals consisting of two pieces running from the ground up some thirty
feet high, being wider at the bottom than at the top, the said two metal pieces being
connected with criss-cross iron running from the bottom to the top, constructed like
ladders and loaded with high voltage electricity. In form and structure, they are like
the steel towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd,
249-250.)

The term "poles" was used to denote the steel towers of an electric company
engaged in the generation of hydro-electric power generated from its plant to the
Tower of Oxford and City of Waterbury. These steel towers are about 15 feet square
at the base and extended to a height of about 35 feet to a point, and are embedded
in the cement foundations sunk in the earth, the top of which extends above the
surface of the soil in the tower of Oxford, and to the towers are attached insulators,
arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 3 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

Property
carried were so large that their wire took their structure out of the definition of a pole
line. It was held that in defining the word pole, one should not be governed by the
wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material
wire of its individual members, any continuous series of structures intended and
used solely or primarily for the purpose of supporting wires carrying electric currents
is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).

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

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

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

xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the
object;

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects mentioned
in paragraph 1, because they do not constitute buildings or constructions adhered to
the soil. They are not construction analogous to buildings nor adhering to the soil. As
per description, given by the lower court, they are removable and merely attached to
a square metal frame by means of bolts, which when unscrewed could easily be
dismantled and moved from place to place. They can not be included under
paragraph 3, as they are not attached to an immovable 4 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.

Property
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.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,

Barrera and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.

Property
Board of Assessment Appeals, Q.C. vs Meralco
10 SCRA 68
GR No. L-15334
January 31, 1964

FACTS
On November 15, 1955, the QC City Assessor declared the MERALCO's steel
towers subject to real property tax. After the denial of MERALCO's petition to cancel
these declarations, an appeal was taken to the QC Board of Assessment Appeals,
which required respondent to pay P11,651.86 as real property tax on the said steel
towers for the years 1952 to 1956.
MERALCO paid the amount under protest, and filed a petition for review in the Court
of Tax Appeals (CTA) which rendered a decision ordering the cancellation of the said
tax declarations and the refunding to MERALCO by the QC City Treasurer of
P11,651.86.

ISSUE
Are the steel towers or poles of the MERALCO considered real or personal
properties?

HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object
of metal or the like; an upright standard to the top of which something is affixed or by
which something is supported.

MERALCO's steel supports consists of a framework of 4 steel bars/strips which are

bound by steel cross-arms atop of which are cross-arms supporting 5 high-voltage
transmission wires, and their sole function is to support/carry such wires. The
exemption granted to poles as quoted from Part II, Par.9 of respondent's franchise is
determined by the use to which such poles are dedicated.

It is evident 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 should be
taken and understood as part of MERALCO's electric power system for the
conveyance of electric current to its consumers.

Art. 415 of the NCC classifies the following as immovable property:

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

xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that

it cannot be separated therefrom without breaking the material or deterioration
of the object;
6
xxx

(5) Machinery, receptacles, instruments or implements intended by the owner

pf the tenement for an industry ot works which may be carried on in a building

Property
 or on a piece of land, and which tend directly to meet the needs of the said
industry or works;

Following these classifications, MERALCO's steel towers should be considered

personal property. It should be noted that the steel towers:

(a) are neither buildings or constructions adhered to the soil;

(b) are not attached to an immovable in a fixed manner they can be

separated without breaking the material or deterioration of the object;

are not machineries, receptacles or instruments, and even if they are, they
are not intended for an industry to be carried on in the premises.

FACTS:
City Assessor of QC declared the steel towers for real property tax under Tax
Declarations. After denying the respondents petition to cancel these declarations,
an appeal was taken with the CTA which held that the steel towers come under
the exception of poles under the franchise given to MERALCO; the steel
towers are personal properties; and the City Treasurer is liable for the refund of the
amount paid.

HELD:
The steel towers of an electric company dont constitute real property for the
purposes of real property tax.

Property
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,

vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

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

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

This case was originally commenced by defendants-appellants in the municipal court

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

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

It appears on the records that on 1 September 1955 defendants-appellants executed

a chattel mortgage in favor of plaintiffs-appellees over their house of strong materials
located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and
7-B, Block No. 2554, which were being rented from Madrigal & Company, Inc. The
mortgage was registered in the Registry of Deeds of Manila on 2 September 1955.
The herein mortgage was executed to guarantee a loan of P4,800.00 received from
plaintiffs-appellees, payable within one year at 12% per annum. The mode of
payment was P150.00 monthly, starting September, 1955, up to July 1956, and the
lump sum of P3,150 was payable on or before August, 1956. It was also agreed that
default in the payment of any of the amortizations, would cause the remaining
unpaid balance to becomeimmediately due and Payable 8 and

the Chattel Mortgage will be enforceable in accordance with the provisions of

Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or any of
his deputies is hereby empowered and authorized to sell all the Mortgagor's property

Property
after the necessary publication in order to settle the financial debts of P4,800.00,
plus 12% yearly interest, and attorney's fees... 2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially

foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to
the said contract. As highest bidder, plaintiffs-appellees were issued the
corresponding certificate of sale. 3 Thereafter, on 18 April 1956, plaintiffs-appellant
commenced Civil Case No. 43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its possession surrendered to them, and
for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956 up to
the time the possession is surrendered. 4 On 21 September 1956, the municipal
court rendered its decision

... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit. 5

Defendants-appellants, in their answers in both the municipal court and court a

quo impugned the legality of the chattel mortgage, claiming that they are still the
owners of the house; but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in support of their motion to
dismiss, predicated mainly on the grounds that: (a) the municipal court did not have
jurisdiction to try and decide the case because (1) the issue involved, is ownership,
and (2) there was no allegation of prior possession; and (b) failure to prove prior
demand pursuant to Section 2, Rule 72, of the Rules of Court. 6

During the pendency of the appeal to the Court of First Instance, defendants-
appellants failed to deposit the rent for November, 1956 within the first 10 days of
December, 1956 as ordered in the decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for execution, and it was actually issued on
24 January 1957. However, the judgment regarding the surrender of possession to
plaintiffs-appellees could not be executed because the subject house had been
already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for
non-payment of rentals on the land on which the house was constructed.

The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas
bond and withdrawal of deposited rentals was denied for the reason that the liability
therefor was disclaimed and was still being litigated, and under Section 8, Rule 72,
rentals deposited had to be held until final disposition of the appeal. 7

On 7 October 1957, the appellate court of First Instance rendered its decision, the
dispositive portion of which is quoted earlier. The said decision was appealed by
defendants to the Court of Appeals which, in turn, certified the appeal to this Court.
Plaintiffs-appellees failed to file a brief and this appeal was submitted for decision
without it.

Defendants-appellants submitted numerous assignments

9
of error which can be
condensed into two questions, namely: .

(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;

Property
(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of the
extrajudicially foreclosed house.

We will consider these questions seriatim.

(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court

from which the case originated, and consequently, the appellate jurisdiction of the
Court of First Instance a quo, on the theory that the chattel mortgage is void ab initio;
whence it would follow that the extrajudicial foreclosure, and necessarily the
consequent auction sale, are also void. Thus, the ownership of the house still
remained with defendants-appellants who are entitled to possession and not
plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of
ownership will have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First Instance
which has jurisdiction and not the municipal court.

Defendants-appellants predicate their theory of nullity of the chattel mortgage on two

grounds, which are: (a) that, their signatures on the chattel mortgage were obtained
through fraud, deceit, or trickery; and (b) that the subject matter of the mortgage is a
house of strong materials, and, being an immovable, it can only be the subject of a
real estate mortgage and not a chattel mortgage.

On the charge of fraud, deceit or trickery, the Court of First Instance found
defendants-appellants' contentions as not supported by evidence and accordingly
dismissed the charge, 8 confirming the earlier finding of the municipal court that "the
defense of ownership as well as the allegations of fraud and deceit ... are mere
allegations." 9

It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the answer is a
mere statement of the facts which the party filing it expects to prove, but it is not
evidence; 11 and further, that when the question to be determined is one of title, the
Court is given the authority to proceed with the hearing of the cause until this fact is
clearly established. In the case of Sy vs. Dalman, 12 wherein the defendant was also
a successful bidder in an auction sale, it was likewise held by this Court that in
detainer cases the aim of ownership "is a matter of defense and raises an issue of
fact which should be determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the relief asked
for. 13

Moreover, even granting that the charge is true, fraud or deceit does not render a
contract void ab initio, and can only be a ground for rendering the contract voidable
or annullable pursuant to Article 1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. Hence, defendants-
appellants' claim of ownership on the basis of a voidable contract which has not
been voided fails.

It is claimed in the alternative by defendants-appellants10

that even if there was no
fraud, deceit or trickery, the chattel mortgage was still null and void ab initio because
only personal properties can be subject of a chattel mortgage. The rule about the
status of buildings as immovable property is stated in Lopez vs. Orosa, Jr. and Plaza
Theatre Inc., 15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the
effect that

Property
... it is obvious that the inclusion of the building, separate and distinct from the land,
in the enumeration of what may constitute real properties (art. 415, New Civil Code)
could only mean one thing that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.

Certain deviations, however, have been allowed for various reasons. In the case
of Manarang and Manarang vs. Ofilada, 17 this Court stated that "it is undeniable that
the parties to a contract may by agreement treat as personal property that which by
nature would be real property", citing Standard Oil Company of New York vs.
Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following described personal property."19 The
"personal property" consisted of leasehold rights and a building. Again, in the case
of Luna vs. Encarnacion, 20 the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and this Court hold therein that it was a
valid Chattel mortgage because it was so expressly designated and specifically that
the property given as security "is a house of mixed materials, which by its very
nature is considered personal property." In the later case of Navarro vs.
Pineda, 21 this Court stated that

The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a mortgaged
house built on a rented land was held to be a personal property, not only because
the deed of mortgage considered it as such, but also because it did not form part of
the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an
object placed on land by one who had only a temporary right to the same, such as
the lessee or usufructuary, does not become immobilized by attachment (Valdez vs.
Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al.,
61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property as so
stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is predicated on statements by the owner declaring
his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374): 22

In the contract now before Us, the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that "the mortgagor ...
voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage 23 the
property together with its leasehold rights over the lot on which it is constructed and
participation ..." 24Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendats-appellants merely had a
temporary right as lessee, and although this can not in itself alone determine the
status of the property, it does so when combined with other factors to sustain the
11
interpretation that the parties, particularly the mortgagors, intended to treat the
house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza
Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, wherein third persons assailed the validity of the chattel mortgage, 27 it
26

is the defendants-appellants themselves, as debtors-mortgagors, who are attacking

Property
the validity of the chattel mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having treated the subject house as
personalty.

(b) Turning to the question of possession and rentals of the premises in question.
The Court of First Instance noted in its decision that nearly a year after the
foreclosure sale the mortgaged house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor of the land on which the house
stood. For this reason, the said court limited itself to sentencing the erstwhile
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold) until 14 January 1957
(when it was torn down by the Sheriff), plus P300.00 attorney's fees.

Appellants mortgagors question this award, claiming that they were entitled to
remain in possession without any obligation to pay rent during the one year
redemption period after the foreclosure sale, i.e., until 27 March 1957. On this issue,
We must rule for the appellants.

Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508. 28 Section 14 of this Act allows the mortgagee to have the property mortgaged
sold at public auction through a public officer in almost the same manner as that
allowed by Act No. 3135, as amended by Act No. 4118, provided that the
requirements of the law relative to notice and registration are complied with. 29 In the
instant case, the parties specifically stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of Special Act No.
3135 ... ." 30 (Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-

appellants herein) may, at any time within one year from and after the date of the
auction sale, redeem the property sold at the extra judicial foreclosure sale. Section
7 of the same Act 32 allows the purchaser of the property to obtain from the court the
possession during the period of redemption: but the same provision expressly
requires the filing of a petition with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the proper motion and the approval of
the corresponding bond that the order for a writ of possession issues as a matter of
course. No discretion is left to the court. 33 In the absence of such a compliance, as
in the instant case, the purchaser can not claim possession during the period of
redemption as a matter of right. In such a case, the governing provision is Section
34, Rule 39, of the Revised Rules of Court 34 which also applies to properties
purchased in extrajudicial foreclosure proceedings. 35 Construing the said section,
this Court stated in the aforestated case of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-
debtor or mortgagor may redeem the property, the purchaser thereof is not entitled,
as a matter of right, to possession of the same. Thus, while it is true that the Rules of
Court allow the purchaser to receive the rentals if the purchased property is
occupied by tenants, he is, nevertheless, accountable to the judgment-debtor
or mortgagor as the case may be, for the amount so received and the same will be
duly credited against the redemption price when the said debtor or mortgagor effects
12
the redemption.Differently stated, the rentals receivable from tenants, although they
may be collected by the purchaser during the redemption period, do not belong to
the latter but still pertain to the debtor of mortgagor. The rationale for the Rule, it
seems, is to secure for the benefit of the debtor or mortgagor, the payment of the

Property
redemption amount and the consequent return to him of his properties sold at public
auction. (Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe. 36

Since the defendants-appellants were occupying the house at the time of the auction
sale, they are entitled to remain in possession during the period of redemption or
within one year from and after 27 March 1956, the date of the auction sale, and to
collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet
expired when action was instituted in the court of origin, and that plaintiffs-appellees
did not choose to take possession under Section 7, Act No. 3135, as amended,
which is the law selected by the parties to govern the extrajudicial foreclosure of the
chattel mortgage. Neither was there an allegation to that effect. Since plaintiffs-
appellees' right to possess was not yet born at the filing of the complaint, there could
be no violation or breach thereof. Wherefore, the original complaint stated no cause
of action and was prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that effect. The Supreme
Court is clothed with ample authority to review palpable errors not assigned as such
if it finds that their consideration is necessary in arriving at a just decision of the
cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for the
year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-
appellees.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee,

Barredo, Villamor and Makasiar, JJ., concur.

Footnotes

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

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

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

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

13

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

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

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

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

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

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

10 59 Phil. 320-321.

11 Emphasis supplied.

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

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

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

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

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

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

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

19 Emphasis supplied.

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

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

22 Emphasis supplied.

23 Emphasis supplied.

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

25 Supra.
14
26 Supra.

27 See Navarro vs. Pineda, supra.

Property
28 Effective 1 August 1906.

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

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

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

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

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

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

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

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

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

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

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

Property
 TUMALAD V. VICENCIO
41 SCRA 143

FACTS:

Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs

Tumalad over their house, which was being rented by Madrigal and
company. This was executed to guarantee a loan, payable in one year with a
12% per annum interest.

The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house
was sold at a public auction and the plaintiffs were the highest bidder. A
corresponding certificate of sale was issued. Thereafter, the plaintiffs filed an
action for ejectment against the defendants, praying that the latter vacate the house
as they were the proper owners.

HELD:

Certain deviations have been allowed from the general doctrine that buildings
are immovable property such as when through stipulation, parties may agree to
treat as personal property those by their nature would be real property. This is
partly based on the principle of estoppel wherein the
principle is predicated on statements by the owner declaring his house as chattel, a
conduct that may conceivably stop him from subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property through
chattel mortgage could only have meant that defendant conveys 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.

16

Property
TUMALAD vs. VICENCIO, G.R. No. L-30173, September 30, 1971

TUMALAD V. VICENCIO
41 SCRA 143

FACTS:

Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over
their house, which was being rented by Madrigal and company. This was executed
to guarantee a loan, payable in one year with a 12% per annum interest.

The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house
was sold at a public auction and the plaintiffs were the highest bidder. A
corresponding certificate of sale was issued. Thereafter, the plaintiffs filed an action
for ejectment against the defendants, praying that the latter vacate the house as they
were the proper owners.

ISSUE:

W/N the chattel mortgage was null and void ab initio because only personal
properties can be subject of a chattel mortgage.

HELD:

Certain deviations have been allowed from the general doctrine that buildings are
immovable property such as when through stipulation, parties may agree to treat as
personal property those by their nature would be real property. This is partly based
on the principle of estoppel wherein the principle is predicated on statements by the
owner declaring his house as chattel, a conduct that may conceivably stop him from
subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property through
chattel mortgage could only have meant that defendant conveys 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.

17

Property
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner,

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO
A. ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent
Court erred in denying the Motion to Set Case for Pre-trial with respect to
respondent Remedios Vda. de Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-respondent Philippine National Bank
(PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a
parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In 1963,
petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the amount of
P10,000.00, but for failure to pay said amount, the property was foreclosed on
December 16, 1970. Respondent PNB (Tarlac Branch) was the highest bidder in
said foreclosure proceedings. However, the bank secured title thereto only on
December 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of
petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch),
and upon securing a permit from the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared said warehouse for tax purposes for
which he was issued Tax Declaration No. 5619. Petitioner then leased the
warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac
Branch) and respondent Lacsamana over the property. This contract was amended
on July 31, 1978, particularly to include in the sale, the building and improvement
thereon. By virtue of said instruments, respondent - Lacsamana secured title over
the property in her name (TCT No. 173744) as well as separate tax declarations for
the land and building. 1 18

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale
with Damages" against herein respondents PNB and Lacsamana before respondent
Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the

Property
validity of the sale of the building as embodied in the Amended Deed of Sale. In this
connection, petitioner alleged:

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... by
virtue of the request of defendant ... executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the fact that said building is not owned by the
bank either by virtue of the public auction sale conducted by the Sheriff and sold to
the Philippine National Bank or by virtue of the Deed of Sale executed by the bank
itself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favor
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the sheriff
in its favor ... only limited the sale to the land, hence, by selling the building which
never became the property of defendant, they have violated the principle against
'pactum commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent
Lacsamana be declared null and void and that damages in the total sum of
P230,000.00, more or less, be awarded to him. 2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the

affirmative defense of lack of cause of action in that she was a purchaser for value
and invoked the principle in Civil Law that the "accessory follows the principal". 3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that
venue was improperly laid considering that the building was real property under
article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should
apply. 4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment
of deed of sale with damages is in the nature of a personal action, which seeks to
recover not the title nor possession of the property but to compel payment of
damages, which is not an action affecting title to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as
follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated
March 13, 1980, considered against the plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue considering that the plaintiff's complaint
which seeks for the declaration as null and void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July 31, 1978, involves
19 a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant Philippine
National Bank situated in the Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real

Property
property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in
the province where the property or any part thereof lies. 5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the
argument that the action to annul does not involve ownership or title to property but
is limited to the validity of the deed of sale and emphasized that the case should
proceed with or without respondent PNB as respondent Lacsamana had already
filed her Answer to the Complaint and no issue on venue had been raised by the
latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent
Lacsamana was concerned, as the issues had already been joined with the filing of
respondent Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set
Case for Pre-trial as the case was already dismissed in the previous Orders of April
25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property

as provided in article 415(l) of the Civil Code. 6 Buildings are always immovable
under the Code. 7 A building treated separately from the land on which it stood is
immovable property and the mere fact that the parties to a contract seem to have
dealt with it separate and apart from the land on which it stood in no wise changed
its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or
possession of the property in question, his action for annulment of sale and his claim
for damages are closely intertwined with the issue of ownership of the building
which, under the law, is considered immovable property, the recovery of which is
petitioner's primary objective. The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property does not operate to efface the
fundamental and prime objective and nature of the case, which is to recover said
real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of
improper venue (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule
16) 11.

Petitioner's other contention that the case should proceed in so far as respondent
Lacsamana is concerned as she had already filed an Answer, which did not allege
improper venue and, therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the validity of the
Amended Contract of Sale between the former and20respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent
Lacsamana alone.

Property
WHEREFORE, the petition is hereby denied without prejudice to the refiling of the
case by petitioner Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Footnotes

1 Exhibits "R" and "U", Original Records.

2 pp. 17-21, Rollo.

3 pp, 22-25, Ibid.

4 pp. 26 -28, Ibid.

5 p. 35, Ibid.

6 ART. 415. The following are immovable property. (1) Land, buildings, roads and
constructions of all kinds adhered to the soil;

xxx

7 3 Manresa 20.

8 Leung Yee vs. Strong Machinery Co., 37 Phil. 644 (1918).

9 Gavieres vs. Sanchez, et a]. 94 Phil. 760, (1954); Torres vs. J.M. Tuason & Co., 12
SCRA 174 (1964); De Jesus vs. Coloso, 1 SCRA 272 (1961)

10 Section 2. Venue in Courts of First Instance.Actions affecting title, to or for

recovery of possession or for partition or condemnation of, or foreclosure of
mortgage on, real property, shall be commenced and tried in the province where the
property or any part thereof Lies (Rule 4, Rules of Court).

11 Section 1. Grounds. Within the time for pleading a motion to dismiss the action
may be made on any of the following grounds:

xxx

c) That venue is improperly laid; (Rule 16)

21

Property
 PUNSALAN, JR. V. VDA. DE LACSAMANA

121 SCRA 331

FACTS:
Punsalan was the owner of a piece of land, which he mortgaged in favor of PNB.
Due to his failure to pay, the mortgage was foreclosed and the land was sold in a
public auction to which PNB was the highest bidder.

On a relevant date, while Punsalan was still the possessor of the land, it
secured a permit for the construction of a warehouse.

A deed of sale was executed between PNB and Punsalan. This contract was
amended to include the warehouse and the improvement thereon. By virtue of
these instruments, respondent Lacsamana secured title over the property in her
name.

Petitioner then sought for the annulment of the deed of sale. Among his allegations
was that the bank did not own the building and thus, it should not be included in the
said deed.

Petitioners complaint was dismissed for improper venue. The trial court held
that the action being filed in actuality by petitioner is a real action involving
his right over a real property.

HELD:
Warehouse claimed to be owned by petitioner is an immovable or real
property. Buildings are always immovable under the Code. A building treated
separately from the land on which it is stood is immovable property and the mere
fact that the parties to a contract seem to have dealt with it
separate and apart from the land on which it stood in no wise changed its character
as immovable property.

22

Property
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI,
issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner

Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial

foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to
implement the foreclosure failed to gain entry into private respondent's premises and
was not able to effect the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with the Court of First Instance of
Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure,
the enforcement of which was however subsequently restrained upon private
23 several incidents, the lower
respondent's filing of a motion for reconsideration. After
court finally issued on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.

Property
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by

herein private respondent, set aside the Orders of the lower court and ordered the
return of the drive motor seized by the sheriff pursuant to said Orders, after ruling
that the machinery in suit cannot be the subject of replevin, much less of a chattel
mortgage, because it is a real property pursuant to Article 415 of the new Civil Code,
the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor,
the reason why all that the sheriff could do to enfore the writ was to take the main
drive motor of said machinery. The appellate court rejected petitioner's argument that
private respondent is estopped from claiming that the machine is real property by
constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari. It
is contended by private respondent, however, that the instant petition was rendered
moot and academic by petitioner's act of returning the subject motor drive of
respondent's machinery after the Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the
subject motor drive, it made itself unequivocably clear that said action was without
prejudice to a motion for reconsideration of the Court of Appeals decision, as shown
by the receipt duly signed by respondent's representative. 1 Considering that
petitioner has reserved its right to question the propriety of the Court of Appeals'
decision, the contention of private respondent that this petition has been mooted by
such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties,
with petitioner arguing that it is a personality, while the respondent claiming the
contrary, and was sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by said
respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143
where this Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a temporary right
as lessee, and although this can not in itself alone determine the status of the
property, it does so when combined with other factors to sustain the interpretation
that the parties, particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre,
24
Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons
assailed the validity of the chattel mortgage, it is the defendants-appellants
themselves, as debtors-mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personality.

Property
Examining the records of the instant case, We find no logical justification to exclude
the rule out, as the appellate court did, the present case from the application of the
abovequoted pronouncement. If a house of strong materials, like what was involved
in the above Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree
and no innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the chattel
mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the

Court of Appeals lays stress on the fact that the house involved therein was built on
a land that did not belong to the owner of such house. But the law makes no
distinction with respect to the ownership of the land on which the house is built and
We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel
by the private respondent is indicative of intention and impresses upon the property
the character determined by the parties. As stated inStandard Oil Co. of New York v.
Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property, as
long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as personal
property but was merely required and dictated on by herein petitioner to sign a
printed form of chattel mortgage which was in a blank form at the time of signing.
This contention lacks persuasiveness. As aptly pointed out by petitioner and not
denied by the respondent, the status of the subject machinery as movable or
immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in the
appellate court. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has
been annulled. Neither is it disclosed that steps were taken to nullify the same. On
the other hand, as pointed out by petitioner and again not refuted by respondent, the
latter has indubitably benefited from said contract. Equity dictates that one should
not benefit at the expense of another. Private respondent could not now therefore,
be allowed to impugn the efficacy of the chattel mortgage after it has benefited
therefrom,

From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to the case at bar, the nature of the
machinery and equipment involved therein as real properties never having been
disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly 25perfect parity with the instant
case to be the more controlling jurisprudential authority.

Property
WHEREFORE, the questioned decision and resolution of the Court of Appeals are
hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.

SO ORDERED.

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

Abad Santos, J., concurs in the result.

26

Property
Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,
122 SCRA 296
GR No. L-58469
May 16, 1983

FACTS
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati
Leasing and Finance Corporation covering certain raw materials and machinery.
Upon default, Makati Leasing fi led a petition for judicial foreclosure of the properties
mortgaged. Acting on Makati Leasings application for replevin, the lower court
issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure order
seized the machinery subject matter of the mortgage. In a petition for certiorari and
prohibition, the Court of Appeals ordered the return of the machinery on the ground
that the same can-not be the subject of replevin because it is a real property
pursuant to Article415 of the new Civil Code, the same being attached to the ground
by means of bolts and the only way to remove it from Wearever textiles plant would
be to drill out or destroy the concrete fl oor. When the motion for reconsideration of
Makati Leasing was denied by the Court of Appeals, Makati Leasing elevated the
matter to the Supreme Court.

ISSUE
Whether the machinery in suit is real or personal property from the point of view of
the parties.

HELD
There is no logical justification to exclude the rule out the present case from the
application of the pronouncement in Tumalad v Vicencio, 41 SCRA 143. If a house
of strong materials, like what was involved in the 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 becomesimmobilized only by destination or
purpose, may not be likewise treated as such. This is really because one who has
so agreed is estopped from the denying the existence of the chattel mortgage.
27

In rejecting petitioners assertion on the applicability of the Tumalad doctrine, the CA

lays stress on the fact that the house involved therein was built on a land that did not
belong to the owner of such house. But the law makes no distinction with respect

Property
to the ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.

It must be pointed out that the characterization by the private respondent is

indicative of the intention and impresses upon the property the character determined
by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it
is undeniable that the parties to a contract may, by agreement, treat as personal
property that which by nature would be a real property as long as no interest of third
parties would be prejudiced thereby.

The status of the subject matter as movable or immovable property was not raised
as an issue before the lower court and the CA, except in a supplemental
memorandum in support of the petition filed in the appellate court. There is no record
showing that the mortgage has been annulled, or that steps were taken to nullify the
same. On the other hand, respondent has benefited from the said contract.

Equity dictates that one should not benefit at the expense of another.

As such, private respondent could no longer be allowed to impugn the efficacy of the
chattel mortgage after it has benefited therefrom.

Therefore, the questioned machinery should be considered as personal property.

28

Property
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-46245 May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA,
respondents.

AQUINO, J.:

In this special civil action of certiorari, Meralco Securities Industrial Corporation

assails the decision of the Central Board of Assessment Appeals (composed of the
Secretary of Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated May 6, 1976, holding
that Meralco Securities' oil pipeline is subject to realty tax.

The record reveals that pursuant to a pipeline concession issued under the
Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from
Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the shoulder of
the public highway. The portion passing through Laguna is about thirty kilometers
long.

The pipes for white oil products measure fourteen inches in diameter by thirty-six
feet with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil
measure sixteen inches by forty-eight feet with a maximum capacity of 100,000
barrels daily.

The pipes are embedded in the soil and are firmly and solidly welded together so as
to preclude breakage or damage thereto and prevent leakage or seepage of the oil.
The valves are welded to the pipes so as to make the pipeline system one single
piece of property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes
have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried. In points where the
pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof.
Hence, the pipes are permanently attached to the land.

29 pipeline can be moved from

However, Meralco Securities notes that segments of the
one place to another as shown in the permit issued by the Secretary of Public Works
and Communications which permit provides that the government reserves the right
to require the removal or transfer of the pipes by and at the concessionaire's
expense should they be affected by any road repair or improvement.

Property
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax Declarations
Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-
9885, Bian and 15806-15810, Calamba, containing the assessed values of portions
of the pipeline.

Meralco Securities appealed the assessments to the Board of Assessment Appeals

of Laguna composed of the register of deeds as chairman and the provincial auditor
as member. That board in its decision of June 18, 1975 upheld the assessments (pp.
47-49, Rollo).

Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, 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 Roo as members, ruled
that the pipeline is subject to realty tax (p. 40, Rollo).

A copy of that decision was served on Meralco Securities' counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, provides that the Board's decision becomes final and
executory after the lapse of fifteen days from the date of receipt of a copy of the
decision by the appellant.

Under Rule III of the amended rules of procedure of the Central Board of
Assessment Appeals (70 O.G. 10085), a party may ask for the reconsideration of the
Board's decision within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for reconsideration.

Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6,
1977, Meralco Securities filed the instant petition for certiorari.

The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.

Meralco Securities explains that because the Court of Tax Appeals has no
jurisdiction to review the decision of the Central Board of Assessment Appeals and
because no judicial review of the Board's decision is provided for in the Real
Property Tax Code, Meralco Securities' recourse is to file a petition for certiorari.

We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-judicial
functions whereby the record of a particular case is ordered to be elevated for review
and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

The rule is that as to administrative agencies exercising quasi-judicial power there is

an underlying power in the courts to scrutinize the 30 acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).

Property
"The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary and
unjust adjudications.

Judicial review of the decision of an official or administrative agency exercising

quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave
abuse of discretion, fraud or collusion or in case the administrative decision is
corrupt, arbitrary or capricious (Mafinco Trading Corporation vs. Ople, L-37790,
March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor,
L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of
Batangas, 56 Phil. 260, 268).

The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax
under those laws; that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even under article 415, the
steel pipes can be regarded as realty because they are constructions adhered to the
soil and things attached to the land in a fixed manner and that Meralco Securities is
not exempt from realty tax under the Petroleum Law (pp. 36-40).

Meralco Securities insists that its pipeline is not subject to realty tax because it is not
real property within the meaning of article 415. This contention is not sustainable
under the provisions of the Assessment Law, the Real Property Tax Code and the
Civil Code.

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

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

It is incontestable that the pipeline of Meralco Securities does not fall within any of
the classes of exempt real property enumerated in section 3 of the Assessment Law
and section 40 of the Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in
the earth, carrying with it the right to the use of the soil in which it is placed (Note
21[10],54 C.J.S. 561).
31
Article 415[l] and [3] provides that real property may consist of constructions of all
kinds adhered to the soil and 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.

Property
The pipeline system in question is indubitably a construction adhering to the soil
(Exh. B, p. 39, Rollo). It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were welded to form
the pipeline.

Insofar as the pipeline uses valves, pumps and control devices to maintain the flow
of oil, it is in a sense machinery within the meaning of the Real Property Tax Code.

It should be borne in mind that what are being characterized as real property are not
the steel pipes but the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.

A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd
3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R.
F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).

The other contention of Meralco Securities is that the Petroleum Law exempts it from
the payment of realty taxes. The alleged exemption is predicated on the following
provisions of that law which exempt Meralco Securities from local taxes and make it
liable for taxes of general application:

ART. 102. Work obligations, taxes, royalties not to be changed. Work obligations,
special taxes and royalties which are fixed by the provisions of this Act or by the
concession for any of the kinds of concessions to which this Act relates, are
considered as inherent on such concessions after they are granted, and shall not be
increased or decreased during the life of the concession to which they apply; nor
shall any other special taxes or levies be applied to such concessions, nor shall
0concessionaires under this Act be subject to any provincial, municipal or other local
taxes or levies;nor shall any sales tax be charged on any petroleum produced from
the concession or portion thereof, manufactured by the concessionaire and used in
the working of his concession. All such concessionaires, however, shall be subject
to such taxes as are of general application in addition to taxes and other levies
specifically provided in this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines in
the exercise of his lawmaking powers, as shown in section 342 et seq. of the
Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and
Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In
contrast, a local tax is imposed by the municipal or city council by virtue of the Local
Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G.
6197).
32
We hold that the Central Board of Assessment Appeals did not act with grave abuse
of discretion, did not commit any error of law and acted within its jurisdiction in
sustaining the holding of the provincial assessor and the local board of assessment
appeals that Meralco Securities' pipeline system in Laguna is subject to realty tax.

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

SO ORDERED.

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

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

Footnotes

* The Real Property Tax Code contains the following definitions in its section 3:

"k) Improvements - is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adapt it for
new or further purposes. "

"m) Machinery - shall embrace machines, mechanical contrivances, instruments,

appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service
facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes." (See sec. 3[f], Assessment Law).

33

Property
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, respondents.

AQUINO, J.:

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

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

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

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

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an

inch thick. Pipelines were installed on the sides of each tank and are connected to
the pipelines of the Manila Enterprises Industrial Corporation
34 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,

Property
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
Roo 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:

35
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.

Property
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.

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

Concepcion, Jr., J., is on leave.

Justice Abad Santos, J., took no part.

36

Property
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.

AQUINO, J.:

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

The machines and equipment consists of underground tanks, elevated tank,

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

A gasoline service station is a piece of lot where a building or shed is erected, a

water tank if there is any is placed in one corner of the lot, car hoists are placed in an
adjacent shed, an air compressor is attached in the wall of the shed or at the
concrete wall fence.

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

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

The building or shed, the elevated water tank, the car hoist under a separate shed,
the air compressor, the underground gasoline tank, neon lights signboard, concrete
fence and pavement and the lot where they are all placed or erected, all of them
used in the pursuance of the gasoline service station business formed the entire
gasoline service-station.
37
As to whether the subject properties are attached and affixed to the tenement, it is
clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the gasoline

Property
station and the improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement.

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

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

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

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

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

The Board, which was composed of Secretary of Finance Cesar Virata as chairman,
Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local
Government and Community Development Jose Roo, held in its decision of June 3,
1977 that the said machines and equipment are real property within the meaning of
sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No.
464, which took effect on June 1, 1974, and that the definitions of real property and
personal property in articles 415 and 416 of the Civil Code are not applicable to this
case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took
Macaraig's place) in its resolution of January 12, 1978, denying Caltex's motion for
reconsideration, a copy of which was received by its lawyer on April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting
aside of the Board's decision and for a declaration that t he said machines and
equipment are personal property not subject to realty tax (p. 16, Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive
appellate jurisdiction over this case is not correct. When Republic act No. 1125
created the Tax Court in 1954, there was as yet no38Central Board of Assessment
Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to
review by appeal decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate

Property
jurisdiction over decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central
Board of Assessment Appeals shall become final and executory after the lapse of
fifteen days from the receipt of its decision by the appellant. Within that fifteen-day
period, a petition for reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.

Consequently, the only remedy available for seeking a review by this Court of the
decision of the Central Board of Assessment Appeals is the special civil action of
certiorari, the recourse resorted to herein by Caltex (Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already
enumerated are subject to realty tax. This issue has to be resolved primarily under
the provisions of the Assessment Law and the Real Property Tax Code.

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

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

The Code contains the following definitions in its section 3:

k) Improvements is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adapt it for
new or further purposes.

m) Machinery shall embrace machines, mechanical contrivances, instruments,

appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service
facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).

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

Caltex invokes the rule that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of39the property or plant but not
when so placed by a tenant, a usufructuary, or any person having only a temporary
right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs.
Castillo, 61 Phil 709).

Property
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code
regarding machinery that becomes real property by destination. In the Davao Saw
Mills case the question was whether the machinery mounted on foundations of
cement and installed by the lessee on leased land should be regarded as real
property forpurposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action.
(Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil.
70, where in a replevin case machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently
affixed by Caltex to its gas station and pavement (which are indubitably taxable
realty) should be subject to the realty tax. This question is different from the issue
raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some
purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41).
"It is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property"
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment Appeals vs.
Manila Electric Co., 119 Phil. 328, where Meralco's steel towers were considered
poles within the meaning of paragraph 9 of its franchise which exempts its poles
from taxation. The steel towers were considered personalty because they were
attached to square metal frames by means of bolts and could be moved from place
to place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as tools and
equipment in the repair shop of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).

The Central Board of Assessment Appeals did not commit a grave abuse of
discretion in upholding the city assessor's is imposition of the realty tax on Caltex's
gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of

Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack of
merit. No costs.

SO ORDERED.

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

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

40

Property
Caltex vs Central Board of Assessment Appeals & City Assessor of Pasay
GR No. L-50466
May 31, 1982

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

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

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

The City Assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. However, the City Board of Tax Appeals
ruled that they are personalty. The Assessor appealed to the Central Board of
Assessment Appeals.

The Board held on June 3, 1977 that the said machines are real property within the
meaning of Ses. 3(k) & (m) and 38 of the Real Property Tax Code, PD 464, and that
the Civil Code definitions of real and personal property in Articles 415 and 416 are
not applicable in this case.

ISSUE
WON the pieces of gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement should be subject to realty tax.

HELD
Sec.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 Sec.3 thereof. 41

Sec.3 of the Real Property Tax Code provides the following definitions:

Property
 k) Improvements a valuable addition made to property or an amelioration in
its conditionmore than mere repairs or replacement of wasteintended to
enhance its value, beauty, or utility
m) Machinery machines, mechanical contrivances, instruments, appliances,
and apparatus attached to the real estateincludes the physical facilities
available for productioninstallation and appurtenant service facilities.
The subject machines and equipment are taxable improvement and machinery
within the meaning of the Assessment Law and the Real Property Tax Code,
because the same are necessary to the operation of the gas station and have been
attached/affixed/embedded permanently to the gas station site.

Improvements on land are commonly taxed as realty even though they might
be considered personalty. It is a familiar phenomenon to see things classified as
real property for purposes of taxation which on general principle might be considered
personal property (Standard Oil Co., vs Jaramillo, 44 PHIL 630).

This case is also easily distinguishable from Board of Assessment Appeals vs.
Manila Electric Co., (119 Phil. 328) where Meralco's steel towers were exempted
from taxation. The steel towers were considered personalty because they were
attached to square metal frames by means of bolts and could be moved from place
to place when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as the tools and
equipment in the repair shop of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).

The Central Board of Assessment Appeals did not commit a grave abuse of
discretion in upholding the City Assessor's imposition of the realty tax on Caltex's
gas station and equipment.

42

Property
FACTS:
The City Assessor characterized the items in gas stations of petitioner as taxable
realty. These items included underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, etc. These items are not
owned by the lessor of the land wherein the
equipment are installed. Upon expiration of the lease agreement, the
equipment should be returned in good condition.

HELD:
The equipment and machinery as appurtenances to the gas station building or shed
owned by Caltex and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been
attached and fixed permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the Assessment Law
and the Real Property Tax Code.

43

Property
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

PRUDENTIAL BANK, petitioner,

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

PARAS, J.:

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

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

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula

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

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces

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

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of

occupancy on the lot where the above property is erected, and more particularly
described and bounded, as follows:

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 44 the Assessor of Olongapo City
with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

Property
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 45 City Sheriff to desist from
going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No.
2443-0, Rollo, pp. 29-31).

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

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

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

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

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

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

In its Memorandum, petitioner raised the following issues:

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

AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE

RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24,
1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF
TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p.
122).

This petition is impressed with merit.

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

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the
Philippines, this Court ruled that, "it is obvious that the inclusion of "building"
separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18,
Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May
30,1958).
46
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
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 Act47141, 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

Property
considered that as between parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not
within the competence of any citizen to barter away what public policy by law was to
preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal
vs. IAC, 143 SCRA 54 [1986]).

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

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales

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

SO ORDERED.

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

Footnotes

* Penned by Judge Domingo D. Panis.

48

Property
FACTS:
Spouses Magcale secured a loan from Prudential Bank. To secure payment,
they executed a real estate mortgage over a residential building. The mortgage
included also the right to occupy the lot and the information about the sales patent
applied for by the spouses for the lot to which the building stood. After securing the
first loan, the spouses secured another from the same bank. To secure
payment, another real estate mortgage was executed over the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land
which was later on mortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially
foreclosed and sold in public auction despite opposition from the spouses. The
respondent court held that the REM was null and void.

HELD:
A real estate mortgage can be constituted on the building erected on the land
belonging to another.

The inclusion of building distinct and separate from the land in the Civil Code
can only mean that the building itself is an immovable property.

While it is true that a mortgage of land necessarily includes in the absence of

stipulation of the improvements thereon, buildings, still a building in itself may
be mortgaged by itself apart from the land on which it is built. Such a mortgage
would still be considered as a REM for the building would
still be considered as immovable property even if dealt with separately and apart
from the land.

The original mortgage on the building and right to occupancy of the land was
executed before the issuance of the sales patent and before the government
was divested of title to the land. Under the foregoing, it is evident that the
mortgage executed by private respondent on his own
building was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus
prohibits pertinent provisions of the Public Land Act.

49

Property
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,

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

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

CRUZ, J.:

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

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

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

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

Although the dam is partly used as an anti-pollution device, this Board cannot
50
accede to the request for tax exemption in the absence of a law authorizing the
same.

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

(c) that the "residual value formula" used by the Provincial Assessor and adopted by
respondent CBAA is arbitrary and erroneous; and
51
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for realty tax purposes:

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

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

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

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

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

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

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

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

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

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498),

52 also from the United States.
This case involved drain tunnels constructed by plaintiff when it expanded its mining
operations downward, resulting in a constantly increasing flow of water in the said
mine. It was held that:

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

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

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

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

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

The pipeline system in question is indubitably a construction adhering to the soil. It is

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

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

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

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

Art. 415. The following are immovable property.

53
(1) Lands, buildings and constructions of all kinds adhered to the soil;

xxx xxx xxx

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

Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that
the realty tax is due "on the real property, including land, buildings, machinery and
other improvements" not specifically exempted in Section 3 thereof. A reading of that
section shows that the tailings dam of the petitioner does not fall under any of the
classes of exempt real properties therein enumerated.

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

(k) Improvements is a valuable addition made to property or an amelioration in its

condition, amounting to more than mere repairs or replacement of waste, costing
labor or capital and intended to enhance its value, beauty or utility or to adopt it for
new or further purposes.

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

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

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

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

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

From the definitions and the cases cited above, it would appear that whether a
structure constitutes an improvement so as to partake of the status of realty would
depend upon the degree of permanence intended in54its construction and use. The
expression "permanent" as applied to an improvement does not imply that the
improvement must be used perpetually but only until the purpose to which the
principal realty is devoted has been accomplished. It is sufficient that the

Property
improvement is intended to remain as long as the land to which it is annexed is still
used for the said purpose.

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

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

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

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

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

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

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

We disagree, however, with the ruling of respondent CBAA that it cannot take
cognizance of the issue of the propriety of the penalties imposed upon it, which was
raised by the petitioner for the first time only on appeal. The CBAA held that this "is
an entirely new matter that petitioner can take up with55the Provincial Assessor (and)
can be the subject of another protest before the Local Board or a negotiation with the
local sanggunian . . ., and in case of an adverse decision by either the Local Board
or the local sanggunian, (it can) elevate the same to this Board for appropriate
action."

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

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

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

Feliciano, J., took no part.

# Footnotes

1 Secretary of Finance Jesus Estanislao as chairman with Secretary of Justice

Franklin M. Drilon and Secretary of Local Government Luis T. Santos as members.

2 Francisco, Philippine Mining Law, Vol. 1, 2nd Ed., p. 274.

56

Property
 THIRD DIVISION

[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO T.

GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE,
INC., respondent.

DECISION
PANGANIBAN, J.:

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]
57
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.

Property
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

petitioners factory, seized one machinery with [the] word that he [would] return for
the other machineries.

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

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

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

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

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

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the
subject machines were personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that the words of the contract
are clear and leave no doubt upon the true intention of the contracting
parties. Observing that Petitioner Goquiolay was an experienced
businessman who was not unfamiliar with the ways of the trade, it ruled that
he should have realized the import of the document he signed. The CA
further held:

Furthermore, to accord merit to this petition would be to preempt the trial court in
ruling upon the case below, since the merits of the whole matter are laid down before
us via a petition whose sole purpose is to inquire upon the existence of a grave
abuse of discretion on the part of the [RTC] in issuing the assailed Order and
Resolution. The issues raised herein are proper subjects 58
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]

Property
 The Issues

In their Memorandum, petitioners submit the following issues for our

consideration:

A. Whether or not the machineries purchased and imported by SERGS 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 Courts 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
59
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
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.

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.

Wearever Textile Mills[20] also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a
writ of replevin because it was treated as personal property in a
contract. Pertinent portions of the Courts ruling are
60 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

Property
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 respondents 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 Tondea Distillers v. CA,[27] the Court explained that the
policy under Rule 60 was that questions involving title to the subject
property questions which petitioners are now raising -- should be
determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question
the sufficiency of the plaintiffs bond. They were61not 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

Property
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
applicants bond, or of the surety or sureties thereon, he62 cannot immediately require
the return of the property, but if he does not so object, he may, at any time before the
delivery of the property to the applicant, require the return thereof, by filing with the
court where the action is pending a bond executed to the applicant, in double the
value of the property as stated in the applicants affidavit for the delivery thereof to

Property
the applicant, if such delivery be adjudged, and for the payment of such sum to him
as may be recovered against the adverse party, and by serving a copy bond on the
applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

63

Property
Sergs Products, Inc. vs. PCI Leasing G.R. No. 137705. August 22, 2000

FACTS:
PCI Leasing and Finance filed a complaint for sum of money, with an application for
a writ of replevin.
Judge issued a writ of replevin directing its sheriff to seize and deliver the
machineries and equipment to PCI Leasing after 5 days and upon the payment of
the necessary expenses.
The sheriff proceeded to petitioner's factory, seized one machinery, with word that he
would return for other machineries.
Petitioner (Sergs Products) filed a motion for special protective order to defer
enforcement of the writ of replevin.
PCI Leasing opposed the motion on the ground that the properties were still
personal and therefore can still be subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized were immovable as defined in
Article 415 of the Civil Code.
Sheriff was still able to take possession of two more machineries
In its decision on the original action for certiorari filed by the Petitioner, the appellate
court, Citing the Agreement of the parties, held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners;
and ruled that the "words of the contract are clear and leave no doubt upon the true
intention of the contracting parties."

ISSUE: Whether or not the machineries became real property by virtue of

immobilization.

Ruling:
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.

Writ of Replevin: Rule 60 of the Rules of Court provides that writs of replevin are
issued for the recovery of personal property only.

Article 415 (5) of the Civil Code provides that 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

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.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.

However, 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.

Section 12.1 of the Agreement between the parties provides

64 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.

Property
The machines are personal property and they are proper subjects of the Writ of
Replevin

65

Property
 FIRST DIVISION

[G.R. No. 106812. June 10, 1997]

TAGAYTAY-TAAL TOURIST DEVELOPMENT CORPORATION, petitioner,

vs. COURT OF APPEALS (SPECIAL NINTH DIVISION) and THE CITY OF
TAGAYTAY, respondents.

DECISION
KAPUNAN, J.:

The instant petition for review on certiorari seeks to reverse the decision[1] of
respondent Court of Appeals in CA-G.R. CV No. 24933 entitled "City of Tagaytay vs.
Tagaytay-Taal Tourist Development Corporation" promulgated on November 11,
1991 and the Resolution of the Court of Appeals dated August 24, 1992 denying
petitioner's motion for reconsideration.
The Court of Appeals' decision sought to be reviewed affirmed the decision of
the Regional Trial Court of Cavite, Branch XVIII, dated December 5, 1989 [2] granting
respondent City's unnumbered "Petition for Entry of New Certificate of Title," and
ordering the issuance in its name of new certificates of title over certain properties it
acquired through public auction to satisfy petitioner's alleged real estate tax
delinquency.
It appears that petitioner was the registered owner of four (4) parcels of land
with an aggregate area of 220 hectares and covered by TCT Nos. T-9816, T-9817, T-
9818 and T-9819 supposed to be of the Register of Deeds of Tagaytay City. The
properties were mortgaged on June 7, 1976 to Filipinas Manufacturers Bank and
Trust Company by Benjamin Osias, representing himself as President and Chairman
of the Board of petitioner. Two of the parcels of land, Lot 10-A and Lot 10-B of Subd.
Plan (LRC) Psd-229279 and covered by TCT No. T-9816 and TCT No. 9817,
respectively, are more particularly described as follows:

TECHNICAL DESCRIPTION
TCT No. 9816
CITY OF TAGAYTAY

A parcel of land (Lot 10-A of the subdivision plan (LRC) Psd-229279, being portion of
Lot 10, Psu-82838, Amd. 4 L.R.C. Record No. 43057, situated in the Barrio of
Birinayan, Municipality of Talisay, Province of Batangas, island of Luzon. Bounded
on the NW., and NE., points 7 to 1 and 1 to 2 Lot 10-B on the SE., points 3 to 4, Lot
1-C both of the subdivision plan; and on the SW., points 4 to 7 by property of Agapito
Rodriguez x x x x containing an area of SEVENTY FOUR THOUSAND THREE
HUNDRED FORTY (74,340) SQUARE METERS, more or less xxx.
66
TECHNICAL DESCRIPTION
TCT No. 9817
CITY OF TAGAYTAY

Property
A parcel of land (Lot 10-B, of the subdivision plan (LRC) Psd-229279, being a portion
of Lot 10, Psu-82838, Amd. 4., L.R.C. Record No. 49057), situated in the Barrio of
Birinayan, Municipality of Talisay, Province of Batangas, Island of Luzon. Bounded
on the NE., points 14 to 1 and 1 to 4 by property of Angel T. Limjoco; on the SE.,
points 4 to 5 by Lot 10-B, on the SW., and SE., points 5 to 7 by Lot 10-A, both of the
subdivision plan; on the SW., points 7 to 9 by property of Agapito Rodriguez; and on
the NW., points 9 to 12 by Lot 11, points 12 to 13 by Lot 9, and points 13 to 14
containing an area of NINE HUNDRED THIRTY SEVEN THOUSAND AND EIGHT
HUNDRED FOURTEEN (937,814) SQUARE METERS, more or less xxx.

Owing to a dispute regarding the composition of its set of corporate officers and
board of directors, petitioner in June of 1976, filed a complaint to nullify the aforesaid
mortgage with the Regional Trial Court of Cavite, docketed as Civil Case No. TG-
346, with prayer for the issuance of a writ of preliminary injunction. The trial court
forthwith issued a temporary restraining order enjoining the Register of Deeds from
registering the mortgage and directing it to hold for safekeeping the four (4) titles
covering the properties until further orders.
On August 13, 1979, the trial court rendered a decision [3] dismissing the
complaint for lack of jurisdiction stating that the subject matter thereof involved the
determination of who were the legitimate officers of petitioner, a question falling
within the jurisdiction of the Securities and Exchange Commission. Said decision
was subsequently upheld by this Court in G.R. No. 55521 in Tagaytay-Taal Tourist
Development Corporation vs. Judge Alfredo B. Concepcion, et al.
In the meantime, the parcels of land covered by TCT Nos. T-9816 and T-9817
allegedly became delinquent in the payment of real estate taxes corresponding to
the years 1976-1983 in the amounts of P131,465.20 and P950,616.11, respectively,
resulting in the sale of the said properties in a public auction on November 28, 1983
to satisfy the taxes. Respondent City itself was the successful bidder in the public
auction sale and was issued a Certificate of Sale on the same date.
On June 30, 1989, respondent City registered the final bills of sale over the lots
covered by TCT Nos. T-9816 and T-9817.
On July 14, 1989, respondent City filed before the Regional Trial Court of Cavite
City, sitting as land registration court, an unnumbered petition for the entry of new
certificates of title over the lots in its name. Said petition was opposed by herein
petitioner, alleging that the tax delinquency sale was null and void for lack of valid
and proper notice to petitioner.[4]
On December 5, 1989, the trial court rendered its decision holding that whatever
rights and interests petitioners may have had in the subject properties had long been
lost through prescription or laches, the dispositive portion of the decision reads:

WHEREFORE, finding the petition to be meritorious and sufficiently sustained with

preponderant, legal and factual basis, this Court hereby gives its imprimatur to it and
grants the same, dismissing in the process, the Opposition filed by Tagaytay-Taal
Tourist Development Corporation. Accordingly, the Register of Deeds of Tagaytay
City is hereby ordered to allow the City to consolidate the titles covering the
properties in question (TCT Nos. T-9816 and T-9817), by issuing in its favor, and
under its name, new Transfer Certificates of Titles and67cancelling as basis thereof,
the said TCT Nos. 9816 and 9817 in the name of Tagaytay-Taal Tourist Development
Corporation, all of which, being hereby declared null and void, henceforth.

Property
 Not satisfied with the above decision, petitioner appealed to the Court of
Appeals, docketed as CA-G.R. CV No. 24933, citing the following errors:

I. THE TRIAL COURT ERRED IN GIVING DUE COURSE TO THE PETITION FROM
WHICH THE PRESENT APPEAL AROSE DESPITE ITS BEING PREDICATED ON A
MISPLACED LEGAL BASIS.

II. THE TRIAL COURT ERRED IN FINDING THAT THE ENFORCEMENT OF

WHATEVER RIGHTS THE APPELLANT HAS OVER THE SUBJECT PROPERTIES
HAD ALREADY PRESCRIBED.

On July 19, 1991, during the pendency of CA-G.R. CV No. 24933, petitioner
filed with the Regional Trial Court of Cavite, sitting as a regular court, a petition
entitled "Tagaytay-Taal Tourist Development Corporation vs. City of Tagaytay,
Municipality of Laurel (formerly Talisay), Province of Batangas, Register of Deeds of
Batangas, and Register of Deeds of the City of Tagaytay," docketed as Civil Case
No. TG-1196,[5] assailing the authority of respondent City to levy real estate tax on
the properties covered by TCT Nos. T-9816 and T-9817 on the ground that said
properties are located in the Province of Batangas, and not in Tagaytay City. The
case was assigned to Branch XVIII of the RTC.
On October 21, 1991, petitioner filed a Motion to Suspend Proceedings in CA-
G.R. CV No. 24933,[6] until the termination of TG-1196 arguing that should the RTC
in Civil Case No. TG-1196 rule that respondent City is without authority to levy realty
taxes on the properties in question, then the decision of the RTC of December 5,
1989, subject of appeal in the Court of Appeals, directing the issuance of new
certificates of titles in the name of respondent City over the properties would have no
legal basis. The Court of Appeals did not resolve the motion.
On September 24, 1991, the Regional Trial Court of Cavite in Civil Case No.
TG-1196 granted petitioner's application for writ of preliminary injunction, enjoining
respondents therein from taking physical possession of the properties and/or offering
the same for sale.[7]
On November 11, 1991, the Court of Appeals promulgated a decision[8] affirming
the judgment of the Regional Trial Court in the petition for the entry of new
certificates of title.Petitioner's motion for reconsideration was denied in a Resolution
of the Court of Appeals dated August 24, 1992.[9]
Thus, on October 16, 1992, petitioner filed the instant petition on the following
grounds:

xxx. The Regional Trial Court of Cavite (Tagaytay City) sitting as a land
registration/cadastral court did not have any jurisdiction to hear and decide
respondent City's petition for entry of new certificate of title. The respondent
appellate Court, therefore, erred in affirming the decision of the lower court dated
December 5, 1989. Assuming that the lower court has jurisdiction, the petition of
respondent City should have been denied considering that the public auction sale of
herein petitioner's properties was conducted without due and valid notice; and

xxx. In any event, the decision of the respondent Court 68is premature. The issue of
authority of respondent City to levy real estate taxes on petitioner's properties, to
declare herein petitioner a tax delinquent and to sell the properties in question is still
pending determination by the Regional Trial Court of Tagaytay City in Civil Case No.
TG-1196. The determination of such authority constitutes a prejudicial issue which
must be resolved ahead of respondent City's petition for entry of a new title.

Property
 In the meantime, on October 21, 1994, the Regional Trial Court of Cavite
rendered a decision in Civil Case No. TG-1196,[10] the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered granting the instant petition and as a

consequence, the public auction sale of the properties of the petitioner, both covered
by TCT Nos. T-9816 and T-9817 of the Register of Deeds of Tagaytay City, as well
as the Certificate of Sale and the Final Bills of Sale of said properties in favor of the
respondent City of Tagaytay City, and all proceedings held in connection therewith
are hereby annulled and set aside, and the respondent Register of Deeds of the City
of Tagaytay is hereby directed to cancel Entries Nos. 21951/T-9816 and 21984/T-
9816 annotated and appearing on TCT No. T-9816 and Entries Nos. 21950/T-9817
and 30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale
of the lots described therein in favor of the City of Tagaytay.

Moreover, the writ of preliminary injunction issued by this Court on September 24 is

hereby made permanent.

SO ORDERED.

No appeal having been taken from the above cited decision by any of the
parties, the same had become final and executory.
Asserting that the decision of the Regional Trial Court in Civil Case No. TG-1196
is material to the resolution of the petition at bar, petitioner on May 31, 1995 filed a
Supplemental Petition dated May 24, 1995 principally anchored on the following
grounds:

xxx. In addition or as supplement to the grounds relied upon in the petition, petitioner
seeks the reversal of the decision (Annex 'A', Petition) and resolution (Annex 'B',
Petition) promulgated in CA-G.R. CV No. 24933 on November 11, 1991 and August
24, 1992, respectively, on the basis of the following: By a decision (now final and
conclusive on respondent City of Tagaytay and the petitioner) rendered by the
Regional Trial Court of Cavite on October 21, 1994 in Civil Case No. TG-1196
entitled 'Tagaytay Taal Tourist Development Corporation vs. City of Tagaytay, et al.'
the respondent City of Tagaytay had been found without authority to levy real estate
taxes on the properties. The public auction sale at which respondent City of
Tagaytay allegedly purchased the properties subject of the petition was annulled and
set aside. Similarly, the certificates of sale and the final bills of sale covering said
properties were annulled and set aside. Hence, there is clearly no basis for the
decision (Annex 'A', Petition) and Resolution (Annex 'B', Petition) of respondent
Court of Appeals promulgated on November 11, 1991 and August 24, 1992 in CA-
G.R. CV No. 24933.[11]

After respondent City filed its comment on the supplemental petition, followed by
petitioner's reply thereto, this Court gave due course to the petition and required the
parties to file their respective memoranda.
We grant the petition.
The issues in the instant petition are: (a) whether69or not the Regional Trial Court
of Cavite, sitting as a land registration or cadastral court, had jurisdiction to hear and
decide respondent City's petition for the cancellation of TCT No. T-9816 and TCT
No. T-9817 in the name of petitioner and the issuance of new ones in the name of
respondent City despite serious opposition by petitioner; (b) whether or not

Property
respondent City had the right to levy real estate tax over the properties covered by
TCT Nos. T-9816 and T-9817.
We answer both issues in the negative.
I
Respondent City's unnumbered petition filed on July 14, 1989 with the Regional
Trial Court of Cavite sitting as land registration or cadastral court for the entry of new
certificates of title over the properties in its name, is pursuant to Section 75,
Presidential Decree No. 1529,[12] which provides as follows:

SEC. 75. Application for new certificate upon the expiration of redemption period.
Upon the expiration of the time, if any, allowed by law for redemption after registered
land has been sold on execution taken or sold for the enforcement of a lien of any
description, except a mortgage lien, the purchaser at such sale or anyone claiming
under him may petition the court for the entry of a new certificate of title to him.

Before the entry of a new certificate of title, the registered owner may pursue all legal
and equitable remedies to impeach or annul such proceedings.

It is crystal from the above-quoted provision that upon the expiration of time
allowed by law for redemption of a registered land sold on execution, the purchaser
at such sale may petition for the issuance of a new certificate of title to him, subject
to the condition that "before entry of a new certificate of title the registered owner
may pursue all legal and equitable remedies to impeach or annul such
proceedings." (underscoring ours).
Here, petitioner had the right to avail of its legal and equitable remedies to nullify
the delinquency sale because, firstly, there was lack of notice to it, and therefore, it
was deprived of due process; secondly, the properties in question became subject of
serious controversy brought about by the filing of a complaint in June of 1976 with
the RTC of Cavite in Civil Case No. TG-346 to nullify the contract of mortgage over
the properties for lack of authority to execute the contract, as well as the pendency
before the SEC of the dispute as to who were the duly elected directors and officers
of petitioner, which directly affected the validity of their dealing and disposition of the
subject properties, all of which matters were ventilated in petitioner's opposition to
respondent City's petition for issuance of new certificates of title in its name;
and thirdly, respondent City had no authority to impose realty tax on petitioner as the
properties alleged to have been delinquent are actually located in Talisay, Batangas.
Thus, in the opposition of petitioner to the issuance of new certificates of title to
respondent City, it was vigorously argued that:

That herein oppositor, as owner, should be named as a necessary party or given

notice in such a petition is implicit in the said provision of the law. Were this not so,
the provision giving the registered owner the opportunity to pursue all legal and
equitable remedies to impeach or annul proceedings wherein the entry of a new
certificate of title is sought would be rendered negatory.

The present petition is very clearly a case in point for the simple reason that herein
70
oppositor was not even named as a party and notice thereof came to it purely by
chance. Had it not come to know of the petition, herein oppositor would have been
deprived of the change to have recourse to the remedies allows it by law.

Property
Herein oppositor to the present petition is essentially anchored upon the fact that the
suppose sale at public auction of the properties in question on November 28, 1983
to the City Government of Tagaytay was null and void considering that it was
effected without any previous legally valid and effective notice to the owner thereof,
herein oppositor.

While it may appear in the records of the Office of the Treasurer of Tagaytay City that
a notice or notices were sent, the same could not have been considered properly
addressed to and received by herein oppositor to warrant the conduct of said sale.

It must be pointed out that this Honorable Court, in its decision dated August 13,
1979, in Civil Case No. TG-346 disclaimed jurisdiction in that case and thereby
tossed the question of the determination of the lawful directors and officers of
oppositor corporation to the Securities and Exchange Commission. At the time the
Tagaytay City Treasurer moved to seek the satisfaction of the delinquent taxes of
oppositor corporation on its aforementioned properties, there was yet nobody who
could validly act for and in its behalf. Any notice covering the scheduled sale of its
properties therefore could not have been deemed effective notice as it must
necessarily have been sent to someone who had no legal personality or capacity to
act for it and if said notice was, in fact, received by anybody, such notice and receipt
thereof could not have validly bound oppositor corporation for failure to act
accordingly.

Being aware of the then situation of oppositor corporation which was frozen to
immobility by the decision of this Honorable Court in the aforementioned Civil Case
No. TG-346, the Treasurer of Tagaytay City should have deferred action on oppositor
corporation's property tax delinquency until such time that it could already perform
acts as a juridical person through its officers and directors certified and recognized
as such by the SEC. That is proceeded with the auction sale after a notice which is
invalid rendered the same null and void.

And consequently, the present petition has no valid and legal basis.[13]

The issues raised before the RTC sitting as a land registration or cadastral
court, without question, involved substantial or controversial matters and,
consequently, beyond said court's jurisdiction. The issues may be resolved only by a
court of general jurisdiction.
In Re: Balanga vs. Court of Appeals,[14] we emphatically held:

xxx. While it is true that Section 78 of Act. 496 on which the petition is based
provides that upon the failure of the judgment-debtor to redeem the property sold at
public auction the purchaser of the land may be granted a new certificate of title, the
exercise of such function is qualified by the provision that 'at any time prior to the
entry of a new certificate the registered owner may pursue all his lawful remedies to
impeach or annul proceedings under executions or to enforce liens of any
description.' The right, therefore, to petition for a new certificate under said section is
not absolute but subject to the determination of any objection that may be interposed
relative to the validity of the proceedings leading to the transfer of the land subject
thereof which should be threshed out in a separate appropriate
71 action. This is the
situation that obtains herein. Teopista Balanga, the judgment-debtor, is trying to
impeach or annul the execution and sale of the properties in question by alleging
that they are conjugal in nature and the house erected on the land has been
constituted as a family home which under the law is exempt from execution. These

Property
questions should first be determined by the court in an ordinary action before entry
of a new certificate may be decreed.

This pronouncement is also in line with the interpretation we have placed on Section
112 of the same Act to the effect that although cadastral courts are empowered to
order the cancellation of a certificate of title and the issuance of a new one in favor of
the purchaser of the land covered by it, such relief can only be granted if there is
unanimity among the parties, or no serious objection is interposed by a party in
interest. As this Court has aptly said: 'While this section, (112) among other things,
authorizes a person in interest to ask the court for any erasure, alteration, or
amendment of a certificate of title x x x and apparently the petition comes under its
scope, such relief can only be granted if there is unanimity among the parties, or
there is no adverse claim or serious objection on the part of any party in interest;
otherwise the case becomes controversial and should be threshed out in an ordinary
case or in the case where the incident properly belongs' (Angeles v. Razon, G.R. No.
L-13679, October 26, 1959, and cases cited therein). x x x.

From the foregoing ruling, it is clear that petitions under Section 75 and Section
108 of P.D. 1529 (formerly Sec. 78 and Sec. 112 of Act 496) can be taken
cognizance of by the RTC sitting as a land registration or cadastral court. Relief
under said sections can only be granted if there is unanimity among the parties, or
that there is no adverse claim or serious objection on the part of any party in interest;
otherwise, the case becomes controversial and should be threshed out in an
ordinary case or in the case where the incident properly belongs.[15]
Petitioner also questioned the validity of the delinquency sale for lack of notice,
the effect of which was to vitiate the sale. Indeed, there is nothing on record to show
to whom the notice of the delinquency sale was sent and who received the same,
which is a critical issue considering that at that time there was a question as to who
were the lawful directors and officers of petitioner, the determination of which was
disclaimed by the Regional Trial Court in Civil Case No. TG-346 and was thereby
thrown into the lap of the Securities and Exchange Commission.In other words, at
the time of the delinquency sale, there was no definite person yet who was clothed
with authority to act for and in behalf of petitioner. There being no evidence that
petitioner was notified of the delinquency sale, the omission rendered the sale null
and void.

The assailed decision of the appellate court declares that the prescribed procedure
in auction sales of property for tax delinquency being in derogation of property rights
should be followed punctiliously. Strict adherence to the statues governing tax sales
is imperative not only for the protection of the taxpayers, but also to allay any
possible suspicion of collusion between the buyer and the public officials called upon
to enforce such laws. Notice of sale to the delinquent land owners and to the public
in general is an essential and indispensable requirement of law, the non-fulfillment of
which vitiates the sale.

We give our stamp of approval on the aforementioned ruling of the respondent court.
x x x.[16]

The Court of Appeals, in affirming the decision72 of the Regional Trial Court,
reasoned out that petitioner was barred by prescription and laches in questioning the
lack of notice of the delinquency sale because it knew of such sale "at least on 27
November 1984 when it secured from the Honorable Supreme Court, through its

Property
President Eduardo L. Santos, telegraphic restraining order enjoining petitioner-
appellee from consolidating title over the subject properties."[17]
Precisely, the capacity of Eduardo L. Santos as director and corporate officer of
petitioner corporation has been questioned by the other stockholders of petitioner
who asserted that Santos and others made it appear that they are stockholders by
virtue of shares traceable from the unissued shares, which were nullified by the
SEC.[18] On June 15, 1990, petitioner, et al., filed with the SEC an action for
"Injunction and Damages, with Preliminary Injunction and Enforcement of SEC
Decision" against Eduardo L. Santos and others,[19] praying principally that Eduardo
L. Santos and his co-respondents be declared "not stockholders of the corporation
and are unlawful usurpers of the positions of directors and corporate officers of the
Corporation."[20]
Consequently, knowledge of Eduardo L. Santos of the delinquency sale could
not have been considered as notice to petitioners.
Considering, therefore, that the Regional Trial Court of Cavite acted without
jurisdiction over the case so that its decision is null and void, it necessarily follows
that the decision of the Court of Appeals affirming the RTC's decision has no leg to
stand on.
II
The Regional Trial Court of Cavite, sitting as a land registration or cadastral
court, could not have ordered the issuance of new certificates of title over the
properties in the name of respondent City if the delinquency sale was invalid
because said properties are actually located in the municipality of Talisay, Batangas,
not in Tagaytay City. Stated differently, respondent City could not have validly
collected real taxes over properties that are outside its territorial jurisdiction. This is
clear from P.D. 464, otherwise known as the Real Property Tax Code, the pertinent
provisions of which state:

SEC. 5. Appraisal of Real Property. All real property, whether taxable or exempt,
shall be appraised at the current and fair market value prevailing in the locality where
the property is situated.

x x x.

SEC. 39. Rates of Levy. The provincial, city or municipal board or council shall fix a
uniform rate of real property tax applicable to their respective localities as follows:

x x x.

SEC. 47. Special Levy by Local Governments. The provincial, city, municipal
boards or councils may, by ordinance, provide for the imposition and collection of a
special levy on the lands comprised within the province, city or municipality or parts
thereof. x x x.

x x x.
73
SEC. 57. Collection of Tax to be the Responsibility of Treasurers. The collection
of the real property tax and all penalties accruing thereto, and the enforcement of the
remedies provided for in this Code or any applicable laws, shall be the responsibility
of the treasurer of the province, city or municipality where the property is situated.

Property
 The Regional Trial Court of Cavite in Civil Case No. TG-1196 rendered a
decision on October 21, 1994 ruling that the properties in question are actually
situated in Talisay, Batangas,[21]hence, the assessment of real estate taxes thereon
by respondent City and the auction sale of the properties on November 28, 1983, as
well as the Certificate of Sale and Final Bill of Sale in favor of respondent City are
null and void. We quote with favor portions of said decision:

As earlier stated herein, the portion of Barrio of Birinayan, Municipality of Talisay,

Province of Batangas, by virtue of the provisions of Commonwealth Act No. 338
corresponds to Exhibit '1-B' of the Plan of Mendez-Nuez marked as Exhibit '1', and it
is noted that Exhibit '1-B' or that portion of the Municipality of Talisay, Province of
Batangas given to the respondent City under Commonwealth Act No. 338 is located
below the Tagaytay Ridge which was the boundary between the Provinces of Cavite
and Batangas before the enactment of Commonwealth Act No. 338. Thus, taking
into account the above-quoted portion of the explanatory note of Republic Act No.
1418, there can be no doubt that what had been ordered returned by the law to the
Municipality of Talisay, Province of Batangas does not extend only to the portion
annexed to the respondent City by virtue of Executive Order No. 336 but also the
portion mentioned under Commonwealth Act No. 338. Besides, the same
explanatory note mentions specifically the return of the two (2) barrios of Talisay,
Batangas, and not merely portions thereof, hence the conclusion is inescapable that
Republic Act No. 1418 intended the return of the entire barrios of Caloocan and
Birinayan to the same municipality.

It is beyond my doubt, therefore, that Lots 10-A and 10-B of TCT Nos. T-9816 and T-
9817 of petitioner, which are located in Barrio Binirayan, Municipality of Talisay,
Province of Batangas, at the time Republic Act No. 1418 took effect, are no longer
within the territorial jurisdiction of the respondent City of Tagaytay and since there is
no dispute that under the law, the City of Tagaytay may only subject to the payment
of real estate tax properties that are situated within its territorial boundaries (See
Sections 27 & 30, Commonwealth Act No. 338; Presidential Decree No. 464; and
1991 Local Government Code), the assessment of real estate taxes imposed by the
respondent City on the same properties in the years 1976 up to 1983 appears to be
legally unwarranted. In the same manner, the public auction sale, which was
conducted by the same respondent on November 28, 1989, for deficiencies on the
part of the petitioner to pay real estate taxes on the same years, as well as the
certificates of sale and the final bills issued and executed in connection with such
auction sale, and all proceedings taken by the respondent City in connection
therewith are all considered by this Court as illegal, and null and void.

In fine, this Court finds from the evidence adduced on record that petitioner has
preponderantly established its entitlement to the reliefs mentioned in its petition.

WHEREFORE, judgment is hereby rendered granting the instant petition and as a

consequence, the public auction sale of the properties of the petitioner, both covered
by TCT Nos. T-9816 and T-9817 of the Registry of Deeds of Tagaytay City, as well as
the Certificates of Sale and the Final Bills of Sale of said properties in favor of the
respondent Tagaytay City, and all proceedings held in connection therewith are
hereby annulled and set aside, and the respondent Register of Deeds of the City of
74
Tagaytay is hereby directed to cancel Entries Nos. 21951/T-9816, 21984/T-9816
annotated and appearing on TCT No. T-9816 and Entries Nos. 21950/T-98917 and
30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale of the
lots described therein in favor of the City of Tagaytay.

Property
 The above-cited decision has not been appealed and is now final and executory.
[22]

WHEREFORE, the decision of respondent Court of Appeals promulgated on

November 11, 1991 and its resolution of August 24, 1992, and the decision of the
Regional Trial Court of Cavite dated December 5, 1989 are hereby REVERSED and
SET ASIDE. The "Petition for Entry of New Certificates of Title" of respondent City of
Tagaytay is DENIED.
SO ORDERED.
Bellosillo, and Hermosisima, Jr., JJ., concur.
Padilla, (Chairman), J., on leave.
Vitug, J., In the result.

75

Property