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Recommended Book: Commentaries and Jurisprudence on the The Compaia Agricola Filipina bought a

Civil Code of the considerable quantity of rice-cleaning machinery company from

Philippines, Vol. II, Arturo M. Tolentino the defendant machinery company, and executed a chattel
I. Preliminary Provisions (Art 414) mortgage thereon to secure payment of the purchaseprice. It
II. Classification of Property (Arts 415-418) included in the mortgage deed the building of strong materials in
a. Immovable Property (Art 415) which the machinery was installed, without any reference to
i. By nature 415 (1) & (8) the land on which it stood. The indebtedness secured by this
ii.By incorporation 415 (2), (3), & (7) instrument not having been paid when it fell due, the mortgaged
By destination 415 (4), (5), (6), and (9) property was sold by the sheriff, in pursuance of the terms of the
iii. mortgage instrument. A few weeks thereafter, on or about the
By analogy 415 (10) 14th of January, 1914, the Compaia Agricola Filipina executed
iv. a deed of sale of the land upon which the building stood to
b. Movable Property (Art 416-418) themachinery company, but this deed of sale, although executed
Cases in a public document, was not registered. The machinery
1. Leung Yee vs. Strong Machinery 37 Phil 644 company went into possession of the building at or about the
2. Davao Sawmill vs. Castillo 61 Phil 709 time when this sale took place, that is to say, the month of
3. Machinery & Engineering Supplies vs. CA 96 Phil 70 December, 1913, and it has continued in possession ever since.
4. Associated Insurance vs. Isabeliya 103 Phil 972 At or about the time when the chattel mortgage was executed in
5. Mindanao Bus Company vs. City Assessor 6 S 197 favor of themachinery company, the mortgagor, the
6. Bd. Of Assessment Appeals vs. Meralco 10 S 68 Compaia Agricola Filipina executed another mortgage to the
7. Tumalad vs. Vicencio 41 S 143 plaintiff upon the building, separate and apart from the land on
8. Punsalan vs. Lacsamana 121 S 331 which it stood. Upon the failure of the mortgagor to pay the
9. Makati Leasing vs. Wearever 122 S 296 amount of the indebtedness secured by the mortgage, the
10. Meralco Securities vs. Central Bd. Of Assessment Appeals 114 plaintiff secured judgment for that amount, levied execution
S 260 upon the building, boughtit in at the sheriffs sale on or about the
11. Meralco Securities vs. Bd. Of Assessment Appeals 114 S 273 18th of December, 1914.This action was instituted by the plaintiff
12. Caltex vs. Bd. Of Assessment Appeals 114 S 296 to recover possession of the building from themachinery
13. Prudential Bank vs. Panis 153 S 390 company. The trial judge gave judgment in favor of
14. Benguet Corp. vs. Central Bd. Of Assessment Appeals 218 S the machinery company. Hence, this appeal.
271 Issue:
15. Sergs Products Inc vs. PCI Leasing and Finance Inc. 338 S Whether or not the trial judge erred in sustaining the machinery
499 company on the ground that it had its title to the building
16. Tsai vs. CA 366 S 324 registered prior to the date of registry of plaintiffs certificate.
c. Importance and Significance of Classification Held:
i. From the point of view of We conclude that the ruling in favor of the machinery
1. Criminal law company cannot be sustained on the ground assigned by the trial
2. Forms of contracts involving movable or immovables judge. We are of opinion, however, that the judgment must be
3. Prescription sustained on the ground that the agreed statement of facts in the
4. Venue court below discloses that neither the purchase of the building by
5. Taxation the plaintiff nor his inscription of the sheriffs certificate of sale in
ii.Differences between real rights and personal rights his favor was made in good faith, and that the machinery
Leung Yee v. Strong Machinery Company company must be held to be the owner of the property Article
37 Phil. 644 1544 of the New Civil Code, it appearing that the company first
Facts: took possession of the property; and further, that the building
and the land were sold to the machinery companylong prior that the Davao Saw Mill Co., Inc., has on anumber of occasions
to the date of the sheriffs sale to the plaintiff. But it appearing treated the machinery as personal property by executing chattel
that he had full knowledge of the machinery companys claim of mortgages in favorof third persons. One of such persons is the
ownership when he executed the indemnity bond and bought in appellee by assignment from the original mortgages.
the property at the sheriffs sale, and it appearing further that Article 334, paragraphs 1 and 5, of the [Old]Civil Code, is in point.
the machinery companys claim of ownership was well founded, According to the Code, real property
he cannot be said to have been an innocentpurchaser for value. consists of
He took the risk and must stand by the consequences; and it is in 1. Land, buildings, roads and constructions of all kinds adhering
this sense that we find that he was not a purchaser in good faith. to the soil;
The decision of the trial court is hereby affirmed. 5. Machinery, liquid containers, instruments or implements
Davao Sawmill Co. v. Castillo intended by the owner of any building or landfor use in
61 Phil. 709 connection with any industry or trade being carried on therein
Facts: and which are expressly adaptedto meet the requirements of
The Davao Saw Mill Co., Inc., is the holder of a lumber concession such trade of industry.
from the Government of the PhilippineIslands. It has operated a Appellant emphasizes the first paragraph, and appellees the last
sawmill in thesi tio of Maa, barrio of Tigatu, municipality of mentioned paragraph. We entertain nodoubt that the trial judge
Davao, Province ofDavao. However, the land upon which the and appellees are right in their appreciation of the legal doctrines
business was conducted belonged to another person. On theland flowing fromthe facts.
the sawmill company erected a building which housed the As a rule, the machinery should be considered as personal, since
machinery used by it. Some of theimplements thus used were it was not placed on the land by theowner of the land
clearly personal property, the conflict concerning machines which immobilization by destination on purpose cannot generally be
were placedand mounted on foundations of cement. In the made by a person, whosepossession of the property is only
contract of lease between the sawmill company and theowner of temporary, otherwise was will be forced to presume that be
the land there appeared the following provision: intended togive the property permanently to the owner of the
That on the expiration of the period agreed upon, all the land. In this case, they had stipulated that the land inthe end
improvements and buildings introduced anderected by the party thereby be acted as an agent for the owner of the land. In this
of the second part shall pass to the exclusive ownership of the sense the property (machines foruse in the sawmill) became real
party of the first partwithout any obligation on its part to pay any property.
amount for said improvements and buildings; also, in theevent The judgment appealed from is hereby affirmed.
the party of the second part should leave or abandon the land Engineering and Machinery Corporation v. CA
leased before the time hereinstipulated, the improvements and Facts:
buildings shall likewise pass to the ownership of the party of the Pursuant to a contract, petitioner undertook to install air
firstpart as though the time agreed upon had expired: Provided, conditioning system in private respondents building. The
however, That the machineries andaccessories are not included building was later sold to the National Investment and
in the improvements which will pass to the party of the first part Development Corporation which took possession of it. Upon
on theexpiration or abandonment of the land leased. NIDCs failure to comply with certain conditions, the sale was
The trial judge found that those properties were personal in rescinded. NIDC reported to respondent that there were certain
nature and as a consequence absolved the defects in the air conditioning system. Respondent filed a
defendants from the complaint. complaint against petitioner for non-compliance with the agreed
Issue: plans and specifications. Petitioner moved to dismiss the
Whether or not the trial judge erred in finding that the subject complaint on the ground of the 6-month prescription of warranty
properties are personal in nature. against hidden defects. Private respondent averred that the
Held: contract was not of sale but for a piece of work, the action for
As connecting up with the facts, it should further be explained damages of which prescribes after 10 years.
Issue: more than four years after the execution of the contract and the
Is a contract for the fabrication and installation of a central airconditioning completion of the air-conditioning system. However, a close
system in a building, one of "sale" or "for a piece of scrutiny of the complaint filed in the trial court reveals that the
work"? original action is not really for enforcement of the warranties
Held: against hidden defects, but one for breach of the contract itself.
A contract for a piece of work, labor and materials may be The governing law is Article 1715. However, inasmuch as this
distinguished from a contract of sale by the inquiry as to whether provision does not contain a specific prescriptive period, the
the thing transferred is one not in existence and which would general law on prescription, which is Article 1144 of the Civil
never have existed but for the order, of the person desiring it. In Code, will apply. Said provision states, inter alia, that actions
such case, the contract is one for a piece of work, not a sale. On "upon a written contract" prescribe in ten (10) years. Since the
the other hand, if the thing subject of the contract would have governing contract was executed on September 10, 1962 and the
existed and been the subject of a sale to some other person even complaint was filed on May 8, 1971, it is clear that the action has
if the order had not been given, then the contract is one of sale. not prescribed. The mere fact that the private respondent
The distinction between the two contracts depends on the accepted the work does not, ipso facto, relieve the petitioner
intention of the parties. Thus, if the parties intended that at some from liability for deviations from and violations of the written
future date an object has to be delivered, without considering the contract, as the law gives him ten (10) years within which to file
work or labor of the party bound to deliver, the contract is one of an action based on breach thereof.
sale. But if one of the parties accepts the undertaking on the Associated Insurance & Surety v. Iya
basis of some plan, taking into account the work he will employ [G.R. Nos. L-10837-38. May 30, 1958.]
personally or through another, there is a contract for a piece of En Banc, Felix (J): 9 concur
work. Facts: Spouses Adriano and Lucia A. Valino were the owners and
Clearly, the contract in question is one for a piece of work. It is possessors of a house of strong materials constructed on Lot 3,
not petitioner's line of business to manufacture air-conditioning Block 80 of the Grace Park Subdivision in Caloocan, Rizal, which
systems to be sold "off-the-shelf." Its business and particular field they purchased on installment basis from the Philippine Realty
of expertise is the fabrication and installation of such systems as Corporation. On 6 November 1951, to enable her to purchase on
ordered by customers and in accordance with the particular plans credit rice from the NARIC, Lucia Valino filed a bond (P11,000.00;
and specifications provided by the customers. Naturally, the price AISCO Bond 971) subscribed by the Associated Insurance &
or compensation for the system manufactured and installed will Surety Co. and as counter-guaranty therefor, the Valinos
depend greatly on the particular plans and specifications agreed executed an alleged chattel mortgage on the aforementioned
upon with the customers. The remedy against violations of the house in favor of the surety company, which encumbrance was
warranty against hidden defects is either to withdraw from the duly registered with the Chattel Mortgage Register of Rizal on 6
contract (redhibitory action) or to demand a proportionate December 1951. It is admitted that at the time said undertaking
reduction of the price (accion quanti manoris), with damages in took place, the parcel of land on which the house is erected was
either case. still registered in the name of the Philippine Realty Corporation.
While it is true that Article 1571 of the Civil Code provides for a Having completed payment on the purchase price of the lot, the
prescriptive period of six months for a redhibitory action, a Valinos were able to secure on 18 October 1958, a certificate of
cursory reading of the ten preceding articles to which it refers title in their name (TCT 27884). Subsequently, however, or on 24
will reveal that said rule may be applied only in case of implied October 1952, the Valinos, to secure payment of an indebtedness
warranties; and where there is an express warranty in the in the amount of P12,000.00, executed a real estate mortgage
contract, as in the case at bench, the prescriptive period is the over the lot and the house in favor of Isabel Iya, which was duly
one specified in the express warranty, and in the absence of such registered and annotated at the back of the certificate of title.
period, "the general rule on rescission of contract, which is four Later, Lucia A. Valino failed to satisfy her obligation to the NARIC,
years (Article 1389, Civil Code) shall apply". It would appear that the surety company was compelled to pay the same pursuant to
this suit is barred by prescription because the complaint was filed the undertaking of the bond. The surety company demanded
reimbursement from the Valinos, who failed to do so. The also the building erected thereon, and ordered that the proceeds
company foreclosed the chattel mortgage over the house as a of the sale thereof at public auction (if the land has not yet been
consequence. A public sale was conducted thereafter by the sold), be applied to the unsatisfied judgment in favor of Isabel
Provincial Sheriff of Rizal on 26 December 1952, wherein the Iya. The decision however is without prejudice to any right that
property was awarded to the surety company for P8,000.00, the the Associated Insurance & Surety may have against the Valinos
highest bid received therefor. The surety company then caused on account of the mortgage of said building they executed in
the said house to be declared in its name for tax purposes (Tax favor of said surety company. Without pronouncement as to
Declaration 25128). costs.
Sometime in July 1953, the surety company learned of the 1. Nature of property encumbered is the decisive factor in
existence of the real estate mortgage over the lot covered by determination of preferential right
TTC 26884 together with the improvements thereon; thus, said The decisive factor in resolving the issue as to which of these
surety company instituted Civil Case 2162 with the CFI Manila encumbrances should receive preference over the other is the
naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, determination of the nature of the structure litigated upon, for
as defendants. On the other hand, on 29 October 1953, Isabel Iya where it be considered a personalty, the foreclosure of the
filed a civil action against the Valinos and the surety company chattel mortgage and the subsequent sale thereof at public
(Civil Case 2504 with CFI Manila) praying for a decree of auction, made in accordance with the Chattel Mortgage Law
foreclosure of the land, building and improvements thereon to be would be valid and the right acquired by the surety company
sold at public auction and the proceeds applied to satisfy the therefrom would certainly deserve prior recognition; otherwise,
demands; this pursuant to the contract of mortgage as the appellant's claim for preference must be granted.
Valinos have failed to pay interest for more than 6 months 2. Building always immovable
already; the surety company included as it claims to have an While it is true that generally, real estate connotes the land and
interest on the residential house covered by said mortgage. the building constructed thereon, it is obvious that the inclusion
The two cases were jointly heard upon agreement of the parties, of the building, separate and distinct from the land, in the
who submitted the same on a stipulation of facts, after which the enumeration of what may constitute real properties (Art. 415,
Court rendered judgment dated 8 March 1956, holding that the new Civil Code) could only mean one thing: that a building is by
chattel mortgage in favor of the Associated Insurance & Surety itself an immovable property. Moreover, and in view of the
was preferred and superior over the real estate mortgage absence of any specific provision to the contrary, a building is an
subsequently executed in favor of Isabel Iya. It was ruled that as immovable property irrespective of whether or not said structure
the Valinos were not yet the registered owner of the land on and the land on which it is adhered to belong to the same
which the building in question was constructed at the time the owner." (Lopez vs. Orosa).
first encumbrance was made, the building then was still a 3. Building cannot be divested of character as realty when
personalty and a chattel mortgage over the same was proper. constructed on land belonging to another
However, as the mortgagors were already the owners of the lot A building certainly cannot be divested of its character of a realty
at the time the contract with Isabel Iya was entered into, the by the fact that the land on which it is constructed belongs to
building was transformed into a real property and the real estate another. To hold it the other way, the possibility is not remote
mortgage created thereon was likewise adjudged as proper. The that it would result in confusion, for to cloak the building with an
residential building was, therefore, ordered excluded from the uncertain status made dependent on the ownership of the land,
foreclosure prayed for by Isabel Iya, although the latter could would create a situation where a permanent fixture changes its
exercise the right of a junior encumbrancer. The spouses Valino nature or character as the ownership of the land changes hands.
were ordered to pay the amount demanded by said mortgagee or 4. Execution of a chattel mortgage over a building invalid
in their default to have the parcel of land subject of the mortgage and a nullity
sold at public auction for the satisfaction of Iya's claim. As personal properties could only be the subject of a chattel
The Supreme Court reversed the decision of the lower court, mortgage (Section 1, Act 3952), the execution of the chattel
recognized Isabel Iya's right to foreclose not only the land but mortgage covering a building is clearly invalid and a nullity.
While it is true that said document was correspondingly contemplation of the law must first be "essential and principal
registered in the Chattel Mortgage Register, this act produced no elements" of an industry or works without which such industry or
effect whatsoever for where the interest conveyed is in the works would be "unable to function or carry on the industrial
nature of a real property, the registration of the document in the purpose for which it was established."
registry of chattels is merely a futile act. Thus, the registration of The tools and equipments in question in this instant case are, by
the chattel mortgage of a building of strong materials produce no their nature, not essential and principal elements of petitioner's
effect as far as the building is concerned (Leung Yee vs. Strong business of transporting passengers and cargoes by motor
Machinery Co., 37 Phil., 644). trucks. They are merely incidentals-acquired as movables and
5. No right acquired by chattel mortgage creditor who used only for expediency to facilitate and/or improve its service.
purchases real properties in an extrajudicial foreclosure Even without such tools and equipments, its business may he
sale carried on.
A mortgage creditor who purchases real properties at an the equipments in question are destined only to repair or service
extrajudicial foreclosure sale thereof by virtue of a chattel the transportation business, which is not carried On in a building
mortgage constituted in his favor, which mortgage has been or permanently on a piece of land, as demanded by the law. Said
declared null and void with respect to said real properties, equipments may not, therefore, be deemed real property.
acquires no right thereto by virtue of said sale (De la Riva vs. Ah BOARD OF ASSESSMENT APPEALS V. MANILA
Keo, 60 Phil., 899). ELECTRIC COMPANY
Mindanao Bus Company is a public utility engaged in transporting City Assessor of QC declared the steel towers for real property
passengers and cargoes by motor trucks in Mindanao has its tax under Tax Declarations. After denying the respondents
main offices in Cagayan de Oro. The company is also owner to petition to cancel these declarations, an appeal was taken with
the land where it maintains and operates a garage, a repair shop, the CTA which held that the steel towers come under the
blacksmith and carpentry shops; the machineries are place on exception of poles under the franchise given to MERALCO;
wooden and cement platforms. the steel towers are personal properties; and the City Treasurer
The City Assessor of Cagayan de Oro City assessed at P4,400 is liable for the refund of the amount paid.
said maintenance and repair equipment. The company appealed HELD:
the assessment to the Board of Tax Appeals on the ground that The steel towers of an electric company dont constitute real
the same are not realty. The Board of Tax Appeals of the City property for the purposes of real property tax.
sustained the city assessor, so the company filed with the Court Tumalad v. Vicencio
of Tax Appeals a petition for the review of the assessment. The [G.R. No. L-30173. September 30, 1971.]
CTA held that the Company was liable to the payment of the En Banc, Reyes JBL (J): 10 concur
realty tax on its maintenance and repair equipment. Hence, the Facts: On 1 September 1955 Vicencio and Simeon, defendantsappellants,
company filed a petition for review with the Supreme Court. executed a chattel mortgage in favor of the
ISSUE: Tumalads, plaintiff-appellees over their house of strong materials
Whether or not the machineries assessed by the respondent are located at 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot
real properties? 6-B and 7-B, Block 2554, which were being rented from Madrigal
HELD: & Company, Inc. The mortgage was registered in the Registry of
Paragraph 5 of Article 415 of the New Civil which provides Deeds of Manila on 2 September 1955. The mortgage was
machinery, receptacles, instruments or implements intended by executed to guarantee a loan of P4,800.00 received from the
the owner of the tenement for an industry or works which may be Tumalads, payable within one year at 12% per annum. The mode
carried on in a building or on a piece of land, and which tend of payment was P150.00 monthly, starting September, 1955, up
directly to meet the needs of the said industry or works are to July 1956, and the lump sum of P3,150 was payable on or
immovable properties. Movable equipments to be immobilized in before August, 1956. It was also agreed that default in the
payment of any of the amortizations would cause the remaining virtue of voidable contract fails without evidence that
unpaid balance to become immediately due and payable, the steps were made to annul the same
Chattel Mortgage enforceable, and the Sheriff of Manila Fraud or deceit does not render a contract void ab initio, and can
authorized the Mortgagors property after necessary publication. only be a ground for rendering the contract voidable or
When Vicencio and Simeon defaulted in paying, the mortgage annullable pursuant to Article 1390 of the New Civil Code, by a
was extrajudicially foreclosed, and on 27 March 1956, the house proper action in court. In the present case, the charge of fraud,
was sold at public auction pursuant to the said contract. As deceit or trickery, the conterntions are not supported by
highest bidder, the Tumalads were issued the corresponding evidence. Further, there is nothing on record to show that the
certificate of sale. mortgage has been annulled. Neither is it disclosed that steps
On 18 April 1956, the Tumalads commenced Civil Case 43073 in were taken to nullify the same. Hence, defendants-appellants'
the municipal court of Manila, praying, among other things, that claim of ownership on the basis of a voidable contract which has
the house be vacated and its possession surrendered to them, not been voided fails.
and for Vicencio and Simeon to pay rent of P200.00 monthly from 3. Buildings as immovable
27 March 1956 up to the time the possession is surrendered. On The rule about the status of buildings as immovable property is
21 September 1956, the municipal court rendered its decision in stated in Lopez vs. Orosa, Jr. and Plaza Theatre, Inc., cited in
favor of the Tumalads. Having lost therein, appealed to the court Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the
a quo (Civil Case 30993) which also rendered a decision against effect that the inclusion of the building, separate and distinct
them. On appeal, the case was certified to the Supreme Court by from the land, in the enumeration of what may constitute real
the Court of Appeals (CA-G.R. No. 27824-R) for the reason that properties (art. 415, New Civil Code) could only mean one thing
only questions of law are involved. Plaintiffs-appellees failed to that a building is by itself an immovable property irrespective of
file a brief and this appeal was submitted for decision without it. whether or not said structure and the land on which it is adhered
Nearly a year after the foreclosure sale the mortgaged house had to belong to the same owner.
been demolished on 14 and 15 January 1957 by virtue of a 4. Deviations allowed, parties treatment of real property
decision obtained by the lessor of the land on which the house as personal property; cases
stood. Certain deviations, however, have been allowed for various
The Supreme Court reversed the decision appealed from and reasons. In the case of Manarang and Manarang vs. Ofilada, it
entered another dismissing the complaint, with costs against was held that "it is undeniable that the parties to a contract may
plaintiffs-appellees. by agreement treat as personal property that which by ,nature
1. Answer a mere statement and not evidence; would be real property", citing Standard Oil Company of New
Allegations or averments determines jurisdiction York vs. Jaramillo. In the latter case, the mortgagor conveyed and
It has been held in Supia and Batiaco vs. Quintero and Ayala that transferred to the mortgagee by way of mortgage "the following
"the answer is a mere statement of the facts which the party described personal property." The "personal property" consisted
filing it expects to prove, but it is not evidence; and further, that of leasehold rights and a building. In the case of Luna vs.
when the question to be determined is one of title, the Court is Encarnacion, the subject of the contract designated as Chattel
given the authority to proceed with the hearing of the cause until Mortgage was a house of mixed materials, and the Court held
this fact is clearly established. In the case of Sy vs. Dalman, therein that it was a valid Chattel mortgage because it was so
wherein the defendant was also a successful bidder in an auction expressly designated and specifically that the property given as
sale, it was likewise held by the Court that in detainer cases the security "is a house of mixed materials, which by its very nature
claim of ownership "is a matter of defense and raises an issue of is considered personal property." In Navarro vs. Pineda, the Court
fact which should be determined from the evidence at the trial." stated that the view that parties to a deed of chattel mortgage
What determines jurisdiction are the allegations or averments in may agree to consider a house as personal property for the
the complaint and the relief asked for. purposes of said contract, 'is good only insofar as the contracting
2. Fraud and deceit renders a contract voidable or parties are concerned. It is based, partly, upon the principle of
annullable, and not void ab initio; Claim of ownership by estoppel' (Evangelista vs. Alto Surety). In a case, a mortgaged
house built on a rented land was held to be a personal property, mortgagee to have the property mortgaged sold at public auction
not only because the deed of mortgage considered it as such, but through a public officer in almost the same manner as that
also because it did not form part of the land, for it is now settled allowed by Act 3135, as amended by Act 4118, provided that the
that an object placed on land by one who had only a temporary requirements of the law relative to notice and registration are
right to the same, such as the lessee or usufructuary, does not complied with. In the present case, the parties specifically
become immobilized by attachment (Valdez vs. Central stipulated that "the chattel mortgage will be enforceable in
Altagracia, cited in Davao Sawmill vs. Castillo). Hence, if a house accordance with the provisions of Special Act 3135.
belonging to a person stands on a rented land belonging to 8. Mortgagors entitled to remain in possession without
another person, it may be mortgaged as a personal property as rent within redemption period
so stipulated in the document of mortgage. It should be noted, Nearly a year after the foreclosure sale the mortgaged house had
however that the principle is predicated on statements by the been demolished on 14 and 15 January 1957 by virtue of a
owner declaring his house to be a chattel, a conduct that may decision obtained by the lessor of the land on which the house
conceivably estop him from subsequently claiming otherwise. stood. The CFI sentenced the mortgagors to pay a monthly rent
(Ladera vs. C.N. Hodges). of P200.00 from the time the chattel mortgage was foreclosed
5. House treated by parties as chattel; factors to until when it was torn down by the sheriff. The Court ruled that
determine the mortgagors were entitled to remain in possession without
In the contract, the house on rented land is not only expressly any obligation to pay rent during the one year redemption period
designated as Chattel Mortgage; it specifically provides that "the after the foreclosure sale. Section 6 of Act 3135 provides that the
mortgagor voluntarily cedes, sells and transfers by way of Chattel debtor-mortgagor may, at any time within one year from and
Mortgage the property together with its leasehold rights over the after the date of the auction sale, redeem the property sold at
lot on which it is constructed and participation;" whcih could only the extra judicial foreclosure sale. Section 7 of the same Act
have meant to convey the house as chattel, or at least, intended allows the purchaser of the property to obtain from the court the
to treat the same as such, so that they should not now be possession during the period of redemption: but the same
allowed to make an inconsistent stand by claiming otherwise. provision expressly requires the filing of a petition with the
Moreover, the subject house stood on a rented lot to which proper CFI and the furnishing of a bond. It is only upon filing of
defendants-appellants merely had a temporary right as lessee, the proper motion and the approval of the corresponding bond
and although this can not in itself alone determine the status of that the order for a writ of possession issues as a matter of
the property, it does so when combined with other factors to course. No discretion is left to the court. In the absence of such a
sustain the interpretation that the parties, particularly the compliance, as in the instant case, the purchaser can not claim
mortgagors, intended to treat the house as personality. possession during the period of redemption as a matter of right.
6. Estoppel; Party in chattel mortgage cannot question In such a case, the governing provision is Section 34, Rule 39, of
validity of chattel mortgage entered into the Revised Rules of Court which also applies to properties
Inlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatreand purchased in extrajudicial foreclosure proceedings.
Leung Yee vs. F. L. Strong Machinery and Williamson, wherein 9. Rentals received during redemption period credited to
third persons assailed the validity of the chattel mortgage, it is redemption price
the defendants-appellants themselves, as debtors-mortgagors, Before the expiration of the 1-year period within which the
who are attacking the validity of the chattel mortgage in this judgment-debtor or mortgagor may redeem the property, the
case. The doctrine of estoppel therefore applies to the herein purchaser thereof is not entitled, as a matter of right, to
defendants-appellants, having treated the subject house as possession of the same. Thus, while it is true that the Rules of
personalty. Court allow the purchaser to receive the rentals if the purchased
7. Chattel mortgage covered by Act 1508, Chattel property is occupied by tenants, he is, nevertheless, accountable
Mortgage Law to the judgment-debtor or mortgagor as the case may be, for the
Chattel mortgages are covered and regulated by the Chattel amount so received and the same will be duly credited against
Mortgage Law, Act 1508. Section 14 of this Act allows the the redemption price when the said debtor or mortgagor effects
the redemption. Differently stated, the rentals receivable from awarded to him.
tenants, although they may be collected by the purchaser during Respondent Lacsamana in his answer averred the affirmative
the redemption period, do not belong to the latter but still pertain defense of lack of cause of action contending that she was a
to the debtor of mortgagor. The rationale for the Rule, it seems, purchaser for value, while, PNB filed a Motion to Dismiss on the
is to secure for the benefit of the debtor or mortgagor, the ground of improper venue, invoking that the building was a real
payment of the redemption amount and the consequent return to property under Article 415 of the Civil Code, and therefore,
him of his properties sold at public auction. (Reyes vs. Hamada, Section 4 (a) of the Rules of Court should apply.
reiterating Chan v. Espe) Punzalan filed a Motion for Reconsideration asserting that the
10. Case prematurely filed action he filed is limited to the annulment of sale and that, it
The period of redemption had not yet expired when action was does not involved ownership of or title to property but denied by
instituted in the court of origin, and that plaintiffs-appellees did the court for lack of merit. A motion for pre-trial was also set by
not choose to take possession under Section 7, Act 3135, as Punzalan but was also denied by the court invoking that the case
amended, which is the law selected by the parties to govern the was already dismissed.
extrajudicial foreclosure of the chattel mortgage. Neither was Hence, a petition for certiorari was filed by the petitioner.
there an allegation to that effect. Since plaintiffs-appellees' right ISSUE:
to possess was not yet born at the filing of the complaint, there Whether or not the judgment rendered by the court is proper.
could be no violation or breach thereof. Wherefore, the original HELD:
complaint stated no cause of action and was prematurely filed. While it is true that the petitioner does not directly seek the
11. Courts authority to review errors not assigned recovery of the title or possession of the property in question, his
Even if there was no assignment of error to that effect, the action for annulment of sale and his claim for damages are
Supreme Court is clothed with ample authority to review palpable closely intertwined with the issue of ownership of the building,
errors not assigned as such if it finds that their consideration is which, under the law, is considered immovable property, the
necessary in arriving at a just decision of the case. recovery of which is petitioners primary objective. The prevalent
PUNZALAN V. LACSAMANA doctrine is that an action for the annulment or rescission of a sale
Buildings are always treated as immovable or real of real property does not operate to efface the objective and
property under the Code even if it was dealt with nature of the case, which is to recover said property. It is a real
separately from the land upon which it stood action. Respondent Court did not err in dismissing the case on
FACTS: the ground of improper venue under Section 12 Rule 4 which was
Some land belonging to Antonio Punzalan was foreclosed by timely raised under Section 1 Rule 16 of the Rules of Court.
the Philippine National Bank Tarlac, Branch in failure of the Personal Observation: The venue was improperly laid by the
former to pay the mortgaged fee amounting to P10 grand Since petitioner in the case at bar. Such ground was sufficient to render
PNB was the highest bidder, the land went to PNB. dismissal of the case, as the same is one of the grounds provided
Sometime 1974, while the property was still in the possession of for under Rule 16 (c) of the Rules of Court.
Punzalan, Punzalan constructed awarehouse on the said land by The Denial of Motion to Dismiss rendered by the court in the
virtue of the permit secured from the Municipal Mayor of instant case is appealable. If such denial constitute grave abuse
Bamban, Tarlac. Subsequently, in 1978, a contract of sale was of discretion on the part of the court , Punzalan may file either
entered into by PNB and Remedios Vda. De Lacsamana, whom in Prohibition or Certiorari under Rule 65 of the Rules of Court
lieu of the said sale secured a title over the property involving Makati Leasing vs. Wearever Textile
the warehouse allegedly owned and constructed by the plaintiff. Facts:
Punzalan filed a suit for annulment of the Deed of Sale with Wearever Textile in order to obtain a financial accommodation
damages against PNB and Lacsamana before the Court of First from Makati Leasing, discounted andassigned several receivables
Instance of Rizal, Branch 31, impugning the validity of the sale of with the former under a Receivable Purchase Agreement. To
the building, requesting the same to be declared null and void secure thecollection of the receivables assigned, Waerever
and that damages in the total sum of P23, 200 more or less be executed a Chattel Mortgage over certain rawmaterials inventory
as well as a machinery described as an Artos Aero Dryer third parties would be prejudiced thereby.
Stentering Range. Meralco Securities v. Central Board of Assessment Appeals
Upon Wearever's default, Makati Leasing filed a petition for G.R. No. L-46245 May 31, 1982
extrajudicial foreclosure of the propertiesmortgage to it. [Aquino, J.:]
However, the Deputy Sheriff assigned to implement the Facts: Petitioner questions the decision of the respondent which
foreclosure failed to gain entryinto Wearever's premises and was held that petitioners pipeline is subject to realty tax. Pursuant to
not able to effect the seizure of the machinery. Makati a concession, petitioner installed a pipeline system from Manila
Leasingthereafter filed a complaint for judicial foreclosure with to Batangas. Meanwhile, the provincial assessor of Laguna
the CFI Rizal. treated the pipeline as real property. So, petitioner appealed the
RTC then issued a writ of seizure, the enforcement of which was assessments to the Board of Assessment Appeals of Laguna. The
restrained upon Wearever's filing ofa motion for reconsideration. board upheld the assessments and the decision became final and
finally issued on 11 February 1981, an order to break open the executory after the lapse of fifteen days from the date of receipt
premisesof Wearever to enforce said writ. of a copy of the decision by the appellant. Meralco Securities
The sheriff enforcing the seizure order, repaired to the premises contends that the Court of Tax Appeals has no jurisdiction to
of Wearever and removed the main review the decision of the Central Board of Assessment Appeals
drive motor of the subject machinery. and no judicial review of the Board's decision is provided for in
CA set aside the orders of the RTC and ordered the return of the the Real Property Tax Code. Hence, the petitioners recourse to
drive motor seized by the sheriffafter ruling that the machinery in file a petition for certiorari.
suit cannot be the subject of replevin, much less of a Held: it was held that certiorari was properly availed of in this
chattelmortgage, because it is a real property pursuant to Article case. It is a writ issued by a superior court to an inferior court,
415 of the new Civil Code. CA also rejectedthe argument that board or officer exercising judicial or quasi-judicial functions
Wearever is estopped from claiming that the machine is real whereby the record of a particular case is ordered to be elevated
property byconstituting a chattel mortgage thereon. A motion for for review and correction in matters of law.
reconsideration was filed by Makati Leasing, butit was denied. The rule is that as to administrative agencies exercising quasijudicial
Hence this petition. power there is an underlying power in the courts to
Issue: scrutinize the acts of such agencies on questions of law and
Whether the machinery in suit is real or personal property? jurisdiction even though no right of review is given by the
Held: statute. The purpose of judicial review is to keep the
If a house of strong materials, like what was involved in the administrative agency within its jurisdiction and protect
above Tumalad case, may be consideredas personal property for substantial rights of parties affected by its decisions. The review
purposes of executing a chattel mortgage thereon as long as the is a part of the system of checks and balances which is a
parties tothe contract so agree and no innocent third party will limitation on the separation of powers and which forestalls
be prejudiced thereby, there is absolutely noreason why a arbitrary and unjust adjudications. Judicial review of the decision
machinery, which is movable in its nature and becomes of an official or administrative agency exercising quasi-judicial
immobilized only by destinationor purpose, may not be likewise functions is proper in cases of lack of jurisdiction, error of law,
treated as such. This is really because one who has so agreed grave abuse of discretion, fraud or collusion or in case the
isestopped from denying the existence of the chattel mortgage. administrative decision is corrupt, arbitrary or capricious
It must be pointed out that the characterization of the subject MERALCO V BOARD OF ASSESSMENT
machinery as chattel by the privaterespondent is indicative of FACTS:-There are two oil storage tanks installed in 1969 by
intention and impresses upon the property the character Meralco on a lot in San Pascual, Batangaswhich it leased in 1968
determined by theparties. As stated in Standard Oil Co. of New from Caltex (Phil.), Inc. The tanks are within the Caltex refinery
York vs. Jaramillo, 44 Phil. 630, it is undeniable that theparties to compound.They have a total capacity of 566,000 barrels. They
a contract may by agreement treat as personal property that are used for storing fuel oil for Meralco's power plants.-The
which by nature would be realproperty, as long as no interest of storage tanks are made of steel plates welded and assembled on
the spot. Their bottoms classed as real propertyfor purposes of taxation which on general
reston a foundation consisting of compacted earth as the principle might be considered personal property.
outermost layer, a sand pad as theintermediate layer and a twoinch ADDITIONAL: baka lang ipa-compare: The case of Board of
thick bituminous asphalt stratum as the top layer. The Assessment Appeals vs. ManilaElectric Company, 119 Phil. 328,
bottom of each tank is in contact with the asphalt layer. The steel wherein Meralco's steel towers were held not to be subject
sides of the tank are directly supportedunderneath by a circular torealty tax, is not in point because in that case the steel towers
wall made of concrete, eighteen inches thick, to prevent the tank were regarded as poles and under its franchise Meralco's poles
fromsliding. Hence, according to Meralco, the tank is not are exempt from taxation. Moreover, the steel towers
attached to its foundation. It is not anchored or welded to the were notattached to any land or building. They were removable
concrete circular wall. Its bottom plate is not attached to any part from their metal frames.
of the foundation bybolts, screws or similar devices. The tank CALTEX PHILS. V. CENTRAL BOARD OF
merely sits on its foundation. Each empty tank can befloated by ASSESSMENT APPEALS
flooding its dike-inclosed location with water four feet deep.-The 114 SCRA 296
Board concludes that while the tanks rest or sit on their FACTS:
foundation, the foundation itself andthe walls, dikes and steps, The City Assessor characterized the items in gas stations of
which are integral parts of the tanks, are affixed to the land while petitioner as taxable realty. These items included
thepipelines are attached to the tanks. In 1970, the municipal underground tanks, elevated tank, elevated water tanks, water
treasurer of Bauan, Batangas, on thebasis of an assessment tanks, gasoline pumps,computing pumps, etc. These items are
made by the provincial assessor, required Meralco to pay realty not owned by the lessor of the land wherein the
taxes onthe two tanks. For the five-year period from 1970 to equipment are installed. Upon expiration of the lease
1974, the tax and penalties amounted toP431,703.96. agreement, the equipment should be returned in good
The Board required Meralco to pay the condition.
tax and penalties as a condition for entertaining its appeal from HELD:
the adverse decision of the Batangas board of assessment The equipment and machinery as appurtenances to the gas
appeals.-The Central Board of Assessment Appeals ruled that the station building or shed owned by Caltex and which fixtures are
tanks together with the foundation, necessary to the operation of the gas station, for without them
walls,dikes, steps, pipelines and other appurtenances constitute t the gas station would be useless, and which have been attached
axable improvements. Meralcocontends that the said oil storage and fixed permanently to the gas station site or embedded
tanks do not fall within any of the kinds of real therein, are taxable improvements and machinery within the
propertyenumerated in article 415 of the Civil Code and, meaning of the Assessment Law and the Real Property Tax Code.
therefore, they cannot be categorized as realty bynature, by Prudential Bank v. Panis
incorporation, by destination nor by analogy. Stress is laid on the [G.R. No. L-50008. August 31, 1987.]
fact that the tanks arenot attached to the land and that they First Division, Paras (J): 4 concur.
were placed on leased land, not on the land owned byMeralco. Facts: On 19 November 1971, Fernando A. Magcale and Teodula
ISSUE:W/N the oil tanks are considered as real property Baluyut Magcale secured a loan of P70,000.00 from Prudential
HELD: YES.-While the two storage tanks are not embedded in the Bank. To secure payment of this loan, the Magcales executed in
land, they may, nevertheless, be consideredas improvements on favor of Prudential Bank a deed of Real Estate Mortgage over a 2-
the land, enhancing its utility and rendering it useful to the oil storey, semi-concrete residential building with warehouse space
industry. It isundeniable that the two tanks have been installed (total area of 263 sq.m.); and granting upon the mortgagee the
with some degree of permanence as receptaclesfor the right of occupancy on the lot where the property is erected. A
considerable quantities of oil needed by Meralco for its rider is also included in the deed that in the event the Sales
operations.-For purposes of taxation, the term "real property" Patent on the lot is issued of Bureau of Lands, the Register of
may include things which should generally beregarded as Deeds is authorized to hold the Registration until the mortgage is
personal property. It is a familiar phenomenon to see things cancelled or annotate the encumbrance on the title upon
authority from the Secretary of Agriculture and Natural built; possessory rights may be validly transferred in a
Resources, which title with annotation release in favor of the deed of mortgage
mortgage. The Real Estate Mortgage was registered under the While a mortgage of land necessarily includes, in the absence of
Provisions of Act 3344 with the Registry of Deeds of Zambales on stipulation of the improvements thereon, buildings; still a
23 November 1971. Subsequently, the Magcales secured an building by itself may be mortgaged apart from the land on which
additional loan from Prudential Bank, secured by another deed of it has been built. Such a mortgage would be still a real estate
Real Estate Mortgage registeed with the Registry of Deeds in mortgage for the building would still be considered immovable
Olongapo City, on 2 May 1973. property even if dealt with separately and apart from the land
On 24 April 1973, the Secretary of Agriculture issued (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). Possessory
Miscellaneous Sales Patent 4776 over the parcel of land, rights over said properties before title is vested on the grantee,
possessory rights over which were mortgaged to rudential Bank, may be validly transferred or conveyed as in a deed of mortgage
in favor of the Magcales. On the basis of the Patent, and upon its (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
transcription in the Registration Book of the Province of 3. A valid real estate mortgage may be constituted on the
Zambales, OCT P-2554 was issued in the name of Fernando building erected on the land belonging to another
Magcale, by the Ex-Oficio Register of Deeds of Zambales, on 15 The original mortgage was executed (19 November 1971) before
May 1972. the issuance of the final patent (24 April 1972) and before the
For failure of the Magcales to pay their obligation to the Bank government was divested of its title to the land (15 May 1972),
after it became due, the deeds of Real Estate Mortgage were an event which takes effect only on the issuance of the sales
extrajudicially foreclosed. Consequent to the foreclosure was the patent and its subsequent registration in the Office of the
sale of the properties mortgaged to the bank as the highest Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515;
bidder in a public auction sale conducted by the City Sheriff on Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs.
12 April 1978. The auction sale was held despite written request Jurado, L-14702, May 23, 1961; Pea, "Law on Natural
from the Magcales through counsel, dated 29 March 1978, for the Resources", p. 49). In the case at bar, it is evident that the
City Sheriff to desist from going with the scheduled public mortgage executed by Magcale on his own building which was
auction sale. The issue was raised to the CF Zambales and erected on the land belonging to the government is to all intents
Olongapo City which, on 3 November 1978, declared the deeds of and purposes a valid mortgage.
Real Estate Mortgage as null and void. The bank filed a motion 4. Public land act and RA 730 not violated in first
for reconsideration on 14 December 1978, which the court mortgage
denied on 10 January 1979 for lack of merit. Hence, the petition. As to restrictions appearing to the Magcales title; Sections 121,
The Supreme Court modified the decision of the CFI Zambales & 122 and 124 of the Public Land Act refer to land already acquired
Olongapo, declaring that the Deed of Real Estate Mortgage for under the Public Land Act or any improvement thereon. Section 2
P70,000.00 is valid but ruling that the Deed of Real Estate of RA 730 refers to encumbrance or alienation before the patent
Mortgage for an additional loan of P20,000.00 is null and void, is issued because it refers specifically to encumbrance or
without prejudice to any appropriate action the Government may alienation on the land itself and does not mention anything
take against private respondents. regarding the improvements existing thereon. Both have no
1. Building separate and distinct from the land application to the assailed mortgage in the case at bar; as the
In the enumeration of properties under Article 415 of the Civil former, the mortgage was executed before such eventuality, and
Code of the Philippines, it is obvious that the inclusion of the latter, it does not encumber nor alienate the land.
'building' separate and distinct from the land, in said provision of 5. Mortgage made after issuance of Sales Patent an OCT
law can only mean that a building is by itself an immovable prohibited; Estoppel does not give validating effect to a
property. (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; void contract
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, As regards the second mortgage executed, such mortgage
May 30, 1958). executed after the issuance of the sales patent and of the
2. Building can be mortgaged apart from the land it is Original Certificate of Title, falls squarely under the prohibitions
stated in Sections 121, 122 and 124 of the Public Land Act and as it comes within the object mentioned in paragraphs (a) and (b)
Section 2 of RA 730, and is therefore null and void. Even if the of Article 415 of the New Civil Code. It is a construction adhered
title was voluntary surrendered to the bank for the mortgage to to the soil which cannot be separated or detached without
be annotated without the prior approval of the Ministry of Natural breaking the material or causing destruction on the land upon
Resources; in pari delicto may not be invoked to defeat the policy which it is attached. The immovable nature of the dam as an
of the State neither may the doctrine of estoppel give a improvement determines its character as real property, hence
validating effect to a void contract. Indeed, it is generally taxable under Section 38 of the Real Property Tax Code. (P.D.
considered that as between parties to a contract, validity cannot 464).
be given to it by estoppel if it is prohibited by law or is against Although the dam is partly used as an anti-pollution device, this
public policy (19 Am. Jur. 802). It is not within the competence of Board cannot accede to the request for tax exemption in the
any citizen to barter away what public policy by law seeks to absence of a law authorizing the same.
preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino, xxx xxx xxx
supra; Arsenal vs. IAC, 143 SCRA 54 [1986]). Such does not, We find the appraisal on the land submerged as a result of the
however, preclude new contracts that may be entered into in construction of the tailings dam, covered by Tax Declaration Nos.
accordance with the requirements of the law. Any new 002-0260 and 002-0266, to be in accordance with the Schedule
transaction, however, would be subject to whatever steps the of Market Values for Zambales which was reviewed and allowed
Government may take for the reversion of the land in its favor. for use by the Ministry (Department) of Finance in the 1981-1982
G.R. No. 106041 January 29, 1993 general revision. No serious attempt was made by Petitioner-
BENGUET CORPORATION, petitioner, Appellant Benguet Corporation to impugn its reasonableness, i.e.,
vs. that the P50.00 per square meter applied by Respondent-
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF Appellee Provincial Assessor is indeed excessive and
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL unconscionable. Hence, we find no cause to disturb the market
ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and value applied by Respondent Appellee Provincial Assessor of
MUNICIPALITY OF SAN MARCELINO, respondents. Zambales on the properties of Petitioner-Appellant Benguet
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Corporation covered by Tax Declaration Nos. 002-0260 and 002-
petitioner. 0266.
CRUZ, J.: This petition for certiorari now seeks to reverse the above ruling.
The realty tax assessment involved in this case amounts to The principal contention of the petitioner is that the tailings dam
P11,319,304.00. It has been imposed on the petitioner's tailings is not subject to realty tax because it is not an "improvement"
dam and the land thereunder over its protest. upon the land within the meaning of the Real Property Tax Code.
The controversy arose in 1985 when the Provincial Assessor of More particularly, it is claimed
Zambales assessed the said properties as taxable improvements. (1) as regards the tailings dam as an "improvement":
The assessment was appealed to the Board of Assessment (a) that the tailings dam has no value separate from and
Appeals of the Province of Zambales. On August 24, 1988, the independent of the mine; hence, by itself it cannot be considered
appeal was dismissed mainly on the ground of the petitioner's an improvement separately assessable;
"failure to pay the realty taxes that fell due during the pendency (b) that it is an integral part of the mine;
of the appeal." (c) that at the end of the mining operation of the petitioner
The petitioner seasonably elevated the matter to the Central corporation in the area, the tailings dam will benefit the local
Board of Assessment Appeals, 1 one of the herein respondents. In community by serving as an irrigation facility;
its decision dated March 22, 1990, the Board reversed the (d) that the building of the dam has stripped the property of any
dismissal of the appeal but, on the merits, agreed that "the commercial value as the property is submerged under water
tailings dam and the lands submerged thereunder (were) subject wastes from the mine;
to realty tax." (e) that the tailings dam is an environmental pollution control
For purposes of taxation the dam is considered as real property device for which petitioner must be commended rather than
penalized with a realty tax assessment; second place, while the road was constructed by appellee
(f) that the installation and utilization of the tailings dam as a primarily for its use and benefit, the privilege is not exclusive,
pollution control device is a requirement imposed by law; for . . . appellee cannot prevent the use of portions of the
(2) as regards the valuation of the tailings dam and the concession for homesteading purposes. It is also duty bound to
submerged lands: allow the free use of forest products within the concession for the
(a) that the subject properties have no market value as they personal use of individuals residing in or within the vicinity of the
cannot be sold independently of the mine; land. . . . In other words, the government has practically reserved
(b) that the valuation of the tailings dam should be based on its the rights to use the road to promote its varied activities. Since,
incidental use by petitioner as a water reservoir and not on the as above shown, the road in question cannot be considered as an
alleged cost of construction of the dam and the annual build-up improvement which belongs to appellee, although in part is for its
expense; benefit, it is clear that the same cannot be the subject of
(c) that the "residual value formula" used by the Provincial assessment within the meaning of Section 2 of C.A.
Assessor and adopted by respondent CBAA is arbitrary and No. 470.
erroneous; and Apparently, the realty tax was not imposed not because the road
(3) as regards the petitioner's liability for penalties for was an integral part of the lumber concession but because the
non-declaration of the tailings dam and the submerged lands for government had the right to use the road to promote its varied
realty tax purposes: activities.
(a) that where a tax is not paid in an honest belief that it is not 3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an
due, no penalty shall be collected in addition to the basic tax; American case, where it was declared that the reservoir dam
(b) that no other mining companies in the Philippines operating a went with and formed part of the reservoir and that the dam
tailings dam have been made to declare the dam for realty tax would be "worthless and useless except in connection with the
purposes. outlet canal, and the water rights in the reservoir represent and
The petitioner does not dispute that the tailings dam may be include whatever utility or value there is in the dam and
considered realty within the meaning of Article 415. It insists, headgates."
however, that the dam cannot be subjected to realty tax as a 4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from
separate and independent property because it does not the United States. This case involved drain tunnels constructed
constitute an "assessable improvement" on the mine although a by plaintiff when it expanded its mining operations downward,
considerable sum may have been spent in constructing and resulting in a constantly increasing flow of water in the said mine.
maintaining it. It was held that:
To support its theory, the petitioner cites the following cases: Whatever value they have is connected with and in fact is an
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this integral part of the mine itself. Just as much so as any shaft
Court considered the dikes and gates constructed by the which descends into the earth or an underground incline, tunnel,
taxpayer in connection with a fishpond operation as integral or drift would be which was used in connection with the mine.
parts of the fishpond. On the other hand, the Solicitor General argues that the dam is
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao an assessable improvement because it enhances the value and
(100 Phil. 303), involving a road constructed by the timber utility of the mine. The primary function of the dam is to receive,
concessionaire in the area, where this Court did not impose a retain and hold the water coming from the operations of the
realty tax on the road primarily for two reasons: mine, and it also enables the petitioner to impound water, which
In the first place, it cannot be disputed that the ownership of the is then recycled for use in the plant.
road that was constructed by appellee belongs to the There is also ample jurisprudence to support this view, thus:
government by right of accession not only because it is . . . The said equipment and machinery, as appurtenances to the
inherently incorporated or attached to the timber land . . . but gas station building or shed owned by Caltex (as to which it is
also because upon the expiration of the concession said road subject to realty tax) and which fixtures are necessary to the
would ultimately pass to the national government. . . . In the operation of the gas station, for without them the gas station
would be useless and which have been attached or affixed enumerated.
permanently to the gas station site or embedded therein, are Is the tailings dam an improvement on the mine? Section 3(k) of
taxable improvements and machinery within the meaning of the the Real Property Tax Code defines improvement as follows:
Assessment Law and the Real Property Tax Code. (Caltex [Phil.] (k) Improvements is a valuable addition made to property or
Inc. v. CBAA, 114 SCRA 296). an amelioration in its condition, amounting to more than mere
We hold that while the two storage tanks are not embedded in repairs or replacement of waste, costing labor or capital and
the land, they may, nevertheless, be considered as intended to enhance its value, beauty or utility or to adopt it for
improvements on the land, enhancing its utility and rendering it new or further purposes.
useful to the oil industry. It is undeniable that the two tanks have The term has also been interpreted as "artificial alterations of the
been installed with some degree of permanence as receptacles physical condition of the ground that arereasonably permanent
for the considerable quantities of oil needed by MERALCO for its in character." 2
operations. (Manila Electric Co. v. CBAA, 114 SCRA 273). The Court notes that in the Ontario case the plaintiff admitted
The pipeline system in question is indubitably a construction that the mine involved therein could not be operated without the
adhering to the soil. It is attached to the land in such a way that aid of the drain tunnels, which were indispensable to the
it cannot be separated therefrom without dismantling the steel successful development and extraction of the minerals therein.
pipes which were welded to form the pipeline. (MERALCO This is not true in the present case.
Securities Industrial Corp. v. CBAA, 114 SCRA 261). Even without the tailings dam, the petitioner's mining operation
The tax upon the dam was properly assessed to the plaintiff as a can still be carried out because the primary function of the dam
tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. is merely to receive and retain the wastes and water coming
742). from the mine. There is no allegation that the water coming from
The oil tanks are structures within the statute, that they are the dam is the sole source of water for the mining operation so
designed and used by the owner as permanent improvement of as to make the dam an integral part of the mine. In fact, as a
the free hold, and that for such reasons they were properly result of the construction of the dam, the petitioner can now
assessed by the respondent taxing district as improvements. impound and recycle water without having to spend for the
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271) building of a water reservoir. And as the petitioner itself points
The Real Property Tax Code does not carry a definition of "real out, even if the petitioner's mine is shut down or ceases
property" and simply says that the realty tax is imposed on "real operation, the dam may still be used for irrigation of the
property, such as lands, buildings, machinery and other surrounding areas, again unlike in the Ontario case.
improvements affixed or attached to real property." In the As correctly observed by the CBAA, the Kendrick case is also not
absence of such a definition, we apply Article 415 of the Civil applicable because it involved water reservoir dams used for
Code, the pertinent portions of which state: different purposes and for the benefit of the surrounding areas.
Art. 415. The following are immovable property. By contrast, the tailings dam in question is being
(1) Lands, buildings and constructions of all kinds adhered to the used exclusively for the benefit of the petitioner.
soil; Curiously, the petitioner, while vigorously arguing that the
xxx xxx xxx tailings dam has no separate existence, just as vigorously
(3) Everything attached to an immovable in a fixed manner, in contends that at the end of the mining operation the tailings dam
such a way that it cannot be separated therefrom without will serve the local community as an irrigation facility, thereby
breaking the material or deterioration of the object. implying that it can exist independently of the mine.
Section 2 of C.A. No. 470, otherwise known as the Assessment From the definitions and the cases cited above, it would appear
Law, provides that the realty tax is due "on the real property, that whether a structure constitutes an improvement so as to
including land, buildings, machinery and other improvements" partake of the status of realty would depend upon the degree
not specifically exempted in Section 3 thereof. A reading of that of permanence intended in its construction and use. The
section shows that the tailings dam of the petitioner does not fall expression "permanent" as applied to an improvement does not
under any of the classes of exempt real properties therein imply that the improvement must be used perpetually but only
until the purpose to which the principal realty is devoted has problems. The only exception to this rule is where it is clearly
been accomplished. It is sufficient that the improvement is shown that the administrative body has committed grave abuse
intended to remain as long as the land to which it is annexed is of discretion calling for the intervention of this Court in the
still used for the said purpose. exercise of its own powers of review. There is no such showing in
The Court is convinced that the subject dam falls within the the case at bar.
definition of an "improvement" because it is permanent in We disagree, however, with the ruling of respondent CBAA that it
character and it enhances both the value and utility of cannot take cognizance of the issue of the propriety of the
petitioner's mine. Moreover, the immovable nature of the dam penalties imposed upon it, which was raised by the petitioner for
defines its character as real property under Article 415 of the the first time only on appeal. The CBAA held that this "is an
Civil Code and thus makes it taxable under Section 38 of the Real entirely new matter that petitioner can take up with the
Property Tax Code. Provincial Assessor (and) can be the subject of another protest
The Court will also reject the contention that the appraisal at before the Local Board or a negotiation with the
P50.00 per square meter made by the Provincial Assessor is local sanggunian . . ., and in case of an adverse decision by
excessive and that his use of the "residual value formula" is either the Local Board or the local sanggunian, (it can) elevate
arbitrary and erroneous. the same to this Board for appropriate action."
Respondent Provincial Assessor explained the use of the There is no need for this time-wasting procedure. The Court may
"residual value formula" as follows: resolve the issue in this petition instead of referring it back to the
A 50% residual value is applied in the computation because, local authorities. We have studied the facts and circumstances of
while it is true that when slime fills the dike, it will then be this case as above discussed and find that the petitioner has
covered by another dike or stage, the stage covered is still there acted in good faith in questioning the assessment on the tailings
and still exists and since only one face of the dike is filled, 50% or dam and the land submerged thereunder. It is clear that it has
the other face is unutilized. not done so for the purpose of evading or delaying the payment
In sustaining this formula, the CBAA gave the following of the questioned tax. Hence, we hold that the petitioner is not
justification: subject to penalty for its
We find the appraisal on the land submerged as a result of the non-declaration of the tailings dam and the submerged lands for
construction of the tailings dam, covered by Tax Declaration Nos. realty tax purposes.
002-0260 and 002-0266, to be in accordance with the Schedule WHEREFORE, the petition is DISMISSED for failure to show that
of Market Values for San Marcelino, Zambales, which is fifty the questioned decision of respondent Central Board of
(50.00) pesos per square meter for third class industrial land Assessment Appeals is tainted with grave abuse of discretion
(TSN, page 17, July 5, 1989) and Schedule of Market Values for except as to the imposition of penalties upon the petitioner which
Zambales which was reviewed and allowed for use by the is hereby SET ASIDE. Costs against the petitioner. It is so
Ministry (Department) of Finance in the 1981-1982 general ordered.
revision. No serious attempt was made by Petitioner-Appellant Sergs Products v. PCI Leasing
Benguet Corporation to impugn its reasonableness, i.e, that the Facts: On 13 February 1998, PCI Leasing and Finance, Inc. filed a
P50.00 per square meter applied by Respondent-Appellee complaint for sum of money, with anapplication for a writ of
Provincial Assessor is indeed excessive and unconscionable. replevin. On 6 March 1998, upon an ex-parte application of PCI
Hence, we find no cause to disturb the market value applied by Leasing, judgeissued a writ of replevin directing its sheriff to
Respondent-Appellee Provincial Assessor of Zambales on the seize and deliver the machineries and equipment to PCILeasing
properties of Petitioner-Appellant Benguet Corporation covered after 5 days and upon the payment of the necessary expenses.
by Tax Declaration Nos. 002-0260 and 002-0266. On 24 March 1998, thesheriff proceeded to petitioner's factory,
It has been the long-standing policy of this Court to respect the seized one machinery with word that the return for the
conclusions of quasi-judicial agencies like the CBAA, which, othermachineries. On 25 March 1998, petitioners filed a motion
because of the nature of its functions and its frequent exercise for special protective order, invoking thepower of the court to
thereof, has developed expertise in the resolution of assessment control the conduct of its officers and amend and control its
processes, prayingfor a directive for the sheriff to defer a schedule attached to the mortgage contract. Another loan
enforcement of the writ of replevin. On 6 April 1998, the was obtained secured by a chattel mortgage over
sheriffagain sought to enforce the writ of seizure and take properties with similar descriptions listed in the first schedule.
possession of the remaining properties. He wasable to take two During the date of execution of the second mortgage,
more, but was prevented by the workers from taking the rest. On EVERTEX purchased machineries and equipment.
7 April 1998, theywent to the CA via an original action for Due to business reverses, EVERTEX filed for insolvency
certiorari. proceedings. It failed to pay its obligation and thus, PBC
Citing the Agreement of the parties, the appellate court held that initiated extrajudicial foreclosure of the mortgages. PBC
the subject machines were personalproperty, and that they had was the highest bidder in the public auctions, making it the
only been leased, not owned, by petitioners; and ruled that the owner of the properties. It then leased the factory premises
"words ofthe contract are clear and leave no doubt upon the true to Tsai. Afterwards, EVERTEX sought the annulment of the
intention of the contracting parties." It thusaffirmed the 18 sale and conveyance of the properties to PBC as it was allegedly
February 1998 Order, and the 31 March 1998 Resolution of the a violation of the INSOLVENCY LAW.
lower court, and liftedthe preliminary injunction issued on 15 The RTC held that the lease and sale were irregular as it
June 1998. A subsequent motion for reconsideration wasdenied involved properties not included in theschedule of the
on 26 February 1999. Hence, the petition for review on certiorari. mortgage contract.
Issue: Whether the machines are personal or real property? HELD:
Held: The machinery were essential and principal elements of While it is true that the controverted properties appear to be
their chocolate-making industry. Hence,although each of them immobile, a perusal of the contract of REM and CM
was movable or personal property on its own, all of them have executed by the parties gives a contrary indication. In the
become"immobilized by destination because they are essential case at bar, both the trial and appellate courts show that the
and principal elements in the industry." Themachines are thus, intention was to treat the machineries as movables or
real, not personal, property pursuant to Article 415 (5) of the Civil personal property.
Code. Assuming that the properties were considered immovables,
Contracting parties may validly stipulate that a real property be nothing detracts the parties from treating it as chattels to
considered as personal. After agreeingto such stipulation, they secure an obligation under the principle of estoppel.
are consequently estopped from claiming otherwise. Under the
principle ofestoppel, a party to a contract is ordinarily precluded
from denying the truth of any material fact foundtherein. Thus,
said machines are proper subjects of the Writ of Seizure
(compare Tumalad v. Vicencio).
The holding that the machines should be deemed personal
property pursuant to the Lease Agreementis good only insofar as
the contracting parties are concerned. Hence, while the parties
are bound bythe Agreement, third persons acting in good faith
are not affected by its stipulation characterizing thesubject
machinery as personal. In the present case, however, there is no
showing that any specificthird party would be adversely affected.
336 SCRA 324
EVERTEX secured a loan from PBC, guaranteed by a real
estate and chattel mortgage over a parcel of land where the
factory stands, and the chattels located therein, as included in