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ARTICLE 415 At or about the time when the chattel mortgage was executed in favor of the machinery
LEUNG YEE V. STRONG MACHINERY L-11658 FEB 15, 1918 company, the mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on which it stood, to secure
payment of the balance of its indebtedness to the plaintiff under a contract for the construction
Republic of the Philippines
of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness
SUPREME COURT
secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon
Manila
the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the land registry of the Province of Cavite.
EN BANC
At the time when the execution was levied upon the building, the defendant machinery
G.R. No. L-11658 February 15, 1918
company, which was in possession, filed with the sheriff a sworn statement setting up its claim
of title and demanding the release of the property from the levy. Thereafter, upon demand of
LEUNG YEE, plaintiff-appellant, the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000,
vs. in reliance upon which the sheriff sold the property at public auction to the plaintiff, who was
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees. the highest bidder at the sheriff's sale.

Booram and Mahoney for appellant. This action was instituted by the plaintiff to recover possession of the building from the
Williams, Ferrier and SyCip for appellees. machinery company.

CARSON, J.: The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of
the machinery company, on the ground that the company had its title to the building registered
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery prior to the date of registry of the plaintiff's certificate.
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong Article 1473 of the Civil Code is as follows:
materials in which the machinery was installed, without any reference to the land on which it
stood. The indebtedness secured by this instrument not having been paid when it fell due, the
If the same thing should have been sold to different vendees, the ownership shall be
mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
transfer to the person who may have the first taken possession thereof in good faith, if
instrument, and was bought in by the machinery company. The mortgage was registered in the
it should be personal property.
chattel mortgage registry, and the sale of the property to the machinery company in satisfaction
of the mortgage was annotated in the same registry on December 29, 1913.
Should it be real property, it shall belong to the person acquiring it who first recorded it
in the registry.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company,
Should there be no entry, the property shall belong to the person who first took
but this deed of sale, although executed in a public document, was not registered. This deed
possession of it in good faith, and, in the absence thereof, to the person who presents
makes no reference to the building erected on the land and would appear to have been
the oldest title, provided there is good faith.
executed for the purpose of curing any defects which might be found to exist in the machinery
company's title to the building under the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time when this sale took place, that is to say, The registry her referred to is of course the registry of real property, and it must be apparent
the month of December, 1913, and it has continued in possession ever since. that the annotation or inscription of a deed of sale of real property in a chattel mortgage registry
cannot be given the legal effect of an inscription in the registry of real property. By its express

terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compañia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from the land on which
it stood in no wise changed its character as real property. It follows that neither the original
registry in the chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any effect whatever so far
as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate
of sale in his favor was made in good faith, and that the machinery company must be held to be
the owner of the property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that the building
and the land were sold to the machinery company long prior to the date of the sheriff's sale to
the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry, it
must be presumed that good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this contention. It could not
have been the intention of the legislator to base the preferential right secured under this article
of the code upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public records
cannot be converted into instruments of fraud and oppression by one who secures an inscription
therein in bad faith. The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights created by statute,
which are predicated upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in
its sentencia of the 13th of May, 1908, that:
2
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have
preference, this provision must always be understood on the basis of the good faith
mentioned in the first paragraph; the legislator could not have wished to strike it out
and to sanction bad faith, just to comply with a mere formality which, in given cases,
does not obtain even in real disputes between third persons. (Note 2, art. 1473, Civ.
Code, issued by the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at
the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery
company had bought the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession at the time when the
sheriff executed his levy. The execution of an indemnity bond by the plaintiff in favor of the
sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that
at the time of the levy and sale the building had already been sold to the machinery company by
the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just
and righteous claims against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and in buying it at the
sheriff's sale, he considered that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he thought at that time that he
would be able to maintain his position in a contest with the machinery company. There was no
collusion on his part with the common debtor, and no thought of the perpetration of a fraud
upon the rights of another, in the ordinary sense of the word. He may have hoped, and
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doubtless he did hope, that the title of the machinery company would not stand the test of an
action in a court of law; and if later developments had confirmed his unfounded hopes, no one
could question the legality of the propriety of the course he adopted.

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

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in
his vendor's title, will not make him an innocent purchaser for value, if afterwards develops that
the title was in fact defective, and it appears that he had such notice of the defects as would
have led to its discovery had he acted with that measure of precaution which may reasonably be
acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given occasion, we
are necessarily controlled by the evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. So it is that "the honesty of intention," "the
honest lawful intent," which constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which can only be judged of by actual or
fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel,
52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against the
appellant. So ordered.

PRC, INC. V. JARQUE GR 41506 MAR 25, 1935
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41506 March 25, 1935
PHILIPPINE REFINING CO., INC., plaintiff-appellant,
vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco
Jarque, appellee.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:
First of all the reason why the case has been decided by the court in banc needs explanation. A
motion was presented by counsel for the appellant in which it was asked that the case be heard
and determined by the court sitting in banc because the admiralty jurisdiction of the court was
involved, and this motion was granted in regular course. On further investigation it appears that
this was error. The mere mortgage of a ship is a contract entered into by the parties to it without
reference to navigation or perils of the sea, and does not, therefore, confer admiralty
jurisdiction. (Bogart vs. Steamboat John Jay [1854], 17 How., 399.)
Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and
Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These
documents were recorded in the record of transfers and incumbrances of vessels for the port of
Cebu and each was therein denominated a "chattel mortgage". Neither of the first two
mortgages had appended an affidavit of good faith. The third mortgage contained such an
affidavit, but this mortgage was not registered in the customs house until May 17, 1932, or
within the period of thirty days prior to the commencement of insolvency proceedings against
Francisco Jarque; also, while the last mentioned mortgage was subscribed by Francisco Jarque
and M. N. Brink, there was nothing to disclose in what capacity the said M. N. Brink signed. A
fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the
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motorship Zaragoza and was entered in the chattel mortgage registry of the register of deeds on
May 12, 1932, or again within the thirty-day period before the institution of insolvency
proceedings. These proceedings were begun on June 2, 1932, when a petition was filed with the
Court of First Instance of Cebu in which it was prayed that Francisco Jarque be declared an
insolvent debtor, which soon thereafter was granted, with the result that an assignment of all
the properties of the insolvent was executed in favor of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but
on the contrary sustained the special defenses of fatal defectiveness of the mortgages. In so
doing we believe that the trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)
Similarly under the common law, vessels are personal property although occasionally referred to
as a peculiar kind of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic
Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term "personal property"
includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel
Mortgage Law. (Act No. 1508, section 2.) Indeed, it has heretofore been accepted without
discussion that a mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco
Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.) The only
difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is
that it is not now necessary for a chattel mortgage of a vessel to be noted n the registry of the
register of deeds, but it is essential that a record of documents affecting the title to a vessel be
entered in the record of the Collector of Customs at the port of entry. (Rubiso and Gelito vs.
Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is
generally like other chattel mortgages as to its requisites and validity. (58 C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to
constitute a good chattel mortgage, includes the requirement of an affidavit of good faith
appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a
mortgage as against creditors and subsequent encumbrancers. (Giberson vs. A. N. Jureidini Bros.
[1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of
Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of a vessel
wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is
unenforceable against third persons.
In effect appellant asks us to find that the documents appearing in the record do not constitute
chattel mortgages or at least to gloss over the failure to include the affidavit of good faith made
a requisite for a good chattel mortgage by the Chattel Mortgage Law. Counsel would further
have us disregard article 585 of the Code of Commerce, but no reason is shown for holding this
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article not in force. Counsel would further have us revise doctrines heretofore announced in a
series of cases, which it is not desirable to do since those principles were confirmed after due
liberation and constitute a part of the commercial law of the Philippines. And finally counsel
would have us make rulings on points entirely foreign to the issues of the case. As neither the
facts nor the law remains in doubt, the seven assigned errors will be overruled.

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

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whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone
BERKENKOTTER V. CU UNJIENG GR 41643 JUL 31, 1935 line, now existing or that may in the future exist is said lots."

Republic of the Philippines On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co.,
SUPREME COURT Inc., decided to increase the capacity of its sugar central by buying additional machinery and
Manila equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of
said additional machinery and equipment was approximately P100,000. In order to carry out this
EN BANC plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to
advance the necessary amount for the purchase of said machinery and equipment, promising to
G.R. No. L-41643 July 31, 1935 reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated October
B.H. BERKENKOTTER, plaintiff-appellant, 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of
vs. P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of
SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees. P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said credit of
P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now
Briones and Martinez for appellant. in litigation.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees. On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e
Hijos for an additional loan of P75,000 offering as security the additional machinery and
VILLA-REAL, J.: equipment acquired by said B.A. Green and installed in the sugar central after the execution of
the original mortgage deed, on April 27, 1927, together with whatever additional equipment
acquired with said loan. B.A. Green failed to obtain said loan.
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of
First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al.,
with costs. Article 1877 of the Civil Code provides as follows.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits,
in its decision in question which will be discussed in the course of this decision. and rents not collected when the obligation falls due, and the amount of any
indemnities paid or due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the declarations,
The first question to be decided in this appeal, which is raised in the first assignment of alleged
amplifications, and limitations established by law, whether the estate continues in the
error, is whether or not the lower court erred in declaring that the additional machinery and
possession of the person who mortgaged it or whether it passes into the hands of a
equipment, as improvement incorporated with the central are subject to the mortgage deed
third person.
executed in favor of the defendants Cu Unjieng e Hijos.
In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690), cited with
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following
sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e
doctrine:
Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its
buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES. — It
is a rule, established by the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in a mortgage of real
estate, the improvements on the same are included; therefore, all objects permanently
attached to a mortgaged building or land, although they may have been placed there
after the mortgage was constituted, are also included. (Arts. 110 and 111 of the
Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter
of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199
U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may be
understood that the machinery and other objects placed upon and used in connection
with a mortgaged estate are excluded from the mortgage, when it was stated in the
mortgage that the improvements, buildings, and machinery that existed thereon were
also comprehended, it is indispensable that the exclusion thereof be stipulated between
the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in
the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character
inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof,
made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional
loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become
security therefor, said B.A. Green binding himself not to mortgage nor encumber them to
anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became
owner of said machinery and equipment, otherwise B.A. Green, as such president, could not
have offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery,
liquid containers, instruments or implements intended by the owner of any building or land for
use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principal
7
elements of a sugar central, without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying on the sugar industry
for which it has been established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold
said machinery and equipment as security for the payment of the latter's credit and to refrain
from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed
therefor, is not incompatible with the permanent character of the incorporation of said
machinery and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing
could prevent B.A. Green from giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they
had been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and
while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force,
only the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with
which said machinery and equipment had been incorporated, was transferred thereby, subject
to the right of the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a
machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for
the purpose of carrying out the industrial functions of the latter and increasing production,
constitutes a permanent improvement on said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that
the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the permanent
character of the incorporation of said machinery and equipment with the central; and (3) that
the sale of the machinery and equipment in question by the purchaser who was supplied the
purchase money, as a loan, to the person who supplied the money, after the incorporation
thereof with the mortgaged sugar central, does not vest the creditor with ownership of said
machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to
the appellant. So ordered.

DAVAO SAWMILL V. CASTILLO, GR 40411 AUG 7, 1935
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and
as set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal
in nature, and as a consequence absolved the defendants from the complaint, with costs against
the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged
to another person. On the land the sawmill company erected a building which housed the
machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any
amount for said improvements and buildings; also, in the event the party of the second
part should leave or abandon the land leased before the time herein stipulated, the
8
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to
the party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the
properties now in question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out by the record made
by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the
defendant herein having consummated the sale, proceeded to take possession of the machinery
and other properties described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner of
any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade of
industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is

indicative of intention and impresses upon the property the character determined by the parties.
In this connection the decision of this court in the case of Standard Oil Co. of New York vs.
Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a
situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the expiration or abandonment
of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent
of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is
well known, it was in part said:
To determine this question involves fixing the nature and character of the property from
the point of view of the rights of Valdes and its nature and character from the point of
view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also attributes immovability
in some cases to property of a movable nature, that is, personal property, because of
the destination to which it is applied. "Things," says section 334 of the Porto Rican Code,
"may be immovable either by their own nature or by their destination or the object to
which they are applicable." Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: "Machinery, vessels, instruments or implements
intended by the owner of the tenements for the industrial or works that they may carry
on in any building or upon any land and which tend directly to meet the needs of the
said industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing — machinery
placed in the plant — it is plain, both under the provisions of the Porto Rican Law and of
the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result
would not be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit.
9
9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not presumed by the law to have
applied movable property belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It follows that abstractly
speaking the machinery put by the Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to
charge against the lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging to the owner
without compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable
property, it follows that they had the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right did not in a legal sense conflict
with the claim of Valdes, since as to him the property was a part of the realty which, as
the result of his obligations under the lease, he could not, for the purpose of collecting
his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.

MACHINERY AND ENGINEERING V. CA L-7057 OCT 29, 1954
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7057 October 29, 1954
MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE COURT OF
FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.
Vicente J. Francisco for petitioner.
Capistrano and Capistrano for respondents.
CONCEPCION, J.:
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from
a decision of the Court of Appeals denying an original petition for certiorari filed by said
petitioner against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the
respondents herein.
The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of
First Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering
Supplies, Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama,
defendants", for the recovery of the machinery and equipment sold and delivered to
said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon application
ex-parte of the petitioner company, and upon approval of petitioner's bond in the sum
of P15,769.00, on March 13,1953, respondent judge issued an order, commanding the
Provincial Sheriff of Bulacan to seize and take immediate possession of the properties
specified in the order (Appendix I, Answer). On March 19, 1953, two deputy sheriffs of
Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers proceeded
to Bigti, for the purpose of carrying the court's order into effect. Leonardo Contreras,
10
Manager of the respondent Company, and Pedro Torres, in charge thereof, met the
deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Leopoldo C.
Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the
defendants therein, protesting against the seizure of the properties in question, on the
ground that they are not personal properties. Contending that the Sheriff's duty is
merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the
fact that the equipment could not possibly be dismantled without causing damages or
injuries to the wooden frames attached to them. As Roco insisted in dismantling the
equipment on his own responsibility, alleging that the bond was posted for such
eventuality, the deputy sheriffs directed that some of the supports thereof be cut
(Appendix 2). On March 20, 1953, the defendant Company filed an urgent motion, with
a counter-bond in the amount of P15,769, for the return of the properties seized by the
deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial
Sheriff of Bulacan to return the machinery and equipment to the place where they were
installed at the time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs
returned the properties seized, by depositing them along the road, near the quarry, of
the defendant Company, at Bigti, without the benefit of inventory and without re-
installing hem in their former position and replacing the destroyed posts, which
rendered their use impracticable. On March 23, 1953, the defendants' counsel asked the
provincial Sheriff if the machinery and equipment, dumped on the road would be re-
installed tom their former position and condition (letter, Appendix 4). On March 24,
1953, the Provincial Sheriff filed an urgent motion in court, manifesting that Roco had
been asked to furnish the Sheriff's office with the expenses, laborers, technical men and
equipment, to carry into effect the court's order, to return the seized properties in the
same way said Roco found them on the day of seizure, but said Roco absolutely refused
to do so, and asking the court that the Plaintiff therein be ordered to provide the
required aid or relieve the said Sheriff of the duty of complying with the said order
dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court ordered the
Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment removed
by them in their original condition in which they were found before their removal at the
expense of the Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated
April 15, 1953, praying for an extension of 20 days within which to comply with the
order of the Court (appendix 10) was denied; and on May 4, 1953, the trial court
ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the
repeatedly mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp.
I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of
Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was
alleged that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with
necessary funds, technical men, laborers, equipment and materials, to effect the installation of
the machinery and equipment" in question, the Court of Firs Instance of Bulacan had committed
a grave abuse if discretion and acted in excess of its jurisdiction, for which reason it was prayed
that its order to this effect be nullified, and that, meanwhile, a writ of preliminary injunction be
issued to restrain the enforcement o said order of may 4, 1953. Although the aforementioned
writ was issued by the Court of Appeals, the same subsequently dismissed by the case for lack of
merit, with costs against the petitioner, upon the following grounds:
While the seizure of the equipment and personal properties was ordered by the
respondent Court, it is, however, logical to presume that said court did not authorize the
petitioner or its agents to destroy, as they did, said machinery and equipment, by
dismantling and unbolting the same from their concrete basements, and cutting and
sawing their wooden supports, thereby rendering them unserviceable and beyond
repair, unless those parts removed, cut and sawed be replaced, which the petitioner,
not withstanding the respondent Court's order, adamantly refused to do. The Provincial
Sheriff' s tortious act, in obedience to the insistent proddings of the president of the
Petitioner, Ramon S. Roco, had no justification in law, notwithstanding the Sheriffs'
claim that his duty was ministerial. It was the bounden duty of the respondent Judge to
give redress to the respondent Company, for the unlawful and wrongful acts committed
by the petitioner and its agents. And as this was the true object of the order of March
30, 1953, we cannot hold that same was within its jurisdiction to issue. The ministerial
duty of the Sheriff should have its limitations. The Sheriff knew or must have known
what is inherently right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the
terms of the order. While it may be conceded that this was a question of law too
technical to decide on the spot, it would not have costs the Sheriff much time and
difficulty to bring the letter to the court's attention and have the equipment and
machinery guarded, so as not to frustrate the order of seizure issued by the trial court.
But acting upon the directives of the president of the Petitioner, to seize the properties
at any costs, in issuing the order sought to be annulled, had not committed abuse of
discretion at all or acted in an arbitrary or despotic manner, by reason of passion or
personal hostility; on the contrary, it issued said order, guided by the well known
principle that of the property has to be returned, it should be returned in as good a
condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one
11
had gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
considering that fact that he acted under the pressure of Ramon S. Roco, and that the
order impugned was issued not by him, but by the respondent Judge, We simply declare
that said Sheriff' act was most unusual and the result of a poor judgment. Moreover, the
Sheriff not being an officer exercising judicial functions, the writ may not reach him,
for certiorari lies only to review judicial actions.
The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the
Petitioner's property until fully paid for and such never became immovable. The
question of ownership and the applicability of Art. 415 of the new Civil Code are
immaterial in the determination of the only issue involved in this case. It is a matter of
evidence which should be decided in the hearing of the case on the merits. The question
as to whether the machinery or equipment in litigation are immovable or not is likewise
immaterial, because the only issue raised before the trial court was whether the
Provincial Sheriff of Bulacan, at the Petitioner's instance, was justified in destroying the
machinery and in refusing to restore them to their original form , at the expense of the
Petitioner. Whatever might be the legal character of the machinery and equipment,
would not be in any way justify their justify their destruction by the Sheriff's and the said
Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)
A motion for reconsideration of this decision of the Court of Appeals having been denied ,
petitioner has brought the case to Us for review by writ of certiorari. Upon examination of the
record, We are satisfied, however that the Court of Appeals was justified in dismissing the case.
The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to
"personal property".
Ordinarily replevin may be brought to recover any specific personal property unlawfully
taken or detained from the owner thereof, provided such property is capable of
identification and delivery; but replevin will not lie for the recovery of real property or
incorporeal personal property. (77 C. J. S. 17) (Emphasis supplied.)
When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and
equipment in question appeared to be attached to the land, particularly to the concrete
foundation of said premises, in a fixed manner, in such a way that the former could not be
separated from the latter "without breaking the material or deterioration of the object." Hence,
in order to remove said outfit, it became necessary, not only to unbolt the same, but , also, to
cut some of its wooden supports. Moreover, said machinery and equipment were "intended by
 12

the owner of the tenement for an industry" carried on said immovable and tended." For these
reasons, they were already immovable property pursuant to paragraphs 3 and 5 of Article 415 of
Civil Code of the Philippines, which are substantially identical to paragraphs 3 and 5 of Article
334 of the Civil Code of Spain. As such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the

realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part
as to be part thereof, as, for example, a house or a turbine pump constituting part of a
building's cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's
agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility,"
stating that., precisely, "that is the reason why plaintiff posted a bond ." In this manner,
petitioner clearly assumed the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5
of Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return
of the property in dispute upon the filing of a counterbond, as provided therein. In other words,
petitioner knew that the restitution of said property to respondent company might be ordered
under said provision of the Rules of Court, and that, consequently, it may become necessary for
petitioner to meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely in
point — obviously real property are not subject to replevin — it is well settled that, when the
restitution of what has been ordered, the goods in question shall be returned in substantially the
same condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and
equipment involved in this case were duly installed and affixed in the premises of respondent
company when petitioner's representative caused said property to be dismantled and then
removed, it follows that petitioner must also do everything necessary to the reinstallation of said
property in conformity with its original condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.

NAVARRO V. PINEDA L-18456 NOV 30, 1963
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to
Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, having
a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at
Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which
was registered in both the Office of the Register of Deeds and the Motor Vehicles Office of
Tarlac.
When the mortgage debt became due and payable, the defendants, after demands made on
them, failed to pay. They, however, asked and were granted extension up to June 30, 1960,
within which to pay. Came June 30, defendants again failed to pay and, for the second time,
asked for another extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that in the remote
event he should fail to make good the obligation on such date (July 30, 1960), the defendant
would no longer ask for further extension and there would be no need for any formal demand,
13
and plaintiff could proceed to take whatever action he might desire to enforce his rights, under
the said mortgage contract. In spite of said promise, defendants, failed and refused to pay the
obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on
the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the
First Cause of Action which states that the defendants unreasonably failed and refuse to
pay their obligation to the plaintiff the truth being the defendants are hard up these
days and pleaded to the plaintiff to grant them more time within which to pay their
obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to
pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that
the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum
as interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated
damages; that the instrument had been registered in the Registry of Property and Motor
Vehicles Office, both of the province of Tarlac; that the only issue in the case is whether or not
the residential house, subject of the mortgage therein, can be considered a Chattel and the
propriety of the attorney's fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the
copy of this decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00
with 12% compounded interest per annum from June 14, 1960, until said principal sum
and interests are fully paid, plus P500.00 as liquidated damages and the costs of this
suit, with the warning that in default of said payment of the properties mentioned in the
deed of real estate mortgage and chattel mortgage (Annex "A" to the complaint) be sold
to realize said mortgage debt, interests, liquidated damages and costs, in accordance
with the pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14 of the
Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",
immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.
The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit —
In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant Rufino G.
Pineda was made the subject of the chattel mortgage, for the reason that it is erected
on a land that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the
building; the fact that the land belongs to another is immaterial, it is enough that the house
adheres to the land; that in case of immovables by incorporation, such as houses, trees, plants,
etc; the Code does not require that the attachment or incorporation be made by the owner of
the land, the only criterion being the union or incorporation with the soil. In other words, it is
claimed that "a building is an immovable property, irrespective of whether or not said structure
and the land on which it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-
10817-8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644).
Appellants argue that since only movables can be the subject of a chattel mortgage (sec. 1, Act
No. 3952) then the mortgage in question which is the basis of the present action, cannot give
rise to an action for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya
v. Adriano Valino, et al., L-10838, May 30, 1958.)
14
The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely
on the ground that the house mortgaged was erected on the land which belonged to a third
person, but also and principally on the doctrine of estoppel, in that "the parties have so expressly
agreed" in the mortgage to consider the house as chattel "for its smallness and mixed materials
of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to
arts. 415 and 416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was
held that under certain conditions, "a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by agreement,
treat as personal property that which by nature would be real property" (Standard Oil Co. of N.Y.
v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a building of mixed materials
may be the subject of a chattel mortgage, in which case, it is considered as between the parties
as personal property. ... The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is so agreed by the parties
interested even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al.
v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.) The view that parties to
a deed of chattel mortgagee 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 principles of estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23,
1958). In a case, a mortgage 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 (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled that an object
placed on land by one who has only a temporary right to the same, such as a lessee or
usufructuary, does not become immobilized by attachment (Valdez v. Central Altagracia, 222
U.S. 58, cited in Davao Sawmill Co., Inc. v. 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 is so stipulated in the document of mortgage. (Evangelista v.
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, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The
doctrine, therefore, gathered from these cases is that although in some instances, a house of
mixed materials has been considered as a chattel between them, has been recognized, it has
been a constant criterion nevertheless that, with respect to third persons, who are not parties to
the contract, and specially in execution proceedings, the house is considered as an immovable
property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable
 15

property. The house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts;
built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached
permanently to the soil. In these cases and in the Leung Yee case, supra, third persons assailed
the validity of the deed of chattel mortgages; in the present case, it was one of the parties to the
contract of mortgages who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.

CALTEX V. CBAA L-50466 MAY 31, 1982
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
16
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.
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 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 Roño, 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 no Central 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
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.
17
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 of the property or plant but not when so placed by a
tenant, a usufructuary, or any person having only a temporary right, unless such person acted as
the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
 18

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 for purposes 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.

BENGUET CORP. V. CBAA GR 106041 JAN 29, 1993
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."
19
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
accede to the request for tax exemption in the absence of a law authorizing the
same.
xxx xxx xxx
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
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for realty tax
purposes:
(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.
20
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), 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:
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).
21
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.
(1) Lands, buildings 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.
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 are reasonably 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 in its 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 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.
22
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 with the 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
 23

either the Local Board or the local sanggunian, (it can) elevate the same to this Board for
appropriate action."

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.
 24

SERG'S PRODUCTS V. PCI GR 137705 AUG 22, 2000 Cainta, Rizal and to return to their original place whatever immobilized machineries or
equipments he may have removed.[9]
THIRD DIVISION

The Facts
[G.R. No. 137705. August 22, 2000]
The undisputed facts are summarized by the Court of Appeals as follows:[10]

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with
AND FINANCE, INC., respondent. 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.
DECISION
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of
PANGANIBAN, J.: 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.
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 On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory,
otherwise.Hence, such property is a proper subject of a writ of replevin obtained by seized one machinery with [the] word that he [would] return for the other machineries.
the other contracting party.
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,
The Case 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
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
personal and therefore still subject to seizure and a writ of replevin.
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
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
reads as follows:
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
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution
innocent third parties. They further stated that PCI Leasing [was] estopped from treating these
dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of
machineries as personal because the contracts in which the alleged agreement [were] embodied
preliminary injunction issued on June 15, 1998 is hereby LIFTED.[4]
[were] totally sham and farcical.
In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
(Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied
the remaining properties. He was able to take two more, but was prevented by the workers from
petitioners Motion for Special Protective Order, praying that the deputy sheriff be
taking the rest.
enjoined from seizing immobilized or other real properties in (petitioners) factory in
On April 7, 1998, they went to [the CA] via an original action for certiorari.

Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned, by
petitioners. It also ruled that the words of the contract are clear and leave no doubt
upon the true intention of the contracting parties.Observing that Petitioner Goquiolay
was an experienced businessman who was not unfamiliar with the ways of the trade, it
ruled that he should have realized the import of the document he signed. The CA
further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition
whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of
the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both parties. The contract
is being enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by 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.
25
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 of replevin are issued for the
recovery of personal property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:

ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them have
become immobilized by destination because they are essential and principal elements
in the industry.[16] In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[18]After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any material fact
found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to
treat a house as a personal propertybecause 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
26
was treated as personal property in a contract.Pertinent portions of the Courts ruling
are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced thereby, there
is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of the
Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed
or attached to or embedded in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property.Under the circumstances, they are proper
subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.[22] Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no showing
that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not
a lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and the
validity of the lease agreement itself.[25] In their Reply to 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 were not allowed, however,
to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put
at issue the matter of the title or right of possession over the specific chattel being replevied, the
policy apparently being that said matter should be ventilated and determined only at the trial on
the merits.[28]
Besides, these questions require a determination of facts and a presentation of
evidence, both of which have no place in a petition for certiorari in the CA under Rule
65 or in a petition for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In fact,
petitioners assailed it first only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed valid and binding as the
law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent had allegedly been required
to sign a printed form of chattel mortgage which was in a blank form at the time of
signing. The Court rejected the argument and relied on the Deed, ruling as follows:
27
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, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a
bond executed to the applicant, in double the value of the property as stated in the applicants
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

SORIANO V. GALIT GR 156295 SEP 23, 2003
FIRST DIVISION
[G.R. No. 156295. September 23, 2003]
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil Case No. 6643[1] for Sum of Money by the
Regional Trial Court of Balanga, Bataan, Branch 1. The writ of possession was, however, nullified
by the Court of Appeals in CA-G.R. SP No. 65891[2] because it included a parcel of land which was
not among those explicitly enumerated in the Certificate of Sale issued by the Deputy Sheriff, but
on which stand the immovables covered by the said Certificate. Petitioner contends that the sale
of these immovables necessarily encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the total
sum of P480,000.00, evidenced by four promissory notes in the amount of P120,000.00 each
dated August 2, 1996;[3] August 15, 1996;[4]September 4, 1996[5] and September 14, 1996.[6] This
loan was secured by a real estate mortgage over a parcel of land covered by Original Certificate
of Title No. 569.[7] After he failed to pay his obligation, Soriano filed a complaint for sum of
money against him with the Regional Trial Court of Balanga City, Branch 1, which was docketed
as Civil Case No. 6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their answer. Hence,
upon motion of Marcelo Soriano, the trial court declared the spouses in default and proceeded
to receive evidence for petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered judgment[9] in
favor of petitioner Soriano, the dispositive portion of which reads:
28
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed from the
dates of maturity of the promissory notes until the same are fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and
3. the costs of suit.
SO ORDERED.[10]
The judgment became final and executory. Accordingly, the trial court issued a writ of
execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles levied on the
following real properties of the Galit spouses:
1. A parcel of land covered by Original Certificate of Title No. T-569 (Homestead Patent
No. 14692) situated in the Bo. of Tapulac, Orani, Bataan. Bounded on the SW,
along line 1-2 by Lot No. 3, Cad. 145; containing an area of THIRTY FIVE
THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS, more or
less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong materials G.I. roofing
situated at Centro I, Orani, Bataan, x x x containing an area of 30 sq. meters,
more or less x x x (constructed on TCT No. T40785);
3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing, situated in
Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less
x x x.[11]
At the sale of the above-enumerated properties at public auction held on December 23,
1998, petitioner was the highest and only bidder with a bid price of P483,000.00. Accordingly,
on February 4, 1999, Deputy Sheriff Robles issued a Certificate of Sale of Execution of Real
Property,[12] which reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:

GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued in the
above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the Provincial Sheriff
of Bataan or her authorized Deputy Sheriff to cause to be made (sic) the sum of P350,000.00 plus
12% interest to be computed from the date of maturity of the promissory notes until the same
are fully paid; P20,000.00 as attorneys fees plus legal expenses in the implementation of the writ
of execution, the undersigned Deputy Sheriff sold at public auction on December 23, 1998 the
rights and interests of defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
Marcelo Soriano, the highest and only bidder for the amount of FOUR HNDRED EIGHTY THREE
THOUSAND PESOS (P483,000.00, Philippine Currency), the following real estate properties more
particularly described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the Bo. of Tapulac, Orani, Bataan,
x x x. Bounded on the SW., along line 1-2 by Lot No. 3, Cad. 145, containing an area of THIRTY
FIVE THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing situated at Centro
I, Orani, Bataan x x x containing an area of 30 sq. meters, more or less x x(constructed on TCT No.
40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in Centro
I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder, Marcelo Soriano, being the
plaintiff did not pay to the Provincial Sheriff of Bataan the amount of P483,000.00, the sale price
of the above-described property which amount was credited to partial/full satisfaction of the
judgment embodied in the writ of execution.
The period of redemption of the above described real properties together with all the
improvements thereon will expire One (1) year from and after the registration of this Certificate
of Sale with the Register of Deeds.
29
This Certificate of Sheriffs Sale is issued to the highest and lone bidder, Marcelo Soriano, under
guarantees prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the Certificate of Sale on Execution
of Real Property with the Registry of Deeds.
The said Certificate of Sale registered with the Register of Deeds includes at the dorsal
portion thereof the following entry, not found in the Certificate of Sale on file with Deputy
Sheriff Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the improvements
thereon, situated in the Municipality of Orani, Bounded on the NE; by Calle P. Gomez; on the E.
by Lot No. 1104; on the SE by Calle Washington; and on the W. by Lot 4102, containing an area
of ONE HUNDRED THIRTY NINE (139) SQUARE METERS, more or less. All points referred to are
indicated on the plan; bearing true; declination 0 deg. 40E., date of survey, February 191-March
1920.
On February 23, 2001, ten months from the time the Certificate of Sale on Execution was
registered with the Registry of Deeds, petitioner moved[14] for the issuance of a writ of
possession. He averred that the one-year period of redemption had elapsed without the
respondents having redeemed the properties sold at public auction; thus, the sale of said
properties had already become final. He also argued that after the lapse of the redemption
period, the titles to the properties should be considered, for all legal intents and purposes, in his
name and favor.[15]
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the motion for
issuance of writ of possession.[16] Subsequently, on July 18, 2001, a writ of possession[17] was
issued in petitioners favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :

WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance of Writ of
Possession;
WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Writ of
Possession;
WHEREFORE, you are hereby commanded to place the herein plaintiff Marcelo Sorianoin
possession of the property involved in this case situated (sic) more particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at Centro
1, Orani, Bataan covered by TCT No. 40785;
2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters under
Tax Declaration No. 86 situated at Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134 square meters known as
Lot No. 1103 of the Cadastral Survey of Orani
against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic) heirs,
successors, assigns and all persons claiming rights and interests adverse to the petitioner and
make a return of this writ every thirty (30) days from receipt hereof together with all the
proceedings thereon until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this 18thday of July 2001,
at Balanga City.
(Sgd)
GILBERT S. ARGONZA
O AMISS ON ITS SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON THE
IC
Respondents filed a petition for certiorari with the Court of Appeals, which was docketed as
CA-G.R. SP No. 65891, assailing the inclusion of the parcel of land covered by Transfer Certificate
of Title No. T-40785 among the list of real properties in the writ of possession.[18] Respondents
argued that said property was not among those sold on execution by Deputy Sheriff Renato E.
Robles as reflected in the Certificate of Sale on Execution of Real Property.
In opposition, petitioner prayed for the dismissal of the petition because respondent
spouses failed to move for the reconsideration of the assailed order prior to the filing of the
30
petition. Moreover, the proper remedy against the assailed order of the trial court is an appeal,
or a motion to quash the writ of possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of possession issued
by the Regional Trial Court of Balanga City, Branch 1, on 18 July 2001 is declared NULL and VOID.
In the event that the questioned writ of possession has already been implemented, the Deputy
Sheriff of the Regional Trial Court of Balanga City, Branch 1, and private respondent
Marcelo Soriano are hereby ordered to cause the redelivery of Transfer Certificate of Title No. T-
40785 to the petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court maintaining that
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS NOT THE PLAIN,
SPEEDY AND ADEQUATE REMEDY OF THE RESPONDENTS IN ASSAILING THE
WRIT OF POSSESSION ISSUED BY THE LOWER COURT BUT THERE WERE STILL
OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE NOT RESORTED TO
LIKE THE FILING OF A MOTION FOR RECONSIDERATION OR MOTION TO QUASH
OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARAING THE
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY AS NULL AND VOID
AND SUBSEQUENTLY THE WRIT OF POSSESSION BECAUSE THE SAME IS A
PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION OF REGULARITY AND IT
CANNOT BE OVERCOME BY A MERE STRANGE FEELING THAT SOMETHING IS
FRONT PAGE AND AT THE DORSAL PORTION THEREOF IS DIFFERENT OR THAT IT
IS UNLIKELY FOR THE SHERIFF TO USE THE DORSAL PORTION OF THE FIRST PAGE
BECAUSE THE SECOND PAGE IS MERELY HALF FILLED AND THE NOTATION ON
THE DORSAL PORTION COULD STILL BE MADE AT THE SECOND PAGE.
On the first ground, petitioner contends that respondents were not without remedy before
the trial court. He points out that respondents could have filed a motion for reconsideration of
the Order dated June 4, 1999, but they did not do so. Respondents could also have filed an
appeal but they, likewise, did not do so. When the writ of possession was issued, respondents

could have filed a motion to quash the writ. Again they did not. Respondents cannot now avail of
the special civil action for certiorari as a substitute for these remedies. They should suffer the
consequences for sleeping on their rights.
We disagree.
Concededly, those who seek to avail of the procedural remedies provided by the rules must
adhere to the requirements thereof, failing which the right to do so is lost. It is, however, equally
settled that the Rules of Court seek to eliminate undue reliance on technical rules and to make
litigation as inexpensive as practicable and as convenient as can be done.[20] This is in accordance
with the primary purpose of the 1997 Rules of Civil Procedure as provided in Rule 1, Section 6,
which reads:
Section 6. Construction. These rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive determination of every action and
proceeding.[21]
The rules of procedure are not to be applied in a very rigid, technical sense and are used
only to help secure substantial justice. If a technical and rigid enforcement of the rules is made,
their aim would be defeated.[22] They should be liberally construed so that litigants can have
ample opportunity to prove their claims and thus prevent a denial of justice due to
technicalities.[23] Thus, in China Banking Corporation v. Members of the Board of Trustees of
Home Development Mutual Fund,[24] it was held:
while certiorari as a remedy may not be used as a substitute for an appeal, especially for a lost
appeal, this rule should not be strictly enforced if the petition is genuinely meritorious.[25] It has
been said that where the rigid application of the rules would frustrate substantial justice, or
bar the vindication of a legitimate grievance, the courts are justified in exempting a particular
case from the operation of the rules.[26](Emphasis ours)
Indeed, well-known is the rule that departures from procedure may be forgiven where they
do not appear to have impaired the substantial rights of the parties.[27] Apropos in this regard
is Cometa v. CA,[28] where we said that
There is no question that petitioners were remiss in attending with dispatch to the protection of
their interests as regards the subject lots, and for that reason the case in the lower court was
dismissed on a technicality and no definitive pronouncement on the inadequacy of the price paid
for the levied properties was ever made. In this regard, it bears stressing that procedural rules
are not to be belittled or dismissed simply because their non-observance may have resulted in
prejudice to a partys substantive rights as in this case. Like all rules, they are required to be
31
followed except when only for the most persuasive of reasons they may be relaxed to relieve a
litigant of an injustice not commensurate with the degree of his thoughtlessness in not
complying with the procedure prescribed.[29] (emphasis and italics supplied.)
In short, since rules of procedure are mere tools designed to facilitate the attainment of
justice, their strict and rigid application which would result in technicalities that tend to frustrate
rather than promote substantial justice must always be avoided.[30] Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of
the parties.[31]
Eschewing, therefore, the procedural objections raised by petitioner, it behooves us to
address the issue of whether or not the questioned writ of possession is in fact a nullity
considering that it includes real property not expressly mentioned in the Certificate of Sale of
Real Property.
Petitioner, in sum, dwells on the general proposition that since the certificate of sale is a
public document, it enjoys the presumption of regularity and all entries therein are presumed to
be done in the performance of regular functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of Real Properties
issued on February 4, 1999 involved, namely: (a) copy which is on file with the deputy sheriff;
and (b) copy registered with the Registry of Deeds. The object of scrutiny, however, is not the
copy of the Certificate of Sale on Execution of Real Properties issued by the deputy sheriff on
February 4, 1999,[32]but the copy thereof subsequently registered by petitioner with the Registry
of Deeds on April 23, 1999,[33] which included an entry on the dorsal portion of the first
page thereof describing a parcel of land covered by OCT No. T-40785 not found in the Certificate
of Sale of Real Properties on file with the sheriff.
True, public documents by themselves may be adequate to establish the presumption of
their validity. However, their probative weight must be evaluated not in isolation but in
conjunction with other evidence adduced by the parties in the controversy, much more so in this
case where the contents of a copy thereof subsequently registered for documentation purposes
is being contested. No reason has been offered how and why the questioned entry was
subsequently intercalated in the copy of the certificate of sale subsequently registered with the
Registry of Deeds. Absent any satisfactory explanation as to why said entry was belatedly
inserted, the surreptitiousness of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of petitioners copy of the Certificate of Sale.
Thus, it has been held that while a public document like a notarized deed of sale is vested with
the presumption of regularity, this is not a guarantee of the validity of its contents.[34]

It must be pointed out in this regard that the issuance of a Certificate of Sale is an end
result of judicial foreclosure where statutory requirements are strictly adhered to; where even
the slightest deviations therefrom will invalidate the proceeding[35] and the sale.[36] Among these
requirements is an explicit enumeration and correct description of what properties are to be
sold stated in the notice. The stringence in the observance of these requirements is such that an
incorrect title number together with a correct technical description of the property to be sold
and vice versa is deemed a substantial and fatal error which results in the invalidation of the
sale.[37]
The certificate of sale is an accurate record of what properties were actually sold to satisfy
the debt. The strictness in the observance of accuracy and correctness in the description of the
properties renders the enumeration in the certificate exclusive. Thus, subsequently including
properties which have not been explicitly mentioned therein for registration purposes under
suspicious circumstances smacks of fraud. The explanation that the land on which the properties
sold is necessarily included and, hence, was belatedly typed on the dorsal portion of the copy of
the certificate subsequently registered is at best a lame excuse unworthy of belief.
The appellate court correctly observed that there was a marked difference in the
appearance of the typewritten words appearing on the first page of the copy of the Certificate of
Sale registered with the Registry of Deeds[38] and those appearing at the dorsal portion thereof.
Underscoring the irregularity of the intercalation is the clearly devious attempt to let such an
insertion pass unnoticed by typing the same at the back of the first page instead of on the
second page which was merely half-filled and could accommodate the entry with room to spare.
The argument that the land on which the buildings levied upon in execution is necessarily
included is, likewise, tenuous. Article 415 of the Civil Code provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
xxxxxxxxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking them material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on
lands by the owner of the immovable in such a manner that it reveals the intention to attach
them permanently to the tenements;
32
(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;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in
case their owner has placed them or preserves them with the intention to have them
permanently attached to the land, and forming a permanent part of it; the animals in these
places are also included;
xxxxxxxxx
(9) Docks and structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast;
x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and buildings separately. This
can only mean that a building is, by itself, considered immovable.[39] Thus, it has been held that
. . . 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 mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if dealt with separately and apart
from the land.[40] (emphasis and italics supplied)
In this case, considering that what was sold by virtue of the writ of execution issued by the
trial court was merely the storehouse and bodega constructed on the parcel of land covered by
Transfer Certificate of Title No. T-40785, which by themselves are real properties of respondents
spouses, the same should be regarded as separate and distinct from the conveyance of the lot
on which they stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack of
merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-G.R. SP No. 65891, which
declared the writ of possession issued by the Regional Trial Court of Balanga City, Branch 1,
on July 18, 2001, null and void, is AFFIRMED in toto.
SO ORDERED.

JG SUMMIT V. CA GR 124293 JAN 31, 2005
SPECIAL FIRST DIVISION
[G.R. No. 124293. January 31, 2005]
J.G. SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS; COMMITTEE ON
PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit
Holdings, Inc. for reconsideration of our Resolution dated September 24, 2003 and to elevate
this case to the Court En Banc. The petitioner questions the Resolution which reversed our
Decision of November 20, 2000, which in turn reversed and set aside a Decision of the Court of
Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are
as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of
the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will
contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40%
respectively. One of its salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:
33
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to
any third party without giving the other under the same terms the right of first refusal. This
provision shall not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon
C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose
of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT wherein the latter
was named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a
quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National
Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it
best to sell the National Government's share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal
under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the
said shares. They further agreed that KAWASAKI would be entitled to name a company in which
it was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI)[1] would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies
of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted
for the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified that the bidding would be held on
December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing
87.67% of PHILSECO's outstanding capital stock), which will be sold as a whole block in
accordance with the rules herein enumerated.
xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT
Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for
the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT
shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that
the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of
receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option
and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five
percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT
will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc.
declaring them as the preferred bidder and they shall have a period of ninety (90) days from the
receipt of the APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest
bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding
period. The bidder shall likewise be responsible for informing itself with respect to any and all
conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder's
34
proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk
and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.[2] submitted a bid of
Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act
on APT's recommendation based on the result of this bidding. Should the COP approve the
highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar
days from the date of receipt of such advice from APT within which to exercise their "Option to
Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent
thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's
bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its
bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI,
[PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last
four (4) companies were the losing bidders thereby circumventing the law and prejudicing the
weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal
can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not
estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had
exercised its option to top the highest bid and that the COP had approved the same on January
6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.
Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057.
On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court
of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not
the proper remedy to question the constitutionality or legality of the right of first refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the
proper party in the proper forum at the proper time and threshed out in a full blown trial." The

Court of Appeals further ruled that the right of first refusal and the right to top are prima facie
legal and that the petitioner, "by participating in the public bidding, with full knowledge of the
right to top granted to KAWASAKI/[PHILYARDS] isestopped from questioning the validity of the
award given to [PHILYARDS] after the latter exercised the right to top and had paid in full the
purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a
Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the
appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court
of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the
special civil action of mandamus because the petition was also one of certiorari. It further ruled
that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%)
Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific
Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal not only because it violates the rules on competitive bidding but more so,
because it allows foreign corporations to own more than 40% equity in the shipyard. It also held
that "although the petitioner had the opportunity to examine the ASBR before it participated in
the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable
provisions thereof." Thus, this Court voided the transfer of the national government's 87.67%
share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to
APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
35
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI
can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and
(3) Whether the right to top granted to KAWASAKI violates the principles of competitive
bidding.[3] (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On
the first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a
public utility, as by nature, a shipyard is not a public utility[4] and that no law declares a shipyard
to be a public utility.[5] On the second issue, we found nothing in the 1977 Joint Venture
Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI)
from acquiring more than 40% of PHILSECOs total capitalization.[6] On the final issue, we held
that the right to top granted to KAWASAKI in exchange for its right of first refusal did not violate
the principles of competitive bidding.[7]
On October 20, 2003, the petitioner filed a Motion for Reconsideration[8] and a Motion to
Elevate This Case to the Court En Banc.[9] Public respondents Committee on Privatization (COP)
and Asset Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS)
filed their Comments on J.G. Summit Holdings, Inc.s (JG Summits) Motion for Reconsideration
and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004,
respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the
following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to
warrant a reconsideration of this Courts Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following
grounds:
1. The main issue of the propriety of the bidding process involved in the present case has
been confused with the policy issue of the supposed fate of the shipping industry which has
never been an issue that is determinative of this case.[10]
2. The present case may be considered under the Supreme Court Resolution dated February
23, 1984 which included among en banc cases those involving a novel question of law and those
where a doctrine or principle laid down by the Court en banc or in division may be modified or
reversed.[11]
3. There was clear executive interference in the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a
memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report dated
October 17, 2001, which matter was placed in the agenda of the Court and noted by it in a
formal resolution dated November 28, 2001.[12]
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the
petitioners inconsistency in previously opposing PHILYARDS Motion to Refer the Case to the
Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that
the case be referred to the Court en banc. PHILYARDS further contends that the Supreme
Court en banc is not an appellate court to which decisions or resolutions of its divisions may be
appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989.[13]PHILYARDS also
alleges that there is no novel question of law involved in the present case as the assailed
Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS stresses that the
Resolution was merely an outcome of the motions for reconsideration filed by it and the COP
and APT and is consistent with the inherent power of courts to amend and control its process
and orders so as to make them conformable to law and justice. (Rule 135, sec. 5)[14] Private
respondent belittles the petitioners allegations regarding the change in ponente and the alleged
executive interference as shown by former Secretary of Finance Jose Isidro Camachos
memorandum dated November 5, 2001 arguing that these do not justify a referral of the present
case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G.
Summit further argued that: its Opposition to the Office of the Solicitor Generals Motion to Refer
is different from its own Motion to Elevate; different grounds are invoked by the two motions;
there was unwarranted executive interference; and the change in ponente is merely noted in
asserting that this case should be decided by the Court en banc.[15]
We find no merit in petitioners contention that the propriety of the bidding process
involved in the present case has been confused with the policy issue of the fate of the shipping
36
industry which, petitioner maintains, has never been an issue that is determinative of this case.
The Courts Resolution of September 24, 2003 reveals a clear and definitive ruling on the
propriety of the bidding process. In discussing whether the right to top granted to KAWASAKI in
exchange for its right of first refusal violates the principles of competitive bidding, we made an
exhaustive discourse on the rules and principles of public bidding and whether they were
complied with in the case at bar.[16] This Court categorically ruled on the petitioners argument
that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign
equity ratio, as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the
shipbuilding industry which was beyond avoidance.[17]
We reject petitioners argument that the present case may be considered under the
Supreme Court Resolution dated February 23, 1984 which included among en banc cases those
involving a novel question of law and those where a doctrine or principle laid down by the
court en banc or in division may be modified or reversed. The case was resolved based on basic
principles of the right of first refusal in commercial law and estoppel in civil law. Contractual
obligations arising from rights of first refusal are not new in this jurisdiction and have been
recognized in numerous cases.[18] Estoppel is too known a civil law concept to require an
elongated discussion. Fundamental principles on public bidding were likewise used to resolve
the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public
bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to
top was merely a condition or a reservation made in the bidding rules which was fully disclosed
to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the
President, et al., [19]we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28
April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the
bidders to the effect that the bidding shall be subject to the right of the government to reject
any and all bids subject to its discretion. In the case at bar, the government has made its
choice and unless an unfairness or injustice is shown, the losing bidders have no cause to
complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction and
elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter is of
such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used
as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of
this discretion is a policy decision that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged by the Government agencies
concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or
instrumentality of the Government has transgressed its constitutional boundaries. But the

Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the
award of a contract made by a government entity. Grave abuse of discretion implies a capricious,
arbitrary and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court,
No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and
gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty
enjoined by law, as to act at all in contemplation of law, where the power is exercised in an
arbitrary and despotic manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon
Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of the
right of the Government to "reject any or all bids or any part thereof or waive any defects
contained thereon and accept an offer most advantageous to the Government." It is a well-
settled rule that where such reservation is made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an award as a matter of right (C & C Commercial
Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be
rejected or, in the exercise of sound discretion, the award may be made to another than the
lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases
supplied)
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition
imposed on all bidders equally, based on the APTs exercise of its discretion in deciding on how
best to privatize the governments shares in PHILSECO. It was not a whimsical or arbitrary
condition plucked from the ether and inserted in the bidding rules but a condition which the APT
approved as the best way the government could comply with its contractual obligations to
KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the
government. The right to top had its history in the mutual right of first refusal in the JVA and was
reached by agreement of the government and KAWASAKI.
Further, there is no executive interference in the functions of this Court by the mere filing
of a memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely
noted to acknowledge its filing. It had no further legal significance. Notably too, the assailed
Resolution dated September 24, 2003 was decided unanimously by the Special First Division in
favor of the respondents.
37
Again, we emphasize that a decision or resolution of a Division is that of the Supreme
Court[20] and the Court en banc is not an appellate court to which decisions or resolutions of a
Division may be appealed.[21]
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration. First,
that a fair resolution of the case should be based on contract law, not on policy considerations;
the contracts do not authorize the right to top to be derived from the right of first
refusal.[22] Second, that neither the right of first refusal nor the right to top can be legally
exercised by the consortium which is not the proper party granted such right under either the
JVA or the Asset Specific Bidding Rules (ASBR).[23] Third, that the maintenance of the 60%-40%
relationship between the National Investment and Development Corporation (NIDC) and
KAWASAKI arises from contract and from the Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be bound by the 60%-40% constitutional
limitation.[24]
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been
able to show compelling reasons to warrant a reconsideration of the Decision of the
Court.[25] PHILYARDS denies that the Decision is based mainly on policy considerations and points
out that it is premised on principles governing obligations and contracts and corporate law such
as the rule requiring respect for contractual stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts rights.[26] Also, the ruling that shipyards are not
public utilities relies on established case law and fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKIs right of first refusal or even the right to top is not limited to
the 40% equity of the latter.[27] On the landholding issue raised by J.G. Summit, PHILYARDS
emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this
Court can take cognizance of such question of fact even without the benefit of a trial, PHILYARDS
opines that landholding by PHILSECO at the time of the bidding is irrelevant because what is
essential is that ultimately a qualified entity would eventually hold PHILSECOs real estate
properties.[28] Further, given the assignable nature of the right of first refusal, any applicable
nationality restrictions, including landholding limitations, would not affect the right of first
refusal itself, but only the manner of its exercise.[29] Also, PHILYARDS argues that if this Court
takes cognizance of J.G. Summits allegations of fact regarding PHILSECOs landholding, it must
also recognize PHILYARDS assertions that PHILSECOs landholdings were sold to another
corporation.[30] As regards the right of first refusal, private respondent explains that KAWASAKIs
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its
 38

contractually granted right of first refusal.[31] Also, the bidding was valid because PHILYARDS 2. The landholding issue has been a legitimate issue since the start of this case but is
exercised the right to top and it was of no moment that losing bidders later joined PHILYARDS in shamelessly ignored by the respondents.
raising the purchase price.[32]
a. The landholding issue is not a non-issue.
In cadence with the private respondent PHILYARDS, public respondents COP and APT
contend:
b. The landholding issue does not pose questions of fact.
1. The conversion of the right of first refusal into a right to top by 5% does not violate any
provision in the JVA between NIDC and KAWASAKI. c. That PHILSECO owned land at the time that the right of first refusal was agreed
upon and at the time of the bidding are most relevant.
2. PHILSECO is not a public utility and therefore not governed by the constitutional
restriction on foreign ownership.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself to the terms of the ASBR which included the 3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to
provision on the right to top. the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact
that PHILYARDS formed a consortium to raise the required amount to exercise the right to top a. The history behind the birth of the right to top shows fraud and bad faith.
the highest bid by 5% does not violate the JVA or the ASBR.
b. The right of first refusal was, indeed, effectively useless.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does
not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real 4. Petitioner is not legally estopped to challenge the right to top in this case.
property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and would only a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law
delay the termination of this case.[33] or against public policy.

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of
the public and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is contrary to law and the constitution is
null and void for being violative of substantive due process and the abuse of right
provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.
c. The benefits derived from the right to top were unwarranted.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal
is not new and we have already ruled on the issue in our Resolution of September 24, 2003. We
upheld the mutual right of first refusal in the JVA.[34] We also ruled that nothing in the JVA
prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization.[35] Likewise, nothing in the JVA or ASBR bars the conversion of the right of first
refusal to the right to top. In sum, nothing new and of significance in the petitioners pleading
warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the
right to top can legally be exercised by the consortium which is not the proper party granted
such right under either the JVA or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals.
There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder
(should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it
did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent
evidence, that the participation of the losing bidders in the public bidding was done with
fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is
legitimate in a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.[36]
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who
were losing bidders. This is a purely commercial decision over which the State should not
interfere absent any legal infirmity. It is emphasized that the case at bar involves the disposition
of shares in a corporation which the government sought to privatize. As such, the persons with
whom PHILYARDS desired to enter into business with in order to raise funds to purchase the
shares are basically its business. This is in contrast to a case involving a contract for the
operation of or construction of a government infrastructure where the identity of the
buyer/bidder or financier constitutes an important consideration. In such cases, the government
would have to take utmost precaution to protect public interest by ensuring that the parties with
which it is contracting have the ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding
company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares of
PHILSECO due to the constitutional prohibition on landholding by corporations with more than
40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40%
equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently be
converted into the right to top. [37] Petitioner also asserts that, at present, PHILSECO continues to
violate the constitutional provision on landholdings as its shares are more than 40% foreign-
owned.[38] PHILYARDS admits that it may have previously held land but had already divested such
landholdings.[39] It contends, however, that even if PHILSECO owned land, this would not affect
the right of first refusal but only the exercise thereof. If the land is retained, the right of first
refusal, being a property right, could be assigned to a qualified party. In the alternative, the land
could be divested before the exercise of the right of first refusal. In the case at bar, respondents
assert that since the right of first refusal was validly converted into a right to top, which was
exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its
shares are owned by Filipinos), then there is no violation of the Constitution.[40] At first, it would
seem that questions of fact beyond cognizance by this Court were involved in the issue.
However, the records show that PHILYARDS admits it had owned land up until the time of the
39
bidding.[41] Hence, the only issue is whether KAWASAKI had a valid right of first refusal over
PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the
bidding and KAWASAKI already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between
KAWASAKI and NIDC. First of all, the right of first refusal is a property right of PHILSECO
shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them to
purchase the shares of their co-shareholder before they are offered to a third party. The
agreement of co-shareholders to mutually grant this right to each other, by itself, does not
constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos
and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of
first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40%
ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent
proof of any fraudulent intent. The transfer could be made either to a nominee or such other
party which the holder of the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its
right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the
foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign
stockholders ownership of the shares which is adversely affected but the capacity of the
corporation to own land that is, the corporation becomes disqualified to own land. This finds
support under the basic corporate law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law
disqualifies a person from purchasing shares in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law disqualifies is the corporation from owning
land. This is the clear import of the following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-
sharing agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and under such
terms and conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, beneficial use
may be the measure and limit of the grant.

xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold lands
of the public domain.[42] (emphases supplied)
The petitioner further argues that an option to buy land is void in itself (Philippine Banking
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void.[43] Contrary to the contention of petitioner, the case of Lui She did not that
say an option to buy land is void in itself, for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not
impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue
of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50
years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby
the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) rights
the sum total of which make up ownership. It is just as if today the possession is transferred,
tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of
which ownership is made up are consolidated in an alien. And yet this is just exactly what the
parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs.
Register of Deeds, is indeed in grave peril.[44] (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
ownership as the owner could not sell or dispose of his properties. The contract in Lui
She prohibited the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the case at bar where
40
the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual
transfer of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over
shares of stock while the Lui She case involves an option to buy the land itself. As discussed
earlier, there is a distinction between the shareholders ownership of shares and the corporations
ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO
continues to violate the Constitution as its foreign equity is above 40% and yet owns long-term
leasehold rights which are real rights.[45] It cites Article 415 of the Civil Code which includes in
the definition of immovable property, contracts for public works, and servitudes and other real
rights over immovable property.[46] Any existing landholding, however, is denied by PHILYARDS
citing its recent financial statements.[47] First, these are questions of fact, the veracity of which
would require introduction of evidence. The Court needs to validate these factual allegations
based on competent and reliable evidence. As such, the Court cannot resolve the questions they
pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings,
to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because
under the law, it continues to own real property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973
Constitution (the JVA was signed in 1977), provided:
Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain.
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only
to ownership of land.[48] It does not extend to immovable or real property as defined under
 41

Article 415 of the Civil Code.Otherwise, we would have a strange situation where the ownership
of immovable property such as trees, plants and growing fruit attached to the land[49] would be
limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is

DENIED WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This
Case to the Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.