ART 414 SECOND DIVISION v 6 28 2019

[G.R. No. 118357. May 6, 1997]

PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and INDUSTRIAL ENTERPRISES, INC., respondents.
DECISION
ROMERO, J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals affirming in toto the November 27, 1992
decision[2] of the Regional Trial Court of Makati, Branch 150 which disposed of Civil Case No. 8109, "Industrial Enterprises,
Inc. v. Marinduque Mining and Industrial Corporation, Geronimo Velasco (in his capacity as the then Minister of Energy) and Philippine
National Bank," an action for rescission of contract and damages, as follows:
"WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises, Inc. was able to establish by preponderant evidence
the allegations in its Complaint and causes of action against defendants Marinduque Mining and Industrial Corporation and Philippine
National Bank, the Court finds both defendants civilly liable to plaintiff and, therefore, orders them to jointly and severally:
1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses invested by plaintiff in the property subject of this case, as computed
by Sycip, Gorres, Velayo and Company and brought to current value per SGV formula, as agreed in the Memorandum of Agreement;
2. pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation cost, plus interest at the legal rate from March 31, 1991, until
fully paid;
3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from August, 1983, the date of defendant MMIC's takeover of the
property, to October, 1988, when plaintiff was re-awarded the contract, plus interest at the legal rate, from the date of this decision, until fully paid;
4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and its unrealized profits as indicated in Numbers 1 to 3, for the
injury done to plaintiff's business standing and commercial credit;
5. pay plaintiff an amount not less than five (5) percent of the above obligation as reimbursement to plaintiff for litigation expenses and attorney's
fees; and
6. COST OF SUIT.
And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan, Samar, over the property of plaintiff, part of the
Giporlos Coal Project, is hereby declared NULL and VOID.
SO ORDERED."
Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus in 1949.[3] Four years later or in 1953,
Cabarrus established J. Cabarrus, Inc. which subsequently was renamed Industrial Enterprises, Inc. (IEI). During the period when most
of the facts relevant to this case transpired, Cabarrus and his family owned about 12% to 14% of the shares of stock in the
MMIC[4] where he was the President. He was also the President of IEI.
On July 27, 1979, IEI entered into a coal operating contract with the Bureau of Energy Development (BED), with Cabarrus and
then Minister of Energy Geronimo Velasco as signatories.[5] The contract was pursuant to the Coal Development Act of 1976 (P.D. No.
972, as amended) and covered 2,000 hectares of two (2) coal blocks in Barrio Carbon, Magsaysay, Eastern Samar.
While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks, to be likewise coal potentials. Hence,
upon confirmation by the BED that these three (3) adjacent coal blocks were in the free area, IEI filed an application for another coal
operating contract on August 12, 1981. Simultaneously, IEI applied for the conversion of its July 27, 1979 coal operating contract from
exploration to development/production. IEI also followed up its application on the three (3) newly-discovered coal blocks. All of these
coal blocks were collectively known as the Giporlos Coal Project.
Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application for exploration of the three (3) coal blocks had
been disapproved and that, instead, the contract would be awarded to MMIC. Following Cabarrus' letter of May 4, 1982 [6] requesting
that the rejection of IEI's application be made in writing, Minister Velasco wrote him a letter dated June 2, 1982, [7] where Minister
Velasco said:
"We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI) involvement in coal development. In line, however, with the
objective of rationalizing the country's overall coal supply-demand balance, we believe that coal users who have the capability to go into
coal production themselves should, as much as possible, be encouraged and given the preference to do so. This ensures maximum
utilization of local coal and will be beneficial to coal producer/user in the long run. In your area of interest, therefore, we believe that the
logical coal operator should be Marinduque Mining and Industrial Corporation (MMIC) which is now developing the Bagacay coal
deposit in order to support MMIC's coal conversion program at the Nonoc Nickel Refinery. As a member of the board of MMIC, I am
fully aware that this coal conversion program is critical to the profitability and the survival of the Nonoc Nickel Refinery. It is, therefore,
imperative that MMIC secure its own coal supply.
Consistent with the above rationale, you are aware that MMIC Board has in fact taken concrete steps to consolidate the Giporlos and
Bagacay coal areas under MMIC and, for this purpose, has authorized Chairman Cesar C. Zalamea to create a committee (of which I was
asked to be Chairman) to evaluate the Giporlos coal blocks of IEI to serve as basis for their acquisition by MMIC. As President of MMIC,
you are likewise aware that the Board has recently hired the services of SGV to make an evaluation of the proper pricing for the IEI coal
interest to be paid for by MMIC. With these developments indicating the imminent formal acquisition of Giporlos coal areas by MMIC, it
would indeed be inconsistent now for us to award additional coal blocks in the same area to IEI. We believe that these additional coal
areas, if at all, should be applied for and awarded direct to MMIC.
In view of the foregoing, please be advised that we are denying IEI's application, and we suggest instead that MMIC apply for the same
blocks."
On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of the Development Bank of the
Philippines (DBP) and of the MMIC, that IEI's application for the conversion of its coal operating contract for the Giporlos area from
exploration to development/production had been put "under advisement in the light of the ongoing discussion for the transfer of IEI's
rights and obligations" to MMIC.[8]
Thereafter, MMIC and IEI, through Chairman Zalamea and President Cabarrus,[9] respectively, entered into a Memorandum of
Agreement (MOA) whereby IEI assigned to MMIC all its rights and interests under the July 27, 1979 coal operating contract. The MOA
provided as follows:
"NOW, THEREFORE, the parties have agreed, as hereby they agree, one with the other, as follows:
1. That IEI, subject and conformably with the whereas clauses hereinabove stated, hereby assigns and transfers all its rights and interests on the Coal
Operating Contract described in the first whereas clause; and MMIC shall in consideration of the above assignment and transfer
(a) Undertake all the obligations required of IEI under said Coal Operating Contract;
(b) Reimburse all costs and expenses actually incurred as of 31 July 1983 by IEI on the coal property and brought up to current values, as shall be
audited and confirmed by Sycip, Gorres and Velayo as of said date of 31 July 1983; and
(c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and positive reserves of coal to be confirmed by an independent geologist who shall
be designated and appointed by mutual agreement of the parties.
2. That the total sum due from MMIC to IEI under this agreement shall be paid upon the effectivity of this agreement in the following manner
(a) An assumption by MMIC of the outstanding loan obligation (evidenced by Promissory Note No. 1516 for P3.3 Million and Promissory Note No.
11098 for P5.0 Million) of IEI to Manila Banking Corporation which as of 31 July 1983 stands at P8.3 Million.
(b) Payment in cash to IEI of the difference between the above amount of P8.3 Million and the sum total of subparagraphs (b) and (c) par. 1, above.
3. That this agreement shall only become binding and effective upon its approval by the BED, which approval shall be secured jointly by MMIC and
IEI."
MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed the BED on August 10, 1983, that they had
entered into the MOA "at the instance and suggestion of the Hon. Minister of Energy in one of the earlier meetings of the Board of
Directors of MMIC."[10] MMIC and IEI were informed of the approval of the MOA on August 29, 1983 by the then Acting BED Director
Wenceslao R. de la Paz.[11]
MMIC took over possession and control of the two (2) coal blocks even before the MOA was finalized. However, instead of
continuing the exploration and development work actively pursued by IEI, MMIC completely stopped all works and dismissed the work
force thereon, leaving only a caretaker crew.
Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of all costs and expenses it had
incurred on the project which, as of July 31, 1983, had amounted to P31.66 million as audited by the Sycip, Gorres and Velayo
Company.
In view of MMIC's failure to comply with its obligations under the MOA, IEI filed a complaint against MMIC and Minister Velasco on
August 7, 1984, for rescission of the MOA and damages, before the Regional Trial Court of Makati, Branch 137. Docketed as Civil Case
No. 8109, the complaint alleged that MMIC acted in gross and evident bad faith in entering into the MOA when it had no intention at all
to operate the two (2) coal blocks and of complying with any of its obligations under the said agreement. It likewise alleged that Minister
Velasco was instrumental in causing the assignment of the coal operating contracts to MMIC when he did not act on complainant IEI's
application for conversion of its coal operating contract from exploration to development/production and in rejecting its application for
another coal operating contract for the exploration of additional three (3) coal blocks which he had reserved for MMIC.
Meanwhile, on July 13, 1981, for various credit accommodations secured from the Philippine National Bank (PNB), aggregating to
four billion pesos (P4,000,000,000.00) excluding interest and charges as of November 30, 1980, as well as from the DBP, amounting to
two billion pesos (P2,000,000,000.00), MMIC entered into a Mortgage Trust Agreement (MTA)[12]whereby it constituted a mortgage pari
passu of its assets in favor of PNB and DBP. These assets are described in the third "whereas clause" of the MTA as follows:
"(1) all the MORTGAGOR'S assets described and covered under the Deed of Real Estate and Chattel Mortgage executed by the
MORTGAGOR in favor of PNB dated October 9, 1978, acknowledged before Notary Public of Manila, Lucas R. Vidad, as Doc.
No. 1004, Page No. 94, Book No. VII, Series of 1978, as amended, which are made integral parts of this Agreement by way of
reference; and
(2) additional assets of the MORTGAGOR described and identified in the list hereto attached as Annex 'A', including assets of whatever
kind, nature or description, which the MORTGAGOR may hereafter acquire whether in substitution of, in replenishment, or in
addition thereto, (the 'Mortgaged Properties')."[13]
Under the MTA, the PNB was constituted and appointed as the trustee tasked with holding in trust the mortgaged properties "for
the equal and ratable benefit of the Beneficiaries in proportion to the amount of the obligation of the MORTGAGOR to each of them" as
provided therein.[14] One of the conditions of the mortgage was that:
"x x x. Should the MORTGAGORS fail to deliver said properties, as aforestated, the TRUSTEE, through its duly authorized
representative, is authorized to take possession of said properties and bring the same to the location of any of their respective offices or to
any other place and the expenses of locating and bringing said properties to such place shall be for the account of the MORTGAGOR and
shall form part of the sums secured by this mortgage; Provided, however, that the TRUSTEE shall have the option of selling said
properties at any place where their respective offices shall be located or at any place where said properties may be
found."[15] (Underscoring supplied.)
The MTA also provided that:
"For the purpose of extra-judicial foreclosure, the MORTGAGOR hereby appoints the TRUSTEE, through its duly authorized
representatives, its attorney-in-fact to sell the mortgaged properties in accordance with the provision of Act No. 3135, as amended, and/or
Act No. 1508, as amended, and subject to the stipulations herein set forth, to sign all documents and perform any act requisite or
necessary to accomplish said purpose and to appoint their representatives or substitutes as such attorneys-in-fact with all the powers
herein conferred. In extra-judicial foreclosure under Act No. 3135, as amended, the auction sale shall take place in the City or Capital of
the Province where the mortgaged properties are situated. In extra-judicial foreclosure under Act No. 1508, as amended, the auction sale
shall take place in such City or Municipality as the TRUSTEE at its option, may elect by virtue of the provisions of the first paragraph of
this Condition."[16] (Underscoring supplied.)
The MTA was amended on April 27, 1984 with PNB Senior Vice President Gerardo Agulto, Jr. and MMIC Senior Vice President
Jose Luis Javier as signatories.[17] Premised on the fact that the mortgagor (MMIC) had "acquired additional personal and real
properties, including, but not limited to, leasehold rights on mining claims, which pursuant to the terms of the Mortgage Trust Agreement
are deemed covered by the mortgage as after-acquired assets," the MTA amended Sec. 2.01 thereof to read as follows:
"As security for the prompt and full payment by the MORTGAGOR of the Secured Obligations, the MORTGAGOR hereby establishes
and constitutes in favor of the MORTGAGEES a first lien and mortgage of the first rank in and to each and every item of the Mortgaged
Properties, together with any and all substitutes or replacements for or renewals of or additions to any thereof, all of which belong to and
are in the possession of (or will belong to and will be in the possession of) the MORTGAGOR, free and clear of any liens or encumbrances
of any nature whatsoever." (Underscoring supplied.)[18]
 MMIC defaulted in the payment of its loan obligation with PNB and DBP which, as of July 15, 1984 stood at P23.55 billion. As a
consequence thereof, PNB and DBP simultaneously filed in the provinces of Rizal, Samar, Negros and Surigao, joint petitions for sale
on foreclosure under Act Nos. 1508 and 3135, [19] of the MMIC assets located at: (a) Island Cement in Antipolo, Rizal; (b) Sipalay
Copper Mine in Negros; (c) Bagacay and Giporlos Coal Projects in Samar, and (d) Nonoc Nickel Project in Surigao. The petitions were
premised on: (1) the MOA of July 13, 1984 which delineated MMIC's mortgaged properties; (2) the April 27, 1984 amendment to the
MTA in favor of DBP and PNB which included in the mortgage MMIC's additional after-acquired assets; (3) the liabilities of MMIC
secured by the mortgage being past due, and (4) Presidential Decree No. 385 mandating PNB and DBP to institute foreclosure
proceedings when the arrearages of the borrower have exceeded twenty percent (20%) of the principal obligation.
Deputy Sheriff Esteban G. Malindog of the Regional Trial Court in Catbalogan, Samar, Branch XXVII, complied with the
requirements of the law as to the posting and publication of the notice of sale. Said notice, dated August 15, 1984, set for August 31,
1984 the auction sale of the various mining equipment and other assets of MMIC, including the equipment at the Giporlos Project.
On August 15, 1984, IEI advised PNB and DBP at their respective Manila and Makati offices that the purchase price of the
Giporlos Coal Project that it had assigned to MMIC per the MOA, was still. unpaid. [20] However, despite said notice, the foreclosure sale
proceeded as scheduled and the various machineries and equipment of MMIC were sold to PNB as the sole bidder for P33,940,940.00.
In its letter of September 20, 1984 to PNB and DBP, [21] IEI requested that the movable properties in the Giporlos Coal Project
which were detailed in a list attached to its August 15, 1984 letter to said banks, be excluded from the foreclosed assets of MMIC as the
purchase price thereof under the MOA had remained unpaid. IEI further informed PNB and DBP that a suit for rescission of the
assignment of the Giporlos Coal Project to MMIC (and damages) had been filed before the Regional Trial Court of Makati.
On June 24, 1985, in view of the inclusion of the mining equipment and other movable properties at the Giporlos Coal Project in
the foreclosure sale of the assets of MMIC, IEI filed an amended complaint impleading the PNB as an additional defendant. [22] The
amended complaint was admitted by the trial court on September 23, 1985. [23]
On April 23, 1986, the lower court[24] rendered a decision finding that:
"With respect to the plaintiff's claim against the Philippine National Bank, the evidence on record is clear that said defendant bank is
equally guilty of bad faith because it was advised beforehand that the heavy equipment and movable property which are part of the
Giporlos Coal Project were still unpaid; however, despite that actual knowledge or information, the said defendant bank proceeded to
extrajudicially foreclose the mortgage on the said properties; moreover, the foreclosure proceedings were held in Catbalogan, Province of
Samar, although the said movable properties are actually found or located at Giporlos, Eastern Samar (Exhibit 'OOO'), a province, distinct
and separate from, and outside the jurisdiction of, the Province of Samar; these foreclosure proceedings in Catbalogan, Samar, are clearly
contrary to the provisions of Act 1508, as amended; likewise, the inclusion of the movable properties which are part of the Giporlos Coal
Project is contrary to the provisions of the last paragraph of Sec. 7 of said Act No. 1508, as amended, which provides that a chattel
mortgage shall be determined to cover only the properties described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary
notwithstanding."[25]
Noting the futility of proceeding with the trial of the case because there was "no genuine issue of any material facts," the lower
court rendered a summary judgment disposing of Civil Case No. 8109 as follows:
"WHEREFORE, judgment is hereby rendered:
a- declaring the memorandum agreement, Exhibit 'C' as rescinded or annulled and without further force and effect between the parties thereto;
b- declaring and sustaining the continued efficacy and validity of the coal operating contract, Exhibit 'A' between plaintiff and defendant BED;
c- ordering the reversion or return of the two coal blocks covered by the coal operating contract dated July 27, 1979, Exhibit 'A', from the defendant
MMIC to and in favor of the plaintiff together with or including all the pieces of equipment MMIC received by said defendant in virtue of the
rescinded memorandum of agreement, Exhibit 'C';
d- ordering the defendant Bureau of Energy Development to issue its corresponding formal written affirmation and confirmation of the coal operating
contract, Exhibit 'A', and to expeditiously cause the conversion thereof from exploration to development/production or exploitation contract in favor
of the plaintiff;
e- directing the Bureau of Energy Development and the Ministry of Energy to give due course to plaintiff's application for a coal operating contract
for the exploration of the three additional coal blocks in the plaintiff's Giporlos Coal Project;
f- condemning the defendant MMIC to pay the plaintiff the amount of P3,431,645.00 representing expenditures on the two coal blocks covered by
Exhibit 'A' from July 31, 1983 up to May 1984 and such further amounts from said date up to the finality of this decision to be computed in
accordance with the formula adopted in the report of Sycip, Gorres and Velayo referred to in paragraph 14 of the Amended Complaint;
g- ordering the defendant MMIC to pay the plaintiff the sum of P6,500,000.00 representing rehabilitation expenses to be incurred by plaintiff in
putting back the two coal blocks and the pieces of equipment thereon in the same workable and operating condition as they were at the time they
were taken possession of by said defendant MMIC and the defendant PNB shall be subsidiarily liable therefor;
h- condemning the defendants MMIC and PNB jointly and solidarily liable to pay the plaintiff moral damages in the amount of P300,000.00, as
exemplary damages of P200,000.00 and the amount of P200,000.00 as and for attorney's fees;
i- declaring the extra-judicial foreclosure sale executed for and in behalf of the defendant Philippine National Bank of the mining equipment and
other movable property which are enumerated in Exh. 'OOO' and which are part of the Giporlos Coal Project, as null and void and of no force and
effect as against the plaintiff; in the event of the loss or deterioration of the said mining equipment and other movable property, the said defendants
PNB and MMIC shall be held jointly and solidarily liable to the plaintiff for the current market value thereof; and
j- ordering the defendants MMIC and PNB to pay the cost of this suit.
SO ORDERED."[26]
PNB and IEI filed separately motions for the reconsideration of said summary judgment. [27] PNB alleged that the lower court did
not have jurisdiction over the subject matter and nature of the action as the MOA between MMIC and IEI was an incident arising out of
a mining claim which was within the jurisdiction of the BED. Moreover, the validity of the extrajudicial foreclosure proceedings which
PNB effected on said properties was a genuine material issue which was not determinable through summary judgment. Inasmuch as
the merit of the case was resolved through summary judgment, PNB was denied its constitutional right to due process. Furthermore,
the award of damages to IEI was improper as PNB was not a party to the MOA.
For its part, IEI contended that the decision failed to award consequential damages in its favor considering the finding that MMIC
and PNB acted in bad faith and that it failed to realize profits of about P14.5 million on the confirmed coal reserves of 3,485,915 metric
tons computed at P4.17 per metric ton.
 On the other hand, the public defendant and MMIC filed their respective notices of appeal to the then Intermediate Appellate
Court.[28]
On July 14, 1986, IEI filed a motion for execution pending appeal [29] alleging that MMIC had failed and refused to fulfill its
obligations under the MOA and that it even allowed the PNB to unlawfully foreclose the mortgage on the heavy equipment and other
movable properties in the Giporlos Coal Project. According to IEI, to allow this situation to persist would only aggravate the damages
suffered by all concerned parties. It added that the grant of the motion for execution pending appeal would not only stop the continuing
injury to the common weal but it would also hasten the day when the coal blocks could be placed in useful production to provi de gainful
employment to the people in the community. By the same token, IEI averred, granting of the motion would accelerate realization of
scarce foreign exchange savings occasioned by the local production of a substitute energy source that would thereby contribute to the
relief of an ailing economy.
This motion was opposed by the public defendant, the MMIC and the PNB.[30] The public defendant averred that the execution of
the decision "would cause great irreparable damage and injury to public interest" and that there were no "good reasons" of superior
circumstance that demand urgency of the execution pending appeal. MMIC opposed the motion on the ground that the court had lost
jurisdiction after the perfection of its appeal while PNB's objection was on the ground that there were no good reasons to justify the
issuance of a writ of execution and that the issuance thereof was premature.
In its order of September 15, 1986, the lower court denied the motions for reconsideration of IEI and PNB for lack of merit. It
ordered the elevation of the records of the case to the Court of Appeals considering that the MMIC and the public defendant had filed
their notices of appeal on time. It likewise directed the issuance of a writ of execution pending appeal to enforce the April 23, 1986
decision upon the filing of a bond in the amount of five million pesos (P5,000,000.00) conditioned on the payment of damages the
defendants might suffer should the court finally rule that the plaintiff was not entitled to the writ.
In granting the writ of execution, the court held that "the immediate resumption of operation of the two coal blocks in question
became imperative and is of urgent necessity at this time when our government is in dire need of capitalization to encourage the
establishment of business to generate employment and dollar-producing energy sources." In the court's perception, this was enough
reason to entitle IEI to execution pending appeal pursuant to Sec. 2, Rule 39 of the Rules of Court.
The corresponding writ having been issued on September 22, 1986, [31] on September 26, 1986, Pioquinto P. Villapana was
appointed Special Sheriff to assist and cooperate with Deputy Sheriff Arturo Flores in its enforcement. However, execution of the writ
was curtailed.
The appeal to the Court of Appeals was docketed as CA-G.R. CV No. 12660. On October 14, 1988, IEI filed a motion to dismiss
the case against Minister Velasco on the grounds of IEI's reapplication for the two coal blocks with the Office of Energy Affairs (OEA)
and its loss of interest in pursuing the case against Minister Velasco. [32] The motion was favorably acted upon by the Court of Appeals
thereby effectively dropping Minister Velasco as a defendant in Civil Case No. 8109 through the decision of May 29, 1989, [33] where the
Court of Appeals disposed of the appeal as follows:
"WHEREFORE, the judgment appealed from is hereby reversed and set aside and the appeal of plaintiff Industrial Enterprises, Inc., is
DISMISSED. The complaint against the defendants Marinduque Iron Mines Corporation and Minister of Energy is dismissed for lack of
jurisdiction. The case against defendant PNB is remanded to the lower court for further proceedings.
Cost against appellant Industrial Enterprises, Inc.
SO ORDERED."[34]
IEI elevated the decision to this Court through a petition for review on certiorari under G.R. No. 88550 while the PNB filed in the
Court of Appeals a motion for the reconsideration of the same decision. On September 21, 1989, the Court of Appeals resolved the
motion for reconsideration with the following findings:
"Considering, therefore, that PNB was impleaded as party defendant only in connection with its foreclosure of the mortgages on the
properties of the principal defendant MMIC, and considering that the main action against MMIC has been dismissed for lack of
jurisdiction, there appears to be no cogent reason to continue the case against PNB which is merely a secondary defendant. There is thus
merit in PNB's contention that since the case against MMIC has been dismissed, the case against PNB should likewise be dismissed,
considering that PNB merely stepped into the shoes of MMIC.
Moreover, there is no privity of contract between PNB and IEI. Hence, there is no direct cause of action by IEI against PNB
independently of MMIC, it being merely a foreclosing mortgage creditor of the latter. At any rate, the record shows that there is an on-
going litigation between MMIC stockholders and PNB before the Regional Trial Court of Makati (Civil Case No. 9900) for the annulment
of the PNB's extra-judicial foreclosure of MMIC's mortgaged properties."[35]
Accordingly, the Court of Appeals modified its decision of May 29, 1989 by dismissing the case against the PNB.
Meanwhile, G.R. No. 88550 was eventually decided by this Court on April 18, 1990.[36] In denying the petition of IEI, the Court
held:
"Clearly, the doctrine of primary jurisdiction finds application in this case since the question of what coal areas should be exploited and
developed and which entity should be granted coal operating contracts over said areas involves a technical determination by the BED as
the administrative agency in possession of the specialized expertise to act on the matter. The Trial Court does not have the competence to
decide matters concerning activities relative to the exploration, exploitation, development and extraction of mineral resources like
coal. These issues preclude an initial judicial determination. It behooves the courts to stand aside even when apparently they have
statutory power to proceed in recognition of the primary jurisdiction of an administrative agency.
'One thrust of the multiplication of administrative agencies is that the interpretation of contracts and the determination of
private rights thereunder is no longer a uniquely judicial function, exercisable only by our regular courts' (Antipolo Realty
Corp. v. National Housing Authority, 153 SCRA 399, at 407).
The application of the doctrine of primary jurisdiction, however, does not call for the dismissal of the case below. It need only be
suspended until after the matters within the competence of the BED are threshed out and determined. Thereby, the principal purpose
behind the doctrine of primary jurisdiction is salutarily served."
Pursuant to this Decision, IEI lodged a complaint against MMIC and PNB before the OEA. After due hearing, a decision was
issued by Executive Director W. R. de la Paz on January 25, 1991, with a decretal portion which reads:
"Wherefore, in the light of the foregoing, insofar as the Memorandum of Agreement is concerned, such agreement may already
be deemed rescinded and of no force and effect in view of the re-award made in IEI's favor of the same coal areas subject of this
dispute. However, on the issue of the effects and consequences of the right to claim damages for unpaid financial obligations and such
 other damages incidental thereto, by one party as against the other, this matter may be referred to the regular courts for appropriate
adjudication.
Similarly, this likewise holds true insofar as the foreclosed properties involved in this case are concerned where respondent Philippine
National Bank was impleaded."[37]
In accordance with this ruling of the OEA, on March 1, 1991, IEI filed in the lower court a motion to set Civil Case No. 8109 for
hearing.[38] On June 17, 1991, PNB filed a motion to dismiss[39] alleging that the issue in this case, i.e., the validity of the foreclosure of
MMIC's assets, was virtually the same issue raised before the Regional Trial Court of Makati in Civil Case No. 9900, "Jesus S.
Cabarrus, Jesus Cabarrus, Jr., Jaime T. Cabarrus, Jose Miguel Cabarrus, Alejandro S. Pastor, Jr., Antonio U. Miranda & Manuel M.
Antonio v. Development Bank of the Philippines and Philippine National Bank," a case filed by the plaintiffs as stockholders of MMIC in
their behalf as well as in behalf of other stockholders, which prayed, among others, that the foreclosures effected by DBP and PNB on
the assets of MMIC be declared null and void.[40]
The motion to dismiss was denied by the lower court on July 10, 1991 on the ground that there was no substantial identity in the
cause of action, the relief sought and the parties in the two cases.[41]
As aforestated, the lower court rendered the decision of November 27, 1992 finding MMIC and PNB jointly and severally liable to
IEI for damages and declaring null and void the August 31, 1984 extrajudicial foreclosure sale in Catbalogan, Samar. This was affirmed
on December 20, 1994 by the Court of Appeals under CA-G.R. CV No. 40836.
MMIC did not interpose an appeal from the Decision of the Court of Appeals but the PNB filed the instant petition for review
on certiorari questioning the following "conclusions" of the Court of Appeals:
(1) there was implied conspiracy or community of design among the defendants to ruin IEI;
(2) PNB acted in bad faith in including the IEI Giporlos equipment at the extrajudicial foreclosure sale on August 31, 1984, and
(3) PNB is liable for a quasi-delict.
Petitioner PNB also contends that the Court of Appeals erred in not holding that (a) because Minister Velasco had been dropped as
party defendant, PNB was also absolved from liability because it was solidarily liable with Minister Velasco, and (b) IEI's claim against
PNB for actual, consequential and moral damages including attorney's fees, litigation expenses and costs of suit, has neither legal nor
factual bases.[42]
In its comment on the petition, private respondent IEI contends in the main that the issues raised by petitioner PNB are all factual
in nature and, therefore, they have no place before this Court. We hold otherwise.
At the core of the instant petition is the legal question of ownership of the chattels involved at the time of foreclosure. This issue
appears to have been glossed over by the courts below.Equally appropriate for determination by this Court is the legality of the
foreclosure proceedings on the assets of the MMIC. These two issues are the keys to the resolution of the instant petition.
Privity between MMIC and private respondent was established by the execution of the MOA. An important issue then is whether or
not the chattels mortgaged to petitioner were covered by the MOA so as to legally subject the same chattels to MMIC's ownership and,
eventually, to the foreclosure proceedings.
The MOA was an assignment of private respondent's "rights and interests on the Coal Operating Contract described in the first
whereas clause" thereof. In its most general and comprehensive sense, an assignment is "a transfer or making over to another of the
whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of
property, and is peculiarly applicable to intangible personal property and, accordingly, it is ordinarily employed to describe the transfer
of non-negotiable choses in action and of rights in or connected with property as distinguished from the particular item or property." [43]
An assignment is a contract between the assignor and the assignee. It generally operates by way of such contract or
agreement. It is subject to the same requisites as to validity of contracts. [44] Whether or not a transfer of a particular right or interest is
an assignment or some other transactions depends, not on the name by which it calls itself, but on the legal effect of its provisions. This
rule applies in determining whether a particular transaction is an assignment or a sale.[45]
As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses" thereof as follows:
"WHEREAS, IEI is the duly authorized operator over two coal blocks over an area outlined and more particularly described in Annex 'A'
of the Coal Operating Contract entered into on the 27th day of July 1979 and between the Ministry of Energy, through the Bureau of
Energy Development ('BED'), and IEI; the Coal Operating Contract and Annex A thereof being hereto attached and made an integral part
of this contract;"
Annex "A" of the coal operating contract is the technical description of the 2,000-hectare coal-bearing land in Carbon, Magsaysay,
Eastern Samar. Therefore, as expressed in the MOA, the subject of the assignment was only private respondent's rights and interests
over the coal operating contract covering said coal-rich land in Eastern Samar.
However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in the coal-bearing land.
Unquestionably, rights may be assigned as they are intangible personal properties. The term "interests," on the other hand, is broader
and more comprehensive than the word "title" and its definition in a narrow sense by lexicographers as any right in the nature of
property less than title, indicates that the terms are not considered synonymous. [46] It is practically synonymous, however, with the word
"estate" which is the totality of interest which a person has from absolute ownership down to naked possession. [47] An "interest" in land
is the legal concern of a person in the thing or property, or in the right to some of the benefits or uses from which the pro perty is
inseparable.[48]
That the MOA conveyed to MMIC more than the title to or rights over the coal operating contract but also the "things" covered
thereby, is manifest in the manner by which the parties, particularly private respondent IEI, implemented the MOA. It disclosed the
intention to include in the MOA the equipment and machineries used in coal exploration. This intention is evident in the following letters
of private respondent: (1) letter of April 16, 1984 to Alfredo Velayo, President of MMIC, where private respondent, through Cabarrus,
included in the conditions for the negotiated rescission of the MOA, the payment to private respondent of the amount of ten million
pesos (P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have been left to the elements;" [49] (2)
letter of May 2, 1984 to Velayo, where private respondent mentioned a "list of probable equipment(s) that IEI would be interested to
apply as part payment in the event of rescission of contract;" [50] (3) letter of June 4, 1984 to Zalamea as Chairman of the Board of the
MMIC,[51] where private respondent attached an updated statement of account and the expenses for rehabilitation of equipment, and (4)
letter of August 15, 1984 to petitioner and the DBP where private respondent enclosed a copy of "the movable properties included in
said Memorandum of Agreement" of August 1983. [52] Notably, all these listed equipment were sold at the foreclosure sale initiated by
petitioner.[53]
 Also worth noting is the absence of proof that, like a good father of the family, private respondent exerted some effort to take the
chattels out of the premises upon the execution of the MOA. All that private respondent proved, through the testimony of Cabarrus, was
that the equipment and machineries were taken over by MMIC, piled up and left to rot that trees even grew on them. [54] Coupled with
this is private respondents' failure to prove the presence of insurmountable force [55] that would have prevented it from retrieving its
equipment and machineries from the Giporlos Project area. All these show that private respondent considered these chattels as
subjects of the MOA.
Private respondent had all the right to exclude these chattels from the MOA because they were not expressly stipulated
therein. However, its sheer inaction upon the execution of the MOA and its subsequent admissions through the aforesaid letters,
conclusively show that these equipment and machineries were subjects of the assignment of rights to MMIC. It was only when the
foreclosure sale was about to take place that private respondent lifted a finger to object thereto on the ground that the consideration
stipulated in the MOA had not yet been paid by MMIC.
Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in fact a contract of sale. Under
Art. 1458 of the Civil Code, by the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. By the MOA, private respondent
obligated itself to transfer ownership of the coal operating contract and the properties found therein. The coal operating contract is a
determinate thing as it has been particularly designated in the MOA. The subject of the coal operating contract was physically
segregated from all other pieces of coal-rich Eastern Samar property by the technical description attached to said contract. [56] A list of
the equipment and machineries found on the property might not have been attached to the MOA but these were itemized with
specificity in private respondent's letter of August 15, 1984.
Private respondent delivered the properties subject of the contract to MMIC, which immediately gained control and possession of
the Giporlos Project. This is explicit in private respondent's numerous demand letters [57] which are exemplified by its letter of February
7, 1984 to Zalamea which states:
"Considering that all details necessary to determine the final purchase price are in place; considering that the property has already been
transferred in your name; and considering finally that cash payment is stipulated in the contract, demand is hereby respectfully made for
the payment of the purchase price soonest."[58] (Underscoring supplied.)
Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo Velayo, President of MMIC, which partly reads:
"After the Memorandum of Agreement was signed, BED promptly approved the transfer from IEI to MMIC. After the price was fixed
with the assistance of SGV and BED, MMIC took over the entire project last July 1983. x x x." [59]
For its part, MMIC never denied that it had taken possession and control over the Giporlos Project. In its replies to private
respondent's demand letters, MMIC in fact acknowledged its obligations under the MOA while professing incapacity to fulfill the same.
If the MOA merely embodied an assignment of rights over the coal-operating contract and the properties found in the Giporlos
Project and not a sale thereof, then private respondent would not have insisted on the payment of MMIC's obligations under the MOA
by attaching a statement of account to most of its demand letters. [60] In assignments, a consideration is not always a requisite, unlike in
sales. Thus, an assignee may maintain an action based on his title and it is immaterial whether or not he paid any consideration
therefor.[61] Furthermore, in an assignment, title is transferred but possession need not be delivered. [62] In this case, private respondent
transferred possession over the subjects of the "assignment" to MMIC.
Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project when private respondent
delivered it to MMIC. Under the Civil Code, unless the contract contains a stipulation that ownership of the thing sold shall not pass to
the purchaser until he has fully paid the price, [63] ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.[64] In other words, payment of the purchase price is not essential to the transfer of ownership as long as
the property sold has been delivered.[65] Such delivery (traditio) operated to divest the vendor of title to the property which may not be
regained or recovered until and unless the contract is resolved or rescinded in accordance with law. [66]
Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC notwithstanding its failure to pay the
consideration stipulated in the MOA. Private respondent, after such delivery and MMIC's continuous refusal to pay the consideration for
the contract, correctly opted to rescind the contract.[67] That private respondent did not succeed in collecting payment prior to the filing
of the complaint for rescission with damages is a fault entirely attributable to MMIC which at the time, acted upon the orders of
government authorities.
It is erroneous for private respondent and the courts below to impute bad faith on the part of petitioner for foreclosing the
properties in the Giporlos Project. Petitioner was simply acting in accordance with its rights as a mortgagee. The MTA, as amended,
clearly provides that the mortgage covers even "after- acquired" properties. Because petitioner was simply implementing this
contractual provision of the MTA, its knowledge that MMIC had not yet paid the consideration stipulated in the MOA could not have
resulted in foreclosure in bad faith.After all, petitioner was a total stranger as regards the MOA.
Similarly, neither may petitioner be deemed to have conspired with MMIC and government authorities in divesting private
respondent of its rights over the Giporlos Project. Petitioner's involvement consisted in its exercising its right to foreclose the mortgage
only after the MOA, which effectively wrenched the Giporlos Project from private respondent's control, had become a fait accompli. A
lawful act, done in a lawful way, no matter how damaging the result, never lays the basis for a claim of fraudulent conspiracy.[68] That a
scheme to favor the financially strapped MMIC over private respondent had been hatched and was in existence when the MOA was
executed is now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained against persons who
falsely and fraudulently recommend an insolvent person as worthy of credit, by reason of which plaintiff is induced to trust him.[69]
In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of the its rights over the Giporlos
Project, petitioner cannot be made solidarily liable with the MMIC for damages. However, although petitioner's rights to foreclose the
mortgage and to subject the equipment of private respondent to the foreclosure sale are unassailable, we find that the foreclosure
proceedings fell short of the requirements of the law.
The provision of the MTA vesting petitioner as trustee with the authority to choose the place where the sale of the properties
involved therein should be made is clearly in contravention of the following provisions of Act No. 3135 as amended:
"SEC. 2. Said sale cannot be made legally outside the province in which the property sold is situated; and in case the place within said
province in which the sale is to be made is the subject of stipulation, such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated."
The Giporlos Project is situated in Eastern Samar, a province separate and distinct from Samar where the foreclosure sale too k
place.[70] Hence, the foreclosure sale is null and void. Even the Chattel Mortgage Law (Act No. 1508) relied upon by private respondent
in assailing the propriety of the public auction sale in Samar, provides that the said sale should be made "in the municipality where the
mortgagor resides" or "where the property is situated." [71] It has not been established that petitioner considered Catbalogan, Samar
where the foreclosure sale was conducted, as its "residence."
Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable. According to Sheriff Malindog, he
was designated as a special sheriff by the judge of the Regional Trial Court of Samar, through the clerk of court, upon the request of
petitioner's counsel, one Atty. Aliena, even though there was a sheriff in Eastern Samar. [72]
Appointment of special sheriffs for the service of writs of execution or for the purpose of conducting a foreclosure sale under Act
No. 3135 is allowed only when there is no sheriff in the area where the property involved is located or when the sheriff himself is
involved in the action. This restriction is founded on the requirement of law that sheriffs who take delivery of money or property in trust
must be duly bonded.[73] The said situations calling for the appointment of a special sheriff being absent in this case, the appointment of
Malindog as a special sheriff by the judge of the Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the
nullification of the foreclosure sale conducted by Malindog.
Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their original status of being
mortgaged.[74] However, the situation in this case is an exception to that rule. The MOA, the source of MMIC's right of ownership over
the properties sold at the foreclosure sale, has been rescinded. Consequently, petitioner should exclude said properties from the
MMIC's properties which were mortgaged pari passu to the petitioner and DBP through the MTA. However, since the foreclosed
properties had been turned over to the Asset Privatization Trust, [75] petitioner must reimburse private respondent the value thereof at
the time of the foreclosure sale.
WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it renders petitioner
solidarily liable with Marinduque Mining and Industrial Corporation for damages and AFFIRMED insofar as it nullifies the foreclosure
sale of August 31, 1984. Petitioner Philippine National Bank shall exclude the properties sold at the foreclosure sale from the
mortgaged properties of Marinduque Mining and Industrial Corporation and return the same to private respondent Industrial Enterprises
Inc. or, should such return be not feasible, reimburse said private respondent the value thereof at the time of the foreclosure sale.
SO ORDERED.
Regalado, (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company from the defendant machinery
company, and executed a chattel mortgage thereon to secure payment of the purchase price. It included in the mortgage deed the
building of strong materials in which the machinery was installed, without any reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the
terms of the mortgage instrument, and was bought in by the machinery company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in satisfaction of the mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina" executed a deed of sale of the land
upon which the building stood to the machinery company, but this deed of sale, although executed in a public document, was not
registered. This deed makes no reference to the building erected on the land and would appear to have been executed for the purpose
of curing any defects which might be found to exist in the machinery company's title to the building under the sheriff's certificate of sale.
The machinery company went into possession of the building at or about the time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company, the mortgagor, the "Compañia
Agricola Filipina" executed another mortgage to the plaintiff upon the building, separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure
of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured judgment for that amount, levied
execution upon the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of
the sale duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company, which was in possession, filed with
the sheriff a sworn statement setting up its claim of title and demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the
sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on the
ground that the company had its title to the building registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may have the
first taken possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.
 Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the
absence thereof, to the person who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that the annotation or inscription of a deed
of sale of real property in a chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real property. By
its express terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form prescribed in the statute. The building of strong materials in which the rice-cleaning
machinery was installed by the "Compañia Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt
with it separate and apart from the land on which it stood in no wise changed its character as real property. It follows that neither the
original registry in the chattel mortgage of the building and the machinery installed therein, not the annotation in that registry of the sale
of the mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground assigned by the trial judge. We are
of opinion, however, that the judgment must be sustained on the ground that the agreed statement of facts in the court below discloses
that neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in good
faith, and that the machinery company must be held to be the owner of the property under the third paragraph of the above cited article
of the code, it appearing that the company first took possession of the property; and further, that the building and the land were sold to
the machinery company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to
"possession" and "title," but contain no express requirement as to "good faith" in relation to the "inscription" of the property on the
registry, it must be presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated
in this article. We cannot agree with this contention. It could not have been the intention of the legislator to base the preferential right
secured under this article of the code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights created by statute, which are predicated upon an inscription
in a public registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes the
inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the 13th of May, 1908,
that:
This rule is always to be understood on the basis of the good faith mentioned in the first paragraph; therefore, it having been
found that the second purchasers who record their purchase had knowledge of the previous sale, the question is to be decided
in accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of the real property that is
first recorded in the registry shall have preference, this provision must always be understood on the basis of the good faith
mentioned in the first paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just to comply
with a mere formality which, in given cases, does not obtain even in real disputes between third persons. (Note 2, art. 1473,
Civ. Code, issued by the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale and inscribed his title
in the land registry, was duly notified that the machinery company had bought the building from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of
ownership, leaves no room for doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at the time
of the levy and sale the building had already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate of title must be held to have
been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the plaintiff was not made in good
faith, we should not be understood as questioning, in any way, the good faith and genuineness of the plaintiff's claim against the
"Compañia Agricola Filipina." The truth is that both the plaintiff and the defendant company appear to have had just and righteous
claims against their common debtor. No criticism can properly be made of the exercise of the utmost diligence by the plaintiff in
asserting and exercising his right to recover the amount of his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and in buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly possible and even probable that he thought at that
time that he would be able to maintain his position in a contest with the machinery company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word. He may
have hoped, and doubtless he did hope, that the title of the machinery company would not stand the test of an action in a court of law;
and if later developments had confirmed his unfounded hopes, no one could question the legality of the propriety of the course he
adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when he executed the indemnity bond and
bought in the property at the sheriff's sale, and it appearing further that the machinery company's claim of ownership was well founded,
he cannot be said to have been an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in this
sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in
good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the
title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that
he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as
would have led to its discovery had he acted with that measure of precaution which may reasonably be acquired of a prudent man in a
like situation. Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention by which one is actuated
on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward
motive may, with safety, be determined. So it is that "the honesty of intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought to put a person on inquiry," and so it is that proof of such
knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of proof to the contrary. "Good
faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind 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.
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
Torres, Avanceña and Fisher, JJ., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of Zambales and Olongapo City;
FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE, respondents.

PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First Instance of Zambales and
Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y.
Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor of petitioner
bank are null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale secured a loan in
the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan, plaintiffs executed in
favor of defendant on the aforesaid date a deed of Real Estate Mortgage over the following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total floor area of 263
sq. meters, more or less, generally constructed of mixed hard wood and concrete materials, under a roofing of cor. g.
i. sheets; declared and assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued
by the Assessor of Olongapo City with an assessed value of P35,290.00. This building is the only improvement of the
lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot where the
above property is erected, and more particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision)
Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less,
declared and assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595
issued by the Assessor of Olongapo City with an assessed value of P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
All corners of the lot marked by conc. cylindrical monuments of the Bureau of
Lands as visible limits. ( Exhibit "A, " also Exhibit "1" for defendant).
Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears
a rider typed at the bottom of the reverse side of the document under the lists of the properties
mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot
applied for by the Mortgagors as herein stated is released or issued by the
Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold
the Registration of same until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the Secretary of Agriculture and
Natural Resources, which title with annotation, shall be released in favor of the
herein Mortgage.
From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank) was
at the outset aware of the fact that the mortgagors (plaintiffs) have already filed a Miscellaneous
Sales Application over the lot, possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the
Registry of Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the sum of
P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of the said
defendant another deed of Real Estate Mortgage over the same properties previously mortgaged in
Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage
was likewise registered with the Registry of Deeds, this time in Olongapo City, on May 2,1973.
 On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the parcel of land,
possessory rights over which were mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration Book of the Province of Zambales, Original Certificate
of Title No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of
Zambales, on May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon application of said
defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to
the foreclosure was the sale of the properties therein mortgaged to defendant as the highest bidder in a public
auction sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was
held despite written request from plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to
desist from going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp.
29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by private respondents on January 5,
1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of
merit. Hence, the instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents to comment (Ibid., p. 65),
which order was complied with the Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp.
101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were required to submit
simultaneously their respective memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed their Memorandum on August 1,
1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF MISCELLANEOUS SALES
PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for
Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the building erected on the land
belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is obvious that the
inclusion of "building" separate and distinct from the land, in said provision of law can only mean that a building is by itself an
immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-
10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements thereon, buildings,
still a building by itself may be mortgaged apart from the land on which it has been built. Such a mortgage would be still a real estate
mortgage for the building would still be considered immovable property even if dealt with separately and apart from the land (Leung Yee
vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that possessory rights over said
properties before title is vested on the grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs.
Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey semi-concrete
residential building with warehouse and on the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.
Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the
name of private respondent Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage was
executed before the issuance of the final patent and before the government was divested of its title to the land, an event which takes
effect only on the issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds (Visayan Realty
Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena
"Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage executed by private respondent
on his own building which was erected on the land belonging to the government is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that Sections 121, 122 and 124 of
the Public Land Act, refer to land already acquired under the Public Land Act, or any improvement thereon and therefore have no
application to the assailed mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act
No. 730, also a restriction appearing on the face of private respondent's title has likewise no application in the instant case, despite its
reference to encumbrance or alienation before the patent is issued because it refers specifically to encumbrance or alienation on the
land itself and does not mention anything regarding the improvements existing thereon.
But it is a different matter, as regards the second mortgage executed over the same properties on May 2, 1973 for an additional loan of
P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident that such
mortgage executed after the issuance of the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions
stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null and void.
Petitioner points out that private respondents, after physically possessing the title for five years, voluntarily surrendered the same to the
bank in 1977 in order that the mortgaged may be annotated, without requiring the bank to get the prior approval of the Ministry of
Natural Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122 and 123 of Commonwealth
Act 141, has held:
 ... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be invoked to defeat
the policy of the State neither may the doctrine of estoppel give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited
by law or is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what
public policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs.
IAC, 143 SCRA 54 [1986]).
This pronouncement covers only the previous transaction already alluded to and does not pass upon any new contract between the
parties (Ibid), as in the case at bar. It should not preclude new contracts that may be entered into between petitioner bank and private
respondents that are in accordance with the requirements of the law. After all, private respondents themselves declare that they are not
denying the legitimacy of their debts and appear to be open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new
transaction, however, would be subject to whatever steps the Government may take for the reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is hereby MODIFIED, declaring
that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an additional loan of
P20,000.00 is null and void, without prejudice to any appropriate action the Government may take against private respondents.
SO ORDERED.

Bicerra v. Teneza [G.R. No. L-16218. November 29, 1962.]

Bicerra v. Teneza
[G.R. No. L-16218. November 29, 1962.]
En Banc, Makalintal (J): 10 concur.

FACTS: The Bicerras are supposedly the owners of the house worth P200, built on a lot owned by them in Lagangilang, Abra; which
the Tenezas forcibly demolished in January 1957, claiming to be the owners thereof. The materials of the house were placed in the
custody of the barrio lieutenant. The Bicerras filed a complaint claiming actual damages of P200, moral and consequential damages
amounting to P600, and the costs. The CFI Abra dismissed the complaint claiming that the action was within the exclusive (original)
jurisdiction of the Justice of the Peace Court of Lagangilang, Abra.

ISSUE:
W/N the action involves title to real propety.
W/N the dismissal of the complaint was proper.

HELD:
The Supreme Court affirmed the order appealed. Having been admitted in forma pauperis, no costs were adjudged.

1. House is immovable property even if situated on land belonging to a different owner; Exception, when demolished
A house is classified as immovable property by reason of its adherence to the soil on which it is built (Article 415, paragraph 1, Civil
Code). This classification holds true regardless of the fact that the house may be situated on land belonging to a different owner. But
once the house is demolished, as in this case, it ceases to exist as such and hence its character as an immovable likewise ceases.

2. Recovery of damages not exceeding P2,000 and involving no real property belong to the Justice of the Peace Court
The complaint is for recovery of damages, the only positive relief prayed for. Further, a declaration of being the owners of the
dismantled house and/or of the materials in no wise constitutes the relief itself which if granted by final judgment could be enforceable
by execution, but is only incidental to the real cause of action to recover damages. As this is a case for recovery of damages where the
demand does not exceed PhP 2,000 and that there is no real property litigated as the house has ceased to exist, the case is within the
jurisdiction of the Justice of the Peace Court (as per Section 88, RA 296 as amended) and not the CFI (Section 44, id.)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20329 March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.

Ross, Lawrence and Selph for petitioner.

City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

Based principally upon the provisions of section quoted the Attorney-General of the Philippine Islands, in an opinion dated
August 11, 1909, held that a register of deeds has no authority to pass upon the capacity of the parties to a chattel mortgage
which is presented to him for record. A fortiori a register of deeds can have no authority to pass upon the character of the
property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real instead of personal the
chattel mortgage would no doubt be held ineffective as against third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held that where the interest conveyed is of
the nature of real, property, the placing of the document on record in the chattel mortgage register is a futile act; but that decision is not
decisive of the question now before us, which has reference to the function of the register of deeds in placing the document on record.

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

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

STANDARD OIL COMPANY V JARAMILLO

The Power of the Registry of Deeds is Ministerial, and The absolute criterion to determine between real and personal property is NOT
supplied by the civil code. Parties may agree what to treat as personal property and what to treat as real property.

FACTS

On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel of land situated in the City of Manila and owner of the house of
really tough materials built thereon. She executed that fine day a document in the form of a chattel mortgage, purporting to convey to
Standard Oil Company of New York (by way of mortgage) both the leasehold interest in said lot and the building.

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

Later this confusion was brought to the Supreme Court upon demurrer by Joaquin Jaramillo, register of deeds of the City of Manila, to
an original petition of the Standard Oil Company of New York, demanding a mandamus to compel the respondent to record in the
proper register a document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in
favor of the Standard Oil Company of New York.

The Supreme Court overruled the demurrer, and ordered that unless Jaramillo interposes a sufficient answer to the petition for
mandamus by Standard Oil within 5 days of notification, the writ would be issued as prayed, but without costs.

ISSUE:

w/n the Registry of Deeds can determine the nature of property to be registered.
w/n the Registry of Deeds has powers beyond Ministerial discretion.

RESOLUTION:

1.Jaramillo, register of deeds, does not have judicial or quasi-judicial power to determine nature of document registered as chattel
mortgage Section 198 of the Administrative Code, originally of Section 15 of the Chattel Mortgage Law (Act 1508 as amended by Act
2496), does not confer upon the register of deeds any authority whatever in respect to the "qualification," as the term is used in Spanish
law, of chattel mortgages. His duties in respect to such instruments are ministerial only. The efficacy of the act of recording a chattel
mortgage consists in the fact that it operates as constructive notice of the existence of the contract, and the legal effects of the contract
must be discovered in the instrument itself in relation with the fact of notice.

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

IRST DIVISION

[G.R. No. 127941. January 28, 1999]

BIBLIA TOLEDO-BANAGA and JOVITA TAN, petitioners, vs. COURT OF APPEALS and CANDELARIO DAMALERIO respondents.
DECISION
MARTINEZ, J.:

The Court of Appeals (CA), in a decision penned by then Justice Ricardo J. Francisco,[1] categorically declared private respondent as the
absolute owner of the land subject of this case. That decision was affirmed by this Court, became final and executory and was remanded to the lower
court for execution. But the Register of Deeds frustrated private respondents judicially determined right as it refused to issue Certificates of Title in
his name on the ground that the matter should be referred en consulta to the Register of Deeds before petitioners title can be cancelled and a new one
issued in the name of the winning party herein private respondent. So, for the third time, this simple redemption case which commenced in the 1980s
is again before this Court.
Here is a summary of the facts, over which there is no dispute:
In an action for redemption filed by petitioner Banaga, the trial court declared that she had lost her right to redeem her property earlier
foreclosed and which was subsequently sold at public auction to private respondent. [2] Certificates of Title covering the said property were issued to
private respondent over which petitioner Banaga annotated on March 3, 1983 a notice of lis pendens.[3] On appeal by petitioner Banaga, the CA
reversed the decision of the trial court and allowed the former to redeem the property within a certain period. [4] Private respondents petition to this
Court was dismissed[5] and the decision became final.

On June 11, 1992, petitioner Banaga tried to redeem the property by depositing with the trial court the amount of redemption which was
financed by her co-petitioner Tan. Private respondent opposed the redemption arguing that it was made beyond the time given to her by the court in
the earlier case. However, the lower court issued an order on August 7, 1992 upholding the redemption and ordered the Register of Deeds to cancel
private respondents Certificates of Title and issue new titles in the name of petitioner Banaga. [6] When his motion for reconsideration was denied by
the trial court in an order dated January 4, 1993, private respondent filed a petition for certiorari with the CA which was docketed as CA-G.R. No.
29869. On January 11, 1993, private respondent caused the annotation of said petition as another notice of lis pendens on the Certificates of
Title. Three days later, the CA issued a temporary restraining order to enjoin the execution of the August 7, 1992 and January 4, 1993 orders.
Meanwhile, on January 7, 1993, petitioner Banaga sold the subject property to petitioner Tan with the deed of absolute sale mentioning private
respondents certificate of title which was not yet cancelled.Notwithstanding the notice of lis pendens, petitioner Tan subdivided the property in
question under a subdivision plan, which she made not in her name but in the name of private respondent. There being no preliminary injunction
issued and with the expiration of the TRO, petitioner Tan asked the Register of Deeds to issue new titles in her name. On March 24, 1993, such titles
were issued in petitioner Tans name but it still carried the annotations of the two notices of lis pendens. Upon learning of the new title of petitioner
Tan, private respondent impleaded the former in his petition in CA-G.R. No. 29869.
On October 28, 1993, the CA set aside the August 7, 1992 and January 4, 1993 orders of the trial court and declared private respondent
absolute owner of the subject property. The CA disposed of the petition as follows:

WHERFORE, in view of the foregoing considerations, the instant petition is hereby GRANTED. The orders issued by public respondent judge dated
August 7, 1992 and January 4, 1993 are hereby ordered SET ASIDE and a new one is hereby entered declaring petitioner as the absolute owner of the
parcels of land subject of redemption for failure of private respondent to exercise the right of redemption within the thirty (30) day period previously
granted her by this court.[7]

That decision became final and executory after petitioner Banagas petition for review was dismissed by this Court for lack of merit.[8] Upon
motion of private respondent, the trial court issued a writ of execution on December 27, 1994 ordering the Register of Deeds to reinstate the
Certificates of Title in the name of the movant herein private respondent. In its order which petitioners did not contest, the court a quo said that:

Although there is no specific pronouncement in the decision of the Court of Appeals that reverts the titles to the land subjects of redemption to the
defendant, the fact that it declared the petitioner (Damalerio) as the absolute owner of the lands entitles him to writ of execution issuing from this
court directing the Register of Deeds to reinstate his titles to his name. As it is implied from the decision declaring him the absolute owner of the
lands that the titles to the land be reverted to him (See Uy v. Capulong, 221 SCRA 87).
Let therefore a writ of execution issue in this case to enforce the decision of the Court of Appeals. In this connection, the Register of Deeds of the
Registry of Deeds for General Santos City is hereby ordered to reinstate the titles of Candelario B. Damalerio - Transfer Certificates of Title No. T-
19570 and T-19571, both of the Registry of Deeds from General Santos City. [9]

But the Register of Deeds refused to comply with the writ of execution alleging that the Certificates of Title issued to petitioner Tan must first
be surrendered. Accordingly, private respondent moved to cite the Register of Deeds in contempt of court which was denied, as the trial court ruled
on January 11, 1995 that the formers remedy is by consulta to the Commissioner of Land Registration.[10] In another order (dated March 29, 1996),
the trial court likewise denied private respondents motion for the issuance of a writ of possession ruling that the latters remedy is a separate action to
declare petitioner Tans Certificates of Title void. Aggrieved, private respondent again elevated the case to the CA via a petition
for certiorari and mandamus[11] assailing the above-mentioned two orders of the court a quo naming as respondents the trial court judge, the Register
of Deeds and the petitioners. On November 7, 1996, the CA rendered a decision granting the petition and, among others, set aside the assailed orders
of the trial court. The dispositive portion of the CA decision reads:

WHEREFORE, in view of all the foregoing considerations, the petition is GRANTED. Judgment is hereby rendered:

1) setting aside the orders of the respondent judge dated January11, 1995 and March 29, 1996;

2) declaring the title issued to Biblia Toledo-Banaga, Jovita Tan and to those other subsequent transferee or transferees, if any, as null
and void;

3) ordering the Register of Deeds of General Santos City to issue new certificates of title to Candelario Damalerio over the parcels of
land in question;

4) ordering the respondent court to issue writ of execution for the enforcement of this decision and of the decision in CA-G.R. SP No.
29868 (sic), as well as a writ of possession for the delivery to petitioner Damalerio of the Physical possession of the parcels of
land subject matter of this case.

SO ORDERED.[12]

Upon denial by the CA of their motion for reconsideration, petitioners filed the instant petition for certiorari and mandamus. The Court,
however, is puzzled why petitioners, in their petition, would seek to set aside the two orders (January 4, 1995 and March 29, 1996) of respondent
judge who was not named in their petition.[13] Assuming this to be a mere lapsus since they also confusingly refer to Banaga and Tan as private
respondent and to Damalerio as petitioner,[14] the petition is still utterly without merit. It is petitioners stand (1) that petitioner Tan is a buyer in god
faith and (2) that the remedy of private respondent to secure the titles in his name is by consulta to the Land Registration Commissioner and not
through contempt.
The Court is not convinced of the arguments proffered by petitioners.
By arguing that petitioner Tan was a buyer in good faith, petitioners in effect raise once more the issue of ownership of the subject
property. But such issue had already been clearly and categorically ruled upon by the CA and affirmed by this Court, wherein private respondent was
adjudged the rightful and absolute owner thereof. The decision in that case bars a further repeated consideration of the very same issue that has
already been settled with finality. To once again re-open that issue through a different avenue would defeat the existence of our courts as final
arbiters of legal controversies. Having attained finality, the decision is beyond review or modification even by this Court. [15]
Under the principle of res judicata, the Court and the parties, are bound by such final decision, otherwise, there will be no end to litigation. It is
to the interest of the public that there should be an end to litigation by the parties over a subject fully and fairly adjudicated, and an individual should
not be vexed twice for the same cause.[16] All the elements of res judicata are present in this case, which are:
(a) the former judgment must be final;
(b) the court which rendered judgment had jurisdiction over the parties and the subject matter;
(c) it must be a judgment on the merits;
(d) and there must be between the first and second actions identity of parties, subject matter, and cause of action. [17]
The judgment in the redemption suit had long become final and executory; there is no question that the court had jurisdiction over the parties
and the subject matter; it involves an adjudication on the merits of the case as the court discussed and passed upon petitioner Banagas right of
redemption which she did not timely exercise and as a consequence, lost her claim of ownership of the lot. Both petitioners and private respondent
are parties to the earlier cases, disputing the same parcel of land with both opposing parties claiming ownership thereof. Certainly, res judicata had
set in. Besides, once a judgment had become final and executory, it can no longer be disturbed no matter how erroneous it may be. In any case, no
such error was attributed to in this case.

Contrary to petitioners argument, private respondents remedy is not a direct or independent civil action for cancellation of petitioner Tans
titles. The facts, circumstances, evidence and arguments invoked in this derailed final and executory decision are the very same matters that will be
established assuming such independent suit is legally warranted. It does not matter whether the former case was a redemption suit and the new one
will be for cancellation of title because the test of identity of causes of action is not in its form but whether the same evidence would support and
establish the former and present causes of action.[18]
 Petitioners other contention that the execution of the final and executory decision - which is to issue titles in the name of private respondent -
cannot be compelled by mandamus because of the formality that the registered owner first surrenders her duplicate Certificates of Title for
cancellation per Section 80 of Presidential Decree 1529 [19] cited by the Register of Deeds,[20] bears no merit. In effect, they argue that the winning
party must wait execution until the losing party has complied with the formality of surrender of the duplicate title. Such preposterous contention
borders on the absurd and has no place in our legal system. Precisely, the Supreme Court had already affirmed the CAs judgment that Certificates of
Title be issued in private respondents name. To file another action just to compel the registered owner, herein petitioner Tan, to surrender her titles
constitute violation of, if not disrespect to, the orders of the highest tribunal. Otherwise, if execution cannot be had just because the losing party will
not surrender her titles, the entire proceeding in the courts, not to say the efforts, expenses and time of the parties, would be rendered nugatory. It is
revolting to conscience to allow petitioners to further avert the satisfaction of their obligation because of sheer literal adherence to technicality,[21] or
formality of surrender of the duplicate titles. The surrender of the duplicate is implied from the executory decision since petitioners themselves were
parties thereto. Besides, as part of the execution process, it is a ministerial function of the Register of Deeds to comply with the decision of the court
to issue a title and register a property in the name of a certain person, especially when the decision had attained finality, as in this case.
In addition, the enforcement of a final and executory judgment is likewise a ministerial function of the courts [22] and does not call for the
exercise of discretion. Being a ministerial duty, a writ of mandamus lies to compel its performance.[23] Moreover, it is axiomatic that where a decision
on the merits is rendered and the same has become final and executory, as in this case, the action on procedural matters or issues becomes moot and
academic.[24] Thus, the so-called consulta to the Commissioner of Land Registration, which is not applicable herein, was only a naive and belated
effort resorted to by petitioners in order to delay execution. If petitioners desire to stop the enforcement of a final and executory decision, they should
have secured the issuance of a writ of preliminary injunction,[25] but which they did not avail knowing that there exists no legal or even equitable
justifications to support it.
At any rate, at the time petitioner Banaga sold the property to petitioner Tan, the latter was well aware of the interest of private respondent over
the lot. Petitioner Tan furnished the amount used by petitioner Banaga for the attempted redemption. One who redeems in vain a property of another
acquires notice that there could be a controversy. It is for the same reason that petitioner Tan was included as party to the case filed in court. Worse,
at the time of the sale, petitioner Tan was buying a property not registered in the sellers name. This clear from the deed of absolute sale which even
mentioned that the Certificates of Title is still in the name of private respondent. It is settled that a party dealing with a registered land need not go
beyond the Certificate of Title to determine the true owner thereof so as to guard or protect her interest. She has only to look and rely on the entries in
the Certificate of Title. By looking at the title, however, petitioner Tan cannot feigned ignorance that the property is registered in private respondents
name and not in the name of the person selling to her. Such fact alone should have at least prompted, if not impelled her to investigate deeper into the
title of her seller - petitioner Banaga, more so when such effort would not have entailed additional hardship, and would have been quite easy, as the
titles still carried the two notices of lis pendens.
By virtue of such notices, petitioner Tan is bound by the outcome of the litigation subject of the lis pendens. As a transferee pendente lite, she
stands exactly in the shoes of the transferor and must respect any judgment or decree which may be rendered for or against the transferor. Her interest
is subject to the incidents or results of the pending suit, and her Certificates of Title will, in that respect, afford her no special protection.[26]
To repeat, at the time of the sale, the person from whom petitioner Tan bought the property is neither the registered owner nor was the former
authorized by the latter to sell the same. She knew she was not dealing with the registered owner or a representative of the latter. One who buys
property with full knowledge of the flaws and defects in the title of his vendor is enough proof of his bad faith [27] and cannot claim that he acquired
title in good faith as against the owner or of an interest therein. [28] When she nonetheless proceeded to buy the lot, petitioner Tan gambled on the
result of litigation.[29] She is bound by the outcome of her indifference with no one to blame except herself if she looses her claim as against one who
has a superior right or interest over the property. These are the undeniable and uncontroverted facts found by the CA, which petitioners even quote
and cite in their petition. As aptly concluded by the CA that petitioner Tan is indeed a buyer in bad faith on which the Court agrees:

Notwithstanding her constructive and actual knowledge that Damalerio was claiming the land, that the land was in his name, and it was involved in
pending litigation, Jovita Tan bought it from Banaga on January 7, 1993. The deed of sale recites that the parcels of land sold were covered by
Transfer Certificates of Title No. __ (formerly [T-12488] T-530) and TCT No. __ (formerly [T-12488] T-530) (sic) and TCT No. __ (formerly P-
1294). (Annex F, Petition). Apart from the fact that Banaga was without any TCT, as above stated, TCT No. T-12488 was petitioners title (Annex C,
Petition). Herein private respondent Tan was buying a land not registered in her sellers (Banagas) name, but in that of petitioner Damalerio who had
been claiming it as his own. She admitted this fact when she had the land subdivided on February 2, 1993 not in her name but in the name of
Candelario Damalerio (Annex Q, Reply). Evidently, she was a purchaser in bad faith because she had full knowledge of the flaws and defects of title
of her seller, Banaga. X x x.

The notice of lis pendens registered on March 3, 1993 involving the land in question and private respondent Tans actual knowledge of the then
pending Civil Case No. 2556, where the question as to whether the redemption of the land which she financed was raised, rendered her a purchaser in
bad faith and made the decision therein binding upon her. [30]

Being a buyer in bad faith, petitioner Tan cannot acquire a better rights than her predecessor in interest, [31] for she merely stepped into the shoes
of the latter. Such finding of bad faith is final and may not be re-opened for the law cannot allow the parties to trifle with the courts.[32]
With respect to the issue of possession, such right is a necessary incident of ownership.[33] The adjudication of ownership to private respondent
includes the delivery of possession since the defeated parties in this case has not shown by what right to retain possession of the land independently
of their claim of ownership which was rejected.[34] Otherwise, it would be unjust if petitioners who has no valid right over the property will retain the
same.[35] Thus, the CA correctly disagreed with the trial courts order denying private respondents motion for writ of possession for the following
reasons cited in its decision:
1. The order violates the doctrine laid down in Javier vs. Court of Appeals, 224 SCRA 704, which ruled that the issuance of title in favor
of a purchaser in bad faith does not exempt the latter from complying with the decision adverse to his predecessor in interest, nor
preclude him from being reached by writ of execution;
 2. Private respondent Tan was a party respondent in CA-G.R. SP No. 29869, she having been impleaded in a supplemental petition,
which this Court gave due course and required the respondents to file their answer.The fact that she did not file any pleading, nor
intervene therein did not excuse her from being bound by the decision, otherwise all that a party respondent was to fold his arm to
prevent him from being bound by a decision in a case. Her securing titles over the land during the pendency of said case did not protect
her from the effects of said decision. The validity of tile of a purchaser of registered land depends on whether he had knowledge, actual
or constructive, of defects in the title of his vendor. If he has such knowledge, he is a purchaser in bad faith and acquires the land subject
to such defects (X x x indicates that citations of authorities omitted) The title secured by a purchaser in bad faith is a nullity and gave the
latter no right whatsoever, as against the owner (x x x).
3. Private respondent Tans titles and those of her predecessor, Banaga, arose from the void orders of August 7, 1992 and January 4,
1993. Since a void order could not give rise to valid rights, said titles were also necessarily null and void (x x x).
4. Private respondents and respondent Judge executed the questioned orders of August 7, 1993 and January 4, 1993, pending review of
said orders in CA-G.R. SP No. 29869. The nullification of said orders by this out imposed upon the private respondents the obligation to
return the property to Damalerio and upon respondent Judge, upon motion for execution, to order the cancellation of private respondents
titles and the issuance of new titles to him.
5. This Court in its decision in CA-G.R. SP No. 29869 declared petitioner Damalerio absolute owner of the property in question. Private
respondents were parties litigants in said case, who did not claim possession of the land separately from their claim of ownership thereof.
Such being the case, the delivery of possession is considered included in this Courts decision declaring Damalerio absolute owner of the
property (x x x), which can be enforced by writ of possession (x x x). In denying petitioners motion for writ of possession, the trial court
violated said doctrines, and
6. Lastly, the effect of respondent Judges order of March 29, 1996 is to re-open the decision in CA-G.R. SP No. 29689 for re-litigation
and alteration in a separate action. For while this Court already declared that Banagas redemption of the land financed by private
respondent Tan was invalid, and as a consequence declared Damalerio absolute owner of the property, which was binding against private
respondent Tan, as she was a respondent therein and a purchaser pendente lite and in bad faith, the order of the respondent Court holding
that another civil action be filed to annul private respondent Tans titles would be to re-litigate such issues and modify or alter this Courts
final decision.
The respondent Court has no authority to do so.[36]

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed decision of the Court of Appeals is AFFIRMED in
toto with costs against petitioners. No further proceeding will be entertained in this case.
SO ORDERED.

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 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, 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.

14. Valdez vs. Central AltagraciaFACTS:

Joaquin Sanchez owned a tract of land about 22 acres in Porto Rico on which was a sugar housecontaining a mill for crushing cane and an
evaporating apparatus for manufacturing the juice ofthe cane into sugar.

Don Sanchez was not a can grower but he carried on the business of Altagracia
–
acquiring canefrom others and processes it into sugar.

January 8, 1905 Don Sanchez leased his land and plant to Salvador Castello for 10 years. Thelease grant gave to Don Cas
tello right to install in the plant “such machinery as he may deem
convenient which at the end of the contract shall become the exclusive property of lessor; thatif after one year, no work or necessary
improvements have begun by him, contract shall be nulland void without cause of action shall accrue to any parties; and at the
end of the contract, anyimprovement or machinery installed in the said central shall remain for the benefit of DonSanchez.

Fruits of Centra: 25/75 sharing

–
25% shall be paid to Don Sanchez as rental; 75% share of DonCastello

In case of death of either of them, obligation will be passed on to their heirs.

On June 1905, contract was extended for another 10 years without change in terms andconditions.

On July 5, 1905, Don Castello and Gerardo Castello transfer the rights acquired under the leaseto Frederick Cornwell for the corporation to be
organized under the name of Central Altagraciaof which he is a trustee, on the condition that Castello will be issued certain
numbers of paid upcapital stocks and share in the output of sugar from the plant. Gerardo Castello was thenemployed as
superintendent and as substitute to Don Castello. The transfer of the lease to thecorporation was never put upon public records.

The season for grinding cane and the manufacture of sugar in Porto Rico usually commences inDecember of each year, and
ends in May, June, or July of the year following year.

The corporation began the work of installing new machinery in 1906 as inferred by its loan toNevers and Callaghan in New York City for an amount of
$25,000 to enable the corporation topay for new and enlarged machinery.

While such grinding season was progressing, Altagracia sold all its rights acquired under thelease to one Ramon Valdez for $35,000 on April 11, 1907. The
transfer expressly included all themachinery previously placed by the corporation in the sugar house. (paid $25,400, balance$9,600)

The sale was subject to a right to redeem the property within a year on paying Valdez the entireamount of his debt. All obligations
were assumed by Valdez.

On October 1907, Altagracia tendered an absolute sale of all the rights of the corporation for aconsideration of $65,000 to Valdez
($35,000 already paid, $30,000 outstanding). Valdez soldback the same to Altagracia at the same amount payable in installments. The sale
was in a form

U.S. Supreme Court

Valdes v. Central Altagracia, Inc., 225 U.S. 58 (1912)

Valdes v. Central Altagracia, Incorporated

Nos. 193, 196

Submitted March 6, 1912

Decided May 13, 1912

225 U.S. 58

Syllabus

The record in this case shows that the court below did not err in bringing this case to a speedy conclusion and avoiding the loss
occasioned by the litigation to all concerned.

A litigant cannot, after all parties have acquiesced in the order setting the case for trial and the court has denied his request for
continuance, refuse to proceed with the trial on the ground that the time to plead has not expired, and when such refusal to proceed is
inconsistent with his prior attitude in the case.

The granting of a continuance is within the sound discretion of the trial court, and not subject to be reviewed on appeal except in cases
of clear error and abuse; in this case, the record shows that the refusal to continue on account of absence of witness was not an abuse,
but a just exercise, of discretion.
Under the circumstances of this case, and in view of the existence of an equity of redemption under prior transfers, heldthat a transfer
of all the property of a corporation to one advancing money to enable it to continue its business was not a conditional sale of the
property, but a contract creating security for the money advanced, and, on liquidation of the assets, the transferee stood merely as a
secured creditor

The mere form of an instrument transferring property of a debtor cannot exclude the power of creditors to inquire into the reality and
substance of a contract unrecorded, although required by law to be recorded in order to be effective against third parties.

Under the general law of Porto Rico, machinery placed on property by a tenant does not become immobilized; when, however, a tenant
places it there pursuant to contract that it shall belong to the owner, it becomes immobilized as to that tenant and his assigns with
notice, although it does not become so as to creditors not having legal notice of the lease.

In this case, held that the lien of the attachment of a creditor of the tenant on machinery placed by the tenant on a sugar Central in
Porto Rico is superior to the claim of the transferee of an unrecorded

Page 225 U. S. 59

lease, even though the lease required the tenant to place the machinery on the property.

5 P.R. 155 affirmed.

The facts are stated in the opinion.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,

vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE
PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.

Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.

VILLA-REAL, J.:

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.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be
discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court
erred in declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the
mortgage deed executed in favor of the defendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat,
Pampanga, obtained from the defendants, Cu Unjieng e 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 whatever forms part or is
necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity
of its sugar central by buying additional machinery and 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 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 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 5, 1926 (Exhibit E), B.H. Berkenkotter,
on October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total
amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of 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 in litigation.

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 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.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, 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, amplifications, and limitations established by law,
whether the estate continues in the possession of the person who mortgaged it or whether it passes into the hands of a third
person.

In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690), cited with approval in the case of Cea vs.
Villanueva (18 Phil., 538), this court laid shown the following doctrine:

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 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.

Berkenkotter v. Cu UnjiengFacts:
On 26 April 1926, the Mabalacat Sugar Company obtained from Cu Unjieng e Hijos, a loan securedby a first mortgage constituted on 2 parcels of
land "with all its buildings, improvements, sugar-canemill, steel railway, telephone line, apparatus, utensils and whatever forms part or is a
necessarycomplement of said sugar-cane mill, steel railway, telephone line, now existing or that may in thefuture exist in said lots.”On 5 October
1926, the Mabalacat Sugar Company decided to increase the capacity of its sugar central by buying additional machinery and equipment, so that
instead of milling 150 tons daily, itcould produce 250. Green proposed to the Berkenkotter, to advance the necessary amount for thepurchase of
said machinery and equipment, promising to reimburse him as soon as he could obtainan additional loan from the mortgagees, Cu Unjieng e Hijos,
and that in case Green should fail toobtain an additional loan from Cu Unjieng e Hijos, said machinery and equipment would becomesecurity
therefore, said Green binding himself not to mortgage nor encumber them to anybody untilBerkenkotter be fully reimbursed for the corporation's
indebtedness to him.Having agreed to said proposition made in a letter dated 5 October 1926, Berkenkotter, on 9 October 1926, delivered the sum
of P1,710 to Green, the total amount supplied by him to Green having beenP25,750. Furthermore, Berkenkotter had a credit of P22,000 against
said corporation for unpaidsalary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchasedthe additional
machinery and equipment.On 10 June 1927, Green applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering assecurity the additional
machinery and equipment acquired by said Green and installed in the sugar central after the execution of the original mortgage deed, on 27 April
1927, together with whatever additional equipment acquired with said loan. Green failed to obtain said loan. Hence, abovementioned mortgage
was in effect.
Issue:
Are the additional machines also considered mortgaged?
Held:
Article 1877 of the Civil Code provides that mortgage includes all natural accessions, improvements,growing fruits, and rents not collected when
the obligation falls due, and the amount of anyindemnities paid or due the owner by the insurers of the mortgaged property or by virtue of
theexercise of the power of eminent domain, with the declarations, amplifications, and limitationsestablished by law, whether the state continues
in the possession of the person who mortgaged it or whether it passes into the hands of a third person.It is a rule, that in a mortgage of real estate,
the improvements on the same are included; therefore, allobjects permanently attached to a mortgaged building or land, although they may have
been placedthere after the mortgage was constituted, are also included.Article 334, paragraph 5, of the Civil Code gives the character of real
property to machinery, liquidcontainers, instruments or implements intended by the owner of any building or land for use inconnection with any
industry or trade being carried on therein and which are expressly adapted tomeet the requirements of such trade or industry. The installation of a
machinery and equipment in amortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out theindustrial functions of
the latter and increasing production, constitutes a permanent improvement onsaid sugar central and subjects said machinery and equipment to
the mortgage constituted thereon.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-17898 October 31, 1962

PASTOR D. AGO, petitioner,

vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First Instance of Agusan, THE PROVINCIAL
SHERIFF OF SURIGAO and GRACE PARK ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.

Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R entitled "Pastor D. Ago vs. The
Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the records that the respondent Judge of
the Court of First Instance of Agusan rendered judgment (Annex "A") in open court on January 28, 1959, basing said judgment
on a compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his counsel, did not receive a formal and
valid notice of said decision, which motion for reconsideration was denied by the court below in the order of November 14,
1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering the execution without valid and
formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between them. (Gonzales vs. Gonzales G.R.
No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is not appealable and is immediately
executory, unless a motion is filed on the ground fraud, mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs.
Morfe, G.R. No. L-10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. The judgment on the compromise
agreement rendered by the court below dated January 28, 1959, was given in open court. This alone is a substantial
compliance as to notice. (De los Reyes vs. Ugarte, supra)

IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction in ordering the execution of the
judgment. The petition for certiorari is hereby dismissed and the writ of preliminary injunction heretofore dissolved, with costs
against the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought sawmill machineries and equipments
from respondent Grace Park Engineer domineering, Inc., executing a chattel mortgage over said machineries and equipments to
secure the payment of balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on installment basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc. instituted extra-judicial foreclosure
proceedings of the mortgage. To enjoin said foreclosure, petitioner herein instituted Special Civil Case No. 53 in the Court of First
Instance of Agusan. The parties to the case arrived at a compromise agreement and submitted the same in court in writing, signed by
Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then
presiding, dictated a decision in open court on January 28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so Grace Park Engineering, Inc. filed with
the lower court a motion for execution, which was granted by the court on August 15, 1959. A writ of execution, dated September 23,
1959, later followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by the lower court, levied upon and
ordered the sale of the sawmill machineries and equipments in question. These machineries and equipments had been taken to and
installed in a sawmill building located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom, petitioner
alleges, he had sold them on February 16, 1959 (a date after the decision of the lower court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959, petitioner, on December 1, 1959, filed the
petition for certiorari and prohibition with preliminary injunction with respondent Court of Appeals, alleging that a copy of the
aforementioned judgment given in open court on January 28, 1959 was served upon counsel for petitioner only on September 25, 1959
(writ of execution is dated September 23, 1959); that the order and writ of execution having been issued by the lower court before
counsel for petitioner received a copy of the judgment, its resultant last order that the "sheriff may now proceed with the sale of the
properties levied constituted a grave abuse of discretion and was in excess of its jurisdiction; and that the respondent Provincial Sheriff
of Surigao was acting illegally upon the allegedly void writ of execution by levying the same upon the sawmill machineries and
equipments which have become real properties of the Golden Pacific sawmill, Inc., and is about to proceed in selling the same without
prior publication of the notice of sale thereof in some newspaper of general circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the sheriff but it turned out that the latter had
already sold at public auction the machineries in question, on December 4, 1959, as scheduled. The respondent Grace Park
Engineering, Inc. was the only bidder for P15,000.00, although the certificate sale was not yet executed. The Court of Appeals
constructed the sheriff to suspend the issuance of a certificate of sale of the said sawmill machineries and equipment sold by him on
December 4, 1959 until the final decision of the case. On November 9, 1960 the Court of Appeals rendered the aforequoted decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition of judgment on compromise in open
court on January 1959 was a sufficient notice; and (2) in not resolving the other issues raised before it, namely, (a) the legality of the
public auction sale made by the sheriff, and (b) the nature of the machineries in question, whether they are movables or immovables.

The Court of Appeals held that as a judgment was entered by the court below in open court upon the submission of the compromise
agreement, the parties may be considered as having been notified of said judgment and this fact constitutes due notice of said
judgment. This raises the following legal question: Is the order dictated in open court of the judgment of the court, and is the fact the
petitioner herein was present in open court was the judgment was dictated, sufficient notice thereof? The provisions of the Rules of
Court decree otherwise. Section 1 of Rule 35 describes the manner in which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases shall be in writing personally and
directly prepared by the judge, and signed by him, stating clearly and distinctly the facts and the law on which it is based, filed
with the clerk of the court.

The court of first instance being a court of record, in order that a judgment may be considered as rendered, must not only be in writing,
signed by the judge, but it must also be filed with the clerk of court. The mere pronouncement of the judgment in open court with the
stenographer taking note thereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signed decision with the
clerk of court that constitutes rendition. While it is to be presumed that the judgment that was dictated in open court will be the judgment
of the court, the court may still modify said order as the same is being put into writing. And even if the order or judgment has already
been put into writing and signed, while it has not yet been delivered to the clerk for filing it is still subject to amendment or change by
the judge. It is only when the judgment signed by the judge is actually filed with the clerk of court that it becomes a valid and binding
judgment. Prior thereto, it could still be subject to amendment and change and may not, therefore, constitute the real judgment of the
court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment in open court, is not a valid notice of
said judgment. If rendition thereof is constituted by the filing with the clerk of court of a signed copy (of the judgment), it is evident that
the fact that a party or an attorney heard the order or judgment being dictated in court cannot be considered as notice of the real
judgment. No judgment can be notified to the parties unless it has previously been rendered. The notice, therefore, that a party has of a
judgment that was being dictated is of no effect because at the time no judgment has as yet been signed by the judge and filed with the
clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by registered mail. Section 7 of Rule 27
provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be served either personally or by registered
mail.

In accordance with this provision, a party is not considered as having been served with the judgment merely because he heard the
judgment dictating the said judgment in open court; it is necessary that he be served with a copy of the signed judgment that has been
filed with the clerk in order that he may legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in open court, is not sufficient to
constitute the service of judgement as required by the above-quoted section 7 of Rule 2 the signed judgment not having been served
upon the petitioner, said judgment could not be effective upon him (petitioner) who had not received it. It follows as a consequence that
the issuance of the writ of execution null and void, having been issued before petitioner her was served, personally or by registered
mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals, concerns the validity of the
proceedings of the sheriff in selling the sawmill machineries and equipments at public auction with a notice of the sale having been
previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries and equipments he assigned the
same to the Golden Pacific Sawmill, Inc. in payment of his subscription to the shares of stock of said corporation. Thereafter the sawmill
machinery and equipments were installed in a building and permanently attached to the ground. By reason of such installment in a
building, the said sawmill machineries and equipment became real estate properties in accordance with the provision of Art. 415 (5) of
the Civil Code, thus:

ART. 415. The following are immovable property:

 xxx xxx xxx

(5) Machinery, receptacles, instruments or implements tended 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;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683, held that
the installation of the machine and equipment in the central of the Mabalacat Sugar Co., Inc. for use in connection with the industry
carried by the company, converted the said machinery and equipment into real estate by reason of their purpose. Paraphrasing
language of said decision we hold that by the installment of the sawmill machineries in the building of the Gold Pacific Sawmill, Inc., for
use in the sawing of logs carried on in said building, the same became a necessary and permanent part of the building or real estate on
which the same was constructed, converting the said machineries and equipments into real estate within the meaning of Article 415(5)
above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00 appear to have been sold without the
necessary advertisement of sale by publication in a newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as
follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on execution, notice thereof must be given as
follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice particularly describing the property for twenty days in three public places
in the municipality or city where the property is situated, and also where the property is to be sold, and, if the assessed value
of the property exceeds four hundred pesos, by publishing a copy of the notice once a week, for the same period, in some
newspaper published or having general circulation in the province, if there be one. If there are newspapers published in the
province in both the English and Spanish languages, then a like publication for a like period shall be made in one newspaper
published in the English language, and in one published in the Spanish language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and We declare that the issuance of the
writ of execution in this case against the sawmill machineries and equipments purchased by petitioner Pastor D. Ago from the Grace
Park Engineering, Inc., as well as the sale of the same by the Sheriff of Surigao, are null and void. Costs shall be against the
respondent Grace Park Engineering, Inc.