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JD 201

Property Cases
1st Sem SY 2013- 14

Rea Jane B. Malcampo

Property Cases

Table of Contents Lopez vs. Orosa, Jr., and Plaza Theatre, Inc. ............................ 3 Punsalan, Jr. vs. Vda. de Lacsamana ....................................... 5 Associated Ins. & Surety Co., Inc. vs. Iya, et.al. ......................... 6 Tumalad vs. Vicencio............................................................9 Manila Electric Co. vs. Central Board of Assessment Appeals ....... 12 Meralco Securities Industrial Corp. vs Central Board of Assessment Appeals.............................................................14 Board of Assessment Appeals, et al. vs. Manila Electric Co. ..........16 Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals .........18

Property Cases

Lopez vs. Orosa, Jr., and Plaza Theatre, Inc. GR No. L-10817-18 February 28, 1958 Facts: Enrique Lopez, doing business under the trade name of Lopez-Castelo Sawmill, was invited by Vicente Orosa, Jr. to make an investment in the theatre business since the latter and his family were organizing a corporation to be known as Plaza Theatre, Inc. Lopez expressed his unwillingness to invest but agreed to supply the lumber necessary for the construction of the theatre. It was verbally agreed that Orosa would be personally liable for any account that the said construction might incur and that Lopez payment for the lumber would be on demand and not cash on delivery basis. On May 17 up to December 4, 1946, Lopez delivered the lumber worth P62,255.85. Lopez was paid only P20,848.50, leaving a balance of P41,771.35. The Plaza Theatre was erected on a piece of land (679.17 sq.m.) formerly owned by Orosa and was acquired by the corporation for P6,000 on Sept. 25, 1946. Orosa and Rustia, the president of the corporation, promised Lopez that they would obtain a bank loan by mortgaging the properties of the Plaza Threatre, out of which the unpaid balance would be satisfied. However, the corporation already got a loan for P30,000 from PNB in November 1946 with the Luzon Surety Company as surety. The corporation, in turn, mortgaged the land and building in favor of the surety company as counter-security. The mortgage was registered on Nov. 16, 1946 under Act No. 3344 (not yet brought under the operation of the Torrens System). And when the corporation applied for the registration of the land under Act 496, such mortgage was not revealed and thus the original certificate of title no. O-391 was correspondingly

issued on Oct. 25, 1947 without any encumbrance appearing thereon. With the persistent demand from Lopez for the payment, Orosa executed an alleged deed of assignment of his 420 shares of stock of the corporation in favor of the creditor. Plaintiffs case: (a) praying that defendants be sentenced to pay him jointly and severally the sum of P41,771.35, with legal interest from the filing of action; (b) in case defendants failed to pay, the building and the land owned by corporation be sold at public auction and the proceeds be applied to said indebtedness; or (c) the 420 shares of capital stock of the theatre assigned by Orosa to plaintiff be sold at public auction for the same purpose. Plaintiff also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds. Orosas defense: (a) denied that the materials were delivered to him as a promoter and later treasurer of the corporation, because he has purchased and received the same on his personal account; (b)that the land was not charged with a lien1 to secure the payment of the unpaid obligation; (c) that the 420 shares of stock was not assigned to plaintiff as collaterals but as direct security for the payment of his indebtedness. [special defense: as the 420 shares of stock assigned and conveyed by the assignor and accepted by Lopez as direct security for the payment of the unpaid amount were personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale at public auction would not be sufficient to satisfy the obligation.]; (d) thus, he prayed that he be exempted from payment of any deficiency in case the proceeds from the

Lien -

Property Cases

sale of said personal properties would not be enough to cover the unpaid amount sought to be collected. Plaza Theatres defense: (a) the building materials delivered to Orosa were on the latters personal account; (b) there was no understanding that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on the properties of the latter to secure payment of the obligation. [special defense: (i) that while it was true that the materials purchased by Orosa were sold by the latter to the corporation, such transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said materials within 30 days from time of removal therefrom from Orosa, lumber became a different and distinct specie and plaintiff lost whatever rights he might have in the same and consequently had no recourse against the corporation; (ii) that the claim could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the repair or reconstruction of something already existing and this concept did not include an entirely new work; (iii) Plaza Theatre, Inc., having been incorporated on Oct. 14, 1946, it could not have contracted any obligation prior to said date.] Thus, it prayed that the complaint be dismissed; that it be awarded P5,000 for damages. The surety company filed on Aug. 17, 1948 (within the 1-year period after the issuance of the certificate of title) a petition for review of the decree of the land registration in order to annotate the rights and interests of the surety company over said properties. Plaintiff opposed to this asserting (i) that the amount demanded by him constituted a preferred lien over the properties of the obligors; (ii) that the surety company was guilty of negligence when it failed to present an opposition to the application for

registration of the property; (iii) that if any violation of the rights and interest of said surety would ever be made, same must be subject to the lien in his favor. RTC: Defendants were jointly liable for the unpaid amount for the lumber used in the construction of the building and the plaintiff thus acquired the materialmans lien over the same. (i) The lien was merely confined to the building and did not extend the land on which the construction was made (taking into consideration the fact that when plaintiff started the delivery of lumber on May 1946, the land was not yet owned by the corporation; that the mortgage in favor Luzon Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish CC) specifying that refection credits are preferred could refer only to buildings which are also classified real properties, upon which said refection was made.) (ii) Plaintiffs lien on the building was superior to the right of the surety company. (iii) It granted the petition filed by the company after finding that the Plaza had no objection to the review of the decree issued in its favour by the land registration court and the inclusion in the title of the encumbrance in favor of surety company. (iv) Defendants were required to pay jointly with legal interests and costs within 90 days; in case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at public auction and proceeds be applied to the payment of the amount due. (v) The encumbrance in favor of surety company be endorsed at the back of the land title, with notation that with respect to the building, said mortgage was subject to the materialmans lien in favor of plaintiff.
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Property Cases

CA: affirmed RTC ruling. Issues: (1) Whether a materialmans lien for the value of the materials used in the construction of a building attaches to said structure alone and does not extend to the land on which the building is adhered to. (2) Whether the lower court and the CA erred in not providing that the material mans liens is superior to the mortgage executed in favor surety company not only on the building but also on the land. Ruling: affirmed the decision appealed from. (1) Yes, the materialmans lien could be charged only to the building for which the credit was made or which received the benefit of refection.2 (2) No, the lower court did not err. The lower court was right in holding at the interest of the mortgagee over the land is superior and cannot be made subject to the said materialmans lien. Note: While it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties could mean only one thing that a building is by itself an immovable property, (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). A building is an immovable property, irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner.
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Punsalan, Jr. vs. Vda. de Lacsamana GR No. L-55729 March 28, 1983 Facts: Antonio Punsalan, Jr., petitioner, was the former owner of a parcel of land (340 sq.m.). In 1963, petitioner mortgaged said land to respondent PNB in the amount of P10,000. Property was forclosed on Dec. 16, 1970 for failure to pay said amount. Respondent PNB was the highest bidder in the foreclosure proceedings but PNB secured title thereto only on Dec. 14, 1977. In the meantime, in 1974, while the property was still in the alleged possession of petitioner, petitioner secured a permit from the mayor and constructed a warehouse on the property and declared said warehouse for tax purposes. He then leased the warehouse to Hermogenes Sibal for a period of 10 years starting January 1975. The deed of sale between respondent PNB and respondent Lacsamana on July 26, 1978. The contract was amended on July 31 to include in the sale, the building and improvement thereon. Lacsamana secured title over the property in her name as well as separate tax declarations for the land and building. On Nov. 22, 1979, petitioner Punsalan commenced suit for Annulment of Deed of Sale with Damages against respondents Lacsamana and PNB. Petitioner impugns the validity of the sale of the building as embodied in the Amended Deed of Sale. Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared null and void and
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Refection reparation, reestablishment of a building

Property Cases

that damages of more or less P230,000 be awarded to him. He alleged that: (i) Defendant PNB sold to defendant Lacsamana the building owned by plaintiff, notwithstanding the fact that said building is not owned by the bank (ii) Defendant PNB fraudulently mentioned that the sale in its favor should likewise have included the building, notwithstanding no legal basis for the same and despite full knowledge that the certificate of sale executed by the sheriff (auction) in its favor only limited the sale to the land. Hence, by selling the building which never became the property of defendant, they have violated the principle against pactum commisorium.3 Lacsamanas defense: lack of cause of action in that she was a purchaser for value; invoked the principle that the accessory follows the principal.4 PNBs defense: motion to dismiss on the ground that venue was improperly laid considering that the building was real property under article 415(1) of the New CC and therefore sec. 2(a) of Rule 4 should apply. RTC: granted respondent PNBs Motion to Dismiss; dismissed the plaintiffs complaint for improper venue considering that the complaint involves a warehouse allegedly owned and constructed by the plaintiff on the land of the defendant PNB, which warehouse is an immovable property pursuant to Art. 415(1) of the New CC. As such, the action of the plaintiff is a real action affecting title to real property which, under Section 2, Rule 4 of New Rules of Court, must be tried in the province where the property or any part thereof lies.
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Petitioner filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was concerned, as the issues had already been joined with the filing of respondent Lacsamanas Answer. Respondent Court denied the motion. Hence, this petition for certiorari.5 Issue: Whether or not respondent Court erred in denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana as the case had been dismissed on the ground of improper venue upon motion of corespondent PNB. Ruling: affirmed respondent Courts Order denying the setting for pre-trial. No, respondent court did not err in dismissing the case on the ground of improper venue (Sec. 2, Rule 4), which was timely raised. Note: The warehouse claimed to be owned by petitioner is an immovable or real property (Art. 415). Buildings are always immovable under the Code. A building treated separately from the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as immovable property. While it is true that petitioner does not directly seek the recovery of title or possession of the property, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building
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Pactum commisorium accessory follows the principal

certiorari

Property Cases

(immovable), the recovery of which is petitioners primary objective. The prevalent doctrine is that an action for the annulment or recission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action.

Associated Ins. & Surety Co., Inc. vs. Iya, et. al. GR Nos. L-10837-38 May 30, 1958 (and: Iya vs. Adriano & Lucia Valino, Associated) Facts: Spouses Adriano Valino and Lucia Valino were owners and possessors of a house of strong materials constructed in the Grace Park Subdivision, which they purchased on instalment basis from the Philippine Realty Corporation. On Nov. 6, 1951, Lucia Valino filed a bond in the sum of P11,000 subscribed by the Associated Insurance and Surety Co., Inc. in order to purchase on credit rice from the NARIC. As counter-guaranty, the spouses executed an alleged chattel mortgage6 on the house in favor of the surety company in Dec. 6, 1951, which encumbrance was duly registered with the Chattel Mortgage Register. At the time said undertaking took place, the land on which the house was erected was still registered in the name of the Philippine Realty Corporation. On Oct. 18, 1958, the Valinos were able to secure certificate of title in their name after completing payment.

Subsequently, the Valinos executed a real estate mortgage7 over the lot and the house in favor of Isabel Iya in order to secure payment of a P12,000 indebtedness in Oct. 24, 1952 Lucia Valino failed to satisfy her obligation to NARIC. Thus, the surety company was compelled to pay the same pursuant to the bond. In turn, the surety company demanded reimbursement from the spouses. The spouses failed to reimburse the surety company so the latter foreclosed the chattel mortgage over the house. There was a public sale in Dec 26, 1952 and the property was awarded to the surety company for P8,000. The surety company caused the house to be declared in its name (tax purposes). (Associated vs. Iya and Valino) When in July 1953, the surety company learned of the real estate mortgage over the lot together with its improvements, it instituted a civil case against spouses Valino and mortgagee Isabel Iya. The complaint prayed for the exclusion of the residential house from the real estate mortgage and the declaration/recognition of plaintiffs rights to ownership over the same by virtue of the public auction in Dec 2, 1952. Iya: in virtue of the real estate mortgage executed by her codefendants, she acquired a real right over the lot and the house constructed thereon; the auction sale which is the result of the foreclosure of the chattel mortgage on the house was null and void for non-compliance with the form required by law; thus, she prayed for the dismissal of the complaint and the annulment of the sale made by the provincial sheriff (auction). (Iya vs. Valino and Associated)

Chattel mortgage when a mortgage is secured by a pledge of personal property

Real estate mortgage -

Property Cases

Iya filed another civil action on Oct. 29, 1953 against the Valinos and the surety company stating that: (i) The Valinos undertook to pay a loan of P12,000, 12% annum interest/120 per month, payable in 4 years, extendible for 1 year. They mortgaged their house and lot to pay the same. (ii) The surety company was included as defendants because it claimed to have an interest on the residential house covered by the mortgage. (iii) The mortgage stipulated that default in the payment of the interest agreed would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period. Since the Valinos failed to pay the interest for more than 6 months, Iya prayed the court to order defendants to pay the P12,000 with damages or else a decree of foreclosure of the land, building, and improvements be sold at public auction, the proceeds to be applied to satisfy the demand of plaintiff Iya. (iv) The Valinos, the surety company, and other person claiming interest in the mortgaged properties be barred and foreclosed of all rights, claims/equity of redemption in said properties (v) For deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient to satisfy the claim of plaintiff Iya. Associated Surety Co.: insisted on its right over the building, arguing that as the lot on which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house might be considered only as a personal property and that the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the provisions of the Chattel Mortgage Law were proper and legal; surety company prayed that the building be excluded from the real estate

mortgage and its right over the same be declared superior to that of plaintiff Iya. Valino spouses: admitted the due execution of the mortgage upon the land but assailed the allegation that the building was included thereon, it being contended that it was already encumbered in favor of the surety company before the real estate mortgage was executed, a fact made known to plaintiff Iya during the preparation of contract and to which she made no objection. [special defense:] the action was premature because the contract was for a period of 4 years, which had not yet elapsed. RTC: the chattel mortgage in favour or the Associated Insurance & Surety Co., Inc. was preferred and superior over the real estate mortgage subsequently executed in favour of Isabel Iya. As the Valinos were not yet the registered owner of the land on which the building was constructed at the time the first encumbrance was made, the building then was still a personality and a chattel mortgage over the same was proper. However, as the mortgagors were already the owner of the land at the time the contract with Iya was entered into, the building was transformed into a real property and the real estate mortgage created was likewise adjudged as proper. (no evidence that Iya knew that the house had been previously mortgaged to the surety company.) The residential building was ordered excluded from the foreclosure prayed for by Iya, although the latter could exercise the right of a junior encumbrance. Valinos ordered to pay the amount demanded or in default to have the land sold at public auction. Issue:
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Property Cases

Which of these encumbrances (the chattel mortgage on the house/the real estate mortgage on the lot together with its improvements) should receive preference over the other? Ruling: The real estate mortgage. The decisive factor: the determination of the nature of the structure litigated upon. For where it be considered a personality, the foreclosure of the chattel mortgage and the subsequent sale thereof at public auction made in accordance with the Chattel Mortgage Law8 would be valid and the right acquired by the surety company therefrom would certainly deserve prior recognition. Otherwise, appellants claim for preference must be granted. The Court, defining the nature/character of a building, has said: ...while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties (Art. 415, NCC) could only mean...that a building is by itself an immovable property.... A building is an immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner (Lopez vs. Orosa). A building cannot be divested of its character of a realty9 by the fact that the land on which it is constructed belongs to another.

Personal properties could only be the subject of a chattel mortgage (Sec. 1, Act 3952), and as obviously the structure in question is not one, the execution of the chattel mortgage covering the building is clearly invalid and a nullity. The registration of the document in the Chattel Mortgage Register produced no effect. Surety company has no ownership over the property since: A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favour, which mortgage has been declared null and void with respect to said real properties, acquired no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899). RTC ruling reversed. Appellant Iyas right to foreclose not only the land but also the building is hereby recognized, if the land is sold in a public auction, proceeds shall be applied to the unsatisfied judgment in favor of Iya. (Decision without prejudice to Associated;s right against the spouses Valino on account of the mortgage of said building they executed in favor of said surety company.

Tumalad vs. Vicencio GR No. L-30173 September 30, 1971 Facts: (?) Defendants-appellants Alberta Vicencio and Emiliano Simeon executed a chattel mortgage in favor of plaintiffs-appellees Gavino A. Tumalad and Genrosa R. Tumalad over their house of strong materials over lot Nos. 6-B and 7-B, Block no. 2554, which were being rented from
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Chattel Mortgage Law realty

Property Cases

Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds. The mortgage was executed to guarantee a loan of P4,800 received from plaintiffsappellees, payable within 1 year at 12%/annum. Mode of payment: P150/month starting Sept. 1955 July 1956, and the remaining P3,150 payable on or before Aug. 1956. It was also agreed that default in the payment would cause the remaining unpaid balance to become immediately due and payable and that the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135, and thus authorizing the sheriff of Manila or his deputies to sell all the mortgagors property after the necessary publication to settle the debt of P4,800. The defendants-appellants defaulted in paying; the mortgage was extrajudicially foreclosed on March 27, 1956. The plaintiffs-appellees were the highest bidder in the public auction, thus they were issued the certificate of sale. On April 28, 1956, plaintiffs-appellants (sic, plaintiffs-appellees) commenced a civil case (for ejectment10) praying that the house be vacated and its possession surrendered to them, and for defendants-appellants to pay rent of P200 monthly from March 27, 1956 the time the possession is surrendered. The MTC decided in favor of the plaintiffsappellants; ordered defendants to vacate premises and to pay monthly the amount of P200 from march 27, 1957 until premises is completely vacated.

Defendants-appellants Answer in MTC and CA: impugned the legality of the chattel mortgage, claiming that they are still the owners of the house; but waived the right to introduce evidence. Filed Motion to Dismiss on the grounds that (1) the municipal court did not have jurisdiction to try the case because (i) the issue involved is ownership and (ii) there was no allegation of prior possession; and (2) failure to prove prior demand pursuant to Sec. 2, Rule 72. During the pendency of the appeal, defendantsappellants failed to deposit the rent for Nov. 1956 within the first 10 days of December 1956 (MTC decision). The court thus granted plaintiffs-appellees motion for execution issued on Jan. 24, 1957. However, the judgment regarding the surrender of possession to plaintiff-appellees could not be executed because the house had already been demolished in Jan.14, 1957 (order of the court in a separate case for ejectment against defendants for non-payment of rentals on the land. Issues: (a) Whether the municipal court from which the case originated had jurisdiction to adjudicate the same (b) Whether the defendants are, under the law, legally bound to pay rentals to the plaintiffs during the period of 1 year provided by law for the redemption of the extrajudicially foreclosed house. Ruling: (a) what determines jurisdiction is the allegations/averments in the complaint and the relief asked for.
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ejectment to remove a party that is occupying and has made a wrongful claim of title to the property. (eviction the removal of a party that is wrongfully occupying the premises but is not making a claim of title to the land.)

Property Cases

When the question to be determined is one of title, the Court is given the authority to proceed with the hearing of the cause until this fact is clearly established (Batiaco vs. Quintero and Ayala). In detainer cases the claim of ownership is a matter of defense and raises an issue of fact which should be determined from the evidence at the trial (Sy vs. Dalman, L-19200, defendant was also a successful bidder in an auction sale). Defendants argument: (i) the issue of ownership will have to be adjudicated first in order to determine possession. Ownership being in issue, it is the Court of First Instance which has jurisdiction and not the municipal court. (ii) chattel mortgage was void ab initio because (iia) their signatures on the chattel mortgage were obtained through fraud/deceit/trickery. And (iib) the subject matter of the mortgage is a house of strong materials, and, being an immovable, it can only be the subject of a real estate mortgage, not a chattel mortgage. Ruling: charge of fraud not supported by evidence, mere allegations. The Answer is a mere statement of the facts which the party filing it expects to prove, but it is not evidence (Batiaco vs. Quintero and Ayala). What determines jurisdiction are the allegations/averments in the complaint and the relief asked for. Also, fraud/deceit can only give a ground for rendering contract voidable, not void ab initio (Art. 1390, NCC). No record that mortgage has been annulled nor that steps were taken to nullify it. Hence, defendants claim of ownership on the basis of a voidable contract which has not been voided fails.

Defendants argument: (ii) even if there was no fraud/deceit/trickery, the chattel mortgage was still null and void ab initio because only personal properties can be subject of a chattel mortgage. Ruling: Lopez vs. Orosa a building is an immovable property, irrespective of w/n said structure and the land on which it is adhered to belong to the same owner. But, deviations, which have been allowed for various reasons: Manarang & Manarang vs. Ofilada It is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property; citing Standard Oil Company of New York vs. Jaramillo (which considered personal property a leasehold right and a building). Luna vs. Encarnacion house of mixed materials is the subject of the chattel mortgage; valid because it was so expressly designated and specifically that the property given as security is a house of mixed materials personal property, by its very nature. Navarro vs. Pineda The view that parties to a deed of chattel mortgage may agree to consider a house as personal property for the purposes of said contract, is good only insofar as the contracting parties are concerned. It is based upon the principle of estoppel (Evangelista vs. Alto Surety). Also cited in Navarro vs. Pineda: o Valdez vs. Central Altagracia It is now settled that an object placed on land by one who had only a temporary right to the same, such as lessee or usufructury11
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usufruct

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Property Cases

o Evangelista vs. Abad - If a house belonging to a person stands on a rented land belonging to another person, it may be mortgaged as a personal property as so stipulated in the document of mortgage. o Ladera vs. C.N. Hodges It should be noted, however, that the principle is predicated on statements by the owner declaring his house to be a chattel, a conduct that may conceivably estop him from subsequently claiming to otherwise. Hence, although there is no specific statement referring to the subject house as personal property, yet by ceding, selling, or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not be allowed to make an inconsistent stand by claiming otherwise. (estoppel) Moreover, the house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this cannot in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, the mortgagors, intended to treat the house as personality. Doctrine of estoppel: Unlike the Iya cases, Lopez s. Orosa, Jr & Plaza Theatre, and Leung Yee vs. F.L. Strong Machinery where third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtorsmortgagors, who are attacking the chattel mortgage in this case. The defendants are stopped, having treated the subject house as personality.

(b) rule for the appellants. Since the defendants-appellants were occupying the house at the time of the auction sale, they are entitled to remain in possession during the period of redemption (or within 1 year from and after March 27, 1956, the date of the auction sale), and to collect the rents/profits during that period. Thus, the lower court erred in requiring the mortgagors to pay rents for the year following the foreclosure sale. Reasoning: Section 14, Act No. 1508, Chattel Mortgage Law allows the mortgagee to have the property mortgaged sold at public auction through a public officer (almost the same manner as that allowed by Act 3135, as amended by Act 4118), provided that the requirements of the law relative to notice and registration are complied with. Stipulation of the parties: the chattel mortgage will be enforceable in accordance with the provisions of Special Act No. 3135... . Section 6, Chattel Mortgage Law: debtor-mortgagor (defendants-appellants) may at any time within 1 year from and after the date of auction sale, redeem the property sold at the extra judicial foreclosure sale. Section 7: allows the purchaser of the property to obtain from the court the possession during the period of redemption (requirement: filing of a petition with the proper Court of First Instance + furnishing of a bond). It is only upon filing of the proper motion and approval of the corresponding bond that the order for a writ of possession issues as a matter of course. Court, no discretion. o In the case at bar: absence of such compliance, therefore the purchaser, plaintiffs, cannot claim possession during the redemption period as a
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Property Cases

matter of right. Thus, the governing provision is Sec 34, Revised Rules of Court: Reyes vs. Hamada,(reiterates ruling in Chan vs. Espe) construing Section 34, Revised Rules of Court, which also applies to properties purchased in extrajudicial foreclosure proceedings: Before the expiration of the 1-year redemption period, the purchaser is not entitled, as a matter of right, to possession of the same. While it is true that the Rules of Court allow the purchaser to collect/receive the rentals if the purchased property is occupied by tenants, the rentals do not belong to the purchaser but still pertain to the debtor/mortgagor. The amount/rent will be duly credited against the redemption price when the said debtor/mortgagor effects the redemption. Rationale for the Rule: to secure for the benefit of the debtor/mortgagor, the payment of the redemption amount and the consequent return to him of his properties sold at public auction. Note: The period of redemption had not yet expired when action was instituted in the court of origin. Plaintiffs-appellees did not choose to take possession under Sec. 7, Act 3135, as amended, the law chosen by parties to govern the extrajudicial foreclosure of the chattel mortgage.

Since plaintiffs-appellees right to possess was not yet born at the filing of the complaint, there could be no violation/breach. Thus, the original complaint stated no cause of action and was prematurely filed, therefore it is ordered dismissed even if there was no assignment of error to that effect. Manila Electric Co. (Meralco) vs. Central Board of Assessment Appeals GR No. L-47943 May 31, 1982 Facts: Manila Electric Company installed two oil storage tanks in 1969 on a lot which it leased in 1968 from Caltex (Phil.), Inc. The tanks, which are within the Caltex refinery compound, have a total capacity of 566,000 barrels. These tanks are used for storing fuel oil for Meralcos power plants. According to Meralco, the tanks are not attached to its foundation; not anchored/welded to the concrete circular wall; its bottom plate is not attached to any part of the foundation by bolts, screws, or similar devices; it merely sits on its foundation. The Central Board of Assessment Appeals concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to the tanks. The municipal treasurer, based on the provincial assessors assessment, required Meralco to pay realty taxes (1970-1974) and the penalties conditions for entertaining its

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Property Cases

appeal from the adverse decision of the Batangas board of assessment appeals. The defendant ruled in its Nov. 5, 1976 decision that the tanks together with the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements. Issues: (issues raised by Meralco) (a) The defendant Board acted without jurisdiction and committed a grave error of law in holding the tanks taxable real property. (b) The oil storage tanks do not fall within any of the kinds of real property enumerated in Art. 45 CC, therefore they cannot be category zed as realty in nature, by destination nor by analogy. (c) (emphasized) The tanks are not attached to the land and that they were placed on a leased land, not the land owned by Meralco. Ruling: (Issues to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No. 470, Real Property Tax Code, and PD 464 (June 1, 1974). ) (a)/(c) While the 2 storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry. The two tanks have been installed with a degree of permanence as receptacles for the considerable quantities of oil needed by Meralco for its operations. Oil storage tanks were held to be taxable realty (Standard

Sec. 2, Assessment Law the realty tax is due on real property, including land, buildings, machinery, and other improvements not specifically exempted in Sec. 3 thereof. Sec. 38, Real Property Tax Code Incidence of Real Property Tax They shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax12 on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted. Sec. 3, Real Property Tax Code (k) Improvements is a valuable addition made to property or an amelioration13 in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes. (b) Real Property, for purposes of taxation, may include things which should generally be regarded as personal property. Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633 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. Jurisprudence which are not applicable in this case: Board Assessment Appeals vs. Manila Electric Co., 119 Phil. 328 Meralcos steel towers were held not to be subject to realty tax, is not in point because in that case the steel towers were
12 13

Oil Co. of New Jersey s. Atlantic City, 15 Atl. 2nd 271)


Reasoning:

ad valorem tax Amelioration -

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Property Cases

regarded as poles and under its franchise Meralcos poles are exempt from taxation. The steel towers were not attached to any land/building; they were removable from their metal frames. Mindanao Bus Co. vs City Assessor, 116 Phil. 501 the tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not subject to realty tax because they were personal property.

Meralco Securities Industrial Corp. vs. Central Board of Assessment Appeals GR No. L-46245 May 31, 1982 Facts: Meralco Securities Industrial Corporation assaild the decision of the Central Board of Assessment Appeals dated May 6, 1976, holding that Meralco Securities oil pipeline is subject to realty tax pursuant to the Assessment Law, Commonwealth Act 470. Meralco installed a pipeline system from Batangas to Manila pursuant to a pipeline concession issued under Petroleum Act of 1949, RA 387. The pipes were buried not less than one meter below the surface; embedded in the soil and are firmly and solidly welded together so as to preclude breakage/damage and prevent leakage/seepage of the soil. The pipes are permanently attached to the land. Meralco: segments of the pipeline can be moved from one place to another as shown in the permit issued by the Sec of Public Works & Communications. The permit provides: the govt reserves the right to require the removal/transfer of the

pipes by and at the concessionaires expense should they be affected by any road repair/improvement. Meralco Securities appealed the assessment to the Board of Assessment Appeals Laguna but the latter upheld the assessment. Meralco Securities brought the case to the defendant, Central Board but the latter ruled that the pipeline is subject to realty tax (mentioned in the 1st par.). A copy of the decision was served on Meralco Securities counsel on Aug. 27, 1976. Section 36, Real Property Tax Code, PD 464 (took effect on June1, 1974) provides that the Boards decision becomes final and executory after 15 days from the receipt of the copy of the decision by the appellant. Rule III, amended rules of procedure of the Central Board, provides that a party may ask for reconsideration of the Boards decision within 15 days after receipt. Meralco Securities filed MR on the 11th day (Sept. 7, 1976). The MR was denied. Hence, Meralco Securities filed the instant petition for certiorari.14 Issues: (a) w/n certiorari was properly availed of in this case. (b) w/n Meralco Securities pipeline is subject to realty tax. (c) w/n the realty tax is a local tax or levy and not a tax of general application; and w/n Article 102 of the Petroleum Law exempts Meralco Securities from the payment of realty taxes. Ruling: (a) Yes, certiorari was properly availed of in this case.

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certiorari

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Property Cases

It is a writ issued by a superior court to an inferior court, board or officer exercising judicial/quasijudicial functions whereby the record of a particular case is ordered to be elevated for review and correction in matters of law The Rule: as to administrative agencies exercising quasijudicial power there is an underlying power in the courts to scrutinize the acts of such agencies on questions of law and jurisdiction even though no right of review is given by the statute. The purpose of judicial review is to keep the administrative agency within its jurisdiction and protect substantial rights of parties affected by its decisions. The review is part of the system of checks and balances, a limitation on the separation of powers, which forestalls arbitrary and unjust adjudications. Judicial review of the decision of an official/administrative agency exercising quasi-judicial functions is proper in case of lack of jurisdiction, error of law, grave abuse of discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary or capricious (supported by jurisprudence, see full text). (b) Yes, Meralco Securities pipeline is subject to realty tax, under the Assessment Law, Real Property Tax Code, and the Civil Code. Pipeline means a line of a pipe connected to pumps, valves and control devices for conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in the earth, carrying with it the right to the use of the soil in which it is placed. Sec. 2, Assessment Law the realty tax is due on real property, including land, buildings, machinery, and other improvements not specifically exempted in Sec 3.

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

The pipeline of Meralco Securites does not fall within any of the classes of exempt real property enumerated in Sec. 3, Assessment Law; Sec. 40, Real Property Tax Code. Art. 415(1)(3) real property may consist of constructions of all kinds adhered to the soil and everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. The pipeline in question is indubitably a construction adhering to the soil. It is attached to the land in such a way that it cannot be separated therfrom without dismantling the steel pipes which were welded to form the pipeline. The pipeline, in a sense, is a machinery within the meaning of the Real Property Tax Code, insofar as it uses valves, pumps, and control devices to maintain the flow of oil. The pipeline system as a whole is characterized as real property, not the steel pipes. (Meralco Securities has 2 pipeline systems.) A pipeline for conveying petroleum has been regarded as real property for tax purposes (Miller County
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Property Cases

Highway vs. Standard Pipe Line Co.; Board of Dir. Of Red River Levee Dist. No.1 of Lafayette County vs. R.R.C.)
(c) No, the realty tax is a tax of general application, not a local tax or levy. The realty tax has always been imposed by the lawmaking body and later by the President in the exercise of his lawmaking powers (as shown in Sec. 342 et seq.15, Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 & PD 469). The realty tax in enforced throughout the Philippines and not merely in a particular municipality/city; the proceeds of tax accrue to the province, city, municipality and barrio where the realty tax is situated (Sec.86, PD 464). While, a local tax is imposed by the municipal/city council by virtue of the Local Tax Code, PD 231 (July 1, 1973). Therefore, defendant, Central Board did not act with grave abuse of discretion, did not commit error of law, acted within its jurisdiction. Board of Assessment Appeals, et al. vs. Manila Electric Co. GR No. L-15334 January 31, 1964 Facts: Petitioners: Board of Assessment Appeals, City Assessor, City Treasurer of Quezon City Act No. 484, enacted on Oct. 20, 1902 by the Philippine Commission, authorized the Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric street
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railway and electric light, heat and power system in the City of Manila and its suburbs to person/s making the most favourable bid. Charles M. Swift was awarded the franchise on March 1903; the terms and conditions embodied in Ordinance no. 44. Respondent Manila Electric Co. (Meralco) became the transferee/owner of the franchise. Meralco has constructed 40 steel towers on land within Quezon City. (Three of these steel towers were inspected by lower court. See full text for description.) Petitioner, City Assessor of Quezon City, declared the steel towers for real property tax on Nov. 15, 1955. Respondents petition to cancel these declarations was denied. Respondent, Meralco, appealed to the Board of Assessment Appeals of Quezon City which required respondent to pay real property tax (P11,651.86) for 1952 to 1956. Respondent paid under protest. Respondent filed a petition for review in the Court of Tax Appeals (CTA) which ordered a cancellation of the said tax declarations and the petitioner, City Treasurer, to refund the sum of P11,651.86. The CTA held that: (i) The steel towers come within the term poles which are declared exempt from taxed under part II, Par. 9 of respondents franchise; (ii) The steel towers are personal properties and are not subject to real property tax; (iii) The City Treasurer is held responsible for the refund of the amount paid. Petitioners MR, denied. Hence, the instant petition for review. Issues:

et seq.

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Property Cases

a) w/n the steel towers come within the term poles which are declared exempt from tax under Part II, Par.9 of Meralcos franchise. b) w/n the steel towers constitute real properties, and are therefore subject to a real property tax. c) w/n the Court of Tax Appeals (CTA) erred in ordering the City Treasurer of Quezon City to refund the sum of P11,651.86 despite the fact that Quezon City is not a party to the case. Ruling: (a) Yes, the steel towers of Meralco come within the term poles which are declared exempt from tax under Part II, Par. 9 of Meralcos franchise, Act No. 484. The word poles, as used in Act No. 484 and incorporated in the petitioners franchise, should not be given a restrictive and narrow interpretation, as to defeat the very object for which the franchise was granted. The poles should be understood and taken as a part of the electric power system of the respondent Meralco, for the conveyance of electric current from the source to its consumers. Steel towers can better effectuate the purpose for which the respondents franchise was granted than wooden poles or rounded poles Reasoning: The concept of poles for which the exemption is granted in Par. 9 is not determined by their place or location, nor by the character of the electric current it carries, nor the material or form of which it is made, but the use to which they are dedicated. Pole is not restricted to a long cylindrical piece of wood or metal, but includes upright standards to the top of which something is affixed or by which something is supported.(Webster) Respondents

steel supports consists of a framework of four steel bars/strips which are bound by steel cross-arms atop of which are corss-arms supporting 5 high voltage transmission wires and their sole function is to support/carry wires. CTAs conclusion that the steel supports in question are embraced in the term poles is supported by jurisprudence from several courts of last resort in US, which used the words towers and poles interchangeably; thus a transmission tower or pole means the same thing.

(b) No, the steel towers/supports do not constitute real properties defined under Article 415, CC, and are therefore not subject to a real property tax. The tax law does not define real property. Article 415 of the Civil Code defines real property. Art. 415(1) - The steel towers do not come within the objects mentioned in Art. 415(1) because they do not constitute buildings/constructions adhered to the soil; they are removable and merely attached to a square metal frame by means of bolts, which when unscrewed could easily be dismantled and moved from place to place. Art. 415(3) The steel towers cannot be included under par.3 as they are not attached to an immovable in a fixed manner, and they can be separated without breaking the material or causing deterioration upon the object to which they are attached. The steel towers can be disassembled by unscrewing the bolts.
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Property Cases

Art. 415(5) The steel towers do not fall under par.5 for they are not machineries, receptacles, instruments or implements, they are not intended for industry or works on the land. Petitioner is not engaged in an industry/works in the land in which the steel supports/towers are constructed. (c) This question has not been raised in the court below, and therefore, it cannot be properly raised for the first time on appeal. The herein petitioner is indulging in legal technicalities and niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted that respondent pay real estate taxes, which respondent paid under protest. Having acted in his official capacity as City Treasurer, he would surely know what to do, under the circumstances. Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals GR No. L-50466 May 31, 1982 Facts: Issue: Ruling:

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