PHILIPPINE REFINING COMPANY V.

JARQUE

FACTS:
Plaintiff Philippine Refining Co. and defendant Jarque executed
three mortgages on the motor vessels Pandan and Zargazo. The
documents were recorded as transfer and encumbrances of the
vessels for the port of Cebu and each was denominated a chattel
mortgage.

The first two mortgages did not have an affidavit of good faith. A
fourth mortgage was executed by Jarque and Ramon Aboitiz over
motorship Zaragoza and was entered in the Chattel Mortgage
Registry on May 12, 1932, within the period of 30 days prior to the
foreclosure/institution of the insolvency proceedings.

Jose Curaminas filed with the CFI of Cebu a petition praying that
Francisco Jarque be declared an insolvent debtor. This was granted
and Jarque’s properties were then assigned to Curaminas.

A problem arose when Judge Jose Hontiveros declined to order the

foreclosure of the mortgages, and instead, ruled that they were
defective because they did not have affidavits of good faith.

ISSUE:

1. Whether or not the mortgages of the vessels are governed by

the Chattel Mortgage Law

2. Whether or not an affidavit of good faith is needed to enforce

achattel mortgage on a vessel

RULING:
Yes. “Personal property” includes vessels. They are subject to the
provisions of the Chattel Mortgage Law. The Chattel Mortgage Law
says that a good chattel mortgage includes an affidavit of good
faith. The absence of such affidavit makes mortgage unenforceable
against creditors and subsequent encumbrances. The judge was
correct.

Note: A mortgage on a vessel is generally like other chattel

mortgages. The only difference between a chattel mortgage of a
vessel and a chattel mortgage of other personalty is that the first
must be noted in the registry of the register of deeds.

G.R. No. L-41506 March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant,

vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent
Francisco Jarque, appellee.

Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant.
D.G. McVean and Vicente L. Faelnar for appellee.

MALCOLM, J.:

First of all the reason why the case has been decided by the court in banc needs
explanation. A motion was presented by counsel for the appellant in which it was
asked that the case be heard and determined by the court sitting in banc because
the admiralty jurisdiction of the court was involved, and this motion was granted in
regular course. On further investigation it appears that this was error. The mere
mortgage of a ship is a contract entered into by the parties to it without reference to
navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction.
(Bogart vs. Steamboat John Jay [1854], 17 How., 399.)

Coming now to the merits, it appears that on varying dates the Philippine Refining
Co., Inc., and Francisco Jarque executed three mortgages on the motor vessels
Pandan and Zaragoza. These documents were recorded in the record of transfers
and incumbrances of vessels for the port of Cebu and each was therein
denominated a "chattel mortgage". Neither of the first two mortgages had appended
an affidavit of good faith. The third mortgage contained such an affidavit, but this
mortgage was not registered in the customs house until May 17, 1932, or within the
period of thirty days prior to the commencement of insolvency proceedings against
Francisco Jarque; also, while the last mentioned mortgage was subscribed by
Francisco Jarque and M. N. Brink, there was nothing to disclose in what capacity the
said M. N. Brink signed. A fourth mortgage was executed by Francisco Jarque and
Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the thirty-day
period before the institution of insolvency proceedings. These proceedings were
begun on June 2, 1932, when a petition was filed with the Court of First Instance of
Cebu in which it was prayed that Francisco Jarque be declared an insolvent debtor,
which soon thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the
mortgages, but on the contrary sustained the special defenses of fatal defectiveness
of the mortgages. In so doing we believe that the trial judge acted advisedly.

Vessels are considered personal property under the civil law. (Code of Commerce,
article 585.) Similarly under the common law, vessels are personal property although
occasionally referred to as a peculiar kind of personal property. (Reynolds vs.
Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime Co vs. City of Gloucester
[1917], 117 N. E., 924.) Since the term "personal property" includes vessels, they are
subject to mortgage agreeably to the provisions of the Chattel Mortgage Law. (Act
No. 1508, section 2.) Indeed, it has heretofore been accepted without discussion that
a mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco
Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.)
The only difference between a chattel mortgage of a vessel and a chattel mortgage
of other personalty is that it is not now necessary for a chattel mortgage of a vessel
to be noted n the registry of the register of deeds, but it is essential that a record of
documents affecting the title to a vessel be entered in the record of the Collector of
Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72;
Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is generally like
other chattel mortgages as to its requisites and validity. (58 C.J., 92.)

The Chattell Mortgage Law in its section 5, in describing what shall be deemed
sufficient to constitute a good chattel mortgage, includes the requirement of an
affidavit of good faith appended to the mortgage and recorded therewith. The
absence of the affidavit vitiates a mortgage as against creditors and subsequent
encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto
de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros
[1923], 46 Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the
affidavit of good faith required by the Chattel Mortgage Law is lacking, is
unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not
constitute chattel mortgages or at least to gloss over the failure to include the
affidavit of good faith made a requisite for a good chattel mortgage by the Chattel
Mortgage Law. Counsel would further have us disregard article 585 of the Code of
Commerce, but no reason is shown for holding this article not in force. Counsel
would further have us revise doctrines heretofore announced in a series of cases,
which it is not desirable to do since those principles were confirmed after due
liberation and constitute a part of the commercial law of the Philippines. And finally
counsel would have us make rulings on points entirely foreign to the issues of the
case. As neither the facts nor the law remains in doubt, the seven assigned errors
will be overruled.

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

Avanceña, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and
Goddard, JJ., concur.

MINDANAO BUS COMPANY v. THE CITY ASSESSOR

& TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City
G.R. No. L-17870 September 29, 1962

FACTS:

Petitioner is a public utility solely engaged in transporting passengers and

cargoes by motor trucks. It owns a land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry
shops, and with machineries placed therein, its TPU trucks are made; body
constructed; and same are repaired in a condition to be serviceable in the
TPU land transportation business it operates.

The machineries have never been or were never used as industrial

equipment to produce finished products for sale, nor to repair
machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400

petitioner’s above-mentioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of the City sustained the
city assessor, so petitioner herein filed with the Court of Tax Appeals a
petition for the review of the assessment.

The CTA held the petitioner liable to the payment of the realty tax on its
maintenance and repair equipment mentioned above. Hence, this petition.

ISSUE:

Should the tools and equipment in the petitioner company’s repair shop
be considered immovable taxable real properties?
DOCTRINE:

NO. Movable equipment to be immobilized in contemplation of the law

must first be “essential and principal elements” of an industry or works
without which such industry or works would be “unable to function or
carry on the industrial purpose for which it was established.” The tools
and equipment are not essential and principle municipal elements of
petitioner’s business of transporting passengers and cargoes by motor
trucks. They are merely incidentals — acquired as movables and used only
for expediency to facilitate and/or improve its service. The transportation
business could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to another.

G.R. No. L-17870 September 29, 1962

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de
Oro City, respondents.

Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for
the review of the assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:

1. That petitioner is a public utility solely engaged in transporting passengers and

cargoes by motor trucks, over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;
 3. That the machineries sought to be assessed by the respondent as real
properties are the following:

(a) Hobart Electric Welder Machine, appearing in the attached

photograph, marked Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph, marked

Annex "B";

(c) Lathe machine with motor, appearing in the attached photograph,

marked Annex "C";

(d) Black and Decker Grinder, appearing in the attached photograph,

marked Annex "D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph,

marked Annex "E";

(f) Battery charger (Tungar charge machine) appearing in the attached

photograph, marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph,

marked Annex "G".

4. That these machineries are sitting on cement or wooden platforms as may be

seen in the attached photographs which form part of this agreed stipulation of
facts;

5. That petitioner is the owner of the land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops,
and with these machineries which are placed therein, its TPU trucks are made;
body constructed; and same are repaired in a condition to be serviceable in the
TPU land transportation business it operates;

6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries, parts
and the like offered to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged in, to date. 1awphîl.nèt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner brought the case to this Court assigning the
following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents'

contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the
New Civil Code, and holding that pursuant thereto the movable equipments are
taxable realties, by reason of their being intended or destined for use in an
industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
 machineries is further restricted by section 31, paragraph (c) of Republic Act No.
521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. — The following are immovable properties:

xxx xxx xxx

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

the tenement for an industry or works which may be carried on in a building or on
a piece of land, and which tend directly to meet the needs of the said industry or
works. (Emphasis ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), 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 and 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 principle 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. (Emphasis ours.)

So that movable equipments to be immobilized in contemplation of the law must first be

"essential and principal elements" of an industry or works without which such industry or works
would be "unable to function or carry on the industrial purpose for which it was established." We
may here distinguish, therefore, those movable which become immobilized by destination
because they are essential and principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not essential and principal. Thus,
cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are
merely incidentals and are not and should not be considered immobilized by destination, for
these businesses can continue or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries
of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the delivery trucks and adding
machines which they usually own and use and are found within their industrial compounds are
merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting passengers
and cargoes by motor trucks. They are merely incidentals — acquired as movables and used
only for expediency to facilitate and/or improve its service. Even without such tools and
equipments, its business may be carried on, as petitioner has carried on, without such
equipments, before the war. The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another shop belonging to another.

The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

xxx xxx xxx

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

the tenement for an industry or works which may be carried on in a building or on
a piece of land, and which tend directly to meet the needs of the said industry or
works; (Civil Code of the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industry
or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs.
Cu Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found
in a building constructed on the land. A sawmill would also be installed in a building on land more
or less permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land,
as demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not
carried on in a building, tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the purposes of the
real estate tax. Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ.,
concur.
Regala, Concepcion and Barrera JJ., took no part.

DAVAO SAW MILL CO. VS. CASTILLO

61 SCRA 709

FACTS:
Petitioner is the holder of a lumber concession. It operated a sawmill on a
land, which it doesn’t own. Part of the lease agreement was a stipulation in
which after the lease agreement, all buildings and improvements would pass
to the ownership of the lessor, which would not include machineries and
accessories. In connection to this, petitioner had in its sawmill
machineries and other equipment wherein some were bolted in foundations of
cement.

HELD:
The machinery must be classified as personal property.

The lessee placed the machinery in the building erected on land belonging to
another, with the understanding that the machinery was not included in the
improvements which would pass to the lessor on the expiration of the lease
agreement. The lessee also treated the machinery as personal
property in executing chattel mortgages in favor of third persons. The
machinery was levied upon by the sheriff as personalty pursuant to a writ of
execution obtained without any protest being registered.

Furthermore, machinery only becomes immobilized when placed in a plant by

the owner of the property or plant, but not when so placed by a tenant,
usufructuary, or any person having temporary right, unless such person
acted as the agent of the owner.

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.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

PRUDENTIAL BANK V. PANIS

153 SCRA 390

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

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over

the land which was later on mortgaged to the bank.

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

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

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

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

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

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

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

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.

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

CALTEX PHILS. V. CENTRAL BOARD OF

ASSESSMENT APPEALS

114 SCRA 296

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

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

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

CALTEX (PHILIPPINES) INC., petitioner,

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

AQUINO, J.:

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

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

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

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

The controversial underground tank, depository of gasoline or crude oil, is

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

This underground tank is connected with a steel pipe to the gasoline

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

The building or shed, the elevated water tank, the car hoist under a
separate shed, the air compressor, the underground gasoline tank, neon
lights signboard, concrete fence and pavement and the lot where they are
all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service-station.

As to whether the subject properties are attached and affixed to the

tenement, it is clear they are, for the tenement we consider in this
particular case are (is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and the improvement
which holds all the properties under question, they are attached and
affixed to the pavement and to the improvement.

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

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

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

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

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

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

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place)
in its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which
was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).

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

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

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

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

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

SEC. 38. Incidence of Real Property Tax.— There shall be levied,

assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property
not hereinafter specifically exempted.

The Code contains the following definitions in its section 3:

k) Improvements — is a valuable addition made to property or an

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

m) Machinery — shall embrace machines, mechanical contrivances,

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

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

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

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

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

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

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

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

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

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment
Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.

SO ORDERED.

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

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

G.R. No. 106041 January 29, 1993

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

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

CRUZ, J.:

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

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

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

For purposes of taxation the dam is considered as real property as it

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

Although the dam is partly used as an anti-pollution device, this Board

cannot accede to the request for tax exemption in the absence of a law
authorizing the same.

xxx xxx xxx

We find the appraisal on the land submerged as a result of the

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

This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not subject to realty tax
because it is not an "improvement" upon the land within the meaning of the Real Property Tax
Code. More particularly, it is claimed —

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

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

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

(c) that at the end of the mining operation of the petitioner

corporation in the area, the tailings dam will benefit the
local community by serving as an irrigation facility;

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

(e) that the tailings dam is an environmental pollution

control device for which petitioner must be commended
rather than penalized with a realty tax assessment;

(f) that the installation and utilization of the tailings dam as

a pollution control device is a requirement imposed by
law;

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

(a) that the subject properties have no market value as

they cannot be sold independently of the mine;

(b) that the valuation of the tailings dam should be based

on its incidental use by petitioner as a water reservoir and
not on the alleged cost of construction of the dam and the
annual build-up expense;

(c) that the "residual value formula" used by the Provincial

Assessor and adopted by respondent CBAA is arbitrary
and erroneous; and

(3) as regards the petitioner's liability for penalties for

non-declaration of the tailings dam and the submerged lands for realty tax
purposes:

(a) that where a tax is not paid in an honest belief that it is

not due, no penalty shall be collected in addition to the
basic tax;

(b) that no other mining companies in the Philippines

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

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

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

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

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

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

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

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case
involved drain tunnels constructed by plaintiff when it expanded its mining operations downward,
resulting in a constantly increasing flow of water in the said mine. It was held that:

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

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

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

. . . The said equipment and machinery, as appurtenances to the gas

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

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

The pipeline system in question is indubitably a construction adhering to

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

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

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

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

Art. 415. The following are immovable property.

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

xxx xxx xxx

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

that it cannot be separated therefrom without breaking the material or
deterioration of the object.

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

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

(k) Improvements — is a valuable addition made to property or an

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

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

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

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

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

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

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

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

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

A 50% residual value is applied in the computation because, while it is

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

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

We find the appraisal on the land submerged as a result of the

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

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

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

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

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

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

Feliciano, J., took no part.

# Footnotes

1 Secretary of Finance Jesus Estanislao as chairman with Secretary of

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

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

TUMALAD V. VICENCIO

Although a building is an immovable; the parties to a contract may by

agreement treat as personal property that which by nature is a real property
however they are estopped from subsequently claiming otherwise.

FACTS:

Alberta Vicencio and Emiliano Simeon received a loan of P4, 800 from Gavino
and Generosa Tumalad. To guaranty said loan, Vicencio executed a chattel
mortgage in favor of Tumalad over their house of strong materials which stood
on a land which was rented from the Madrigal & Company, Inc. When Vicencio
defaulted in paying, the house was extrajudicially foreclosed, pursuant to
their contract. It was sold to Tumalad and they instituted a Civil case in the
Municipal Court of Manila to have Vicencio vacate the house and pay rent.

The MTC decided in favor of Tumalad ordering Vicencio to vacate the house
and pay rent until they have completely vacated the house. Vicencio is
questioning the legality of the chattel mortgage on the ground that 1) the
signature on it was obtained thru fraud and 2) the mortgage is a house of
strong materials which is an immovable therefore can only be the subject of a
REM. On appeal, the CFI found in favor of Tumalad, and since the Vicencio
failed to deposit the rent ordered, it issued a writ of execution, however the
house was already demolished pursuant to an order of the court in an
ejectment suit against Vicencio for non-payment of rentals. Thus the case at
bar.

ISSUE:

Whether or not the chattel mortgage is void since its subject is an immovable
HELD:

NO.
Although a building is by itself an immovable property, parties to a contract
may treat as personal property that which by nature would be real property
and it would be valid and good only insofar as the contracting parties are
concerned. By principle of estoppel, the owner declaring his house to be a
chattel may no longer subsequently claim otherwise.

When Vicencio executed the Chattel Mortgage, it specifically provides that

the mortgagor cedes, sells and transfers by way of Chattel mortgage. They
intended to treat it as chattel therefore are now estopped from claiming
otherwise. Also the house stood on rented land which was held in previous
jurisprudence to be personalty since it was placed on the land by one who had
only temporary right over the property thus it does not become immobilized by
attachment.

[Vicencio though was not made to pay rent since the action was instituted
during the period of redemption therefore Vicencio still had a right to remain
in possession of the property]

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

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

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

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

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

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

This case was originally commenced by defendants-appellants in the municipal court of Manila in
Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the
court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive
portion of which follows:
 WHEREFORE, the court hereby renders judgment in favor of the plaintiffs
and against the defendants, ordering the latter to pay jointly and severally
the former a monthly rent of P200.00 on the house, subject-matter of this
action, from March 27, 1956, to January 14, 1967, with interest at the
legal rate from April 18, 1956, the filing of the complaint, until fully paid,
plus attorney's fees in the sum of P300.00 and to pay the costs.

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

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

the Chattel Mortgage will be enforceable in accordance with the

provisions of Special Act No. 3135, and for this purpose, the Sheriff of the
City of Manila or any of his deputies is hereby empowered and authorized
to sell all the Mortgagor's property after the necessary publication in order
to settle the financial debts of P4,800.00, plus 12% yearly interest, and
attorney's fees... 2

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

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

... ordering the defendants to vacate the premises described in the

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

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

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because the subject house
had been already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was
disclaimed and was still being litigated, and under Section 8, Rule 72, rentals deposited had to
be held until final disposition of the appeal. 7

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

Defendants-appellants submitted numerous assignments of error which can be condensed into

two questions, namely: .

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

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

We will consider these questions seriatim.

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

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

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

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

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

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

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

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

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

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

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

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

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

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the date of the auction sale, redeem the property sold
at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of the property
to obtain from the court the possession during the period of redemption: but the same provision
expressly requires the filing of a petition with the proper Court of First Instance and the furnishing of a
bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the
order for a writ of possession issues as a matter of course. No discretion is left to the court. 33 In the
absence of such a compliance, as in the instant case, the purchaser can not claim possession during
the period of redemption as a matter of right. In such a case, the governing provision is Section 34,
Rule 39, of the Revised Rules of Court 34 which also applies to properties purchased in extrajudicial
foreclosure proceedings. 35 Construing the said section, this Court stated in the aforestated case of
Reyes vs. Hamada.

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

The Hamada case reiterates the previous ruling in Chan vs. Espe. 36
Since the defendants-appellants were occupying the house at the time of the auction sale, they
are entitled to remain in possession during the period of redemption or within one year from and
after 27 March 1956, the date of the auction sale, and to collect the rents or profits during the
said period.

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

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

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

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor
and Makasiar, JJ., concur.

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

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY,

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

DECISION
PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property

be considered as personal or movable, a party is estopped from
subsequently claiming otherwise. Hence, such property is a proper subject
of a writ of replevin obtained by the other contracting party.

The Case
 Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and
its February 26, 1999 Resolution3 denying reconsideration. The decretal
portion of the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated
February 18, 1998 and Resolution dated March 31, 1998 in Civil Case No.
Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction
issued on June 15, 1998 is hereby LIFTED.4
In its February 18, 1998 Order, 5 the Regional Trial Court (RTC) of
Quezon City (Branch 218)6 issued a Writ of Seizure.7 The March 18, 1998
Resolution8 denied petitioners Motion for Special Protective Order, praying
that the deputy sheriff be enjoined from seizing immobilized or other real
properties in (petitioners) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or equipments he may
have removed.9

The Facts

The undisputed facts are summarized by the Court of Appeals as

follows:10
On February 13, 1998, respondent PCI Leasing and Finance, Inc.
(PCI Leasing for short) filed with the RTC-QC a complaint for [a] sum of
money (Annex E), with an application for a writ of replevin docketed as
Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing,
respondent judge issued a writ of replevin (Annex B) directing its sheriff to
seize and deliver the machineries and equipment to PCI Leasing after 5
days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioners factory, seized one machinery with [the] word that
he [would] return for the other machineries.

10
 On March 25, 1998, petitioners filed a motion for special protective
order (Annex C), invoking the power of the court to control the conduct of
its officers and amend and control its processes, praying for a directive for
the sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground
that the properties [were] still personal and therefore still subject to seizure
and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be
seized [were] immovable as defined in Article 415 of the Civil Code, the
parties agreement to the contrary notwithstanding. They argued that to
give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these
machineries as personal because the contracts in which the alleged
agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure
and take possession of the remaining properties. He was able to take two
more, but was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for
certiorari.

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the
subject machines were personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that the words of the contract
are clear and leave no doubt upon the true intention of the contracting
parties. Observing that Petitioner Goquiolay was an experienced
businessman who was not unfamiliar with the ways of the trade, it ruled that
he should have realized the import of the document he signed. The CA
further held:
Furthermore, to accord merit to this petition would be to preempt the
trial court in ruling upon the case below, since the merits of the whole
matter are laid down before us via a petition whose sole purpose is to
inquire upon the existence of a grave abuse of discretion on the part of the
[RTC] in issuing the assailed Order and Resolution. The issues raised
herein are proper subjects of a full-blown trial, necessitating presentation
of evidence by both parties. The contract is being enforced by one, and
[its] validity is attacked by the other a matter x x x which respondent court
is in the best position to determine.
Hence, this Petition.11

The Issues

In their Memorandum, petitioners submit the following issues for our

consideration:
11
 A. Whether or not the machineries purchased and imported by
SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a
lease.12
In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of a writ of
replevin. As a preliminary matter, the Court will also address briefly the
procedural points raised by respondent.

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly

whether it was being filed under Rule 45 or Rule 65 of the Rules of Court. It
further alleges that the Petition erroneously impleaded Judge Hilario Laqui
as respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for
Review on Certiorari.13
While Judge Laqui should not have been impleaded as a respondent, 14
substantial justice requires that such lapse by itself should not warrant the
dismissal of the present Petition. In this light, the Court deems it proper to
remove, motu proprio, the name of Judge Laqui from the caption of the
present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were
not proper subjects of the Writ issued by the RTC, because they were in fact
real property. Serious policy considerations, they argue, militate against a
contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued
for the recovery of personal property only. 15 Section 3 thereof reads:

12

13

14

15
 SEC. 3. Order. -- Upon the filing of such affidavit and approval of the
bond, the court shall issue an order and the corresponding writ of replevin
describing the personal property alleged to be wrongfully detained and
requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable
or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in
a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own land.
Indisputably, they were essential and principal elements of their chocolate-
making industry. Hence, although each of them was movable or personal
property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry. 16 In that
sense, petitioners are correct in arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the Civil Code. 17
Be that as it may, we disagree with the submission of the petitioners that
the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a
real property be considered as personal. 18 After agreeing to such stipulation,
they are consequently estopped from claiming otherwise. Under the principle
of estoppel, a party to a contract is ordinarily precluded from denying the
truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the
parties to treat a house as a personal property because it had been made
the subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property
by way of chattel mortgage defendants-appellants could only have meant
to convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent
stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.

16

17

18

19
 Wearever Textile Mills20 also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a
writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the
above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is movable
in its nature and becomes immobilized only by destination or purpose, may
not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:21
12.1 The PROPERTY is, and shall at all times be and remain,
personal property notwithstanding that the PROPERTY or any part thereof
may now be, or hereafter become, in any manner affixed or attached to or
embedded in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization
of the subject machines as personal property. Under the circumstances, they
are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines
should be deemed personal property pursuant to the Lease Agreement is
good only insofar as the contracting parties are concerned. 22 Hence, while
the parties are bound by the Agreement, third persons acting in good faith
are not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party
would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan

and not a lease.24 Submitting documents supposedly showing that they own
the subject machines, petitioners also argue in their Petition that the
Agreement suffers from intrinsic ambiguity which places in serious doubt the
intention of the parties and the validity of the lease agreement itself. 25 In their
Reply to respondents Comment, they further allege that the Agreement is

20

21

22

23

24
 invalid.26
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the
merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,27 the Court explained that the
policy under Rule 60 was that questions involving title to the subject property
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule
60 was either to post a counter-bond or to question the sufficiency of the
plaintiffs bond. They were not allowed, however, to invoke the title to the
subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to
dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at
issue the matter of the title or right of possession over the specific chattel
being replevied, the policy apparently being that said matter should be
ventilated and determined only at the trial on the merits.28
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this Court
under Rule 45.29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings,
which had ironically been instituted by respondent. Accordingly, it must be
presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized the
subject machinery as personal property, was also assailed because
respondent had allegedly been required to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. The Court
25

26

27

28

29

30
 rejected the argument and relied on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of
the new Civil Code, by a proper action in court. There is nothing on record
to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be

seized, then its workers would be out of work and thrown into the streets. 31
They also allege that the seizure would nullify all efforts to rehabilitate the
corporation.
Petitioners arguments do not preclude the implementation of the Writ. As
earlier discussed, law and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true, should not be blamed on
this Court, but on the petitioners for failing to avail themselves of the remedy
under Section 5 of Rule 60, which allows the filing of a counter-bond. The
provision states:
SEC. 5. Return of property. -- If the adverse party objects to the
sufficiency of the applicants bond, or of the surety or sureties thereon, he
cannot immediately require the return of the property, but if he does not so
object, he may, at any time before the delivery of the property to the
applicant, require the return thereof, by filing with the court where the
action is pending a bond executed to the applicant, in double the value of
the property as stated in the applicants affidavit for the delivery thereof to
the applicant, if such delivery be adjudged, and for the payment of such
sum to him as may be recovered against the adverse party, and by serving
a copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Serg's v. PCI Leasing

Serg’s Products, Inc. vs. PCI Leasing G.R. No. 137705. August 22, 2000

FACTS:

 PCI Leasing and Finance filed a complaint for sum of money, with an application for a writ of
replevin.

31
  Judge issued a writ of replevin directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.

 The sheriff proceeded to petitioner's factory, seized one machinery, with word that he would
return for other machineries.

 Petitioner (Serg’s Products) filed a motion for special protective order to defer enforcement of
the writ of replevin.

 PCI Leasing opposed the motion on the ground that the properties were still personal and
therefore can still be subjected to seizure and writ of replevin.

 Petitioner asserted that properties sought to be seized were immovable as defined in Article
415 of the Civil Code.

 Sheriff was still able to take possession of two more machineries

In its decision on the original action for certiorari filed by the Petitioner, the appellate court, Citing the
Agreement of the parties, held that the subject machines were personal property, and that they had
only been leased, not owned, by petitioners; and ruled that the "words of the contract are clear and
leave no doubt upon the true intention of the contracting parties."

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

Ruling:
Petitioners contend that the subject machines used in their factory were not proper subjects of the
Writ issued by the RTC, because they were in fact real property.

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

Article 415 (5) of the Civil Code provides that machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works which may be carried on in a building
or on a piece of land, and which tend directly to meet the needs of the said industry or works

In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land.They were essential and principal elements of their
chocolate-making industry.Hence, although each of them was movable or personal property on its
own, all of them have become “immobilized by destination because they are essential and principal
elements in the industry.”

However, contracting parties may validly stipulate that a real property be considered as personal. After
agreeing to such stipulation, they are consequently estopped from claiming otherwise.Under the
principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any material
fact found therein.

Section 12.1 of the Agreement between the parties provides “The PROPERTY is, and shall at all
times be and remain, personal property notwithstanding that the PROPERTY or any part thereof may
now be, or hereafter become, in any manner affixed or attached to or embedded in, or permanently
resting upon, real property or any building thereon, or attached in any manner to what is permanent.”

The machines are personal property and they are proper subjects of the Writ of Replevin
US V. TAMBUNTING

FACTS:

The Manila Gas Company installed equipment for the transmission of gas in a
house at Evangelista. After the original subscriber left, the apparatus was
sealed and the services discontinued.

Later Mr Tambunting moved in. He was a cheapskate and spliced the tubing to
leech free gas for household use. Alas, the crime was discovered by the gas
company. The prosecutor filed charges and hailed Mr. Tambunting to court

ISSUE:

Whether or not gas can be the subject of larceny.

HELD:

Yes. Gas is a substance which lends itself to felonious appropriation. It is a

valuable merchandise that can be bought and sold like other personal
property, susceptible of being siphoned from a larger mass and transported
from place to place. Articles 517 and 518 sets parameters for the theft of gas
and it is a valid ordinance.

EN BANC

G.R. No. L-16513 January 18, 1921

THE UNITED STATES, plaintiff-appellee,

vs.
MANUEL TAMBUNTING, defendant-appellant.

Manuel Garcia Goyena for appellant.

Acting Attorney-General Feria for appellee.

STREET, J.:

This appeal was instituted for the purpose of reversing a judgment of the Court of First Instance
of the city of Manila, finding the accused, Manuel Tambunting, guilty of stealing a quantity of gas
belonging to the Manila Gas Corporation, and sentencing him to undergo imprisonment for two
months and one day, of arresto mayor, with the accessories prescribed by law; to indemnify the
said corporation in the sum of P2, with subsidiary imprisonment in case of insolvency; and to pay
the costs.
The evidence submitted in behalf of the prosecution shows that in January of the year 1918, the
accused and his wife became occupants of the upper floor of the house situated at No. 443,
Calle Evangelista, in the city of Manila. In this house the Manila Gas Corporation had previously
installed apparatus for the delivery of gas on both the upper and lower floors, consisting of the
necessary piping and a gas meter, which last mentioned apparatus was installed below. When
the occupants at whose request this installation had been made vacated the premises, the gas
company disconnected the gas pipe and removed the meter, thus cutting off the supply of gas
from said premises.

Upon June 2, 1919, one of the inspectors of the gas company visited the house in question and
found that gas was being used, without the knowledge and consent of the gas company, for
cooking in the quarters occupied by the defendant and his wife: to effect which a short piece of
iron pipe had been inserted in the gap where the gas meter had formerly been placed, and piece
of rubber tubing had been used to connect the gas pipe of rubber tubing had been used to
connect the gas pipe in kitchen with the gas stove, or plate, used for cooking.

At the time this discovery was made, the accused, Manuel Tambunting, was not at home, but he
presently arrived and admitted to the agent to the gas company that he had made the connection
with the rubber tubing between the gas pipe and the stove, though he denied making the
connection below. He also admitted that he knew he was using gas without the knowledge of the
company and that he had been so using it for probably two or three months.

The clandestine use of gas by the accused in the manner stated is thus established in our
opinion beyond a doubt; and inasmuch as the animo lucrandi is obvious, it only remains to
consider, first, whether gas can be the subject to larceny and, secondly, whether the quantity of
gas appropriated in the two months, during which the accused admitted having used the same,
has been established with sufficient certainty to enable the court to fix an appropriate penalty.

Some legal minds, perhaps more academic than practical, have entertained doubt upon the
question whether gas can be the subject of larceny; but no judicial decision has been called to
our attention wherein any respectable court has refused to treat it as such. In U.S. vs. Genato
(15 Phil., 170, 175), this court, speaking through Mr. Justice Torres, said ". . . the right of the
ownership of electric current is secured by article 517 and 518 of the Penal Code; the application
of these articles in cases of subtraction of gas, a fluid used for lighting, and in some respects
resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of
Spain of January 20, 1887, and April 1, 1897, construing and enforcing the provisions of articles
530 and 531 of the Penal Code of that country, articles identical with articles 517 and 518 of the
code in force in these Islands." These expressions were used in a case which involved the
subtraction and appropriation of electrical energy and the court held, in accordance with the
analogy of the case involving the theft of gas, that electrical energy could also be the subject of
theft. The same conclusion was reached in U.S. vs. Carlos (21 Phil., 553), which was also a case
of prosecution for stealing electricity.

The precise point whether the taking of gas may constitute larceny has never before, so far as
the present writer is aware, been the subject of adjudication in this court, but the decisions of
Spanish, English, and American courts all answer the question in the affirmative. (See U.S. vs.
Carlos, 21 Phil., 553, 560.)

In this connection it will suffice to quote the following from the topic "Larceny," at page 34, Vol.
17, of Ruling Case Law:

There is nothing in the nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold
like other personal property, susceptible of being severed from a mass or larger quantity and of
being transported from place to place. Likewise water which is confined in pipes and electricity
which is conveyed by wires are subjects of larceny."
As to the amount and value of the gas appropriated by the accused in the period during which he
admits having used it, the proof is not entirely satisfactory. Nevertheless we think the trial court
was justified in fixing the value of the gas at P2 per month, which is the minimum charge for gas
made by the gas company, however small the amount consumed. That is to say, no person
desiring to use gas at all for domestic purposes can purchase the commodity at a lower rate per
month than P2. There was evidence before the court showing that the general average of the
monthly bills paid by consumers throughout the city for the use of gas in a kitchen equipped like
that used by the accused is from P18 to 20, while the average minimum is about P8 per month.
We think that the facts above stated are competent evidence; and the conclusion is inevitable
that the accused is at least liable to the extent of the minimum charge of P2 per month. The
market value of the property at the time and place of the theft is of court the proper value to be
proven (17 R.C.L., p. 66); and when it is found that the least amount that a consumer can take
costs P2 per months, this affords proof that the amount which the accused took was certainly
worth that much. Absolute certainty as to the full amount taken is of course impossible, because
no meter wad used; but absolute certainty upon this point is not necessary, when it is certain that
the minimum that could have been taken was worth a determinable amount.

It appears that before the present prosecution was instituted, the accused had been
unsuccessfully prosecuted for an infraction of section 504 of the Revised Ordinances of the city
of Manila, under a complaint charging that the accused, not being a registered installer of gas
equipment had placed a gas installation in the house at No. 443, Calle Evangelista. Upon this it
is argued for the accused that, having been acquitted of that charge, he is not now subject to
prosecution for the offense of theft, having been acquitted of the former charge. The contention is
evidently not well-founded, since the two offenses are of totally distinct nature. Furthermore, a
prosecution for violation of a city ordinance is not ordinarily a bar to a subsequent prosecution for
the same offense under the general law of the land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)

The conclusion is that the accused is properly subject to punishment, under No. 5 of article 518
of the Penal Code, for the gas taken in the course of two months a the rate of P2 per month.
There being no aggravating or attenuating circumstance to be estimated, it results that the proper
penalty is two months and one day of arresto mayor, as fixed by the trial court. The judgment will
therefore be affirmed, with costs against the appellant, it being understood that the amount of the
indemnity which the accused shall pay to the gas company is P4, instead of P2, with subsidiary
imprisonment for one day in case of insolvency. So ordered.

Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.