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THE STANDARD OIL COMPANY OF NEW YORK, Petitioner, v.

JOAQUIN
JARAMILLO, as register of deeds of the City of Manila, Respondent.

SYLLABUS

1. CHATTEL MORTGAGE; REGISTRATION; NOTICE. — The efficacy of the act of recording a


chattel mortgage consists in the fact that registration operates as constructive notice of the
existence of the contract, and the legal effects of the instrument must be discovered in the
document itself, in relation with the fact of notice. Registration adds nothing to the instrument,
considered as a source of title, and affects nobody’s rights except as a species of constructive
notice.

2. ID.; ID.; FUNCTION OF REGISTER. — The duties of a register of deeds in respect to the
registration of chattel mortgages are purely of a ministerial character, and he is clothed with no
judicial or quasi-judicial power to determine the nature of the property, whether real or
personal, which is the subject of the mortgage. Generally speaking, he should accept the
qualification of the property adapted by the person who presents the instrument for registration
and should place the instrument on record, upon payment of the proper fee, leaving the effects
of registration to be determined by the court if such question should arise for legal
determination.

DECISION

STREET, J. :

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

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

The clauses in said document describing the property intended to be thus mortgaged are
expressed in the following words:jgc:chanrobles.com.ph

"Now, therefore, the mortgagor hereby conveys and transfers to the mortgagee, by way of
mortgage, the following described personal property, situated in the City of Manila, and now in
possession of the mortgagor, to wit:jgc:chanrobles.com.ph

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

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"(2) The building, property of the mortgagor, situated on the aforesaid leased premises."cralaw
virtua1aw library

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

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

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

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

The point submitted to us in this case was determined on September 8, 1914, in an


administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this
Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First
Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here added
to the observations contained in said ruling. We accordingly quote therefrom as
follows:jgc:chanrobles.com.ph

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

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

"Based principally upon the provision of section quoted the Attorney-General of the Philippine
Islands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to
pass upon the capacity of the parties to a chattel mortgage which is presented to him for record.
A fortiori a register of deeds can have no authority to pass upon the character of the property
sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be held ineffective as against third
parties, but this is a question to be determined by the courts of justice and not by the register of
deeds."cralaw virtua1aw library

In Leung Yee v. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held
that where the interest conveyed is of the nature of real property, the placing of the document
on record in the chattel mortgage register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function of the register of deeds in placing
the document on record.

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

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

Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.

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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


Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26,
1999 Resolution[3] denying reconsideration. The decretal portion of the CA Decision 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 Resolution[8] 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.

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.
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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:

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

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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:

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

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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. Wearever Textile
Mills[20] also held that the machinery used in a factory and essential to the industry, as in
the present case, was a proper subject of a writ of replevin because it 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 consideredas 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.

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It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar as the
contracting parties are concerned.[22] Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no showing
that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and the
validity of the lease agreement itself.[25] In their Reply to respondents Comment, they
further allege that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the contract are
the lis mota of the civil action pending before the RTC. A resolution of these questions,
therefore, is effectively a resolution of the merits of the case. Hence, they should be
threshed out in the trial, not in the proceedings involving the issuance of the Writ of
Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy under
Rule 60 was that questions involving title to the subject property questions which
petitioners are now raising -- should be determined in the trial.In that case, the Court
noted that the remedy of defendants under Rule 60 was either to post a counter-bond or
to question the sufficiency of the plaintiffs bond. They were not allowed, however, to
invoke the title to the subject property. The Court ruled:

In other words, the law does not allow the defendant to file a motion to dissolve or discharge the
writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied
upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put at
issue the matter of the title or right of possession over the specific chattel being replevied, the
policy apparently being that said matter should be ventilated and determined only at the trial on
the merits.[28]

Besides, these questions require a determination of facts and a presentation of


evidence, both of which have no place in a petition for certiorari in the CA under Rule 65
or in a petition for review in this Court under Rule 45.[29]

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In fact,
petitioners assailed it first only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed valid and binding as the law
between the parties.

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Makati Leasing and Finance Corporation[30] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent had allegedly been required to
sign a printed form of chattel mortgage which was in a blank form at the time of
signing. The Court rejected the argument and relied on the Deed, ruling as follows:

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.

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SALVADOR PIANSAY and CLAUDlA V. VDA. DE UY KIM, Plaintiffs-Appellants, v.
CONRADO S. DAVID and MARCOS MANGUBAT, Defendants-Appellees.

SYLLABUS

1. JUDGMENTS; RES JUDICATA; FINAL RULING IN ONE CASE OVER SAME ISSUE IS
CONCLUSIVE IN ANOTHER CASE BETWEEN SAME PARTIES. — Where the chattel mortgage and
sale in favor of a party had been annulled in the decision in one case, which order became final
and executory, it is held that said party is now barred from asserting against the same adverse
party in another case that the said chattel mortgage and scale are valid.

2. MORTGAGES; CHATTEL MORTGAGE ON A HOUSE CANNOT BIND THIRD PERSONS NOT


PARTIES TO SAID CONTRACT. — A contract constituting a chattel mortgage on a house cannot
bind third persons not parties to said contract or their privies.

DECISION

CONCEPCION, J.:

This is an appeal from an order of the Court of First Instance of Manila in Civil Case No. 47664
thereof. The pertinent facts are set forth in said order from which we
quote:jgc:chanrobles.com.ph

"It appears from the complaint that on December 11, 1943, defendant herein Conrado S. David
received a loan of P3,000 with interest at 12% per annum from Claudia B. Vda. de Uy Kim, one
of the plaintiffs, and to secure the payment of the same, Conrado S. David executed a chattel
mortgage on a house situated at 1259 Sande Street, Tondo, Manila; that the chattel mortgage
was registered with the Register of Deeds of Manila on December 19, 1948; that on February
10, 1953, the mortgaged house was sold at public auction to satisfy the indebtedness to Claudia
B. Vda. de Uy Kim, and the house was sold to Claudia B. Vda. de Uy Kim in the said foreclosure
proceedings; that on March 22, 1954, Claudia B. Vda. de Uy Kim sold the same house to her co-
plaintiff, Salvador Piansay for the sum of P5,000.00; that on November 22, 1949, defendant
Conrado S. David mortgaged the said house to Marcos Mangubat, and on March 1, 1956, Marcos
Mangubat filed a complaint against Conrado S. David, Civil Case No. 29078, in the Court of First
Instance of Manila, for the collection of the loan of P2,000; that on March 24, 1956, the
complaint was amended to include the plaintiffs herein Salvador Piansay and Claudia B. Vda. de
Uy Kim as party defendants and praying that auction sale executed by the Sheriff on February
10, 1953, and the deed of absolute sale executed by Claudia B. Vda. de Uy Kim in favor of
Salvador Piansay be annulled; that decision was rendered in Civil Case No. 29078 ordering
Conrado S. David to pay the plaintiff the sum of P2,000, damages and attorney’s fees, and
dismissing the complaint with respect to Claudia B. Vda. de Uy Kim, Leonardo Uy Kim and
Salvador Piansay; that upon appeal, the Court of Appeals affirmed the decision but setting aside
the award of damages in favor of Claudia B. Vda. de Uy Kim; that in the execution of Civil Case
No. 29078 which was affirmed by the Court of Appeals in CA-G.R. No. 21797-R, the house which
had been bought by Uy Kim at the foreclosure proceedings and sold by her to Salvador Piansay
was levied upon at the instance of the defendant Marcos Mangubat; that to prevent the sale at
public auction of the house here in question, the plaintiffs herein filed a petition for certiorari and
mandamus with preliminary injunction in the Court of Appeals, CA-G.R. No. 28974-R, entitled

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Claudia B. Vda. de Uy Kim and Salvador Piansay versus Hon. Judge Jesus Y. Perez, Et. Al.; that
acting upon the said petition, the Court of Appeals in its order of April 28, 1961, denied the
petition to lift or discharge the writ of execution."cralaw virtua1aw library

Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to as the
plaintiffs, instituted the present action, which was docketed as Civil Case No. 47664 of the Court
of First Instance of Manila, against David and Mangubat, hereinafter referred to as the
defendants. In their complaint plaintiffs, after averring the foregoing facts, allege that, in the
proceedings for the execution of the decision in Civil Case No. 29078, David demanded from
Piansay the payment of rentals for the use and occupation of the house aforementioned, which,
Piansay claims, is his property, and that the defendants are threatening to cause said house to
be levied upon and sold at public auction in violation of the alleged rights of the plaintiffs.
Accordingly, plaintiffs prayed that a writ of preliminary injunction to restrain said levy and sale
at public auction be issued and that, after appropriate proceedings, judgment be rendered
declaring that Piansay is the true and lawful owner of said house, sentencing the defendants to
pay damages and making the preliminary injunction permanent.

Mangubat moved to dismiss said complaint, upon the theory that the same is barred by the
principle of res judicata and that plaintiffs have no personality to bring this action or to question
the levy upon the house in question, because they have no interest therein. After due hearing
the lower court issued the order appealed from granting said motion and dismissing the
complaint, with costs against the plaintiffs. A reconsideration of said order having been denied,
plaintiffs interposed the present appeal directly to this Court, only questions of law being raised
in the appeal, namely: (1) applicability of the principle of res judicata; and (2) validity of the
chattel mortgage constituted in favor of Mrs. Uy Kim.

With reference to the first question, it should be noted that in case CA-G.R. No. 21797-R, the
Court of Appeals affirmed the decision in Case No. 29078 of the Court of First Instance of Manila,
stating:jgc:chanrobles.com.ph

"In the case of Ladera, Et. Al. v. Hodges, Et. Al. (CA-G.R. No. 8027-R, promulgated Sept. 23,
1952) this Court, thru Justice J. B. L. Reyes, said, among others:chanrob1es virtual 1aw library

‘Since it is a rule in our law that buildings and constructions are regarded as mere accessories to
the land (following the Roman maxim omne quod solo inaedificatur solo credit) it is logical that
said accessories should partake of the nature of the principal thing, which is the land, forming,
as they do, but a single object (res) with it in contemplation of law.’

‘. . . While it is true that said document was correspondingly registered in the Chattel Mortgage
Register of Rizal, this Act produced no effect whatsoever for where the interest conveyed is in
the nature of real property, the registration of the document in the registry of chattels is merely
a futile act. Thus the registration of the chattel mortgage of a building of strong materials
produced no effect as far as the building is concerned (Leung Yee v. Strong Machinery Co., 37
Phil. 644). Nor can we give any consideration to that contention of the surety that it has
acquired ownership over the property in question by reason of the sale conducted by the
Provincial Sheriff of Rizal for as this court has aptly pronounced:chanrob1es virtual 1aw library

‘A mortgage creditor who purchases real properties at an extra- judicial foreclosure sale thereof
by virtue of a chattel mortgage constituted in his favor, which mortgage has been declared null
and void with respect to said real properties, acquires no right thereto by virtue of said sale’. (De
la Riva v. Ah Kee, 60 Phil. 899).

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"Thus Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage constituted in her
favor,, because it was in reality a mere contract of an unsecured loan. It follows that the Sheriff
was not authorized to sell the house as a result of the foreclosure of such chattel mortgage. And
as Mrs. Uy Kim could not have acquired the house when the Sheriff sold it at public auction, she
could not, in the same token, have sold it validly to Salvador Piansay. Conceding that the
contract of sale between Mrs. Uy Kim and Salvador Piansay was of no effect, we cannot
nevertheless set it aside upon instance of Mangubat because, as the court below opined, he is
not a party thereto nor has he any interest in the subject matter therein, as it was never sold or
mortgaged to him" (Italics supplied);

that, thereafter, the records of the case was remanded to the Court of First Instance of Manila,
which caused the corresponding writ of execution to be issued; that upon the request of
Mangubat, the house in question was levied upon; that Piansay filed with the trial court,
presided over by Hon. Jesus Y. Perez, Judge, a motion to set aside said levy; that this motion
was denied by said court, in an order dated February 4, 1961, upon the following
ground:jgc:chanrobles.com.ph

"Considering that the decision rendered by the Court of Appeals in this case when the same was
elevated to said Court recognizes that defendant Claudia B. de Uy Lim did not acquire the house
of defendant Conrado S. David and can therefore be executed by the plaintiff to satisfy the
judgment rendered against said defendant David in favor of the plaintiff. The mere fact that the
dispositive part of the decision states that the complaint is dismissed with respect to defendants
Claudia B. de Uy Kim, Leonardo Uy Kim and Salvador Piansay is of no moment because the
chattel mortgage executed by David in favor of Claudia B. de Uy Kim might not be annulled but
it did not transmit any right from defendant David to Claudia B. de Uy Kim. The house in
question can therefore be levied upon because it had remained the property of defendant David"
(Italics supplied);

that a reconsideration of this order of February 4, 1961 having been denied by Judge Perez, on
February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-R of the Court of Appeals, for a
writ of certiorariand mandamus to annul said orders of Judge Perez and to compel him to release
said house from the aforementioned levy; and that on March 3, 1961, the Court of Appeals
denied said petition for certiorariand mandamus "insofar as it prays that the order of respondent
Judge denying the lifting and discharge of the writ of execution be set aside and revoked."cralaw
virtua1aw library

In other words, in Civil Case No. 29078 of the Court of First Instance of Manila, Piansay assailed
the right of Mangubat to levy execution upon the house in question alleging that the same
belongs to him, he having bought it from Mrs. Uy Kim, who had acquired it at the auction sale
held in connection with the extrajudicial foreclosure of the chattel mortgage constituted in her
favor by David. This pretense was, however, overruled by Judge Perez, who presided said court,
in its order of February 4, 1961, upon the theory that the chattel mortgage and sale in favor of
Mrs. Uy Kim had been annulled in the original decision in said case, as affirmed by the Court of
Appeals in CA-G.R. No. 21797-R. Regardless of whether this theory is accurate or not, the fact is
that said order became final and executory upon the denial of the petition for certiorari and
mandamus, to annul the same, in CA-G.R. No. 28974-R of the Court of Appeals. Hence, plaintiffs
are not barred from asserting that the aforementioned chattel mortgage and sale are valid.

At any rate, regardless of the validity of a contract constituting a chattel mortgage on a house,
as between the parties to said contract (Standard Oil Co. of N.Y. v. Jaramillo, 44 Phil. 632- 633),

12
the same cannot and does not bind third persons, who are not parties to the aforementioned
contract or their privies (Leung Yes v. Strong Machinery Co., 37 Phil. 644; Evangelista v. Alto
Surety, G.R. No. L-11139, April 23, 1958; Navarro v. Pineda, G.R. No. L-18456, November 30,
1963). As a consequence, the sale of the house in question in the proceedings for the extra-
judicial foreclosure of said chattel mortgage, is null and void insofar as defendant Mangubat is
concerned, and did not confer upon Mrs. Uy Kim, as buyer in said sale, any dominical right in
and to said house (De la Riva v. Ah Yee, 60 Phil. 800), so that she could not have transmitted to
her assignee, plaintiff Piansay, any such right as against defendant Mangubat. In short, plaintiffs
have no cause of action against the defendants herein.

WHEREFORE, the orders appealed from are hereby affirmed, with costs against plaintiffs
Salvador Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.

Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal,
Bengzon, J.P. and Zaldivar, JJ., concur.

13
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,
14
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.

15
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).

16
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.

17
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.

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.)
18
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.

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