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.

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

B.H. BERKENKOTTER, plaintiff-appellant,

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

Briones and Martinez for appellant.

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

VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the
Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu
Unjiengs e Hijos et al., with costs.

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

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

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner
of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants,
Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and
land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line,
apparatus, utensils and whatever forms part or is necessary complement of said sugar-
cane mill, steel railway, telephone line, now existing or that may in the future exist is
said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat
Sugar Co., Inc., decided to increase the capacity of its sugar central by buying
additional machinery and equipment, so that instead of milling 150 tons daily, it could
produce 250. The estimated cost of said additional machinery and equipment was
approximately P100,000. In order to carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary
amount for the purchase of said machinery and equipment, promising to reimburse him
as soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated
October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year,
delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc.,
the total amount supplied by him to said B.A. Green having been P25,750. Furthermore,
B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary.
With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.

On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to
Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional
machinery and equipment acquired by said B.A. Green and installed in the sugar central
after the execution of the original mortgage deed, on April 27, 1927, together with
whatever additional equipment acquired with said loan. B.A. Green failed to obtain said
loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits,
and rents not collected when the obligation falls due, and the amount of any indemnities
paid or due the owner by the insurers of the mortgaged property or by virtue of the
exercise of the power of eminent domain, with the declarations, amplifications, and
limitations established by law, whether the estate continues in the possession of the
person who mortgaged it or whether it passes into the hands of a third person.

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

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND

FIXTURES. — It is a rule, established by the Civil Code and also by the Mortgage Law,
with which the decisions of the courts of the United States are in accord, that in a
mortgage of real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although they may have
been placed there after the mortgage was constituted, are also included. (Arts. 110 and
111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court
in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct.
Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may

be understood that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the mortgage, when it was
stated in the mortgage that the improvements, buildings, and machinery that existed
thereon were also comprehended, it is indispensable that the exclusion thereof be
stipulated between the contracting parties.

The appellant contends that the installation of the machinery and equipment claimed by
him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in
character inasmuch as B.A. Green, in proposing to him to advance the money for the
purchase thereof, made it appear in the letter, Exhibit E, that in case B.A. Green should
fail to obtain an additional loan from the defendants Cu Unjieng e Hijos, said machinery
and equipment would become security therefor, said B.A. Green binding himself not to
mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the
corporation's indebtedness to him.

Upon acquiring the machinery and equipment in question with money obtained as loan
from the plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc.,
the latter became owner of said machinery and equipment, otherwise B.A. Green, as
such president, could not have offered them to the plaintiff as security for the payment
of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner of any
building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade or industry.

If the installation of the machinery and equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its
sugar industry, converted them into real property by reason of their purpose, it cannot
be said that their incorporation therewith was not permanent in character because, as
essential and principal elements of a sugar central, without them the sugar central
would be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for which it has
been established must necessarily be permanent.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to
hold said machinery and equipment as security for the payment of the latter's credit and
to refrain from mortgaging or otherwise encumbering them until Berkenkotter has been
fully reimbursed therefor, is not incompatible with the permanent character of the
incorporation of said machinery and equipment with the sugar central of the Mabalacat
Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at
least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant
after they had been permanently incorporated with sugar central of the Mabalacat Sugar
Co., Inc., and while the mortgage constituted on said sugar central to Cu Unjieng e
Hijos remained in force, only the right of redemption of the vendor Mabalacat Sugar Co.,
Inc., in the sugar central with which said machinery and equipment had been
incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng
e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the
installation of a machinery and equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out the industrial functions of the
latter and increasing production, constitutes a permanent improvement on said sugar
central and subjects said machinery and equipment to the mortgage constituted thereon
(article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and
equipment has bound himself to the person supplying him the purchase money to hold
them as security for the payment of the latter's credit, and to refrain from mortgaging or
otherwise encumbering them does not alter the permanent character of the
incorporation of said machinery and equipment with the central; and (3) that the sale of
the machinery and equipment in question by the purchaser who was supplied the
purchase money, as a loan, to the person who supplied the money, after the
incorporation thereof with the mortgaged sugar central, does not vest the creditor with
ownership of said machinery and equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with
costs to the appellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.

G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,

vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.

Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B.
Macatangay for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name
of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident
of the same province, dropped at Lopez' house and invited him to make an investment
in the theatre business. It was intimated that Orosa, his family and close friends were
organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such
venture. Although Lopez expressed his unwillingness to invest of the same, he agreed
to supply the lumber necessary for the construction of the proposed theatre, and at
Orosa's behest and assurance that the latter would be personally liable for any account
that the said construction might incur, Lopez further agreed that payment therefor would
be on demand and not cash on delivery basis. Pursuant to said verbal agreement,
Lopez delivered the lumber which was used for the construction of the Plaza Theatre on
May 17, 1946, up to December 4 of the same year. But of the total cost of the materials
amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with
an area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was
acquired by the corporation on September 25, 1946, for P6,000. As Lopez was pressing
Orosa for payment of the remaining unpaid obligation, the latter and Belarmino Rustia,
the president of the corporation, promised to obtain a bank loan by mortgaging the
properties of the Plaza Theatre., out of which said amount of P41,771.35 would be
satisfied, to which assurance Lopez had to accede. Unknown to him, however, as early
as November, 1946, the corporation already got a loan for P30,000 from the Philippine
National Bank with the Luzon Surety Company as surety, and the corporation in turn
executed a mortgage on the land and building in favor of said company as counter-
security. As the land at that time was not yet brought under the operation of the Torrens
System, the mortgage on the same was registered on November 16, 1946, under Act
No. 3344. Subsequently, when the corporation applied for the registration of the land
under Act 496, such mortgage was not revealed and thus Original Certificate of Title No.
O-391 was correspondingly issued on October 25, 1947, without any encumbrance
appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente
Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420
shares of stock of the Plaza Theater, Inc., at P100 per share or with a total value of
P42,000 in favor of the creditor, and as the obligation still remained unsettled, Lopez
filed on November 12, 1947, a complaint with the Court of First Instance of Batangas
(Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr. and Plaza
Theater, Inc., praying that defendants be sentenced to pay him jointly and severally the
sum of P41,771.35, with legal interest from the firing of the action; that in case
defendants fail to pay the same, that the building and the land covered by OCT No. O-
391 owned by the corporation be sold at public auction and the proceeds thereof be
applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza
Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction
for the same purpose; and for such other remedies as may be warranted by the
circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said
properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first
denying that the materials were delivered to him as a promoter and later treasurer of the
corporation, because he had purchased and received the same on his personal
account; that the land on which the movie house was constructed was not charged with
a lien to secure the payment of the aforementioned unpaid obligation; and that the 420
shares of stock of the Plaza Theatre, Inc., was not assigned to plaintiff as collaterals but
as direct security for the payment of his indebtedness. As special defense, this
defendant contended that as the 420 shares of stock assigned and conveyed by the
assignor and accepted by Lopez as direct security for the payment of the amount of
P41,771.35 were personal properties, plaintiff was barred from recovering any
deficiency if the proceeds of the sale thereof at public auction would not be sufficient to
cover and satisfy the obligation. It was thus prayed that he be declared exempted from
the payment of any deficiency in case the proceeds from the sale of said personal
properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of
defense by alleging that the building materials delivered to Orosa were on the latter's
personal account; and that there was no understanding that said materials would be
paid jointly and severally by Orosa and the corporation, nor was a lien charged on the
properties of the latter to secure payment of the same obligation. As special defense,
defendant corporation averred that while it was true that the materials purchased by
Orosa were sold by the latter to the corporation, such transactions were in good faith
and for valuable consideration thus when plaintiff failed to claim said materials within 30
days from the time of removal thereof from Orosa, lumber became a different and
distinct specie and plaintiff lost whatever rights he might have in the same and
consequently had no recourse against the Plaza Theatre, Inc., that the claim could not
have been refectionary credit, for such kind of obligation referred to an indebtedness
incurred in the repair or reconstruction of something already existing and this concept
did not include an entirely new work; and that the Plaza Theatre, Inc., having been
incorporated on October 14, 1946, it could not have contracted any obligation prior to
said date. It was, therefore, prayed that the complaint be dismissed; that said defendant
be awarded the sum P 5,000 for damages, and such other relief as may be just and
proper in the premises.

The surety company, in the meantime, upon discovery that the land was already
registered under the Torrens System and that there was a notice of lis pendens thereon,
filed on August 17, 1948, or within the 1-year period after the issuance of the certificate
of title, a petition for review of the decree of the land registration court dated October 18,
1947, which was made the basis of OCT No. O-319, in order to annotate the rights and
interests of the surety company over said properties (Land Registration Case No. 17
GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez, asserting that
the amount demanded by him constituted a preferred lien over the properties of the
obligors; that the surety company was guilty of negligence when it failed to present an
opposition to the application for registration of the property; and that if any violation of
the rights and interest of said surety would ever be made, same must be subject to the
lien in his favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the lower
Court, after making an exhaustive and detailed analysis of the respective stands of the
parties and the evidence adduced at the trial, held that defendants Vicente Orosa, Jr.,
and the Plaza Theatre, Inc., were jointly liable for the unpaid balance of the cost of
lumber used in the construction of the building and the plaintiff thus acquired the
materialman's lien over the same. In making the pronouncement that the lien was
merely confined to the building and did not extend to the land on which the construction
was made, the trial judge took into consideration the fact that when plaintiff started the
delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the
mortgage in favor of Luzon Surety Company was previously registered under Act No.
3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying that
refection credits are preferred could refer only to buildings which are also classified as
real properties, upon which said refection was made. It was, however, declared that
plaintiff's lien on the building was superior to the right of the surety company. And
finding that the Plaza Theatre, Inc., had no objection to the review of the decree issued
in its favor by the land registration court and the inclusion in the title of the encumbrance
in favor of the surety company, the court a quo granted the petition filed by the latter
company. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay
jointly the amount of P41,771.35 with legal interest and costs within 90 days from notice
of said decision; that in case of default, the 420 shares of stock assigned by Orosa to
plaintiff be sold at public auction and the proceeds thereof be applied to the payment of
the amount due the plaintiff, plus interest and costs; and that the encumbrance in favor
of the surety company be endorsed at the back of OCT No. O-391, with notation I that
with respect to the building, said mortgage was subject to the materialman's lien in favor
of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the
obligation of therein defendants was joint instead of solidary, and that the lien did not
extend to the land, but same was denied by order the court of December 23, 1952. The
matter was thus appealed to the Court of appeals, which affirmed the lower court's
ruling, and then to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1)
whether a materialman's lien for the value of the materials used in the construction of a
building attaches to said structure alone and does not extend to the land on which the
building is adhered to; and (2) whether the lower court and the Court of Appeals erred in
not providing that the material mans liens is superior to the mortgage executed in favor
surety company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against
the part of the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay
jointly the sum of P41,771.35, so We will not take up or consider anything on that point.
Appellant, however, contends that the lien created in favor of the furnisher of the
materials used for the construction, repair or refection of a building, is also extended to
the land which the construction was made, and in support thereof he relies on Article
1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:

xxx xxx xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which
the refection was made, and only with respect to other credits different from those
mentioned in four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable
property, and inasmuch as said provision does not contain any specification delimiting
the lien to the building, said article must be construed as to embrace both the land and
the building or structure adhering thereto. We cannot subscribe to this view, for while it
is true that generally, real estate connotes the land and the building constructed
thereon, it is obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties1 could mean only one
thing — that a building is by itself an immovable property, a doctrine already
pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co., 37 Phil.,
644. Moreover, and in view of the absence of any specific provision of law to the
contrary, a building is an immovable property, irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that
the law gives preference to unregistered refectionary credits only with respect to the real
estate upon which the refection or work was made. This being so, the inevitable
conclusion must be that the lien so created attaches merely to the immovable property
for the construction or repair of which the obligation was incurred. Evidently, therefore,
the lien in favor of appellant for the unpaid value of the lumber used in the construction
of the building attaches only to said structure and to no other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be
charged only to the building for which the credit was made or which received the benefit
of refection, the lower court was right in, holding at the interest of the mortgagee over
the land is superior and cannot be made subject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed
from is hereby affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.
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 Ayala10 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 Mortgage23 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. Nos. L-10837-38 May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,

vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.

ISABEL IYA, plaintiff,

vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY
COMPANY. INC., defendants.

Jovita L. de Dios for defendant Isabel Iya.

M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety
Co., Inc.

FELIX, J.:

Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors
of a house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park
Subdivision in Caloocan, Rizal, which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on
credit rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00
(AISCO Bond No. G-971) subscribed by the Associated Insurance and Surety Co., Inc.,
and as counter-guaranty therefor, the spouses Valino executed an alleged chattel
mortgage on the aforementioned house in favor of the surety company, which
encumbrance was duly registered with the Chattel Mortgage Register of Rizal on
December 6, 1951. It is admitted that at the time said undertaking took place, the parcel
of land on which the house is erected was still registered in the name of the Philippine
Realty Corporation. Having completed payment on the purchase price of the lot, the
Valinos were able to secure on October 18, 1958, a certificate of title in their name
(T.C.T. No. 27884). Subsequently, however, or on October 24, 1952, the Valinos, to
secure payment of an indebtedness in the amount of P12,000.00, executed a real
estate mortgage over the lot and the house in favor of Isabel Iya, which was duly
registered and annotated at the back of the certificate of title.

On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the
surety company was compelled to pay the same pursuant to the undertaking of the
bond. In turn, the surety company demanded reimbursement from the spouses Valino,
and as the latter likewise failed to do so, the company foreclosed the chattel mortgage
over the house. As a result thereof, a public sale was conducted by the Provincial
Sheriff of Rizal on December 26, 1952, wherein the property was awarded to the surety
company for P8,000.00, the highest bid received therefor. The surety company then
caused the said house to be declared in its name for tax purposes (Tax Declaration No.
25128).

Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements
thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First
Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as
defendants. The complaint prayed for the exclusion of the residential house from the
real estate mortgage in favor of defendant Iya and the declaration and recognition of
plaintiff's right to ownership over the same in virtue of the award given by the Provincial
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise
asked the Court to sentence the spouses Valino to pay said surety moral and exemplary
damages, attorney's fees and costs. Defendant Isabel Iya filed her answer to the
complaint alleging among other things, that in virtue of the real estate mortgage
executed by her co-defendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff
of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and
void for non-compliance with the form required by law. She, therefore, prayed for the
dismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She
also demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of
P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.

Defendants spouses in their answer admitted some of the averments of the complaint
and denied the others. They, however, prayed for the dismissal of the action for lack of
cause of action, it being alleged that plaintiff was already the owner of the house in
question, and as said defendants admitted this fact, the claim of the former was already
satisfied.

On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the
surety company (Civil Case No. 2504 of the Court of First Instance of Manila) stating
that pursuant to the contract of mortgage executed by the spouses Valino on October
24, 1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per
annum or P120.00 a month, which indebtedness was payable in 4 years, extendible for
only one year; that to secure payment thereof, said defendants mortgaged the house
and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was
included as a party defendant because it claimed to have an interest on the residential
house also covered by said mortgage; that it was stipulated in the aforesaid real estate
mortgage that default in the payment of the interest agreed upon would entitle the
mortgagee to foreclose the same even before the lapse of the 4-year period; and as
defendant spouses had allegedly failed to pay the interest for more than 6 months,
plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with
interest thereon at 12% per annum from March 25, 1953, until fully paid; for an
additional sum equivalent to 20% of the total obligation as damages, and for costs. As
an alternative in case such demand may not be met and satisfied plaintiff prayed for a
decree of foreclosure of the land, building and other improvements thereon to be sold at
public auction and the proceeds thereof applied to satisfy the demands of plaintiff; that
the Valinos, the surety company and any other person claiming interest on the
mortgaged properties be barred and foreclosed of all rights, claims or equity of
redemption in said properties; and for deficiency judgment in case the proceeds of the
sale of the mortgaged property would be insufficient to satisfy the claim of plaintiff.

Defendant surety company, in answer to this complaint insisted on its right over the
building, arguing that as the lot on which the house was constructed did not belong to
the spouses at the time the chattel mortgage was executed, the house might be
considered only as a personal property and that the encumbrance thereof and the
subsequent foreclosure proceedings made pursuant to the provisions of the Chattel
Mortgage Law were proper and legal. Defendant therefore prayed that said building be
excluded from the real estate mortgage and its right over the same be declared superior
to that of plaintiff, for damages, attorney's fees and costs.

Taking side with the surety company, defendant spouses admitted the due execution of
the mortgage upon the land but assailed the allegation that the building was included
thereon, it being contended that it was already encumbered in favor of the surety
company before the real estate mortgage was executed, a fact made known to plaintiff
during the preparation of said contract and to which the latter offered no objection. As a
special defense, it was asserted that the action was premature because the contract
was for a period of 4 years, which had not yet elapsed.

The two cases were jointly heard upon agreement of the parties, who submitted the
same on a stipulation of facts, after which the Court rendered judgment dated March 8,
1956, holding that the chattel mortgage in favor of the Associated Insurance and Surety
Co., Inc., was preferred and superior over the real estate mortgage subsequently
executed in favor of Isabel Iya. It was ruled that as the Valinos were not yet the
registered owner of the land on which the building in question was constructed at the
time the first encumbrance was made, the building then was still a personality and a
chattel mortgage over the same was proper. However, as the mortgagors were already
the owner of the land at the time the contract with Isabel Iya was entered into, the
building was transformed into a real property and the real estate mortgage created
thereon was likewise adjudged as proper. It is to be noted in this connection that there
is no evidence on record to sustain the allegation of the spouses Valino that at the time
they mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of
the mortgaged property, i.e., the house, had previously been mortgaged to the surety
company.

The residential building was, therefore, ordered excluded from the foreclosure prayed
for by Isabel Iya, although the latter could exercise the right of a junior encumbrance. So
the spouses Valino were ordered to pay the amount demanded by said mortgagee or in
their default to have the parcel of land subject of the mortgage sold at public auction for
the satisfaction of Iya's claim.

There is no question as to appellant's right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of 2
mortgages; controversy arise as to which of these encumbrances should receive
preference over the other. The decisive factor in resolving the issue presented by this
appeal is the determination of the nature of the structure litigated upon, for where it be
considered a personality, the foreclosure of the chattel mortgage and the subsequent
sale thereof at public auction, made in accordance with the Chattel Mortgage Law would
be valid and the right acquired by the surety company therefrom would certainly
deserve prior recognition; otherwise, appellant's claim for preference must be granted.
The lower Court, deciding in favor of the surety company, based its ruling on the
premise that as the mortgagors were not the owners of the land on which the building is
erected at the time the first encumbrance was made, said structure partook of the
nature of a personal property and could properly be the subject of a chattel mortgage.
We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:

. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties (Art. 415, new
Civil Code) could only mean one thing — that a building is by itself an immovable
property . . . Moreover, and in view of the absence of any specific provision to the
contrary, a building is an immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner. (Lopez vs.
Orosa, G.R. Nos. supra, p. 98).

A building certainly cannot be divested of its character of a realty by the fact that the
land on which it is constructed belongs to another. To hold it the other way, the
possibility is not remote that it would result in confusion, for to cloak the building with an
uncertain status made dependent on the ownership of the land, would create a situation
where a permanent fixture changes its nature or character as the ownership of the land
changes hands. In the case at bar, as personal properties could only be the subject of a
chattel mortgage (Section 1, Act 3952) and as obviously the structure in question is not
one, the execution of the chattel mortgage covering said building is clearly invalid and a
nullity. 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 a 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 produce no effect as far as the building is
concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give any
consideration to the 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:
A mortgage creditor who purchases real properties at an extrajudicial 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 vs. Ah Keo, 60 Phil., 899).

Wherefore the portion of the decision of the lower Court in these two cases appealed
from holding the rights of the surety company, over the building superior to that of Isabel
Iya and excluding the building from the foreclosure prayed for by the latter is reversed
and appellant Isabel Iya's right to foreclose not only the land but also the building
erected thereon is hereby recognized, and the proceeds of the sale thereof at public
auction (if the land has not yet been sold), shall be applied to the unsatisfied judgment
in favor of Isabel Iya. This decision however is without prejudice to any right that the
Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and
Lucia Valino on account of the mortgage of said building they executed in favor of said
surety company. Without pronouncement as to costs. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L., and Endencia, JJ., concur.

G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS,
respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued
in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said
appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc.,
discounted and assigned several receivables with the former under a Receivable
Purchase Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials inventory as well as
a machinery described as an Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure
of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the
foreclosure failed to gain entry into private respondent's premises and was not able to
effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a
complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI,
docketed as Civil Case No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure,
the enforcement of which was however subsequently restrained upon private
respondent's filing of a motion for reconsideration. After several incidents, the lower
court finally issued on February 11, 1981, an order lifting the restraining order for the
enforcement of the writ of seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by

herein private respondent, set aside the Orders of the lower court and ordered the
return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that
the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage,
because it is a real property pursuant to Article 415 of the new Civil Code, the same
being attached to the ground by means of bolts and the only way to remove it from
respondent's plant would be to drill out or destroy the concrete floor, the reason why all
that the sheriff could do to enfore the writ was to take the main drive motor of said
machinery. The appellate court rejected petitioner's argument that private respondent is
estopped from claiming that the machine is real property by constituting a chattel
mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari. It is
contended by private respondent, however, that the instant petition was rendered moot
and academic by petitioner's act of returning the subject motor drive of respondent's
machinery after the Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the
subject motor drive, it made itself unequivocably clear that said action was without
prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by
the receipt duly signed by respondent's representative. 1 Considering that petitioner has
reserved its right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by such return may
not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties, with
petitioner arguing that it is a personality, while the respondent claiming the contrary, and
was sustained by the appellate court, which accordingly held that the chattel mortgage
constituted thereon is null and void, as contended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where
this Court, speaking through Justice J.B.L. Reyes, ruled:

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 defendants-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 personality. Finally, unlike in
the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons assailed the validity of the chattel
mortgage, 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 personality.

Examining the records of the instant case, We find no logical justification to exclude the
rule out, as the appellate court did, the present case from the application of the
abovequoted pronouncement. 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 rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court
of Appeals lays stress on the fact that the house involved therein was built on a land
that did not belong to the owner of such house. But the law makes no distinction with
respect to the ownership of the land on which the house is built and We should not lay
down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by
the private respondent is indicative of intention and impresses upon the property the
character determined by the parties. As stated in Standard Oil Co. of New York v.
Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement
treat as personal property that which by nature would be real property, as long as no
interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property
but was merely required and dictated on by herein petitioner to sign a printed form of
chattel mortgage which was in a blank form at the time of signing. This contention lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the respondent,
the status of the subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental memorandum
in support of the petition filed in the appellate court. 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. On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates that
one should not benefit at the expense of another. Private respondent could not now
therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent. Moreover,
the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied
upon by said court is not applicable to the case at bar, the nature of the machinery and
equipment involved therein as real properties never having been disputed nor in issue,
and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case
bears more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are
hereby reversed and set aside, and the Orders of the lower court are hereby reinstated,
with costs against the private respondent.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF

QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.

Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following
appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized
the Municipal Board of Manila to grant a franchise to construct, maintain and operate an
electric street railway and electric light, heat and power system in the City of Manila and
its suburbs to the person or persons making the most favorable bid. Charles M. Swift
was awarded the said franchise on March 1903, the terms and conditions of which were
embodied in Ordinance No. 44 approved on March 24, 1903. Respondent Manila
Electric Co. (Meralco for short), became the transferee and owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan

Falls, Laguna and is transmitted to the City of Manila by means of electric transmission
wires, running from the province of Laguna to the said City. These electric transmission
wires which carry high voltage current, are fastened to insulators attached on steel
towers constructed by respondent at intervals, from its hydro-electric plant in the
province of Laguna to the City of Manila. The respondent Meralco has constructed 40 of
these steel towers within Quezon City, on land belonging to it. A photograph of one of
these steel towers is attached to the petition for review, marked Annex A. Three steel
towers were inspected by the lower court and parties and the following were the
descriptions given there of by said court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we deeper until it reached the bottom of
the post; at the bottom of the post were two parallel steel bars attached to the leg
means of bolts; the tower proper was attached to the leg three bolts; with two cross
metals to prevent mobility; there was no concrete foundation but there was adobe stone
underneath; as the bottom of the excavation was covered with water about three inches
high, it could not be determined with certainty to whether said adobe stone was placed
purposely or not, as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in
the first tower, the ground around one of the four legs was excavate from seven to eight
(8) feet deep and one and a half (1-½) meters wide. There being very little water at the
bottom, it was seen that there was no concrete foundation, but there soft adobe
beneath. The leg was likewise provided with two parallel steel bars bolted to a square
metal frame also bolted to each corner. Like the first one, the second tower is made up
of metal rods joined together by means of bolts, so that by unscrewing the bolts, the
tower could be dismantled and reassembled.

The third tower examined is located along Kamias Road, Quezon City. As in the first
two towers given above, the ground around the two legs of the third tower was
excavated to a depth about two or three inches beyond the outside level of the steel bar
foundation. It was found that there was no concrete foundation. Like the two previous
ones, the bottom arrangement of the legs thereof were found to be resting on soft
adobe, which, probably due to high humidity, looks like mud or clay. It was also found
that the square metal frame supporting the legs were not attached to any material or
foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid
steel towers for real property tax under Tax declaration Nos. 31992 and 15549. After
denying respondent's petition to cancel these declarations, an appeal was taken by
respondent to the Board of Assessment Appeals of Quezon City, which required
respondent to pay the amount of P11,651.86 as real property tax on the said steel
towers for the years 1952 to 1956. Respondent paid the amount under protest, and filed
a petition for review in the Court of Tax Appeals (CTA for short) which rendered a
decision on December 29, 1958, ordering the cancellation of the said tax declarations
and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.

In upholding the cause of respondents, the CTA held that: (1) the steel towers come
within the term "poles" which are declared exempt from taxes under part II paragraph 9
of respondent's franchise; (2) the steel towers are personal properties and are not
subject to real property tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are assigned as errors by the
petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature
and by whatsoever authority upon the privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee from which taxes and
assessments the grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484
Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood
or timber, as typically the stem of a small tree stripped of its branches; also by
extension, a similar typically cylindrical piece or object of metal or the like". The term
also refers to "an upright standard to the top of which something is affixed or by which
something is supported; as a dovecote set on a pole; telegraph poles; a tent pole;
sometimes, specifically a vessel's master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel
bars joined together by an interlacing metal rod. They are called "poles" notwithstanding
the fact that they are no made of wood. It must be noted from paragraph 9, above
quoted, that the concept of the "poles" for which exemption is granted, is not determined
by their place or location, nor by the character of the electric current it carries, nor the
material or form of which it is made, but the use to which they are dedicated. In
accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by
which something is supported. As heretofore described, respondent's steel supports
consists of a framework of four steel bars or strips which are bound by steel cross-arms
atop of which are cross-arms supporting five high voltage transmission wires (See
Annex A) and their sole function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term
"poles" is not a novelty. Several courts of last resort in the United States have called
these steel supports "steel towers", and they denominated these supports or towers, as
electric poles. In their decisions the words "towers" and "poles" were used
interchangeably, and it is well understood in that jurisdiction that a transmission tower or
pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law
provided that wires shall be constructed upon suitable poles, this term was construed to
mean either wood or metal poles and in view of the land being subject to overflow, and
the necessary carrying of numerous wires and the distance between poles, the statute
was interpreted to include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212
S.W. 222, 224; 32-A Words and Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires
alongside public highways. The steel supports or towers were made of iron or other
metals consisting of two pieces running from the ground up some thirty feet high, being
wider at the bottom than at the top, the said two metal pieces being connected with
criss-cross iron running from the bottom to the top, constructed like ladders and loaded
with high voltage electricity. In form and structure, they are like the steel towers in
question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged
in the generation of hydro-electric power generated from its plant to the Tower of Oxford
and City of Waterbury. These steel towers are about 15 feet square at the base and
extended to a height of about 35 feet to a point, and are embedded in the cement
foundations sunk in the earth, the top of which extends above the surface of the soil in
the tower of Oxford, and to the towers are attached insulators, arms, and other
equipment capable of carrying wires for the transmission of electric power (Connecticut
Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his
death was built for the purpose of supporting a transmission wire used for carrying high-
tension electric power, but claimed that the steel towers on which it is carried were so
large that their wire took their structure out of the definition of a pole line. It was held
that in defining the word pole, one should not be governed by the wire or material of the
support used, but was considering the danger from any elevated wire carrying electric
current, and that regardless of the size or material wire of its individual members, any
continuous series of structures intended and used solely or primarily for the purpose of
supporting wires carrying electric currents is a pole line (Inspiration Consolidation
Cooper Co. v. Bryan 252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in
the petitioner's franchise, should not be given a restrictive and narrow interpretation, as
to defeat the very object for which the franchise was granted. The poles as
contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the
source thereof to its consumers. If the respondent would be required to employ "wooden
poles", or "rounded poles" as it used to do fifty years back, then one should admit that
the Philippines is one century behind the age of space. It should also be conceded by
now that steel towers, like the ones in question, for obvious reasons, can better
effectuate the purpose for which the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are
not embraced within the term poles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law
does not provide for a definition of real property; but Article 415 of the Civil Code does,
by stating the following are immovable property:

(1) Land, buildings, roads, 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;

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 in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the
soil. They are not construction analogous to buildings nor adhering to the soil. As per
description, given by the lower court, they are removable and merely attached to a
square metal frame by means of bolts, which when unscrewed could easily be
dismantled and moved from place to place. They can not be included under paragraph
3, as they are not attached to an immovable in a fixed manner, and they can be
separated without breaking the material or causing deterioration upon the object to
which they are attached. Each of these steel towers or supports consists of steel bars or
metal strips, joined together by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing the same. These steel towers or
supports do not also fall under paragraph 5, for they are not machineries, receptacles,
instruments or implements, and even if they were, they are not intended for industry or
works on the land. Petitioner is not engaged in an industry or works in the land in which
the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City
to refund the sum of P11,651.86, despite the fact that Quezon City is not a party to the
case. It is argued that as the City Treasurer is not the real party in interest, but Quezon
City, which was not a party to the suit, notwithstanding its capacity to sue and be sued,
he should not be ordered to effect the refund. This question has not been raised in the
court below, and, therefore, it cannot be properly raised for the first time on appeal. The
herein petitioner is indulging in legal technicalities and niceties which do not help him
any; for factually, it was he (City Treasurer) whom had insisted that respondent herein
pay the real estate taxes, which respondent paid under protest. Having acted in his
official capacity as City Treasurer of Quezon City, he would surely know what to do,
under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against
the petitioners.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera
and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.

G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS,
respondents.

AQUINO, J.:

This case is about the imposition of the realty tax on two oil storage tanks installed in
1969 by Manila Electric Company on a lot in San Pascual, Batangas which it leased in
1968 from Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They
have a total capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's
power plants.

According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the intermediate layer and a two-inch thick
bituminous asphalt stratum as the top layer. The bottom of each tank is in contact with
the asphalt layer,

The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to
Meralco, the tank is not attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of the foundation by
bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank
can be floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-
30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with earthen
dikes with electric steel poles on top thereof and is divided into two parts as the site of
each tank. The foundation of the tanks is elevated from the remaining area. On both
sides of the earthen dikes are two separate concrete steps leading to the foundation of
each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch
thick. Pipelines were installed on the sides of each tank and are connected to the
pipelines of the Manila Enterprises Industrial Corporation whose buildings and pumping
station are near Tank No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation
itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to
the land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis of an assessment made by the
provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-
year period from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27,
Rollo). The Board required Meralco to pay the tax and penalties as a condition for
entertaining its appeal from the adverse decision of the Batangas board of assessment
appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance

Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development Jose Roño as members)
in its decision dated November 5, 1976 ruled that the tanks together with the foundation,
walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it
filed a motion for reconsideration which the Board denied in its resolution of November
25, 1977, a copy of which was received by Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the
Board's decision and resolution. It contends that the Board acted without jurisdiction and
committed a grave error of law in holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by destination nor by analogy. Stress
is laid on the fact that the tanks are not attached to the land and that they were placed
on leased land, not on the land owned by Meralco.

This is one of those highly controversial, borderline or penumbral cases on the

classification of property where strong divergent opinions are inevitable. The issue
raised by Meralco has to be resolved in the light of the provisions of the Assessment
Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.

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. — They 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 definition 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.
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.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs.
Atlantic City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things which should
generally be regarded as personal property(84 C.J.S. 171, Note 8). 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).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached
to any land or building. They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and
blacksmith shops of a transportation company were held not subject to realty tax
because they were personal property.

WHEREFORE, the petition is dismissed. The Board's questioned decision and

resolution are affirmed. No costs.

SO ORDERED.

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

Concepcion, Jr., J., is on leave.

Justice Abad Santos, J., took no part.

G.R. No. L-46245 May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation assails
the decision of the Central Board of Assessment Appeals (composed of the Secretary of
Finance as chairman and the Secretaries of Justice and Local Government and
Community Development as members) dated May 6, 1976, holding that Meralco
Securities' oil pipeline is subject to realty tax.

The record reveals that pursuant to a pipeline concession issued under the Petroleum
Act of 1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila
a pipeline system consisting of cylindrical steel pipes joined together and buried not less
than one meter below the surface along the shoulder of the public highway. The portion
passing through Laguna is about thirty kilometers long.

The pipes for white oil products measure fourteen inches in diameter by thirty-six feet
with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil
measure sixteen inches by forty-eight feet with a maximum capacity of 100,000 barrels
daily.

The pipes are embedded in the soil and are firmly and solidly welded together so as to
preclude breakage or damage thereto and prevent leakage or seepage of the oil. The
valves are welded to the pipes so as to make the pipeline system one single piece of
property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes have
to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating
them out of the ground where they are buried. In points where the pipeline traversed
rivers or creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are
permanently attached to the land.

However, Meralco Securities notes that segments of the pipeline can be moved from
one place to another as shown in the permit issued by the Secretary of Public Works
and Communications which permit provides that the government reserves the right to
require the removal or transfer of the pipes by and at the concessionaire's expense
should they be affected by any road repair or improvement.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor
of Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-
6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Biñan and
15806-15810, Calamba, containing the assessed values of portions of the pipeline.

Meralco Securities appealed the assessments to the Board of Assessment Appeals of

Laguna composed of the register of deeds as chairman and the provincial auditor as
member. That board in its decision of June 18, 1975 upheld the assessments (pp. 47-
49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of
Local Government and Community Development Jose Roño as members, ruled that the
pipeline is subject to realty tax (p. 40, Rollo).

A copy of that decision was served on Meralco Securities' counsel on August 27, 1976.
Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which took
effect on June 1, 1974, provides that the Board's decision becomes final and executory
after the lapse of fifteen days from the date of receipt of a copy of the decision by the
appellant.

Under Rule III of the amended rules of procedure of the Central Board of Assessment
Appeals (70 O.G. 10085), a party may ask for the reconsideration of the Board's
decision within fifteen days after receipt. On September 7, 1976 (the eleventh day),
Meralco Securities filed its motion for reconsideration.

Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of which
was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977,
Meralco Securities filed the instant petition for certiorari.

The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and Meralco
Securities was not denied due process of law.

Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to
review the decision of the Central Board of Assessment Appeals and because no
judicial review of the Board's decision is provided for in the Real Property Tax Code,
Meralco Securities' recourse is to file a petition for certiorari.

We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-judicial
functions whereby the record of a particular case is ordered to be elevated for review
and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

The rule is that as to administrative agencies exercising quasi-judicial power there is an

underlying power in the courts to scrutinize the acts of such agencies on questions of
law and jurisdiction even though no right of review is given by the statute (73 C.J.S.
506, note 56).

"The purpose of judicial review is to keep the administrative agency within its jurisdiction
and protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See.
165). The review is a part of the system of checks and balances which is a limitation on
the separation of powers and which forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising quasi-
judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary or
capricious (Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA
139, 158; San Miguel Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64
SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).

The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax under
those laws; that articles 415 and 416 of the Civil Code, defining real and personal
property, have no application to this case; that even under article 415, the steel pipes
can be regarded as realty because they are constructions adhered to the soil and things
attached to the land in a fixed manner and that Meralco Securities is not exempt from
realty tax under the Petroleum Law (pp. 36-40).

Meralco Securities insists that its pipeline is not subject to realty tax because it is not
real property within the meaning of article 415. This contention is not sustainable under
the provisions of the Assessment Law, the Real Property Tax Code and the Civil 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. *

It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in the
earth, carrying with it the right to the use of the soil in which it is placed (Note 21[10],54
C.J.S. 561).

Article 415[l] and [3] provides that real property may consist of constructions of all kinds
adhered to the soil and everything attached to an immovable in a fixed manner, in such
a way that it cannot be separated therefrom without breaking the material or
deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil (Exh.
B, p. 39, Rollo). 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.

Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of
oil, it is in a sense machinery within the meaning of the Real Property Tax Code.

It should be borne in mind that what are being characterized as real property are not the
steel pipes but the pipeline system as a whole. Meralco Securities has apparently two
pipeline systems.

A pipeline for conveying petroleum has been regarded as real property for tax purposes
(Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of
Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed.
2nd 430; 50 C. J. 750, note 86).

The other contention of Meralco Securities is that the Petroleum Law exempts it from
the payment of realty taxes. The alleged exemption is predicated on the following
provisions of that law which exempt Meralco Securities from local taxes and make it
liable for taxes of general application:

ART. 102. Work obligations, taxes, royalties not to be changed.— Work obligations,
special taxes and royalties which are fixed by the provisions of this Act or by the
concession for any of the kinds of concessions to which this Act relates, are considered
as inherent on such concessions after they are granted, and shall not be increased or
decreased during the life of the concession to which they apply; nor shall any other
special taxes or levies be applied to such concessions, nor shall 0concessionaires
under this Act be subject to any provincial, municipal or other local taxes or levies; nor
shall any sales tax be charged on any petroleum produced from the concession or
portion thereof, manufactured by the concessionaire and used in the working of his
concession. All such concessionaires, however, shall be subject to such taxes as are of
general application in addition to taxes and other levies specifically provided in this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always been
imposed by the lawmaking body and later by the President of the Philippines in the
exercise of his lawmaking powers, as shown in section 342 et seq. of the Revised
Administrative Code, Act No. 3995, Commonwealth Act No. 470 and Presidential
Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city, municipality
and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local
tax is imposed by the municipal or city council by virtue of the Local Tax Code,
Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining
the holding of the provincial assessor and the local board of assessment appeals that
Meralco Securities' pipeline system in Laguna is subject to realty tax.

WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs.

SO ORDERED.

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

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

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. 100959. June 29, 1992.]

BENGUET CORPORATION, Petitioner, v. CENTRAL BOARD OF ASSESSMENT

APPEALS, LOCAL BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF
BENGUET, and MUNICIPAL ASSESSOR OF ITOGON, BENGUET, Respondents.

Julio C . Elamparo and Michael C . Chavez for Petitioner.

SYLLABUS

1. TAXATION; REAL PROPERTY TAX; PRESIDENTIAL DECREE 1955 AND

EXECUTIVE ORDER 93; BOTH OPERATE AS WITHDRAWAL OF TAX INCENTIVES;
REASONS THEREOF. — Both P.D. 1955 and E.O. 93 operate as wholesale withdrawal
of tax incentives granted to private entities so that the government may re-examine
existing tax exemptions and restore through the "review mechanism" of the Fiscal
Incentives Review Board only those that are consistent with declared economic policy.
Thuswise, the chief revenue source of the government will not be greatly, if not
unnecessarily, eroded since tax exemptions that were granted on piecemeal basis, and
which have lost relevance to existing programs, are eliminated.

2. ID.; ID.; EXEMPTIONS; CONSTRUED STRICTLY AGAINST TAXPAYERS. —

Petitioner claims that E.O. 93 does not repeal social statutes like P.D. 745, in the same
breath takes refuge in Sec. 1 (e) of the same E.O. 93, to wit: "Section 1. The provisions
of any general or special law to the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby withdrawn except: . . . (e) those
conferred under the four basic codes, namely: . . . (iv) the Real Property Tax Code, as
amended . . . ." in relation to Sec. 40 of the Real Property Tax Code, which provides:
"Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: . . .
(g) Real property exempt under other laws," and concluding that P.D. 745 is one of the
"other laws" referred to. We do not agree. If We are to sanction this interpretation, then
necessarily all real properties exempt by any law would be covered, and there would be
no need for the legislature to specify "Real Property Tax Code, as amended," instead of
stating clearly "realty tax exemption laws." Indubitably, the intention is to limit the
application of the "exception clause" only to those conferred by the Real Property Tax
Code. This is not only a logical construction of the provisions but more so in keeping
with the principle of statutory construction that tax exemptions are construed strictly
against taxpayers, hence, they cannot be created by mere implication but must be
clearly provided by law. Non-exemption, in case of doubt, is favored. Quite obviously,
the exception in Sec. 1 (e), (iv), of E.O. 93, refers to "those conferred under . . . Real
Property Tax Code, as amended," and that the exemption claimed by petitioner is
granted not by the Real Property Tax Code but by P.D. 745.

3. ID.; ID.; LEVIED BY THE NATIONAL GOVERNMENT; ENFORCEMENT OF TAX

CODE TO BE DONE BY THE LOCAL GOVERNMENTS. — While local government
units are charged with fixing the rate of real property taxes, it does not necessarily
follow from that authority the determination of whether or not to impose the tax. In fact,
local governments have no alternative but to collect taxes as mandated in Sec. 38 of the
Real Property Tax Code, which states: "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."
It is thus clear from the foregoing that it is the national government, expressing itself
through the legislative branch, that levies the real property tax. Consequently, when
local governments are required to fix the rates, they are merely constituted as agents of
the national government in the enforcement of the Real Property Tax Code. The
delegation of taxing power is not even involved here because the national government
has already imposed realty tax in Sec. 38 above-quoted, leaving only the enforcement
to be done by local governments.

4. REMEDIAL LAW; JURISDICTION; MAY BE RAISED ANYTIME EVEN DURING

APPEAL; EXCEPTION. — The Solicitor General observes that the petitioner is
estopped from raising the question of lack of authority to issue the challenged
assessments inasmuch as it was never raised before, hence, not passed upon by, the
municipal and provincial assessors, LBAA and CBAA. This observation is well taken.
The rule that the issue of jurisdiction over subject matter may be raised anytime, even
during appeal, has been qualified where its application results in mockery of the tenets
of fair play, as in this case when the issue could have been disposed of earlier and
more authoritatively by any of the respondents who are supposed to be experts in the
field of realty tax assessment.
DECISION

BELLOSILLO, J.:

BENGUET CORPORATION, in this original petition for certiorari, seeks to annul and set
aside the Decision of the Central Board of Assessment Appeals of May 28, 1991, as
well as the Resolution of July 1, 1991, denying its motion for reconsideration, which
affirmed the decision of respondent Local Board of Assessment Appeals of the Province
of Benguet declaring as valid the tax assessments made by the Municipal Assessor of
Itogon, Benguet, on the bunkhouses of petitioner occupied as dwelling by its rank and
file employees based on Tax Declarations Nos. 8471 and 10454.chanrobles lawlibrary :
rednad

The Provincial Assessor of Benguet, through the Municipal Assessor of Itogon,

assessed real property tax on the bunkhouses of petitioner Benguet Corporation
occupied for residential purposes by its rank and file employees under Tax Declarations
Nos. 8471 (effective 1985) and 10454 (effective 1986). According to the Provincial
Assessor, the tax exemption of bunkhouses under Sec. 3 (a), P.D. 745 (Liberalizing the
Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations
and Partnerships), was withdrawn by P.D. 1955 (Withdrawing, Subject to Certain
Conditions, the Duty and Tax Privileges Granted to Private Business Enterprises and/or
Persons Engaged in Any Economic Activity, and Other Purposes). Petitioner appealed
the assessment on Tax Declarations Nos. 8471 and 10454 to the Local Board of
Assessment Appeals (LBAA) of the Province of Benguet, docketed as LBAA Cases
Nos. 42 and 43, respectively. Both were heard jointly.chanrobles.com : virtual law library

Meanwhile, the parties agreed to suspend hearings in LBAA Cases Nos. 42 and 43 to
await the outcome of another case, LBAA Case No. 41, covering Tax Declaration No.
3534 (effective 1984), which involved the same parties and issue until the appeal was
decided by the Central Board of Assessment Appeals (CBAA). On July 15, 1986, CBAA
handed down its decision in LBAA Case No. 41 holding that the buildings of petitioner
used as dwellings by its rank and file employees were exempt from real property tax
pursuant to P.D. 745.

Thereafter, the proceedings in LBAA Cases Nos. 42 and 43 proceeded after which a
decision was rendered affirming the taxability of subject property of petitioner. On
appeal, CBAA sustained the decision holding that the realty tax exemption under P.D.
745 was withdrawn by P.D. 1955 and E.O. 93, so that petitioner should have applied for
restoration of the exemption with the Fiscal Incentives Review Board (FIRB) The
decision of CBAA clarified that Case No. 41 was different because it was effective prior
to 1985, hence, was not covered by P.D. 1955 nor by E.O. 93.
Petitioner moved for reconsideration but was denied with CBAA holding that petitioner’s
"classification" of P.D. 745 is unavailing because P.D. 1955 and E.O. 93 do not
discriminate against the so-called "social statutes." Hence, this petition.

Encapsulized, the issues raised in the petition are: (1) whether respondent Assessors
may validly assess real property tax on the properties of petitioner considering the
proscription in The Local Tax Code (P.D 231) and the Mineral Resources Development
Decree of 1974 (P.D. 463) against imposition of taxes on mines by local governments;
and, (2) whether the real tax exemption granted under P.D. 745 (promulgated July 15,
1975) was withdrawn by P.D. 1955 (took effect October 15, 1984) and E.O. 93.

Presidential Decree No. 745, particularly Sec. 3 thereof,

provides:jgc:chanrobles.com.ph

"Section 3. Pursuant to the above incentive, such domestic corporations and

partnerships shall enjoy tax exemption on: (a) real estate taxes on the improvements
which will be used exclusively for housing their employees and workers . . ."cralaw
virtua1aw library

Presidential Decree No. 1955, Sec. 1, provides:jgc:chanrobles.com.ph

"Section 1. The provisions of any special or general law to the contrary notwithstanding,
all exemptions from or any preferential treatment in the payment of duties, taxes, fees,
imposts and other charges heretofore granted to private business enterprises and/or
persons engaged in any economic activity are hereby withdrawn, except those enjoyed
by the following: . . . (e) Those that will be approved by the President of the Philippines
upon the recommendation of the Minister of Finance,"

should be read in connection with Ministry Order No. 39-84, Sec. 1 (d), of the then
Ministry of Finance, which took effect October 15, 1984, states:jgc:chanrobles.com.ph

"Section 1. The withdrawal of exemptions from, or any preferential treatment in, the
payment of duties, taxes, fees, imposts and other charges as provided for under
Presidential Decree No. 1955, does not apply to exemptions or preferential treatment
embodied in the following laws: . . . (d) The Real Property Tax Code . . ."cralaw
virtua1aw library

Executive Order No. 93, promulgated December 17, 1986, is also to the same effect.
Both P.D. 1955 and F.O. 93 operate as wholesale withdrawal of tax incentives granted
to private entities so that the government may re-examine existing tax exemptions and
restore through the "review mechanism" of the Fiscal Incentives Review Board only
those that are consistent with declared economic policy. Thus wise, the chief revenue
source of the government will not be greatly, if not unnecessarily, eroded since tax
exemptions that were granted on piecemeal basis, and which have lost relevance to
existing programs, are eliminated.
On the first issue, petitioner contends that local government units are without any
authority to levy realty taxes on mines pursuant to Sec. 52 of P.D. 463, which
states:chanrobles virtual lawlibrary

"Sec. 52. Power to Levy Taxes on Mines Mining Operations and Mineral Products. —
Any law to the contrary notwithstanding, no province, city, municipality, barrio or
municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any
kind whatsoever on mines, mining claims, mineral products, or any operation, process
or activity connected, therewith,"

and Sec. 5 (m) of The Local Tax Code, as amended by P.D. 426 (reiterated in Secs. 17
[d] and 22 [c], same Code), which provides:jgc:chanrobles.com.ph

"Sec. 5. Common limitations on the taxing powers of local governments. — The

exercise of the taxing powers of provinces, cities, municipalities and barrios shall not
extend to the imposition of the following: . . . (m) Taxes on mines, mining operations;
and minerals, mineral products, and their by-products when sold domestically by the
operator . . ."cralaw virtua1aw library

The Solicitor General observes that the petitioner is estopped from raising the question
of lack of authority to issue the challenged assessments inasmuch as it was never
raised before, hence, not passed upon by, the municipal and provincial assessors,
LBAA and CBAA. This observation is well taken. The rule that the issue of jurisdiction
over subject matter may be raised anytime, even during appeal, has been qualified
where its application results in mockery of the tenets of fair play, as in this case when
the issue could have been disposed of earlier and more authoritatively by any of the
respondents who are supposed to be experts in the field of realty tax assessment. As
We held in Suarez v. Court of Appeals: 1

". . . It is settled that any decision rendered. without jurisdiction is a total nullity and may
be struck down at any time, even on appeal before this Court. The only exception is
where the party raising the issue is barred by estoppel (Tijam v. Sibonghanoy, 23 SCRA
29, reiterated in Solid Homes, Inc. v. Payawal and Court of Appeals, G.R. No. 84811,
August 29, 1989; Emphasis supplied).

"While petitioner could have prevented the trial court from exercising jurisdiction over
the case by seasonably taking exception thereto, they instead involved the very same
jurisdiction by filing an answer and seeking affirmative relief from it. What is more, they
participated in the trial of the case by cross-examining Respondent. Upon the premises,
petitioner cannot now be allowed belatedly to adopt an inconsistent posture by attacking
the jurisdiction of the court to which they had submitted themselves voluntarily (Tijam v.
Sibonghanoy, supra)."cralaw virtua1aw library

In Aguinaldo Industries Corporation v. Commissioner of Internal Revenue and the Court

of Tax Appeals, 2 We held:jgc:chanrobles.com.ph
"To allow a litigant to assume a different posture when he comes before the court and
challenge the position he had accepted at the administrative level, would be to sanction
a procedure whereby the court — which is supposed to review administrative
determinations — would not review, but determine and decide for the first time, a
question not raised at the administrative forum. This cannot be permitted, for the same
reason that underlies the requirement of prior exhaustion of administrative remedies to
give administrative authorities the prior opportunity to decide controversies within its
competence, and in much the same way that, on the judicial level, issues not raised in
the lower court cannot be raised for the first time on appeal."cralaw virtua1aw library

Besides, the special civil action of certiorari is available to pass upon the determinations
of administrative bodies where patent denial of due process is alleged as a
consequence of grave abuse of discretion or lack of jurisdiction, or question of law is
raised and no appeal is available. In this case, petitioner may not complain of denial of
due process since it had enough opportunity, but opted not, to raise the issue of
jurisdiction in any of the administrative bodies to which the case may have been
brought.chanrobles virtual lawlibrary

Petitioner argues that realty taxes are local taxes because they are levied by local
government units; citing Sec. 39 of P.D. 464, which provides:jgc:chanrobles.com.ph

"Sec. 39. Rates of Levy. — The provincial, city or municipal board or council shall fix a
uniform rate of real property tax applicable to their respective localities . . ."cralaw
virtua1aw library

While local government units are charged with fixing the rate of real property taxes, it
does not necessarily follow from that authority the determination of whether or not to
impose the tax. In fact, local governments have no alternative but to collect taxes as
mandated in Sec. 38 of the Real Property Tax Code, which
states:jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

It is thus clear from the foregoing that it is the national government, expressing itself
through the legislative branch, that levies the real property tax. Consequently, when
local governments are required to fix the rates, they are merely constituted as agents of
the national government in the enforcement of the Real Property Tax Code. The
delegation of taxing power is not even involved here because the national government
has already imposed realty tax in Sec. 38 above-quoted, leaving only the enforcement
to be done by local governments.
The challenge of petitioner against the applicability of Meralco Securities Industrial
Corporation v. Central Board of Assessment Appeals, Et Al., 3 is unavailing, absent any
cogent reason to overturn the same. Thus —

"Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always been
imposed by the lawmaking body and later by the President of the Philippines in the
exercise of his lawmaking powers, as shown in Sections 342 et seq. of the Revised
Administrative Code, Act No. 3995, Commonwealth Act No 470 and Presidential Decree
No. 464.

"The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city, municipality
and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local
tax is imposed by the municipal or city council by virtue of the Local Tax Code,
Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197)."cralaw
virtua1aw library

Consequently, the provisions of Sec. 52 of the Mineral Resources Development Decree

of 1974 (P.D. 463), and Secs. 5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231)
cited by petitioner are mere limitations on the taxing power of local government units,
they are not pertinent to the issue before Us and, therefore, cannot and should not
affect the imposition of real property tax by the national government.

As regards the second issue, Petitioner, which claims that E.O. 93 does not repeal
social statutes like P.D. 745, in the same breath takes refuge in Sec. 1 (e) of the same
E.O. 93, to wit:chanrobles.com.ph : virtual law library

"Section 1. The provisions of any general or special law to the contrary notwithstanding,
all tax and duty incentives granted to government and private entities are hereby
withdrawn except: . . . (e) those conferred under the four basic codes, namely: . . . (iv)
the Real Property Tax Code, as amended . . ."cralaw virtua1aw library

in relation to Sec. 40 of the Real Property Tax Code, which

provides:jgc:chanrobles.com.ph

"Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: . . .
(g) Real property exempt under other laws,"

and concluding that P.D. 745 is one of the "other laws" referred to.

We do not agree. If We are to sanction this interpretation, then necessarily all real
properties exempt by any law would be covered, and there would be no need for the
legislature to specify "Real Property Tax Code, as amended", instead of stating clearly
"realty tax exemption laws." Indubitably, the intention is to limit the application of the
"exception clause" only to those conferred by the Real Property Tax Code. This is not
only a logical construction of the provisions but more so in keeping with the principle of
statutory construction that tax exemptions are construed strictly against taxpayers,
hence, they cannot be created by mere implication but must be clearly provided by law.
Non-exemption, in case of doubt, is favored.chanrobles virtual lawlibrary

Quite obviously, the exception in Sec. 1 (e), (iv), of E.O. 93, refers to "those conferred
under . . . Real Property Tax Code, as amended", and that the exemption claimed by
petitioner is granted not by the Real Property Tax Code but by P.D. 745. When Sec. 40
(g) of the Property Tax Code provides that" [T]he exemption shall be as follows: . . .
Real Property exempt under other laws." the Code merely recognizes realty tax
exemptions provided by other laws, otherwise, it may unwittingly repeal those "other
laws."

The argument of petitioner that P.D. 745 is a social statute to give flesh to the
Constitutional provisions on housing, hence, not covered by P.D. 1955, was squarely
met by respondent CBAA in its Resolution of July 1, 1991, to which We fully agree —

"The phrase ‘any special or general law’ explicitly indicates that P.D. No. 1955 did not
distinguish between a social statute and an economic or tax legislation. Hence, where
the law does not distinguish, we cannot distinguish. In view thereof, we have no
recourse but to apply the express provision of P.D. No. 1955 and rule in favor of the
withdrawal of the real property tax exemption provided under P.D. No. 745. We also find
without merit the contention of Petitioner-Appellant that B.P. No. 391 (Investment
Incentives Policy Act of 1983) is the source and reason for the existence of P.D. No.
1955; therefore, the scope of P.D. No. 1955 is limited to investment incentives. Although
Section 20 of said B.P. which authorizes the President to restructure investment
incentives systems/legislations to align them with the overall economic development
objectives is one of the declared policies of P.D. No. 1955, its primary aim is the
formulation of national recovery program to meet and overcome the grave emergency
arising from the current economic crisis. Hence, it cannot be maintained that its
provisions apply only to investment incentives.

Besides, even granting that its scope is limited, it is noted that P.D. No. 745 also speaks
of investment incentives in Sections 2 and 3 thereof . . ."cralaw virtua1aw library

In fine, despite the spirited effort put up by petitioner, We find no compelling reason to
disturb the findings and conclusion of public respondents. Petitioner, which even
changed theories midstream, utterly failed to show that respondents, in issuing the
challenged Decision and Resolution, committed grave abuse of discretion amounting to
lack of or excess of jurisdiction.

WHEREFORE, for lack of merit, the instant petition is dismissed, with costs against
petitioner.

SO ORDERED.
Cruz, Griño-Aquino, Medialdea and Bellosillo, JJ., concur.