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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; x x x x x x x x x
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. 6/26/15
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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
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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. x x x x x x x x x 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.
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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
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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 Compaia 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
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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.
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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
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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
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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
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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
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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: x x x x x x x x x 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.
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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 6/26/15 G.R. No. L-30173
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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
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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 defendantsappellants who are entitled
to possession and not plaintiffs-appellees. Therefore, it is argued
by defendantsappellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First
Instance which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the
chattel mortgage on two grounds, which are: (a) that, their
signatures on the chattel mortgage were obtained through fraud,
deceit, or trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being an immovable,
it can only be the subject of a real estate mortgage and not a
chattel mortgage. On the charge of fraud, deceit or trickery, the
Court of First Instance found defendants-appellants' contentions as
not supported by evidence and accordingly dismissed the charge, 8
confirming the earlier finding of the municipal court that "the
defense of ownership as well as the allegations of fraud and deceit
... are mere allegations." 9
It has been held in Supia and Batiaco vs. Quintero and Ayala 10
that "the answer is a mere statement of the facts which the party
filing it expects to prove, but it is not evidence; 11 and further,
that when the question to be determined is one of title, the Court
is given the authority to proceed with the hearing of the cause
until this fact is clearly established. In the case of Sy vs.
Dalman, 12 wherein the defendant was also a successful bidder in an
auction sale, it was likewise held by this Court that in detainer
cases the aim of ownership "is a matter of defense and raises an
issue of fact which should be determined from the evidence at the
trial." What determines jurisdiction are the allegations or
averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit
does not render a contract void ab initio, and can only be a ground
for rendering the contract voidable or annullable pursuant to
Article 1390 of the New Civil Code, by a proper action in court. 14
There is nothing on record to show that the mortgage has been
annulled. Neither is it disclosed that steps were taken to nullify
the same. Hence, defendants-appellants' claim of ownership on the
basis of a voidable contract which has not been voided fails.
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voidable contract which has not been voided fails.
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It is claimed in the alternative by defendants-appellants that
even if there was no fraud, deceit or trickery, the chattel
mortgage was still null and void ab initio because only personal
properties can be subject of a chattel mortgage. The rule about the
status of buildings as immovable property is stated in Lopez vs.
Orosa, Jr. and Plaza Theatre Inc., 15 cited in Associated Insurance
Surety Co., Inc. vs. Iya, et al. 16 to the effect that ... it is
obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real
properties (art. 415, New Civil Code) could only mean one thing
that a building is by itself an immovable property irrespective of
whether or not said structure and the land on which it is adhered
to belong to the same owner. Certain deviations, however, have been
allowed for various reasons. In the case of Manarang and Manarang
vs. Ofilada, 17 this Court stated that "it is undeniable that the
parties to a contract may by agreement treat as personal property
that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter case, the
mortgagor conveyed and transferred to the mortgagee by way of
mortgage "the following described personal property." 19 The
"personal property" consisted of leasehold rights and a building.
Again, in the case of Luna vs. Encarnacion, 20 the subject of the
contract designated as Chattel Mortgage was a house of mixed
materials, and this Court hold therein that it was a valid Chattel
mortgage because it was so expressly designated and specifically
that the property given as security "is a house of mixed materials,
which by its very nature is considered personal property." In the
later case of Navarro vs. Pineda, 21 this Court stated that The
view that parties to a deed of chattel mortgage may agree to
consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L- 11139, 23 April 1958). In a
case, a mortgaged house built on a rented land was held to be a
personal property, not only because the deed of mortgage considered
it as such, but also because it did not form part of the land
(Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled
that an object placed on land by one who had only a temporary right
to the same, such as the lessee or usufructuary, does not become
immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S.
58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil.
709). Hence, if a house belonging to a person stands on a rented
land belonging to another person, it may be mortgaged as a personal
property as so stipulated in the document of mortgage. (Evangelista
vs. Abad, Supra.) It should be noted, however that the principle is
predicated on statements by the owner declaring his house to be a
chattel, a conduct that may conceivably estop him from subsequently
claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not only
expressly designated as Chattel Mortgage; it specifically provides
that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by
way of Chattel Mortgage 23 the property together with its leasehold
rights over the lot on which it is constructed and participation
..." 24
Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring
a property by way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be
allowed to make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot to which
defendats-appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the
property, it does so when combined with other factors to sustain
the interpretation that the parties, particularly the mortgagors,
intended to treat the house as personalty. Finally unlike in the
Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and
Leung Yee vs. F. L. Strong Machinery and Williamson, 26 wherein
third persons assailed the validity of the chattel mortgage, 27 it
is the defendants-appellants themselves, as debtors-mortgagors, who
are attacking the validity of the chattel mortgage in this case.
The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as
personalty.
(b) Turning to the question of possession and rentals of the
premises in question. The Court of First Instance noted in its
decision that nearly a year after the foreclosure sale the
mortgaged house had been demolished on 14 and 15 January 1957 by
virtue of a decision obtained by the lessor of the land on which
the house stood. For this reason, the said court limited itself to
sentencing the erstwhile mortgagors to pay plaintiffs a monthly
rent of P200.00 from 27 March 1956 (when the chattel mortgage was
foreclosed and the house sold) until 14 January
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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 6/26/15 G.R. No. L-30173
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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.
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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
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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.
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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
debtorsmortgagors, 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
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and equipment involved therein as real properties never having
been disputed nor in issue, and they were not the 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.
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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, Espaa 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-) 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. 6/26/15 G.R. No. L-15334
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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
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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 hydroelectric 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 6/26/15 G.R. No. L-15334
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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,
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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; x x x x x x x x x (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; x x x x x x x x x (5) Machinery, receptacles, instruments
or implements intended by the owner of the tenement for an industry
or works which may be carried in a building or on a piece of land,
and which tends directly to meet the needs of the said industry or
works; x x x x x x x x x 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.
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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 Roo 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. 6/26/15 G.R. No. L-47943
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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
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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.
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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. 6/26/15 G.R. No.
L-50466
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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 Roo, 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,