Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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, 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.
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;
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.
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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of
Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.


LABRADOR, J .:
This is a petition for the review of the decision of the Court of Tax Appeals in
C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable
to the payment of the realty tax on its maintenance and repair equipment
hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400
petitioner's above-mentioned equipment. Petitioner appealed the assessment to
the respondent Board of Tax Appeals on the ground that the same are not realty.
The Board of Tax Appeals of the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for the review of the
assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of
facts:
Petitioner and respondents, thru their respective counsels agreed to the
following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting
passengers and cargoes by motor trucks, over its authorized lines in the
Island of Mindanao, collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It
maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,
Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real
properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached
photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph,
marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph,
marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the
attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached
photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as
may be seen in the attached photographs which form part of this agreed
stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates
a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed therein, its TPU
trucks are made; body constructed; and same are repaired in a condition
to be serviceable in the TPU land transportation business it operates;
6. That these machineries have never been or were never used as
industrial equipments to produce finished products for sale, nor to repair
machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which petitioner
has never engaged in, to date.1awphl. nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling,
and having denied a motion for reconsideration, petitioner brought the case to
this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of
the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or
destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that
the respondent City Assessor's power to assess and levy real estate taxes
on machineries is further restricted by section 31, paragraph (c) of
Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:
Art. 415. The following are immovable properties:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in
a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil.
663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar and industry, converted them into real
property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principle elements of a sugar central, without them the sugar
central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying
on the sugar industry for which it has been established must necessarily
be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must
first be "essential and principal elements" of an industry or works without which
such industry or works would be "unable to function or carry on the industrial
purpose for which it was established." We may here distinguish, therefore, those
movable which become immobilized by destination because they are essential
and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal.
Thus, cash registers, typewriters, etc., usually found and used in hotels,
restaurants, theaters, etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses can continue or
carry on their functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other
hand, machineries of breweries used in the manufacture of liquor and soft drinks,
though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own
and use and are found within their industrial compounds are merely incidental
and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their
nature, not essential and principle municipal elements of petitioner's business of
transporting passengers and cargoes by motor trucks. They are merely
incidentals acquired as movables and used only for expediency to facilitate
and/or improve its service. Even without such tools and equipments, its business
may be carried on, as petitioner has carried on, without such equipments, before
the war. The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another shop
belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in
a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also requires
that the industry or works be carried on in a building or on a piece of land. Thus
in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid
containers, and instruments or implements" are found in a building constructed
on the land. A sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or
service the transportation business, which is not carried on in a building or
permanently on a piece of land, as demanded by the law. Said equipments may
not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question
are not absolutely essential to the petitioner's transportation business, and
petitioner's business is not carried on in a building, tenement or on a specified
land, so said equipment may not be considered real estate within the meaning of
Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside
and the equipment in question declared not subject to assessment as real estate
for the purposes of the real estate tax. Without costs.
So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and
Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.
THIRD DIVISION
[G.R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE,
INC., respondent.
D E C I S I O N
PANGANIBAN, J .:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently
claiming otherwise. Hence, such property is a proper subject of a writ of
replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision
[1]
of the Court of Appeals (CA)
[2]
in CA-GR SP No. 47332 and its
February 26, 1999 Resolution
[3]
denying reconsideration. The decretal portion of
the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18,
1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15,
1998 is hereby LIFTED.
[4]

In its February 18, 1998 Order,
[5]
the Regional Trial Court (RTC) of Quezon
City (Branch 218)
[6]
issued a Writ of Seizure.
[7]
The March 18, 1998
Resolution
[8]
denied petitioners Motion for Special Protective Order, praying that
the deputy sheriff be enjoined from seizing immobilized or other real properties
in (petitioners) factory in Cainta, Rizal and to return to their original place
whatever immobilized machineries or equipments he may have removed.
[9]

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:
[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI
Leasing for short) filed with the RTC-QC a complaint for [a] sum of money
(Annex E), with an application for a writ of replevin docketed as Civil Case
No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent
judge issued a writ of replevin (Annex B) directing its sheriff to seize and
deliver the machineries and equipment to PCI Leasing after 5 days and upon
the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would]
return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order
(Annex C), invoking the power of the court to control the conduct of its
officers and amend and control its processes, praying for a directive for the
sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ
of replevin.
In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties
agreement to the contrary notwithstanding. They argued that to give effect to
the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not
owned, by petitioners. It also ruled that the words of the contract are clear and
leave no doubt upon the true intention of the contracting parties. Observing
that Petitioner Goquiolay was an experienced businessman who was not
unfamiliar with the ways of the trade, it ruled that he should have realized the
import of the document he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial
court in ruling upon the case below, since the merits of the whole matter are
laid down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects
of a full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is attacked by
the other a matter x x x which respondent court is in the best position to
determine.
Hence, this Petition.
[11]

The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.

[12]

In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of replevin. As
a preliminary matter, the Court will also address briefly the procedural points
raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further
alleges that the Petition erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for
Review on Certiorari.
[13]

While Judge Laqui should not have been impleaded as a
respondent,
[14]
substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it
proper to remove, motu proprio, the name of Judge Laqui from the caption of
the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for
the recovery of personal property only.
[15]
Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond,
the court shall issue an order and the corresponding writ of replevin describing
the personal property alleged to be wrongfully detained and requiring the
sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner
of the tenement for an industry or works which may be carried on in a building
or on a piece of land, and which tend directly to meet the needs of the said
industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become immobilized by
destination because they are essential and principal elements in the
industry.
[16]
In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.
[17]

Be that as it may, we disagree with the submission of the petitioners that
the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.
[18]
After agreeing to such stipulation, they
are consequently estopped from claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily precluded from denying the truth of
any material fact found therein.
Hence, in Tumalad v. Vicencio,
[19]
the Court upheld the intention of the
parties to treat a house as a personal property because it had been made the
subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house
as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand by claiming
otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills
[20]
also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ
of replevin because it was treated as personal property in a contract. Pertinent
portions of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property. Specifically,
Section 12.1 of the Agreement reads as follows:
[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may now
be, or hereafter become, in any manner affixed or attached to or embedded
in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of
the subject machines as personal property. Under the circumstances, they are
proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement is good only
insofar as the contracting parties are concerned.
[22]
Hence, while the parties are
bound by the Agreement, third persons acting in good faith are not affected by
its stipulation characterizing the subject machinery as personal.
[23]
In any event,
there is no showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.
[24]
Submitting documents supposedly showing that they own the
subject machines, petitioners also argue in their Petition that the Agreement
suffers from intrinsic ambiguity which places in serious doubt the intention of
the parties and the validity of the lease agreement itself.
[25]
In their Reply to
respondents Comment, they further allege that the Agreement is invalid.
[26]

These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of the merits
of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,
[27]
the Court explained that the policy
under Rule 60 was that questions involving title to the subject property
questions which petitioners are now raising -- should be determined in the
trial. In that case, the Court noted that the remedy of defendants under Rule 60
was either to post a counter-bond or to question the sufficiency of the plaintiffs
bond. They were not allowed, however, to invoke the title to the subject
property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to
dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in
proceedings on preliminary attachment or injunction, and thereby put at issue
the matter of the title or right of possession over the specific chattel being
replevied, the policy apparently being that said matter should be ventilated
and determined only at the trial on the merits.
[28]

Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for certiorari
in the CA under Rule 65 or in a petition for review in this Court under Rule 45.
[29]

Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or
annulled. In fact, petitioners assailed it first only in the RTC proceedings, which
had ironically been instituted by respondent. Accordingly, it must be presumed
valid and binding as the law between the parties.
Makati Leasing and Finance Corporation
[30]
is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized the
subject machinery as personal property, was also assailed because respondent
had allegedly been required to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. The Court rejected the argument
and relied on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does
not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets.
[31]
They also
allege that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As
earlier discussed, law and jurisprudence support its propriety. Verily, the
above-mentioned consequences, if they come true, should not be blamed on
this Court, but on the petitioners for failing to avail themselves of the remedy
under Section 5 of Rule 60, which allows the filing of a counter-bond. The
provision states:
SEC. 5. Return of property. -- If the adverse party objects to the sufficiency
of the applicants bond, or of the surety or sureties thereon, he cannot
immediately require the return of the property, but if he does not so object, he
may, at any time before the delivery of the property to the applicant, require
the return thereof, by filing with the court where the action is pending a bond
executed to the applicant, in double the value of the property as stated in the
applicants affidavit for the delivery thereof to the applicant, if such delivery be
adjudged, and for the payment of such sum to him as may be recovered
against the adverse party, and by serving a copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
Syllabus
Case
U.S. Supreme Court
Valdes v. Central Altagracia, Inc., 225 U.S. 58 (1912)
Valdes v. Central Altagracia, Incorporated
Nos. 193, 196
Submitted March 6, 1912
Decided May 13, 1912
225 U.S. 58
APPEALS FROM THE DISTRICT COURT OF THE
UNITED STATES FOR PORTO RICO
Syllabus
The record in this case shows that the court below did not err in
bringing this case to a speedy conclusion and avoiding the loss
occasioned by the litigation to all concerned.
A litigant cannot, after all parties have acquiesced in the order setting
the case for trial and the court has denied his request for continuance,
refuse to proceed with the trial on the ground that the time to plead
has not expired, and when such refusal to proceed is inconsistent with
his prior attitude in the case.
The granting of a continuance is within the sound discretion of the trial
court, and not subject to be reviewed on appeal except in cases of
clear error and abuse; in this case, the record shows that the refusal
to continue on account of absence of witness was not an abuse, but a
just exercise, of discretion.
Under the circumstances of this case, and in view of the existence of
an equity of redemption under prior transfers, held that a transfer of all
the property of a corporation to one advancing money to enable it to
continue its business was not a conditional sale of the property, but a
contract creating security for the money advanced, and, on liquidation
of the assets, the transferee stood merely as a secured creditor
The mere form of an instrument transferring property of a debtor
cannot exclude the power of creditors to inquire into the reality and
substance of a contract unrecorded, although required by law to be
recorded in order to be effective against third parties.
Under the general law of Porto Rico, machinery placed on property by
a tenant does not become immobilized; when, however, a tenant
places it there pursuant to contract that it shall belong to the owner, it
becomes immobilized as to that tenant and his assigns with notice,
although it does not become so as to creditors not having legal notice
of the lease.
In this case, held that the lien of the attachment of a creditor of the
tenant on machinery placed by the tenant on a sugar Central in Porto
Rico is superior to the claim of the transferee of an unrecorded
Page 225 U. S. 59
lease, even though the lease required the tenant to place the
machinery on the property.
5 P.R. 155 affirmed.
The facts are stated in the opinion.
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
These cases were consolidated below, tried together, a like statement
of facts was made applicable to both, and the court disposed of them
in one opinion. We shall do likewise. Stating only things deemed to be
essential as shown by the pleadings and documents annexed to them
and the finding of facts made below, the case is this: Joaquin Sanchez
owned in Porto Rico a tract of land of about 22 acres (cuerdas) on
which was a sugar house containing a mill for crushing cane and an
evaporating apparatus for manufacturing the juice of the cane into
sugar. All of the machinery was antiquated and of a limited capacity.
The establishment was known as the Central Altagracia, and
Sanchez, while not a cane grower, carried on the business of a central
-- that is, of acquiring cane grown by others and manufacturing it into
sugar at his factory. On the eighteenth day of January, 1905, Sanchez
leased his land and plant to Salvador Castello for a period of ten
years. The lease gave to the tenant (Castello) the right to install in the
plant
"such machinery as he may deem convenient, which said machinery
at the end
Page 225 U. S. 60
of the years mentioned (the term of the lease) shall become the
exclusive property"
of the lessor, Sanchez. The tenant was given one year in which to
begin the work of repairing and improving the plant, and it was
provided that,
"upon the expiration of this term, if the necessary improvements shall
not have been begun by him (Castello), then this contract shall be null
and void, and no cause of action shall accrue to any of the contracting
parties by reason thereof."
Further agreeing on the subject of the improved machinery which was
to be placed in the plant, the contract provided:
"Upon the expiration of the term agreed on under this contract, any
improvement or machinery installed in the said central shall remain for
the benefit of Don Joaquin Sanchez, and Don Salvador Castello shall
have no right to claim anything for the improvements made."
The rental was thus provided for:
"After each crop, such profits as may be produced by the Central
Altagracia shall be distributed, and twenty-five percent (25%) thereof
shall be immediately paid to Don Joaquin Sanchez as equivalent for
the rental of said central and of the twenty-two (22) cuerdas of land
surrounding the same. The remaining seventy-five percent (75%) shall
belong to Don Salvador Castello, who may interest therein
whomsoever he may wish, either for the whole or part thereof."
It was stipulated, however, that, in fixing the profits, no charge should
be made for repairs of the existing machinery or for new machinery
put in, as the entire cost of these matters was to be borne by the
lessee, Castello. The lease provided, moreover, that, in case of the
death of Sanchez, the obligations of the contract should be binding on
his heirs, and in the case of the death of Castello, his brother, Gerardo
Castello, should take his place,
"and be a contracting party if he so desired. Otherwise, the plantation,
in such a condition at it may be at his death, shall immediately pass
into the possession of its owner, Don Joaquin Sanchez."
In June,
Page 225 U. S. 61
1905, by a supplementary contract, the lease was extended without
change of its terms and conditions for an additional period of ten
years, making the total term twenty years. Although executed under
private signature, this lease, conformably to the laws of Porto Rico,
was produced before a notary and made authentic, and in such form
was duly registered on the public records, as required by the Porte
Rican laws.
On the first day of July, 1905, Salvador and Gerardo Castello
transferred all their rights acquired under the lease, as above stated,
to Frederick L. Cornwell for "the corporation to be organized under the
name of Central Altagracia, of which he is the trustee." This transfer
bound the corporation to all the obligations in favor of the original
lessor, Sanchez, provided that the corporation should issue to
Castello a certain number of paid-up shares of its capital stock and a
further number of shares as the output of sugar from the plant
increased as the result of its enlarged capacity consequent upon the
improvement of the machinery by the corporation. The lease further
provided for the employment of Castello as superintendent at a salary,
for a substitution of Gerardo Castello, in the event of the absence or
death of his brother Salvador, and, for this reason, it is to be assumed
Gerardo made himself a party to the transfer of the lease. This
transfer of the lease to the corporation was never put upon the public
records. The corporation was organized under the laws of the State of
Maine, and, under the transfer, took charge of the plant. The season
for grinding cane and the manufacture of sugar in Porto Rico usually
commences
"about the month of December of each year, and terminates in the
months of May, June, or July of the year following, according to the
amount of cane to be ground."
Central factories in Porto Rico usually
"make contracts with the people (colonos) growing cane, so that
growers of cane will deliver the same to be ground, and such
contracts
Page 225 U. S. 62
are usually made and entered into in the months of June, July, and
August."
In other words, on the termination of one grinding season, in the
months of June or July, it is usual in the ensuing August to make new
contracts for the cane to be delivered in the following grinding season,
which, as we have said, commences in December. The contract
transferring the lease to the Central Altagracia, Incorporated, was
made in July, 1905, at the end, therefore, of the grinding season of
that year. To what extent the corporation contracted for cane to be
delivered to it for grinding during the season of 1905-06, which began
in December, 1905, does not appear. It is inferable, however, that the
corporation began the work of installing new machinery to give the
plant a larger capacity within the year stipulated in the lease from
Sanchez to Castello. We say this because it is certain that, in the fall
of 1906 (October), the corporation borrowed from the commercial firm
of Nevers & Callaghan in New York City the sum of twenty-five
thousand dollars ($25,000) to enable the corporation to pay for new
and enlarged machinery which it had ordered, and which was placed
in the factory in time to be used in the grinding season of 1906-07,
which began in December, 1906. While such grinding season was
progressing, on April 11, 1907, the corporation, through its president,
under the authority of its board of directors, sold to one Ramon Valdes
all its rights acquired under the lease transferred by Castello. This
transfer expressly included all the machinery previously placed by the
corporation in the sugar house, as well as machinery which might be
thereafter installed during the term of redemption hereafter to be
referred to, and which, it was declared, conformably to the original
lease, "shall be a part of said factory for the manufacture of sugar."
The consideration for the sale was stated in the contract to be
"thirty-five thousand dollars ($35,000) received by the corporation,
twenty-five thousand four hundred dollars
Page 225 U. S. 63
($25,400) whereof had been paid prior to this act [of sale], and to its
entire satisfaction, and the balance of nine thousand six hundred
dollars ($9,600) shall be turned over to the vendor corporation by
Senor Valdes immediately upon being required to do so by the
former."
This sale was made subject to a right to redeem the property within a
year on paying Valdes the entire amount of his debt. There was a
stipulation that Valdes assumed all the obligations of the lease
transferred by Castello to the company.
The undoubted purpose was not to interfere with the operation of the
plant by the corporation, since there was a provision in the contract
binding Valdes to lease the property to the corporation pending the
period of redemption. This sale was passed in Porto Rico before a
notary public, but was never put upon the public records. At the time it
was made, there was a very considerable sum unpaid on the debt of
Nevers & Callaghan. This fact, joined with the period when the sale
with the right to redeem was made -- that is, the approaching end of
the sugar-making season of 1906 and 1907 -- coupled with other facts
to which we shall hereafter make reference, all tend to establish that,
at that time, either because insufficient capital had been put into the
venture or because the business had been carried on at a loss, the
affairs of the corporation were embarrassed, if it was not insolvent. A
short while before the commencement of the grinding season of 1907-
1908 in October, 1907, in the City of New York, the corporation,
through its president, declaring himself to be authorized by the board
of directors, sanctioned by a vote of the stockholders, apparently
made an absolute sale of all the rights of the corporation under the
lease, and all its title to the machinery which the corporation had put
into the plant. This sale was declared to be for a consideration of sixty-
five thousand ($65,000) dollars which the company acknowledged to
have received from Valdes, first, by the payment of the thirty-five
Page 225 U. S. 64
($35,000) dollars cash, as stated in the previous sale made subject to
the equity of redemption, and thirty thousand ($30,000) dollars which
"the company has received afterwards in cash from Valdes." There
was a provision in the contract to the effect that, as the purpose of the
previous contract of sale, which had been made subject to the equity
of redemption, was accomplished by the new sale, the previous sale
was declared to be no longer operative.
A few days afterwards, likewise in the City of New York (on November
2, 1907), Valdes sold to the company all the rights which he had
acquired from it by the previous sale, the price being sixty-five
thousand ($65,000) dollars, payable in installments falling due in the
years 1908, 1909, 1910, and 1911, respectively. This transfer was put
in the form of a conditional sale which reserved the title in Valdes until
the payment of the deferred price, and upon the stipulation that any
default by the corporation entitled Valdes ipso facto to take
possession of the property. Neither this act of sale from Valdes to the
corporation nor the one made by the corporation to Valdes were ever
put upon the public records.
Prior to the making of the sales just stated, or about that time, the
corporation defaulted in the payment of a note held by Nevers &
Callaghan for a portion of the money which they had loaned the
corporation under the circumstances which we have previously stated,
and that firm sued in the court below the corporation to recover the
debt.
The grinding season of 1907-1908 commenced in December, 1907,
and was obviously not a successful one, for the debt of Nevers &
Callaghan was not paid, and in May, 1908, a judgment was recovered
by them against the corporation for about $17,000, with interest, and
in the same month execution was issued and levied upon the
machinery in the sugar house. Previous to, or not long subsequent to,
the time Nevers & Callaghan
Page 225 U. S. 65
commenced their suit, the precise date not being stated in the record,
the heirs of Sanchez, the original lessor, brought a suit in the court
below against the corporation. The nature of the suit and the relief
sought is not disclosed, but it is inferable from the facts stated that the
suit either sought to recover the property on the ground that there was
no power in Castello to transfer the lease or upon the ground of
default in the conditions as to payment of profits as rental which the
lease stipulated. It would seem also, at about the same time, either
one or both of the Castellos brought a suit against the company,
presumably upon the theory that there had been a default in the
obligations assumed in their favor by the corporation at the time it took
the transfer of the lease. In the meanwhile also, probably as the result
of the want of success of the corporation, discord arose between its
stockholders, and a suit growing out of that state of things was
brought in the lower court.
This litigation was commenced in June, 1908, by the bringing by
Valdes of an action at law in the court below to recover the plant on
the ground that, by the default in paying one of the installments of the
price stated in the conditional sale, the right to the relief prayed had
arisen. On the same day, Valdes commenced a suit in equity against
the corporation in aid of the suit at law. The bill alleged the default of
the corporation, the bringing of the suit at law, the confusion in the
affairs of the corporation, the judgment and levy of the execution by
Nevers and Callaghan, and the threat to sell the machinery under
such execution, the refusal of the corporation to deliver possession of
the property, the waste and destruction of the value of the property
which would result if there was no one representing the corporation
having power to contract for cane to be delivered during the next
grinding season, etc., etc. The prayer was for the appointment of a
receiver to take charge of the property, with authority
Page 225 U. S. 66
to carry on the same, make the necessary contracts for cane for the
future, it being prayed that the receiver should be empowered to issue
receiver's certificates to the extent necessary to the accomplishment
of the purposes which the bill had in view.
On the same day, a bill was filed on behalf of the corporation against
Valdes. This bill attacked the sale made to Valdes and by him to the
corporation. It was charged that the price stated to have been paid by
Valdes as a consideration of the conditional sale was fictitious, and
that the only sum he had advanced at that time was the $35,000
which it was the purpose to secure by means of the sale with the
equity of redemption. That, at that time, Valdes exacted as a
consideration for his loan that he be made a director and vice-
president of the company. The bill then stated that, it having become
evident in the following autumn that the corporation would require
more money to increase its plant, to pay off the sum due Nevers &
Callaghan, and for the operation of the plant, Valdes agreed to
advance the money if he were made president of the company at a
stipulated salary, given a bonus in the stock of the company, and upon
the condition that the papers be executed embodying the so-called
sale of the company to Valdes and the practically simultaneous
conditional sale by Valdes to the company. The bill then alleged that
Valdes, having thus become the president of the company, failed to
carry out his agreement to advance the money, failed to provide for
the debt of Nevers & Callaghan, mismanaged the affairs of the
property in many alleged particulars, and did various acts to the
prejudice of the company and to his own wrongful enrichment, which it
is unnecessary to recapitulate. The necessity of contracting for cane
during the contract season in order that the plant might continue
during the next operating season to be a going concern, and the
waste and loss which would otherwise
Page 225 U. S. 67
be occasioned, were fully alleged. Valdes and the firm of Nevers &
Callaghan and the individual members of that firm were made
defendants. The prayer was for the appointment of a receiver and with
power to carry on the business of the central, with power, for that
purpose, to contract for cane for the coming season, with authority to
issue receiver's certificates for the purpose of borrowing the money
which might be required.
The judge, being about to leave Porto Rico for a brief period, declined
to appoint a permanent receiver, but named a temporary one to keep
the property together until a further hearing could be had, interference
in the meanwhile with the custodian being enjoined. Shortly thereafter,
creditors of the corporation intervened and joined in the prayer made
by both of the complainants for the appointment of a receiver. In July,
the two suits were by order consolidated, and, after a hearing, a
receiver was appointed and authority given him to continue the
property as a going concern and to borrow a limited amount of money
on receiver's certificates, if necessary, to secure contracts for cane for
the coming crop season. The execution of the Nevers & Callaghan
judgment was stayed pending an appeal which had been taken to this
Court. The only difference which seems to have arisen concerning the
appointment of the receiver grew out of the fact that a prayer of the
Central Altagracia, asking the court to appoint as receiver Mr.
Pettingill, a member of the bar and one of the counsel of the
corporation, and who was also its treasurer, was denied. Despite this,
the fair inference is that the ultimate action of the court was not
objected to by anyone, because of the hope that the result of a
successful operation of the plant during the coming crop season might
ameliorate the affairs of the corporation, and thus prevent further
controversies. We say this not only because of the conduct of the
parties prior to the order appointing the receiver, but because,
Page 225 U. S. 68
after that order, the solicitors of the Altagracia Company and Valdes
put a stipulation of record that, until the following October, no steps
whatever should be taken in the proceedings, and not even then
unless the attorneys for both parties should be in Porto Rico.
The hope of a beneficial result from the operation of the plant by the
receiver proved delusive. As a result of such operation, there was a
considerable loss represented by outstanding receiver's certificates,
with no means of paying except out of the property. Obviously for this
reason, the record contains a statement that, on July 12, 1909, a
conference was had between the court and all parties concerned to
determine what steps should be taken to meet the situation. It appears
that, at that conference, the counsel representing the heirs of Sanchez
and of Nevers & Callaghan stated their opposition to a continuance of
the receivership.
On July 17, 1909, the court placed a memorandum on the files,
indicating its purpose to bring the litigation, receivership, etc., to an
end, and to cause "immediate issue to be raised on the pleadings for
that purpose." This memorandum was entitled in all the pending
causes concerning the property. It directed that demurrers which had
been filed in the consolidated cause of Valdes against the corporation
and of the corporation against Valdes be overruled, and the
defendants were required to answer on or before Monday, July 26, in
order that, upon the following day, the 27th of July, the issues raised
might be tried before the court without the intervention of a master. It
was provided in the order, however, that nothing in this direction
should prevent the parties from filing such additional pleadings as it is
deemed necessary for the protection of their rights by way of cross bill
or amendment, etc. To make the order efficacious, it was declared
that nothing would be done in the suit of the heirs of Sanchez against
Castello and the Altagracia,
Page 225 U. S. 69
which was pending on appeal, and that a demurrer filed to the suit of
Castello against the Central would be overruled; that the demurrer in
the suit at law of Valdes would remain in abeyance to await the final
action of the court on the trial of all the issues in the equity causes,
and that a stay of the Nevers & Callaghan execution would be also
disposed of when the equity cases came to be decided. This order
was followed by a memorandum opinion filed on July the 21st stating
very fully the position of the respective suits, the necessity for action in
order to preserve the property from waste, and reiterating the view
that, whatever might be the rights of the Central Altagracia or of
Valdes under the lease, those rights would be subordinate to the
ultimate determination of the suit brought by the heirs of Sanchez. To
the action of the court as above stated no objection appears to have
been made. On the contrary, between the time of that order and the
period fixed for the commencement of a hearing, the Central
Altagracia, Valdes, and Nevers & Callaghan modified their pleadings
to the extent deemed by them necessary to present for trial the issues
upon which they relied. In the case of the Central Altagracia, this was
done by filing, on July 22, an amended bill of complaint in its suit
against Valdes, and on July 26 its answer in the suit of Valdes. The
acceptance by Valdes of the terms of the order was shown by an
answer filed to the bill in the suit of the company and the cross-bill in
the same cause, and Nevers & Callaghan manifested their
acquiescence by obtaining leave to make themselves parties and
asserting their rights by cross-bill and answers which it is unnecessary
to detail.
When the consolidated cause was called for trial on the morning of
July 27, the counsel for the Central Altagracia moved a continuance in
order to take the testimony of certain witnesses in Philadelphia and
New York for the purpose of proving some of the allegations of the
complaint
Page 225 U. S. 70
as to the wrongdoing of Valdes in administering the affairs of the
corporation. This application was supported by the affidavit of Mr.
Pettingill, the counsel of the corporation. The record states that the
request for continuance was opposed by all the other counsel, and the
application was denied. In doing so, the court stated:
"That the matter has been pending for more than a year, and that
counsel had full notice of the court's intention to press the matters to
issue and trial, and that it is not disposed to delay matters at this time,
when the admissions of the pleadings are so broad that the proofs
available here in Porto Rico are probably sufficient, and the amended
complaint already on file in suit No. 565, -- Valdes v. Central
Altagracia -- and the answer thereto and the answer recently filed in
suit No. 564 -- Altagracia v. Valdes -- as well as the cross-bill also
recently filed in suit No. 465, make so many allegations and
admissions as that the real issue between the parties can be plainly
seen, and that, in the opinion of the court, enough proof is available
here in Porto Rico."
The court thereupon declared that the Altagracia Company might by
the next day, if it so desired, file exceptions to the answer in suit 565
and an answer to the cross-complaint -- indeed, that the corporation
might, if it wished, treat them as filed, and proceed with the cause and
file them at any convenient time thereafter. Thereupon, the record
states:
"Said counsel for the Central Altagracia stated that he desired time to
file exceptions to the answer and an answer to the cross-bill in suit No.
565, and the court granted until the morning of July 28 for such
purpose. Later in the day of July 27, one of the counsel for Valdes
having requested the court to postpone the hearing of the cause until
the morning of the 29th because of an unexpected professional
engagement elsewhere, the request was communicated by the court
to the other counsel in the cause."
Thereupon the record again recites:
"Messrs. Pettingill &
Page 225 U. S. 71
Cornwell, attorneys for the Central Altagracia, stated that they
withdrew any statement they have hitherto made in the cause in that
regard, and desired to be understood that they would not except to the
answer in suit No. 565, or plead or answer to the cross-bill therein
save and except within the time which they contended the rules
governing this Court of equity gave them, and would stand upon what
they considered their rights in that regard."
When the court assembled the next day, on the morning of the 28th, a
statement concerning the occurrence of the previous day as to the
continuance, etc., just reviewed, was read by the court in the presence
of all the counsel, whereupon the record recites:
"N. B. Pettingill, counsel for the Central Altagracia, in response to the
same, stated that he objected to proceeding to take any evidence in
any of the causes at that time, or the testimony of any witnesses,
because the same was not at issue or in condition for the taking of
evidence, and objected to the taking of such evidence until the issues
of said causes are made up in accordance with the rules of practice
applicable to equity causes."
The record further recites:
"Which objection was overruled by the court on the ground that the
action called for thereby is not necessary. That the bill was amended
within three days; an answer was immediately filed to it and a cross-
bill also filed, the said cross-bill making only the same claims as were
made in suit No. 563 at law, and that, anyway, the issue could be tried
on the bill and answer in both suits. . . ."
This ruling of the court having been excepted to, the trial proceeded
from day to day, the counsel for the Central Altagracia taking no part
in the same and virtually treating the proceedings as though they did
not concern that corporation.
In substance, the court decided: first, that as the result of the contracts
between Valdes and the Central Altagracia, he was not the owner of
the rights of that corporation under the lease, or of the machinery
which
Page 225 U. S. 72
had been placed in the sugar house by the Altagracia Company, or of
the other assets of the corporation, but that he was merely a secured
creditor. The sum of the secured debt was fixed after making
allowances for some not very material credits which the corporation
was held to be entitled to. Second, that the judgment in favor of
Nevers & Callaghan was valid, and that that firm, by virtue of its
execution and levy upon the machinery, had a prior right to Valdes.
Third, the sums due to various creditors of the corporation were fixed
and the equities or priorities were classified as follows: (a) taxes due
by the corporation and the sum of the receiver's certificates and
certain costs; (b) the judgment of Nevers & Callaghan, and (c) the
debt of Valdes; (d) debts due the other creditors. Without going into
details, it suffices to say that, for the purpose of enforcing these
conclusions, the decree directed a sale of all the rights of the Central
Altagracia in and to the lease, machinery, contract, etc., and imposed
the duty upon Valdes, if he became the purchaser, to pay enough
cash to discharge the costs, taxes, receiver's certificates, and the
claim of Nevers & Callaghan.
These appeals were then prosecuted, the one by the Central
Altagracia and the other by Valdes. We shall endeavor as briefly as
may be to dispose of the contentions relied upon to secure a reversal.
I. The Central Altagracia appeal. -- The alleged errors insisted on in
behalf of that company relate to the asserted arbitrary action of the
court in forcing the cause to trial without affording the time which it is
insisted the corporation was entitled to under the equity rules
applicable to the subject, and second, the refusal of the court to grant
a continuance upon the affidavit as to the absence of material
witnesses.
We think all the contentions on this subject are demonstrated to be
devoid of merit by the statement of the case which we have made. In
the first place, it is manifest
Page 225 U. S. 73
from that statement that the proceeding leading up to the appointment
of a receiver and the power given to administer the property was
largely the result of the assent of the corporation. In the second place,
when the unsuccessful financial issue of the receivership had become
manifest, we think the statement makes it perfectly clear that the steps
taken by the court for the purpose of bringing the case to a speedy
conclusion, and thus avoiding the further loss which would result to all
interests concerned, were also acquiesced in by all the parties in
interest who complied with the terms of that order and took advantage
of the rights which it conferred. We think also the statement makes it
apparent that the refusal on the part of the corporation to proceed with
the trial, upon the theory that the time to plead allowed by the equity
rules had not elapsed, was the result of a change of view because of
the action of the court in refusing the continuance on account of the
absent witnesses -- a change of front which was inconsistent with the
rights which the corporation had exercised in accord with the order
setting the cause for trial, and with the rights of all the other parties to
the cause which had arisen from that order and from the virtual
approval of it, or at least acquiescence in it, by all concerned.
Considering the assignments of error insofar as they relate alone to
overruling of the application for continuance, based upon the absence
of witnesses, it suffices to say that the elementary rule is that the
granting of a continuance of the cause was peculiarly within the sound
discretion of the court below -- a discretion not subject to be reviewed
on appeal except in case of such clear error as to amount to a plain
abuse springing from an arbitrary exercise of power. Instead of
coming within this latter category, we think the facts as to the refusal
to continue and the conduct of the parties make it clear that there was
not only no abuse, but a just exercise, of discretion.
Page 225 U. S. 74
II. As to the Appeal of Valdes. -- Two propositions are relied upon:
first, that error was committed in treating Valdes merely as a secured
creditor, and in not holding him to be the absolute owner of the rights
and property alleged to have been transferred by the so-called
conditional sale. Second, that, in any event, error was committed in
awarding to Nevers & Callaghan priority over Valdes.
The first proposition is supported by a reference to the Porto Rican
Code and decisions of the Supreme Court of Spain and the opinions
of Spanish law writers. But the contention is not relevant, and the
authorities cited to sustain it are inapposite to the case to be here
decided, because the argument rests upon an imaginary premise --
that is, that the ruling of the court below denied that right under the
Spanish law to make a conditional sale, or held that such a sale, if
made, would not have the effect which the argument insists it was
entitled to. This is true because the action of the court was solely
based upon a premise of fact, viz., that, under the circumstances of
the case and in view of the prior sale with the equity of redemption,
the cancellation of that sale, and the transfer made by the corporation
to Valdes, and the immediate transfer of the same rights by him to the
corporation in the form of a conditional sale, the failure to register any
of the contracts, and the relation of Valdes to the corporation at the
time the contracts were made, it resulted that whatever might be the
mere form, in substance and effect, no conditional sale was made, but
a mere contract was entered into which the parties intended to be a
mere security to Valdes for money advanced and to be advanced by
him. This being the case, it is manifest that it is wholly irrelevant to
argue that error was committed in not applying the assumed principles
of the Porto Rican and Spanish law governing in the case of a
conditional sale, when the ruling which the court made proceeded
upon the conclusion that there was no conditional sale.
Page 225 U. S. 75
The contention that, under the Porto Rican law, the form was
controlling because proof of the substance was not admissible seems
not to have been raised below, but, if it had been, is obviously without
merit, as the case as presented involved not a controversy alone
between the parties to the contract, but the effect and operation of the
contract upon third parties, the creditors of the corporation. The
contention is additionally without merit since it assumes that the mere
form of the contract excluded the power of creditors to inquire into its
reality and substance, even although the contract was never inscribed
upon the public records so as to bind third parties. That its character
was such as to require inscription we shall in a few moments
demonstrate in coming to consider the second proposition -- that is,
upon the hypothesis that Valdes was but a secured creditor, was error
committed in subordinating his claim to the prior claim of Nevers &
Callaghan under their judgment and execution?
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 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
Page 225 U. S. 76
implements intended by the owner of the tenements for the industry 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, 164; Laurent, Tit. 5, No. 447, and decisions
quoted in Fuzier-Herman ed., Code Napoleon, under article 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
of 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.
Page 225 U. S. 77
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. It is true, says
Aubry and Rau, vol. 2, 164, par. 2, p. 12, that
"the immobilization with which the article is concerned can only arise
from an act of the owner himself or his representative. Hence, the
objects which are dedicated to the use of a piece of land or a building
by a lessee cannot be considered as having become immovable by
destination except in the case where they have been applied for
account of the proprietor, or in execution of an obligation imposed by
the lease."
It follows that the machinery placed by the corporation in the plant, by
the fact of its being so placed, lost its character as a movable, and
became united with and a part of the plant as an immovable by
destination. It also follows that, as to Valdes, who claimed under the
lease, and who had expressly assumed the obligations of the lease,
the machinery, for all the purposes of the exercise of his rights, was
but a part of the real estate -- a conclusion which cannot be avoided
without saying that Valdes could at one and the same time assert the
existence in himself of rights and yet repudiate the obligations
resulting from the rights thus asserted.
Nevers & Callaghan were creditors of the corporation. They were not
parties to nor had they legal notice of the lease and its conditions from
which alone it arose that machinery put in the premises by the
Altagracia became immovable property. The want of notice arose from
the failure to record the transfer from Castello to the Altagracia, or
from the Altagracia to Valdes, and from Valdes apparently
conditionally back to the corporation -- a clear result of 613 of the
Civil Code of Porto Rico, providing,
"The titles of ownership or of other real rights relating
Page 225 U. S. 78
to immovables which are not properly inscribed or annotated in the
registry of property shall not be prejudicial to third parties."
It is not disputable that the duty to inscribe the lease by necessary
implication resulted from the general provisions of article 2 of the
mortgage law of Porto Rico, as stated in paragraphs 1, 2, and 3
thereof, and explicitly also arose from the express requirement of
paragraph 6, relating to the registry of "contracts for the lease of real
property for a period exceeding six years. . . ." It is true that, in a strict
sense, the contracts between Castello and the Altagracia Company
and with Valdes were not contracts of lease, but for the transfer of a
contract of that character. But such a transfer was clearly a contract
concerning real rights to immovable property within the purview of
article 613 of the Civil Code, just previously quoted. Especially is this
the case in view of the stipulations of the lease as to the
immobilization of movable property placed in the plant, and the other
obligations imposed upon the lessee.
"The sale which a lessee makes to a third person to whom he
transfers his right of lease is the sale of an immovable right, and not
simply a sale of a movable one."
See numerous decisions of the courts of France, beginning with the
decision on February 2, 1842, of the Court of Cassation (Journal du
Palais [1842] vol. 1, 171). See also numerous authorities collected
under the heading above stated in paragraph 21, under articles 516,
517, and 518 of the Code Napoleon. Fuzier-Herman ed. of that Code,
p. 643.
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
Page 225 U. S. 79
of his obligations under the lease, he could not, for the purpose of
collecting his debt, proceed separately against.
As a matter of precaution, we say that nothing we have said affects
the rights, whatever they may be, of the heirs of Sanchez, the original
lessor.
Affirmed.
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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168557 February 16, 2007
FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF
BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628 February 16, 2007
NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C.
ANDAYA, in his capacity as the Assessor of the Province of Batangas, and
the PROVINCE OF BATANGAS represented by its Provincial
Assessor, Respondents.
D E C I S I O N
CALLEJO, SR., J .:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R.
No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and
National Power Corporation (NPC), respectively. The first is a petition for review
on certiorari assailing the August 25, 2004 Decision
1
of the Court of Appeals (CA)
in CA-G.R. SP No. 67490 and its Resolution
2
dated June 20, 2005; the second,
also a petition for review on certiorari, challenges the February 9, 2005
Decision
3
and November 23, 2005 Resolution
4
of the CA in CA-G.R. SP No.
67491. Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc.
over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca,
Batangas. The contract, denominated as an Energy Conversion
Agreement
5
(Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a)
all taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality
thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal
Income Taxes of its employees and (ii) construction permit fees, environmental
permit fees and other similar fees and charges) and (b) all real estate taxes and
assessments, rates and other charges in respect of the Power Barges.
6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to
FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2
of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the
power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The
assessed tax, which likewise covered those due for 1994, amounted
to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of
its obligation under the Agreement to pay all real estate taxes. It then gave NPC
the full power and authority to represent it in any conference regarding the real
property assessment of the Provincial Assessor.
In a letter
7
dated September 7, 1995, NPC sought reconsideration of the
Provincial Assessors decision to assess real property taxes on the power
barges. However, the motion was denied on September 22, 1995, and the
Provincial Assessor advised NPC to pay the assessment.
8
This prompted NPC to
file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items;
it also prayed that should LBAA find the barges to be taxable, the Provincial
Assessor be directed to make the necessary corrections.
9

In its Answer to the petition, the Provincial Assessor averred that the barges
were real property for purposes of taxation under Section 199(c) of Republic Act
(R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing
the LBAA that the Department of Finance (DOF) had rendered an opinion
10
dated
May 20, 1996, where it is clearly stated that power barges are not real property
subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution
11
denying the petition. The
fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real
estate tax in the amount ofP56,184,088.40, for the year 1994.
SO ORDERED.
12

The LBAA ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real property for
taxation purposes because they are installed at a specific location with a
character of permanency. The LBAA also pointed out that the owner of the
bargesFELS, a private corporationis the one being taxed, not NPC. A mere
agreement making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege can only be
granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled
that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment
Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of
Levy and Warrant by Distraint
13
over the power barges, seeking to collect real
property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice
and warrant was officially served to FELS on November 8, 1996. It then filed a
Motion to Lift Levy dated November 14, 1996, praying that the Provincial
Assessor be further restrained by the CBAA from enforcing the disputed
assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order
14
lifting the levy and distraint
on the properties of FELS in order not to preempt and render ineffectual,
nugatory and illusory any resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention
15
dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an
Order
16
dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to
admit bond to guarantee the payment of real property taxes assessed by the
Provincial Assessor (in the event that the judgment be unfavorable to them). The
bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision
17
finding the power barges
exempt from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the
Province of Batangas is hereby reversed. Respondent-appellee Provincial
Assessor of the Province of Batangas is hereby ordered to drop subject property
under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in
the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to
act accordingly.
SO ORDERED.
18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges
belong to NPC; since they are actually, directly and exclusively used by it, the
power barges are covered by the exemptions under Section 234(c) of R.A. No.
7160.
19
As to the other jurisdictional issue, the CBAA ruled that prescription did
not preclude the NPC from pursuing its claim for tax exemption in accordance
with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution
20
on July 31, 2001
reversing its earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas
is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor
of Batangas is likewise hereby affirmed.
SO ORDERED.
21

FELS and NPC filed separate motions for reconsideration, which were timely
opposed by the Provincial Assessor. The CBAA denied the said motions in a
Resolution
22
dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R.
SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R.
SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-
G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP
No. 67491. In a Resolution
23
dated February 12, 2002, the appellate court
directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491,
since it is the ponente of the latter petition who should resolve the request for
reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the
Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No.
67490 denying the petition on the ground of prescription. The decretal portion of
the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the
assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central
Board of Assessment Appeals are AFFIRMED.
SO ORDERED.
24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking
the reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this
Court, docketed as G.R. No. 165113, assailing the appellate courts decision in
CA-G.R. SP No. 67490. The petition was, however, denied in this Courts
Resolution
25
of November 8, 2004, for NPCs failure to sufficiently show that the
CA committed any reversible error in the challenged decision. NPC filed a motion
for reconsideration, which the Court denied with finality in a Resolution
26
dated
January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It
held that the right to question the assessment of the Provincial Assessor had
already prescribed upon the failure of FELS to appeal the disputed assessment
to the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the tax
was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No.
67491. The motion was denied in a Resolution
27
dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been
earlier denied for lack of merit in a Resolution
28
dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before
this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties
and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are
exempt from real estate tax under Section 234 of the Local Government Code
("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under
the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or
not the same is subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioners personal properties is
imprescriptible.
29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R.
No. 170628), indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
APPEAL TO THE LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.
30

Considering that the factual antecedents of both cases are similar, the Court
ordered the consolidation of the two cases in a Resolution
31
dated March 8,
2006.1awphi1. net
In an earlier Resolution dated February 1, 2006, the Court had required the
parties to submit their respective Memoranda within 30 days from notice. Almost
a year passed but the parties had not submitted their respective memoranda.
Considering that taxesthe lifeblood of our economyare involved in the
present controversy, the Court was prompted to dispense with the said
pleadings, with the end view of advancing the interests of justice and avoiding
further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was
not time-barred. FELS argues that when NPC moved to have the assessment
reconsidered on September 7, 1995, the running of the period to file an appeal
with the LBAA was tolled. For its part, NPC posits that the 60-day period for
appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code
of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person
having legal interest in the property who is not satisfied with the action of the
provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city by filing a
petition under oath in the form prescribed for the purpose, together with copies of
the tax declarations and such affidavits or documents submitted in support of the
appeal.
We note that the notice of assessment which the Provincial Assessor sent to
FELS on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from
the date of receipt hereof, appeal to the Board of Assessment Appeals of the
province by filing a petition under oath on the form prescribed for the purpose,
together with copies of ARP/Tax Declaration and such affidavits or documents
submitted in support of the appeal.
32

Instead of appealing to the Board of Assessment Appeals (as stated in the
notice), NPC opted to file a motion for reconsideration of the Provincial
Assessors decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action
of the provincial, city or municipal assessor in the assessment of the property. It
follows then that the determination made by the respondent Provincial Assessor
with regard to the taxability of the subject real properties falls within its power to
assess properties for taxation purposes subject to appeal before the LBAA.
33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490
and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the
case of Callanta v. Office of the Ombudsman,
34
where we ruled that under
Section 226 of R.A. No 7160,
35
the last action of the local assessor on a
particular assessment shall be the notice of assessment; it is this last action
which gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing a
motion for reconsideration before the local assessor. The pertinent holding of the
Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have
brought their appeals before the LBAA. Unfortunately, despite the advice to this
effect contained in their respective notices of assessment, the owners chose to
bring their requests for a review/readjustment before the city assessor, a remedy
not sanctioned by the law. To allow this procedure would indeed invite corruption
in the system of appraisal and assessment. It conveniently courts a graft-prone
situation where values of real property may be initially set unreasonably high,
and then subsequently reduced upon the request of a property owner. In the
latter instance, allusions of a possible covert, illicit trade-off cannot be avoided,
and in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system.
36

For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a
notice to the owner or lawful possessor of real property of its revised assessed
value, the former shall no longer have any jurisdiction to entertain any request for
a review or readjustment. The appropriate forum where the aggrieved party may
bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-
day period for making the appeal to the LBAA runs without interruption. This is
what We held in SP 67490 and reaffirm today in SP 67491.
37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local
government to collect the taxes due with respect to the taxpayers property
becomes absolute upon the expiration of the period to appeal.
38
It also bears
stressing that the taxpayers failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory and demandable,
thus, precluding the taxpayer from questioning the correctness of the
assessment, or from invoking any defense that would reopen the question of its
liability on the merits.
39

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for
having been filed out of time; the CBAA and the appellate court were likewise
correct in affirming the dismissal. Elementary is the rule that the perfection of an
appeal within the period therefor is both mandatory and jurisdictional, and failure
in this regard renders the decision final and executory.
40

In the Comment filed by the Provincial Assessor, it is asserted that the instant
petition is barred by res judicata; that the final and executory judgment in G.R.
No. 165113 (where there was a final determination on the issue of prescription),
effectively precludes the claims herein; and that the filing of the instant petition
after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely
misplaced since it was not a party to the erroneous petition which the NPC filed
in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding,
and the Supreme Court never acquired jurisdiction over it. As to the issue of
forum shopping, petitioner claims that no forum shopping could have been
committed since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded
upon two grounds embodied in various maxims of common law, namely: (1)
public policy and necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause nemo debet
bis vexari et eadem causa. A conflicting doctrine would subject the public peace
and quiet to the will and dereliction of individuals and prefer the regalement of the
litigious disposition on the part of suitors to the preservation of the public
tranquility and happiness.
41
As we ruled in Heirs of Trinidad De Leon Vda. de
Roxas v. Court of Appeals:
42

x x x An existing final judgment or decree rendered upon the merits, without
fraud or collusion, by a court of competent jurisdiction acting upon a matter within
its authority is conclusive on the rights of the parties and their privies. This
ruling holds in all other actions or suits, in the same or any other judicial tribunal
of concurrent jurisdiction, touching on the points or matters in issue in the first
suit.
x x x
Courts will simply refuse to reopen what has been decided. They will not allow
the same parties or their privies to litigate anew a question once it has been
considered and decided with finality. Litigations must end and terminate
sometime and somewhere. The effective and efficient administration of justice
requires that once a judgment has become final, the prevailing party should not
be deprived of the fruits of the verdict by subsequent suits on the same issues
filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it
had jurisdiction over the subject matter and the parties; (3) the judgment must be
on the merits; and (4) there must be between the first and the second actions,
identity of parties, subject matter and causes of action. The application of the
doctrine of res judicata does not require absolute identity of parties but merely
substantial identity of parties. There is substantial identity of parties when there is
community of interest or privity of interest between a party in the first and a party
in the second case even if the first case did not implead the latter.
43

To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC
filed its petition for review docketed as G.R. No. 165113, it did so not only on its
behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier
petition for review filed in this Court was the decision of the appellate court in CA-
G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity of interest.
In fine, FELS and NPC are substantially "identical parties" as to warrant the
application of res judicata. FELSs argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum
shopping exists when, as a result of an adverse judgment in one forum, a party
seeks another and possibly favorable judgment in another forum other than by
appeal or special civil action or certiorari. There is also forum shopping when a
party institutes two or more actions or proceedings grounded on the same cause,
on the gamble that one or the other court would make a favorable disposition.
44

Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res
judicata may be properly applied herein. Petitioners engaged in forum shopping
when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R.
No. 165116. Indeed, petitioners went from one court to another trying to get a
favorable decision from one of the tribunals which allowed them to pursue their
cases.
It must be stressed that an important factor in determining the existence of forum
shopping is the vexation caused to the courts and the parties-litigants by the filing
of similar cases to claim substantially the same reliefs.
45
The rationale against
forum shopping is that a party should not be allowed to pursue simultaneous
remedies in two different fora. Filing multiple petitions or complaints constitutes
abuse of court processes, which tends to degrade the administration of justice,
wreaks havoc upon orderly judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.
46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least
such parties as represent the same interests in both actions, (b) identity of rights
asserted and relief prayed for, the relief being founded on the same facts, and (c)
the identity of the two preceding particulars is such that any judgment rendered in
the pending case, regardless of which party is successful, would amount to res
judicata in the other.
47

Having found that the elements of res judicata and forum shopping are present in
the consolidated cases, a discussion of the other issues is no longer necessary.
Nevertheless, for the peace and contentment of petitioners, we shall shed light
on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real
property and are thus subject to real property tax. This is also the inevitable
conclusion, considering that G.R. No. 165113 was dismissed for failure to
sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.
48
Besides, factual findings of administrative bodies, which
have acquired expertise in their field, are generally binding and conclusive upon
the Court; we will not assume to interfere with the sensible exercise of the
judgment of men especially trained in appraising property. Where the judicial
mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.
49
We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New
York, et al.,
50
a power company brought an action to review property tax
assessment. On the citys motion to dismiss, the Supreme Court of New York
held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil
to the power plant barges, and the accessory equipment mounted on the barges
were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake, or coast" are considered immovable
property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by
the owner for an industry or work which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of said industry or work.
51

Petitioners maintain nevertheless that the power barges are exempt from real
estate tax under Section 234 (c) of R.A. No. 7160 because they are actually,
directly and exclusively used by petitioner NPC, a government- owned and
controlled corporation engaged in the supply, generation, and transmission of
electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS, which in fine, is the entity being taxed by the local
government. As stipulated under Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and
all the fixtures, fittings, machinery and equipment on the Site used in connection
with the Power Barges which have been supplied by it at its own cost. POLAR
shall operate, manage and maintain the Power Barges for the purpose of
converting Fuel of NAPOCOR into electricity.
52

It follows then that FELS cannot escape liability from the payment of realty taxes
by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
x x x
(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and
exclusively used by the government owned or controlled corporation;
nevertheless, petitioner FELS still cannot find solace in this provision because
Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject
to the supply of the necessary Fuel pursuant to Article 6 and to the other
provisions hereof, it will operate the Power Barges to convert such Fuel into
electricity in accordance with Part A of Article 7.
53

It is a basic rule that obligations arising from a contract have the force of law
between the parties. Not being contrary to law, morals, good customs, public
order or public policy, the parties to the contract are bound by its terms and
conditions.
54

Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception.
55
The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too
plain to be mistaken and too categorical to be misinterpreted.
56
Thus, applying
the rule of strict construction of laws granting tax exemptions, and the rule that
doubts should be resolved in favor of provincial corporations, we hold that FELS
is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement,
that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption. The privilege granted to petitioner
NPC cannot be extended to FELS. The covenant is between FELS and NPC and
does not bind a third person not privy thereto, in this case, the Province of
Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously
resulted in the local governments deprivation of revenues. The power to tax is an
incident of sovereignty and is unlimited in its magnitude, acknowledging in its
very nature no perimeter so that security against its abuse is to be found only in
the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it.
57
The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion. This consideration is
consistent with the State policy to guarantee the autonomy of local
governments
58
and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.
59

In conclusion, we reiterate that the power to tax is the most potent instrument to
raise the needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace, progress, and prosperity of
the people.
60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19527 March 30, 1963
RICARDO PRESBITERO, in his capacity as Executor of the Testate Estate
of EPERIDION PRESBITERO,petitioner,
vs.
THE HON. JOSE F. FERNANDEZ, HELEN CARAM NAVA, and the
PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, respondents.
San Juan, Africa and Benedicto and Hilado and Hilado for petitioner.
Paredes, Poblador, Cruz and Nazareno and Manuel Soriano for respondents.
REYES, J.B.L., J .:
Petition for a writ of certiorari against the Court of First Instance of Negros
Occidental.
It appears that during the lifetime of Esperidion Presbitero, judgment was
rendered against him by the Court of Appeals on October 14, 1959, in CA-G.R.
No. 20879,
... to execute in favor of the plaintiff, within 30 days from the time this
judgment becomes final, a deed of reconveyance of Lot No. 788 of the
cadastral survey of Valladolid, free from all liens and encumbrances, and
another deed of reconveyance of a 7-hectare portion of Lot No. 608 of the
same cadastral survey, also free from all liens and encumbrances, or,
upon failure to do so, to pay to the plaintiff the value of each of the said
properties, as may be determined by the Court a quo upon evidence to be
presented by the parties before it. The defendant is further adjudged to pay
to the plaintiff the value of the products received by him from the 5-hectare
portion equivalent to 20 cavans of palay per hectare every year, or 125
cavans yearly, at the rate of P10.00 per cavan, from 1951 until possession
of the said 5-hectare portion is finally delivered to the plaintiff with legal
interest thereon from the time the complaint was filed; and to pay to the
plaintiff the sum of P1,000.00 by way of attorney's fees, plus costs.
This judgment, which became final, was a modification of a decision of the Court
of First Instance of Negros Occidental, in its Civil Case No. 3492, entitled "Helen
Caram Nava, plaintiff, versus Esperidion Presbitero, defendant."
Thereafter, plaintiff's counsel, in a letter dated December 8, 1959, sought in vain
to amicably settle the case through petitioner's son, Ricardo Presbitero. When no
response was forthcoming, said counsel asked for, and the court a quo ordered
on June 9, 1960, the issuance of a partial writ of execution for the sum of
P12,250.00. On the following day, June 10, 1960, said counsel, in another
friendly letter, reiterated his previous suggestion for an amicable settlement, but
the same produced no fruitful result. Thereupon, on June 21, 1960, the sheriff
levied upon and garnished the sugar quotas allotted to plantation audit Nos. 26-
237, 26-238, 26-239, 26-240 and 26-241 adhered to the Ma-ao Mill District and
"registered in the name of Esperidion Presbitero as the original plantation-
owner", furnishing copies of the writ of execution and the notice of garnishment to
the manager of the Ma-ao Sugar Central Company, Bago, Negros Occidental,
and the Sugar Quota Administration at Bacolod City, but without presenting for
registration copies thereof to the Register of Deeds.
Plaintiff Helen Caram Nava (herein respondent) then moved the court, on June
22, 1960, to hear evidence on the market value of the lots; and after some
hearings, occasionally protracted by postponements, the trial court, on
manifestation of defendant's willingness to cede the properties in litigation,
suspended the proceedings and ordered him to segregate the portion of Lot 608
pertaining to the plaintiff from the mass of properties belonging to the defendant
within a period to expire on August 24, 1960, and to effect the final conveyance
of the said portion of Lot 608 and the whole of Lot 788 free from any lien and
encumbrance whatsoever. Because of Presbitero's failure to comply with this
order within the time set forth by the court, the plaintiff again moved on August
25, 1960 to declare the market value of the lots in question to be P2,500.00 per
hectare, based on uncontradicted evidence previously adduced. But the court,
acting on a prayer of defendant Presbitero, in an order dated August 27, 1960,
granted him twenty (20) days to finalize the survey of Lot 608, and ordered him to
execute a reconveyance of Lot 788 not later than August 31, 1960. Defendant
again defaulted; and so plaintiff, on September 21, 1960, moved the court for
payment by the defendant of the sum of P35,000.00 for the 14 hectares of land
at P2,500.00 to the hectare, and the court, in its order dated September 24,
1960, gave the defendant until October 15, 1960 either to pay the value of the 14
hectares at the rate given or to deliver the clean titles of the lots. On October 15,
1960, the defendant finally delivered Certificate of Title No. T-28046 covering Lot
788, but not the title covering Lot 608 because of an existing encumbrance in
favor of the Philippine National Bank. In view thereof, Helen Caram Nava moved
for, and secured on October 19, 1960, a writ of execution for P17,500.00, and on
the day following wrote the sheriff to proceed with the auction sale of the sugar
quotas previously scheduled for November 5, 1960. The sheriff issued the notice
of auction sale on October 20, 1960.
On October 22, 1960, death overtook the defendant Esperidion Presbitero.
Proceedings for the settlement of his estate were commenced in Special
Proceedings No. 2936 of the Court of First Instance of Negros Occidental; and
on November 4, 1960, the special administrator, Ricardo Presbitero, filed an
urgent motion, in Case No. 3492, to set aside the writs of execution, and to order
the sheriff to desist from holding the auction sale on the grounds that the levy on
the sugar quotas was invalid because the notice thereof was not registered with
the Register of Deeds, as for real property, and that the writs, being for sums of
money, are unenforceable since Esperidion Presbitero died on October 22, 1960,
and, therefore, could only be enforced as a money claim against his estate.
This urgent motion was heard on November 5, 1960, but the auction sale
proceeded on the same date, ending in the plaintiff's putting up the highest bid
for P34,970.11; thus, the sheriff sold 21,640 piculs of sugar quota to her.
On November 10, 1960, plaintiff Nava filed her opposition to Presbitero's urgent
motion of November 4, 1960; the latter filed on May 4, 1961 a supplement to his
urgent motion; and on May 8 and 23, 1961, the court continued hearings on the
motion, and ultimately denied it on November 18, 1961.
On January 11, 1962, plaintiff Nava also filed an urgent motion to order the Ma-
ao Sugar Central to register the sugar quotas in her name and to deliver the
rentals of these quotas corresponding to the crop year 1960-61 and succeeding
years to her. The court granted this motion in its order dated February 3, 1962. A
motion for reconsideration by Presbitero was denied in a subsequent order under
date of March 5, 1962. Wherefore, Presbitero instituted the present proceedings
for certiorari.
A preliminary restraining writ was thereafter issued by the court against the
respondents from implementing the aforesaid orders of the respondent Judge,
dated February 3, 1960 and March 5, 1962, respectively. The petition further
seeks the setting aside of the sheriff's certificate of sale of the sugar quotas
made out in favor of Helen Caram Nava, and that she be directed to file the
judgment credit in her favor in Civil Case No. 3492 as a money claim in the
proceedings to settle the Estate of Esperidion Presbitero.
The petitioner denies having been personally served with notice of the
garnishment of the sugar quotas, but this disclaimer cannot be seriously
considered since it appears that he was sent a copy of the notice through the
chief of police of Valladolid on June 21, 1960, as certified to by the sheriff, and
that he had actual knowledge of the garnishment, as shown by his motion of
November 4, 1960 to set aside the writs of execution and to order the sheriff to
desist from holding the auction sale.
Squarely at issue in this case is whether sugar quotas are real (immovable) or
personal properties. If they be realty, then the levy upon them by the sheriff is
null and void for lack of compliance with the procedure prescribed in Section 14,
Rule 39, in relation with Section 7, Rule 59, of the Rules of Court requiring "the
filing with the register of deeds a copy of the orders together with a description of
the property . . . ."
In contending that sugar quotas are personal property, the respondent, Helen
Caram Nava, invoked the test formulated by Manresa (3 Manresa, 6th Ed. 43),
and opined that sugar quotas can be carried from place to place without injury to
the land to which they are attached, and are not one of those included in Article
415 of the Civil Code; and not being thus included, they fall under the category of
personal properties:
ART. 416. The following are deemed to be personal property:
x x x x x x x x x
4. In general, all things which can be transported from place to place
without impairment of the real property to which they are fixed.
Wherefore, the parties respectfully pray that the foregoing stipulation of
facts be admitted and approved by this Honorable Court, without prejudice
to the parties adducing other evidence to prove their case not covered by
this stipulation of facts. 1wph 1. t
Respondent likewise points to evidence she submitted that sugar quotas are, in
fact, transferred apart from the plantations to which they are attached, without
impairing, destroying, or diminishing the potentiality of either quota or plantation.
She was sustained by the lower court when it stated that "it is a matter of public
knowledge and it is universal practice in this province, whose principal industry is
sugar, to transfer by sale, lease, or otherwise, sugar quota allocations from one
plantation to any other" and that it is "specious to insist that quotas are
improvements attaching to one plantation when in truth and in fact they are no
longer attached thereto for having been sold or leased away to be used in
another plantation". Respondent would add weight to her argument by invoking
the role that sugar quotas play in our modern social and economic life, and cites
that the Sugar Office does not require any registration with the Register of Deeds
for the validity of the sale of these quotas; and, in fact, those here in question
were not noted down in the certificate of title of the land to which they pertain;
and that Ricardo Presbitero had leased sugar quotas independently of the land.
The respondent cites further that the U.S.-Philippine Trade Relations Act,
approved by the United States Congress in 1946, limiting the production of
unrefined sugar in the Philippines did not allocate the quotas for said unrefined
sugar among lands planted to sugarcane but among "the sugar producing mills
and plantation OWNERS", and for this reason Section 3 of Executive Order No.
873, issued by Governor General Murphy, authorizes the lifting of sugar
allotments from one land to another by means only of notarized deeds.
While respondent's arguments are thought-provoking, they cannot stand against
the positive mandate of the pertinent statute. The Sugar Limitation Law (Act
4166, as amended) provides
SEC. 9. The allotment corresponding to each piece of land under the
provisions of this Act shall be deemed to be an improvement attaching to
the land entitled thereto ....
and Republic Act No. 1825 similarly provides
SEC. 4. The production allowance or quotas corresponding to each piece of land
under the provisions of this Act shall be deemed to be an improvement attaching
to the land entitled thereto ....
And Executive Order No. 873 defines "plantation" as follows:
(a) The term 'plantation' means any specific area of land under sole or
undivided ownership to which is attached an allotment of centrifugal sugar.
Thus, under express provisions of law, the sugar quota allocations are
accessories to land, and can not have independent existence away from a
plantation, although the latter may vary. Indeed, this Court held in the case
ofAbelarde vs. Lopez, 74 Phil. 344, that even if a contract of sale
of haciendas omitted "the right, title, interest, participation, action (and) rent"
which the grantors had or might have in relation to the parcels of land sold, the
sale would include the quotas, it being provided in Section 9, Act 4166, that the
allotment is deemed an improvement attached to the land, and that at the time
the contract of sale was signed the land devoted to sugar were practically of no
use without the sugar allotment.
As an improvement attached to land, by express provision of law, though not
physically so united, the sugar quotas are inseparable therefrom, just like
servitudes and other real rights over an immovable. Article 415 of the Civil Code,
in enumerating what are immovable properties, names
10. Contracts for public works, and servitudes and other real rights over
immovable property. (Emphasis supplied)
It is by law, therefore, that these properties are immovable or real, Article 416 of
the Civil Code being made to apply only when the thing (res) sought to be
classified is not included in Article 415.
The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th
Congress) allows transfers of sugar quotas does not militate against their
immovability. Neither does the fact that the Sugar Quota Office does not require
registration of sales of quotas with the Register of Deeds for their validity, nor the
fact that allocation of unrefined sugar quotas is not made among lands planted to
sugarcane but among "the sugar producing mills and plantation OWNERS",
since the lease or sale of quotas are voluntary transactions, the regime of which,
is not necessarily identical to involuntary transfers or levies; and there cannot be
a sugar plantation owner without land to which the quota is attached; and there
can exist no quota without there being first a corresponding plantation.
Since the levy is invalid for non-compliance with law, it is impertinent to discuss
the survival or non-survival of claims after the death of the judgment debtor,
gauged from the moment of actual levy. Suffice it to state that, as the case
presently stands, the writs of execution are not in question, but the levy on the
quotas, and, because of its invalidity, the levy amount to no levy at all. Neither is
it necessary, or desirable, to pass upon the conscionableness or
unconscionableness of the amount produced in the auction sale as compared
with the actual value of the quotas inasmuch as the sale must necessarily be
also illegal.
As to the remedial issue that the respondents have presented: that certiorari
does not lie in this case because the petitioner had a remedy in the lower court to
"suspend" the auction sale, but did not avail thereof, it may be stated that the
latter's urgent motion of November 4, 1960, a day before the scheduled sale
(though unresolved by the court on time), did ask for desistance from holding the
sale.
WHEREFORE, the preliminary injunction heretofore granted is hereby made
permanent, and the sheriff's certificate of sale of the sugar quotas in question
declared null and void. Costs against respondent Nava.
Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and Regala, JJ.,
concur.
Makalintal, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J .:
The action was commenced in the Court of First Instance of the Province of
Tarlac on the 14th day of December 1924. The facts are about as conflicting as it
is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano
Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of execution
issued by the Court of First Instance of Pampanga, attached and sold to the
defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and his
tenants on seven parcels of land described in the complaint in the third
paragraph of the first cause of action; that within one year from the date of the
attachment and sale the plaintiff offered to redeem said sugar cane and tendered
to the defendant Valdez the amount sufficient to cover the price paid by the latter,
the interest thereon and any assessments or taxes which he may have paid
thereon after the purchase, and the interest corresponding thereto and that
Valdez refused to accept the money and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J.
Valdez was attempting to harvest the palay planted in four of the seven parcels
mentioned in the first cause of action; that he had harvested and taken
possession of the palay in one of said seven parcels and in another parcel
described in the second cause of action, amounting to 300 cavans; and that all of
said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the
defendant Emiliano J. Valdez his attorneys and agents, restraining them (1) from
distributing him in the possession of the parcels of land described in the
complaint; (2) from taking possession of, or harvesting the sugar cane in
question; and (3) from taking possession, or harvesting the palay in said parcels
of land. Plaintiff also prayed that a judgment be rendered in his favor and against
the defendants ordering them to consent to the redemption of the sugar cane in
question, and that the defendant Valdez be condemned to pay to the plaintiff the
sum of P1,056 the value of palay harvested by him in the two parcels above-
mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval
of the bond for P6,000 filed by the plaintiff, issued the writ of preliminary
injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and
specifically each and every allegation of the complaint and step up the following
defenses:
(a) That the sugar cane in question had the nature of personal property
and was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause
of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason
of the preliminary injunction he was unable to gather the sugar cane, sugar-cane
shoots (puntas de cana dulce) palay in said parcels of land, representing a loss
to him of P8,375.20 and that, in addition thereto, he suffered damages amounting
to P3,458.56. He prayed, for a judgment (1) absolving him from all liability under
the complaint; (2) declaring him to be the absolute owner of the sugar cane in
question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to
pay to him the sum of P11,833.76, representing the value of the sugar cane and
palay in question, including damages.
Upon the issues thus presented by the pleadings the cause was brought on for
trial. After hearing the evidence, and on April 28, 1926, the Honorable Cayetano
Lukban, judge, rendered a judgment against the plaintiff and in favor of the
defendants
(1) Holding that the sugar cane in question was personal property and, as
such, was not subject to redemption;
(2) Absolving the defendants from all liability under the complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the defendant
Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant
was not able to raise by reason of the injunction, at P4 cavan.
9,439.08 From that judgment the plaintiff appealed and in his
assignments of error contends that the lower court erred: (1) In
holding that the sugar cane in question was personal property and,
therefore, not subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as
well as parcels 7 and 8, and that the palay therein was planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed to
realized P6,757.40 from the sugar cane and P1,435.68 from sugar-cane
shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on time,
the defendant was unable to raise palay on the land, which would have
netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the defendant the
sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by
virtue of writ of execution in civil case No. 20203 of the Court of First
Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied an
attachment on eight parcels of land belonging to said Leon Sibal, situated
in the Province of Tarlac, designated in the second of attachment as
parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight
parcels of land, at the auction held by the sheriff of the Province of Tarlac,
for the sum to P4,273.93, having paid for the said parcels separately as
follows (Exhibit C, and 2-A):

Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 .....................................................................

1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on the
24th day of September, 1923, the judgment debtor, Leon Sibal, paid
P2,000 to Macondray & Co., Inc., for the account of the redemption price
of said parcels of land, without specifying the particular parcels to which
said amount was to applied. The redemption price said eight parcels was
reduced, by virtue of said transaction, to P2,579.97 including interest
(Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution in civil case
No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon Sibal
1. the same parties in the present case), attached the personal
property of said Leon Sibal located in Tarlac, among which was included
the sugar cane now in question in the seven parcels of land described in
the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction
said personal properties of Leon Sibal, including the sugar cane in
question to Emilio J. Valdez, who paid therefor the sum of P1,550, of which
P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of
execution, also attached the real property of said Leon Sibal in Tarlac,
including all of his rights, interest and participation therein, which real
property consisted of eleven parcels of land and a house and camarin
situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the
house and the camarin, were bought by Emilio J. Valdez at the auction
held by the sheriff for the sum of P12,200. Said eight parcels were
designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11.
The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the
sheriff as parcels 2, 12, and 13, were released from the attachment by
virtue of claims presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and interest in
the eight parcels of land acquired by it at public auction held by the deputy
sheriff of Tarlac in connection with civil case No. 20203 of the Court of First
Instance of Manila, as stated above. Said amount represented the unpaid
balance of the redemption price of said eight parcels, after payment by
Leon Sibal of P2,000 on September 24, 1923, fro the account of the
redemption price, as stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in the
seven parcels of land described in the first cause of action of the complaint
at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight
parcels of land situated in the Province of Tarlac belonging to Leon Sibal
and that on September 24, 1923, Leon Sibal paid to Macondray & Co.
P2,000 for the account of the redemption price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray &
Co. all of its rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights
and interest which Leon Sibal had or might have had on said eight parcels
by virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight parcels
of land.
The first question raised by the appeal is, whether the sugar cane in question is
personal or real property. It is contended that sugar cane comes under the
classification of real property as "ungathered products" in paragraph 2 of article
334 of the Civil Code. Said paragraph 2 of article 334 enumerates as real
property the following: Trees, plants, and ungathered products, while they are
annexed to the land or form an integral part of any immovable property." That
article, however, has received in recent years an interpretation by the Tribunal
Supremo de Espaa, which holds that, under certain conditions, growing crops
may be considered as personal property. (Decision of March 18, 1904, vol. 97,
Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing
section 334 of the Civil Code, in view of the recent decisions of the supreme
Court of Spain, admits that growing crops are sometimes considered and treated
as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos
autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y a
la de lenas, considerando ambas como muebles. El Tribunal Supremo, en
sentencia de 18 de marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su terminacion por
desahucio no extingue los derechos del arrendario, para recolectar o
percibir los frutos correspondientes al ao agricola, dentro del que
nacieron aquellos derechos, cuando el arrendor ha percibido a su vez el
importe de la renta integra correspondiente, aun cuando lo haya sido por
precepto legal durante el curso del juicio, fundandose para ello, no solo en
que de otra suerte se daria al desahucio un alcance que no tiene, sino en
que, y esto es lo interesante a nuestro proposito, la consideracion de
inmuebles que el articulo 334 del Codigo Civil atribuge a los frutos
pendientes, no les priva del caracter de productos pertenecientes, como
tales, a quienes a ellos tenga derecho, Ilegado el momento de su
recoleccion.
x x x x x x x x x
Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria,
publicada en 16 de diciembre de 1909, con las reformas introducidas por
la de 21 de abril anterior, la hipoteca, salvo pacto expreso que disponga lo
contrario, y cualquiera que sea la naturaleza y forma de la obligacion que
garantice, no comprende los frutos cualquiera que sea la situacion en que
se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending fruits
and ungathered products may be sold and transferred as personal property; (2)
that the Supreme Court of Spain, in a case of ejectment of a lessee of an
agricultural land, held that the lessee was entitled to gather the products
corresponding to the agricultural year, because said fruits did not go with the land
but belonged separately to the lessee; and (3) that under the Spanish Mortgage
Law of 1909, as amended, the mortgage of a piece of land does not include the
fruits and products existing thereon, unless the contract expressly provides
otherwise.
An examination of the decisions of the Supreme Court of Louisiana may give us
some light on the question which we are discussing. Article 465 of the Civil Code
of Louisiana, which corresponds to paragraph 2 of article 334 of our Civil Code,
provides: "Standing crops and the fruits of trees not gathered, and trees before
they are cut down, are likewise immovable, and are considered as part of the
land to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that provision, held
that in some cases "standing crops" may be considered and dealt with as
personal property. In the case of Lumber Co. vs. Sheriff and Tax Collector (106
La., 418) the Supreme Court said: "True, by article 465 of the Civil Code it is
provided that 'standing crops and the fruits of trees not gathered and trees before
they are cut down . . . are considered as part of the land to which they are
attached, but the immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by others than the owners of the
property to which the crop is attached. . . . The existence of a right on the
growing crop is a mobilization by anticipation, a gathering as it were in advance,
rendering the crop movable quoad the right acquired therein. Our jurisprudence
recognizes the possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761;
Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs.
Bodin (28 La. An., 761) that "article 465 of the Revised Code says that standing
crops are considered as immovable and as part of the land to which they are
attached, and article 466 declares that the fruits of an immovable gathered or
produced while it is under seizure are considered as making part thereof, and
incurred to the benefit of the person making the seizure. But the evident meaning
of these articles, is where the crops belong to the owner of the plantation they
form part of the immovable, and where it is seized, the fruits gathered or
produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the immovable.
It belongs to the lessee, and may be sold by him, whether it be gathered or
not, and it may be sold by his judgment creditors. If it necessarily forms
part of the leased premises the result would be that it could not be sold
under execution separate and apart from the land. If a lessee obtain
supplies to make his crop, the factor's lien would not attach to the crop as
a separate thing belonging to his debtor, but the land belonging to the
lessor would be affected with the recorded privilege. The law cannot be
construed so as to result in such absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an
immovable, it would be destructive of the very objects of the act, it would
render the pledge of the crop objects of the act, it would render the pledge
of the crop impossible, for if the crop was an inseparable part of the realty
possession of the latter would be necessary to that of the former; but such
is not the case. True, by article 465 C. C. it is provided that "standing crops
and the fruits of trees not gathered and trees before they are cut down are
likewise immovable and are considered as part of the land to which they
are attached;" but the immovability provided for is only one in
abstracto and without reference to rights on or to the crop acquired by
other than the owners of the property to which the crop was attached. The
immovability of a growing crop is in the order of things temporary, for the
crop passes from the state of a growing to that of a gathered one, from an
immovable to a movable. The existence of a right on the growing crop is a
mobilization by anticipation, a gathering as it were in advance, rendering
the crop movable quoad the right acquired thereon. The provision of our
Code is identical with the Napoleon Code 520, and we may therefore
obtain light by an examination of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de Espaa but by
the Supreme Court of Louisiana, is followed in practically every state of the
Union.
From an examination of the reports and codes of the State of California and other
states we find that the settle doctrine followed in said states in connection with
the attachment of property and execution of judgment is, that growing crops
raised by yearly labor and cultivation are considered personal property. (6
Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329:
Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161;
Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126;
McKenzie vs. Lampley, 31 Ala., 526; Crinevs. Tifts and Co., 65 Ga., 644;
Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec.
200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then
belonging to the vendor, and then title will vest in the buyer the moment the thing
comes into existence. (Emerson vs. European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are
said to have a potential existence. A man may sell property of which he is
potentially and not actually possessed. He may make a valid sale of the wine that
a vineyard is expected to produce; or the gain a field may grow in a given time; or
the milk a cow may yield during the coming year; or the wool that shall thereafter
grow upon sheep; or what may be taken at the next cast of a fisherman's net; or
fruits to grow; or young animals not yet in existence; or the good will of a trade
and the like. The thing sold, however, must be specific and identified. They must
be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of the
Civil Code has been modified by section 450 of the Code of Civil Procedure as
well as by Act No. 1508, the Chattel Mortgage Law. Said section 450 enumerates
the property of a judgment debtor which may be subjected to execution. The
pertinent portion of said section reads as follows: "All goods, chattels, moneys,
and other property, both real and personal, * * * shall be liable to execution. Said
section 450 and most of the other sections of the Code of Civil Procedure relating
to the execution of judgment were taken from the Code of Civil Procedure of
California. The Supreme Court of California, under section 688 of the Code of
Civil Procedure of that state (Pomeroy, p. 424) has held, without variation, that
growing crops were personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are
personal property. Section 2 of said Act provides: "All personal property shall be
subject to mortgage, agreeably to the provisions of this Act, and a mortgage
executed in pursuance thereof shall be termed a chattel mortgage." Section 7 in
part provides: "If growing crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds himself properly to tend, care for
and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on the
assumption that "growing crops" are personal property. This consideration tends
to support the conclusion hereinbefore stated, that paragraph 2 of article 334 of
the Civil Code has been modified by section 450 of Act No. 190 and by Act No.
1508 in the sense that "ungathered products" as mentioned in said article of the
Civil Code have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered products."
At common law, and generally in the United States, all annual crops which
are raised by yearly manurance and labor, and essentially owe their
annual existence to cultivation by man, . may be levied on as personal
property." (23 C. J., p. 329.) On this question Freeman, in his treatise on
the Law of Executions, says: "Crops, whether growing or standing in the
field ready to be harvested, are, when produced by annual cultivation, no
part of the realty. They are, therefore, liable to voluntary transfer as
chattels. It is equally well settled that they may be seized and sold under
execution. (Freeman on Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has
been modified by section 450 of the Code of Civil Procedure and by Act No.
1508, in the sense that, for the purpose of attachment and execution, and for the
purposes of the Chattel Mortgage Law, "ungathered products" have the nature of
personal property. The lower court, therefore, committed no error in holding that
the sugar cane in question was personal property and, as such, was not subject
to redemption.
All the other assignments of error made by the appellant, as above stated, relate
to questions of fact only. Before entering upon a discussion of said assignments
of error, we deem it opportune to take special notice of the failure of the plaintiff
to appear at the trial during the presentation of evidence by the defendant. His
absence from the trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first cause of
action of the complaint, the plaintiff made a futile attempt to show that said two
parcels belonged to Agustin Cuyugan and were the identical parcel 2 which was
excluded from the attachment and sale of real property of Sibal to Valdez on
June 25, 1924, as stated above. A comparison of the description of parcel 2 in
the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1
and 2 of the complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caa dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.
en una parcela de terreno de la pertenencia del citado ejecutado, situada
en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas poco mas o
menos de superficie.
2. La caa dulce sembrada por el inquilino del ejecutado Leon Sibal 1.,
Ilamado Alejandro Policarpio, en una parcela de terreno de la pertenencia
del ejecutado, situada en Dalayap, Culubasa, Bamban, Tarlac de unas dos
hectareas de superficie poco mas o menos." The description of parcel 2
given in the certificate of sale (Exhibit A) is as follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090
metros cuadrados de superficie, linda al N. con Canuto Sibal, Esteban
Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mau and
others; al S. con Alejandro Dayrit, Isidro Santos and Melecio Mau; y al O.
con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador amillarado
P4,200 pesos.
On the other hand the evidence for the defendant purported to show that parcels
1 and 2 of the complaint were included among the parcels bought by Valdez from
Macondray on June 25, 1924, and corresponded to parcel 4 in the deed of sale
(Exhibit B and 2), and were also included among the parcels bought by Valdez at
the auction of the real property of Leon Sibal on June 25, 1924, and
corresponded to parcel 3 in the certificate of sale made by the sheriff (Exhibit A).
The description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. Terreno palayero, ubicado en el barrio de
Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de
superficie, lindante al Norte con Road of the barrio of Culubasa that goes
to Concepcion; al Este con Juan Dizon; al Sur con Lucio Mao y Canuto
Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la
suma de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of the
complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch
as the plaintiff did not care to appear at the trial when the defendant offered his
evidence, we are inclined to give more weight to the evidence adduced by him
that to the evidence adduced by the plaintiff, with respect to the ownership of
parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of
the complaint belong to the defendant, having acquired the same from
Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal on the
same date.
It appears, however, that the plaintiff planted the palay in said parcels and
harvested therefrom 190 cavans. There being no evidence of bad faith on his
part, he is therefore entitled to one-half of the crop, or 95 cavans. He should
therefore be condemned to pay to the defendant for 95 cavans only, at P3.40 a
cavan, or the sum of P323, and not for the total of 190 cavans as held by the
lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows that said
parcel corresponds to parcel 1 of the deed of sale of Macondray & Co, to Valdez
(Exhibit B and 2), and to parcel 4 in the certificate of sale to Valdez of real
property belonging to Sibal, executed by the sheriff as above stated (Exhibit A).
Valdez is therefore the absolute owner of said parcel, having acquired the
interest of both Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3
of the second cause of action, it appears from the testimony of the plaintiff
himself that said parcel corresponds to parcel 8 of the deed of sale of Macondray
to Valdez (Exhibit B and 2) and to parcel 10 in the deed of sale executed by the
sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of
said parcel, having acquired the interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were
attached under said execution. Said parcels of land were sold to Macondray &
Co. on the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923,
Leon Sibal paid to Macondray & Co. P2,000 on the redemption of said parcels of
land. (See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was
attached, including the sugar cane in question. (Exhibit A) The said personal
property so attached, sold at public auction May 9 and 10, 1924. April 29, 1924,
the real property was attached under the execution in favor of Valdez (Exhibit A).
June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at
public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the
evidence shows that the sugar cane in question covered an area of 22 hectares
and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have yielded an
average crop of 1039 picos and 60 cates; that one-half of the quantity, or 519
picos and 80 cates would have corresponded to the defendant, as owner; that
during the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A).
Therefore, the defendant, as owner, would have netted P 6,757.40 from the
sugar cane in question. The evidence also shows that the defendant could have
taken from the sugar cane 1,017,000 sugar-cane shoots (puntas de cana) and
not 1,170,000 as computed by the lower court. During the season the shoots
were selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore
would have netted P1,220.40 from sugar-cane shoots and not P1,435.68 as
allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint,
amounting to 190 cavans, one-half of said quantity should belong to the plaintiff,
as stated above, and the other half to the defendant. The court erred in awarding
the whole crop to the defendant. The plaintiff should therefore pay the defendant
for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by the
lower court.
The evidence also shows that the defendant was prevented by the acts of the
plaintiff from cultivating about 10 hectares of the land involved in the litigation. He
expected to have raised about 600 cavans of palay, 300 cavans of which would
have corresponded to him as owner. The lower court has wisely reduced his
share to 150 cavans only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified. The
plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal
are hereby ordered to pay to the defendant jointly and severally the sum of
P8,900.80, instead of P9,439.08 allowed by the lower court, as follows:
P6,757.40 for the sugar cane;
1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.

8,900.80
============

In all other respects, the judgment appealed from is hereby affirmed, with costs.
So ordered.
Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.
US vs Carlos
G.R. No. 6295, 21 Phil 543
September 1, 1911

FACTS: Ignacio Carlos has been a consumer of electricity furnished by the Manila Electric Railroad and Light
Company for a building containing the residence of the accused and 3 other residences. Believing that more light is
consumed than what is shown in the meter installed, the company installed an additional meter on the pole outside
Carloss house to compare the actual consumption. They found out that Carlos used a jumper. Further, a jumper was
found in a drawer of a small cabinet in the room of the defendants house where the meter was installed. In the
absence of any explanation for his possession of said device, the presumption raised was that Carlos was the owner
of the device whose only use was to deflect the flow of electricity, causing loss to the Meralco of over 2000 kilowatts
of current.

Accused of theft, Carloss defense was that electricity was an unknown force, not a fluid, and being intangible, could
not be the object of theft.
ISSUE: Whether the court erred in declaring that electricity can be the object of theft.
HELD: While electric current is not a fluid, still, its manifestations and effects like those of gas may be seen and felt.
The true test of what may be stolen is not whether it is corporeal or incorporeal, but whether, being possessed of
value, a person other than the owner may appropriate the same. Electricity, like gas, is a valuable merchandise and
may thus be stolen. (See also U.S. v. Tambunting, 41 Phil. 364).
The court further ruled that electricity, the same as gas, is a valuable article of merchandise, bought and sold like
other personal property and is capable of appropriation by another. It is also susceptible of being severed from a
mass or larger quantity and of being transported from place to place. Hence, no error was committed by the trial court
in holding that electricity is a subject of larceny.

U.S. Supreme Court
Valdes v. Central Altagracia, Inc., 225 U.S. 58 (1912)
Valdes v. Central Altagracia, Incorporated
Nos. 193, 196
Submitted March 6, 1912
Decided May 13, 1912
225 U.S. 58
APPEALS FROM THE DISTRICT COURT OF THE
UNITED STATES FOR PORTO RICO
Syllabus
The record in this case shows that the court below did not err in bringing this case to a speedy
conclusion and avoiding the loss occasioned by the litigation to all concerned.
A litigant cannot, after all parties have acquiesced in the order setting the case for trial and the
court has denied his request for continuance, refuse to proceed with the trial on the ground that
the time to plead has not expired, and when such refusal to proceed is inconsistent with his prior
attitude in the case.
The granting of a continuance is within the sound discretion of the trial court, and not subject to
be reviewed on appeal except in cases of clear error and abuse; in this case, the record shows that
the refusal to continue on account of absence of witness was not an abuse, but a just exercise, of
discretion.
Under the circumstances of this case, and in view of the existence of an equity of redemption
under prior transfers, held that a transfer of all the property of a corporation to one advancing
money to enable it to continue its business was not a conditional sale of the property, but a
contract creating security for the money advanced, and, on liquidation of the assets, the
transferee stood merely as a secured creditor.
The mere form of an instrument transferring property of a debtor cannot exclude the power of
creditors to inquire into the reality and substance of a contract unrecorded, although required by
law to be recorded in order to be effective against third parties.
Under the general law of Porto Rico, machinery placed on property by a tenant does not become
immobilized; when, however, a tenant places it there pursuant to contract that it shall belong to
the owner, it becomes immobilized as to that tenant and his assigns with notice, although it does
not become so as to creditors not having legal notice of the lease.
In this case, held that the lien of the attachment of a creditor of the tenant on machinery placed
by the tenant on a sugar Central in Porto Rico is superior to the claim of the transferee of an
unrecorded
Page 225 U. S. 59
lease, even though the lease required the tenant to place the machinery on the property.
5 P.R. 155 affirmed.
The facts are stated in the opinion.
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
These cases were consolidated below, tried together, a like statement of facts was made
applicable to both, and the court disposed of them in one opinion. We shall do likewise. Stating
only things deemed to be essential as shown by the pleadings and documents annexed to them
and the finding of facts made below, the case is this: Joaquin Sanchez owned in Porto Rico a
tract of land of about 22 acres (cuerdas) on which was a sugar house containing a mill for
crushing cane and an evaporating apparatus for manufacturing the juice of the cane into sugar.
All of the machinery was antiquated and of a limited capacity. The establishment was known as
the Central Altagracia, and Sanchez, while not a cane grower, carried on the business of a central
-- that is, of acquiring cane grown by others and manufacturing it into sugar at his factory. On the
eighteenth day of January, 1905, Sanchez leased his land and plant to Salvador Castello for a
period of ten years. The lease gave to the tenant (Castello) the right to install in the plant
"such machinery as he may deem convenient, which said machinery at the end
Page 225 U. S. 60
of the years mentioned (the term of the lease) shall become the exclusive property"
of the lessor, Sanchez. The tenant was given one year in which to begin the work of repairing
and improving the plant, and it was provided that,
"upon the expiration of this term, if the necessary improvements shall not have been begun by
him (Castello), then this contract shall be null and void, and no cause of action shall accrue to
any of the contracting parties by reason thereof."
Further agreeing on the subject of the improved machinery which was to be placed in the plant,
the contract provided:
"Upon the expiration of the term agreed on under this contract, any improvement or machinery
installed in the said central shall remain for the benefit of Don Joaquin Sanchez, and Don
Salvador Castello shall have no right to claim anything for the improvements made."
The rental was thus provided for:
"After each crop, such profits as may be produced by the Central Altagracia shall be distributed,
and twenty-five percent (25%) thereof shall be immediately paid to Don Joaquin Sanchez as
equivalent for the rental of said central and of the twenty-two (22) cuerdas of land surrounding
the same. The remaining seventy-five percent (75%) shall belong to Don Salvador Castello, who
may interest therein whomsoever he may wish, either for the whole or part thereof."
It was stipulated, however, that, in fixing the profits, no charge should be made for repairs of the
existing machinery or for new machinery put in, as the entire cost of these matters was to be
borne by the lessee, Castello. The lease provided, moreover, that, in case of the death of Sanchez,
the obligations of the contract should be binding on his heirs, and in the case of the death of
Castello, his brother, Gerardo Castello, should take his place,
"and be a contracting party if he so desired. Otherwise, the plantation, in such a condition at it
may be at his death, shall immediately pass into the possession of its owner, Don Joaquin
Sanchez."
In June,
Page 225 U. S. 61
1905, by a supplementary contract, the lease was extended without change of its terms and
conditions for an additional period of ten years, making the total term twenty years. Although
executed under private signature, this lease, conformably to the laws of Porto Rico, was
produced before a notary and made authentic, and in such form was duly registered on the public
records, as required by the Porte Rican laws.
On the first day of July, 1905, Salvador and Gerardo Castello transferred all their rights acquired
under the lease, as above stated, to Frederick L. Cornwell for "the corporation to be organized
under the name of Central Altagracia, of which he is the trustee." This transfer bound the
corporation to all the obligations in favor of the original lessor, Sanchez, provided that the
corporation should issue to Castello a certain number of paid-up shares of its capital stock and a
further number of shares as the output of sugar from the plant increased as the result of its
enlarged capacity consequent upon the improvement of the machinery by the corporation. The
lease further provided for the employment of Castello as superintendent at a salary, for a
substitution of Gerardo Castello, in the event of the absence or death of his brother Salvador,
and, for this reason, it is to be assumed Gerardo made himself a party to the transfer of the lease.
This transfer of the lease to the corporation was never put upon the public records. The
corporation was organized under the laws of the State of Maine, and, under the transfer, took
charge of the plant. The season for grinding cane and the manufacture of sugar in Porto Rico
usually commences
"about the month of December of each year, and terminates in the months of May, June, or July
of the year following, according to the amount of cane to be ground."
Central factories in Porto Rico usually
"make contracts with the people (colonos) growing cane, so that growers of cane will deliver the
same to be ground, and such contracts
Page 225 U. S. 62
are usually made and entered into in the months of June, July, and August."
In other words, on the termination of one grinding season, in the months of June or July, it is
usual in the ensuing August to make new contracts for the cane to be delivered in the following
grinding season, which, as we have said, commences in December. The contract transferring the
lease to the Central Altagracia, Incorporated, was made in July, 1905, at the end, therefore, of the
grinding season of that year. To what extent the corporation contracted for cane to be delivered
to it for grinding during the season of 1905-06, which began in December, 1905, does not
appear. It is inferable, however, that the corporation began the work of installing new machinery
to give the plant a larger capacity within the year stipulated in the lease from Sanchez to
Castello. We say this because it is certain that, in the fall of 1906 (October), the corporation
borrowed from the commercial firm of Nevers & Callaghan in New York City the sum of
twenty-five thousand dollars ($25,000) to enable the corporation to pay for new and enlarged
machinery which it had ordered, and which was placed in the factory in time to be used in the
grinding season of 1906-07, which began in December, 1906. While such grinding season was
progressing, on April 11, 1907, the corporation, through its president, under the authority of its
board of directors, sold to one Ramon Valdes all its rights acquired under the lease transferred by
Castello. This transfer expressly included all the machinery previously placed by the corporation
in the sugar house, as well as machinery which might be thereafter installed during the term of
redemption hereafter to be referred to, and which, it was declared, conformably to the original
lease, "shall be a part of said factory for the manufacture of sugar." The consideration for the sale
was stated in the contract to be
"thirty-five thousand dollars ($35,000) received by the corporation, twenty-five thousand four
hundred dollars
Page 225 U. S. 63
($25,400) whereof had been paid prior to this act [of sale], and to its entire satisfaction, and the
balance of nine thousand six hundred dollars ($9,600) shall be turned over to the vendor
corporation by Senor Valdes immediately upon being required to do so by the former."
This sale was made subject to a right to redeem the property within a year on paying Valdes the
entire amount of his debt. There was a stipulation that Valdes assumed all the obligations of the
lease transferred by Castello to the company.
The undoubted purpose was not to interfere with the operation of the plant by the corporation,
since there was a provision in the contract binding Valdes to lease the property to the corporation
pending the period of redemption. This sale was passed in Porto Rico before a notary public, but
was never put upon the public records. At the time it was made, there was a very considerable
sum unpaid on the debt of Nevers & Callaghan. This fact, joined with the period when the sale
with the right to redeem was made -- that is, the approaching end of the sugar-making season of
1906 and 1907 -- coupled with other facts to which we shall hereafter make reference, all tend to
establish that, at that time, either because insufficient capital had been put into the venture or
because the business had been carried on at a loss, the affairs of the corporation were
embarrassed, if it was not insolvent. A short while before the commencement of the grinding
season of 1907-1908 in October, 1907, in the City of New York, the corporation, through its
president, declaring himself to be authorized by the board of directors, sanctioned by a vote of
the stockholders, apparently made an absolute sale of all the rights of the corporation under the
lease, and all its title to the machinery which the corporation had put into the plant. This sale was
declared to be for a consideration of sixty-five thousand ($65,000) dollars which the company
acknowledged to have received from Valdes, first, by the payment of the thirty-five
Page 225 U. S. 64
($35,000) dollars cash, as stated in the previous sale made subject to the equity of redemption,
and thirty thousand ($30,000) dollars which "the company has received afterwards in cash from
Valdes." There was a provision in the contract to the effect that, as the purpose of the previous
contract of sale, which had been made subject to the equity of redemption, was accomplished by
the new sale, the previous sale was declared to be no longer operative.
A few days afterwards, likewise in the City of New York (on November 2, 1907), Valdes sold to
the company all the rights which he had acquired from it by the previous sale, the price being
sixty-five thousand ($65,000) dollars, payable in installments falling due in the years 1908, 1909,
1910, and 1911, respectively. This transfer was put in the form of a conditional sale which
reserved the title in Valdes until the payment of the deferred price, and upon the stipulation that
any default by the corporation entitled Valdes ipso facto to take possession of the property.
Neither this act of sale from Valdes to the corporation nor the one made by the corporation to
Valdes were ever put upon the public records.
Prior to the making of the sales just stated, or about that time, the corporation defaulted in the
payment of a note held by Nevers & Callaghan for a portion of the money which they had loaned
the corporation under the circumstances which we have previously stated, and that firm sued in
the court below the corporation to recover the debt.
The grinding season of 1907-1908 commenced in December, 1907, and was obviously not a
successful one, for the debt of Nevers & Callaghan was not paid, and in May, 1908, a judgment
was recovered by them against the corporation for about $17,000, with interest, and in the same
month execution was issued and levied upon the machinery in the sugar house. Previous to, or
not long subsequent to, the time Nevers & Callaghan
Page 225 U. S. 65
commenced their suit, the precise date not being stated in the record, the heirs of Sanchez, the
original lessor, brought a suit in the court below against the corporation. The nature of the suit
and the relief sought is not disclosed, but it is inferable from the facts stated that the suit either
sought to recover the property on the ground that there was no power in Castello to transfer the
lease or upon the ground of default in the conditions as to payment of profits as rental which the
lease stipulated. It would seem also, at about the same time, either one or both of the Castellos
brought a suit against the company, presumably upon the theory that there had been a default in
the obligations assumed in their favor by the corporation at the time it took the transfer of the
lease. In the meanwhile also, probably as the result of the want of success of the corporation,
discord arose between its stockholders, and a suit growing out of that state of things was brought
in the lower court.
This litigation was commenced in June, 1908, by the bringing by Valdes of an action at law in
the court below to recover the plant on the ground that, by the default in paying one of the
installments of the price stated in the conditional sale, the right to the relief prayed had arisen.
On the same day, Valdes commenced a suit in equity against the corporation in aid of the suit at
law. The bill alleged the default of the corporation, the bringing of the suit at law, the confusion
in the affairs of the corporation, the judgment and levy of the execution by Nevers and
Callaghan, and the threat to sell the machinery under such execution, the refusal of the
corporation to deliver possession of the property, the waste and destruction of the value of the
property which would result if there was no one representing the corporation having power to
contract for cane to be delivered during the next grinding season, etc., etc. The prayer was for the
appointment of a receiver to take charge of the property, with authority
Page 225 U. S. 66
to carry on the same, make the necessary contracts for cane for the future, it being prayed that the
receiver should be empowered to issue receiver's certificates to the extent necessary to the
accomplishment of the purposes which the bill had in view.
On the same day, a bill was filed on behalf of the corporation against Valdes. This bill attacked
the sale made to Valdes and by him to the corporation. It was charged that the price stated to
have been paid by Valdes as a consideration of the conditional sale was fictitious, and that the
only sum he had advanced at that time was the $35,000 which it was the purpose to secure by
means of the sale with the equity of redemption. That, at that time, Valdes exacted as a
consideration for his loan that he be made a director and vice-president of the company. The bill
then stated that, it having become evident in the following autumn that the corporation would
require more money to increase its plant, to pay off the sum due Nevers & Callaghan, and for the
operation of the plant, Valdes agreed to advance the money if he were made president of the
company at a stipulated salary, given a bonus in the stock of the company, and upon the
condition that the papers be executed embodying the so-called sale of the company to Valdes and
the practically simultaneous conditional sale by Valdes to the company. The bill then alleged that
Valdes, having thus become the president of the company, failed to carry out his agreement to
advance the money, failed to provide for the debt of Nevers & Callaghan, mismanaged the
affairs of the property in many alleged particulars, and did various acts to the prejudice of the
company and to his own wrongful enrichment, which it is unnecessary to recapitulate. The
necessity of contracting for cane during the contract season in order that the plant might continue
during the next operating season to be a going concern, and the waste and loss which would
otherwise
Page 225 U. S. 67
be occasioned, were fully alleged. Valdes and the firm of Nevers & Callaghan and the individual
members of that firm were made defendants. The prayer was for the appointment of a receiver
and with power to carry on the business of the central, with power, for that purpose, to contract
for cane for the coming season, with authority to issue receiver's certificates for the purpose of
borrowing the money which might be required.
The judge, being about to leave Porto Rico for a brief period, declined to appoint a permanent
receiver, but named a temporary one to keep the property together until a further hearing could
be had, interference in the meanwhile with the custodian being enjoined. Shortly thereafter,
creditors of the corporation intervened and joined in the prayer made by both of the complainants
for the appointment of a receiver. In July, the two suits were by order consolidated, and, after a
hearing, a receiver was appointed and authority given him to continue the property as a going
concern and to borrow a limited amount of money on receiver's certificates, if necessary, to
secure contracts for cane for the coming crop season. The execution of the Nevers & Callaghan
judgment was stayed pending an appeal which had been taken to this Court. The only difference
which seems to have arisen concerning the appointment of the receiver grew out of the fact that a
prayer of the Central Altagracia, asking the court to appoint as receiver Mr. Pettingill, a member
of the bar and one of the counsel of the corporation, and who was also its treasurer, was denied.
Despite this, the fair inference is that the ultimate action of the court was not objected to by
anyone, because of the hope that the result of a successful operation of the plant during the
coming crop season might ameliorate the affairs of the corporation, and thus prevent further
controversies. We say this not only because of the conduct of the parties prior to the order
appointing the receiver, but because,
Page 225 U. S. 68
after that order, the solicitors of the Altagracia Company and Valdes put a stipulation of record
that, until the following October, no steps whatever should be taken in the proceedings, and not
even then unless the attorneys for both parties should be in Porto Rico.
The hope of a beneficial result from the operation of the plant by the receiver proved delusive.
As a result of such operation, there was a considerable loss represented by outstanding receiver's
certificates, with no means of paying except out of the property. Obviously for this reason, the
record contains a statement that, on July 12, 1909, a conference was had between the court and
all parties concerned to determine what steps should be taken to meet the situation. It appears
that, at that conference, the counsel representing the heirs of Sanchez and of Nevers & Callaghan
stated their opposition to a continuance of the receivership.
On July 17, 1909, the court placed a memorandum on the files, indicating its purpose to bring the
litigation, receivership, etc., to an end, and to cause "immediate issue to be raised on the
pleadings for that purpose." This memorandum was entitled in all the pending causes concerning
the property. It directed that demurrers which had been filed in the consolidated cause of Valdes
against the corporation and of the corporation against Valdes be overruled, and the defendants
were required to answer on or before Monday, July 26, in order that, upon the following day, the
27th of July, the issues raised might be tried before the court without the intervention of a
master. It was provided in the order, however, that nothing in this direction should prevent the
parties from filing such additional pleadings as it is deemed necessary for the protection of their
rights by way of cross bill or amendment, etc. To make the order efficacious, it was declared that
nothing would be done in the suit of the heirs of Sanchez against Castello and the Altagracia,
Page 225 U. S. 69
which was pending on appeal, and that a demurrer filed to the suit of Castello against the Central
would be overruled; that the demurrer in the suit at law of Valdes would remain in abeyance to
await the final action of the court on the trial of all the issues in the equity causes, and that a stay
of the Nevers & Callaghan execution would be also disposed of when the equity cases came to
be decided. This order was followed by a memorandum opinion filed on July the 21st stating
very fully the position of the respective suits, the necessity for action in order to preserve the
property from waste, and reiterating the view that, whatever might be the rights of the Central
Altagracia or of Valdes under the lease, those rights would be subordinate to the ultimate
determination of the suit brought by the heirs of Sanchez. To the action of the court as above
stated no objection appears to have been made. On the contrary, between the time of that order
and the period fixed for the commencement of a hearing, the Central Altagracia, Valdes, and
Nevers & Callaghan modified their pleadings to the extent deemed by them necessary to present
for trial the issues upon which they relied. In the case of the Central Altagracia, this was done by
filing, on July 22, an amended bill of complaint in its suit against Valdes, and on July 26 its
answer in the suit of Valdes. The acceptance by Valdes of the terms of the order was shown by
an answer filed to the bill in the suit of the company and the cross-bill in the same cause, and
Nevers & Callaghan manifested their acquiescence by obtaining leave to make themselves
parties and asserting their rights by cross-bill and answers which it is unnecessary to detail.
When the consolidated cause was called for trial on the morning of July 27, the counsel for the
Central Altagracia moved a continuance in order to take the testimony of certain witnesses in
Philadelphia and New York for the purpose of proving some of the allegations of the complaint
Page 225 U. S. 70
as to the wrongdoing of Valdes in administering the affairs of the corporation. This application
was supported by the affidavit of Mr. Pettingill, the counsel of the corporation. The record states
that the request for continuance was opposed by all the other counsel, and the application was
denied. In doing so, the court stated:
"That the matter has been pending for more than a year, and that counsel had full notice of the
court's intention to press the matters to issue and trial, and that it is not disposed to delay matters
at this time, when the admissions of the pleadings are so broad that the proofs available here in
Porto Rico are probably sufficient, and the amended complaint already on file in suit No. 565, --
Valdes v. Central Altagracia -- and the answer thereto and the answer recently filed in suit No.
564 -- Altagracia v. Valdes -- as well as the cross-bill also recently filed in suit No. 465, make so
many allegations and admissions as that the real issue between the parties can be plainly seen,
and that, in the opinion of the court, enough proof is available here in Porto Rico."
The court thereupon declared that the Altagracia Company might by the next day, if it so desired,
file exceptions to the answer in suit 565 and an answer to the cross-complaint -- indeed, that the
corporation might, if it wished, treat them as filed, and proceed with the cause and file them at
any convenient time thereafter. Thereupon, the record states:
"Said counsel for the Central Altagracia stated that he desired time to file exceptions to the
answer and an answer to the cross-bill in suit No. 565, and the court granted until the morning of
July 28 for such purpose. Later in the day of July 27, one of the counsel for Valdes having
requested the court to postpone the hearing of the cause until the morning of the 29th because of
an unexpected professional engagement elsewhere, the request was communicated by the court
to the other counsel in the cause."
Thereupon the record again recites:
"Messrs. Pettingill &
Page 225 U. S. 71
Cornwell, attorneys for the Central Altagracia, stated that they withdrew any statement they have
hitherto made in the cause in that regard, and desired to be understood that they would not except
to the answer in suit No. 565, or plead or answer to the cross-bill therein save and except within
the time which they contended the rules governing this Court of equity gave them, and would
stand upon what they considered their rights in that regard."
When the court assembled the next day, on the morning of the 28th, a statement concerning the
occurrence of the previous day as to the continuance, etc., just reviewed, was read by the court in
the presence of all the counsel, whereupon the record recites:
"N. B. Pettingill, counsel for the Central Altagracia, in response to the same, stated that he
objected to proceeding to take any evidence in any of the causes at that time, or the testimony of
any witnesses, because the same was not at issue or in condition for the taking of evidence, and
objected to the taking of such evidence until the issues of said causes are made up in accordance
with the rules of practice applicable to equity causes."
The record further recites:
"Which objection was overruled by the court on the ground that the action called for thereby is
not necessary. That the bill was amended within three days; an answer was immediately filed to
it and a cross-bill also filed, the said cross-bill making only the same claims as were made in suit
No. 563 at law, and that, anyway, the issue could be tried on the bill and answer in both suits. . .
."
This ruling of the court having been excepted to, the trial proceeded from day to day, the counsel
for the Central Altagracia taking no part in the same and virtually treating the proceedings as
though they did not concern that corporation.
In substance, the court decided: first, that as the result of the contracts between Valdes and the
Central Altagracia, he was not the owner of the rights of that corporation under the lease, or of
the machinery which
Page 225 U. S. 72
had been placed in the sugar house by the Altagracia Company, or of the other assets of the
corporation, but that he was merely a secured creditor. The sum of the secured debt was fixed
after making allowances for some not very material credits which the corporation was held to be
entitled to. Second, that the judgment in favor of Nevers & Callaghan was valid, and that that
firm, by virtue of its execution and levy upon the machinery, had a prior right to Valdes. Third,
the sums due to various creditors of the corporation were fixed and the equities or priorities were
classified as follows: (a) taxes due by the corporation and the sum of the receiver's certificates
and certain costs; (b) the judgment of Nevers & Callaghan, and (c) the debt of Valdes; (d) debts
due the other creditors. Without going into details, it suffices to say that, for the purpose of
enforcing these conclusions, the decree directed a sale of all the rights of the Central Altagracia
in and to the lease, machinery, contract, etc., and imposed the duty upon Valdes, if he became
the purchaser, to pay enough cash to discharge the costs, taxes, receiver's certificates, and the
claim of Nevers & Callaghan.
These appeals were then prosecuted, the one by the Central Altagracia and the other by Valdes.
We shall endeavor as briefly as may be to dispose of the contentions relied upon to secure a
reversal.
I. The Central Altagracia appeal. -- The alleged errors insisted on in behalf of that company
relate to the asserted arbitrary action of the court in forcing the cause to trial without affording
the time which it is insisted the corporation was entitled to under the equity rules applicable to
the subject, and second, the refusal of the court to grant a continuance upon the affidavit as to the
absence of material witnesses.
We think all the contentions on this subject are demonstrated to be devoid of merit by the
statement of the case which we have made. In the first place, it is manifest
Page 225 U. S. 73
from that statement that the proceeding leading up to the appointment of a receiver and the
power given to administer the property was largely the result of the assent of the corporation. In
the second place, when the unsuccessful financial issue of the receivership had become manifest,
we think the statement makes it perfectly clear that the steps taken by the court for the purpose of
bringing the case to a speedy conclusion, and thus avoiding the further loss which would result to
all interests concerned, were also acquiesced in by all the parties in interest who complied with
the terms of that order and took advantage of the rights which it conferred. We think also the
statement makes it apparent that the refusal on the part of the corporation to proceed with the
trial, upon the theory that the time to plead allowed by the equity rules had not elapsed, was the
result of a change of view because of the action of the court in refusing the continuance on
account of the absent witnesses -- a change of front which was inconsistent with the rights which
the corporation had exercised in accord with the order setting the cause for trial, and with the
rights of all the other parties to the cause which had arisen from that order and from the virtual
approval of it, or at least acquiescence in it, by all concerned.
Considering the assignments of error insofar as they relate alone to overruling of the application
for continuance, based upon the absence of witnesses, it suffices to say that the elementary rule is
that the granting of a continuance of the cause was peculiarly within the sound discretion of the
court below -- a discretion not subject to be reviewed on appeal except in case of such clear error
as to amount to a plain abuse springing from an arbitrary exercise of power. Instead of coming
within this latter category, we think the facts as to the refusal to continue and the conduct of the
parties make it clear that there was not only no abuse, but a just exercise, of discretion.
Page 225 U. S. 74
II. As to the Appeal of Valdes. -- Two propositions are relied upon: first, that error was
committed in treating Valdes merely as a secured creditor, and in not holding him to be the
absolute owner of the rights and property alleged to have been transferred by the so-called
conditional sale. Second, that, in any event, error was committed in awarding to Nevers &
Callaghan priority over Valdes.
The first proposition is supported by a reference to the Porto Rican Code and decisions of the
Supreme Court of Spain and the opinions of Spanish law writers. But the contention is not
relevant, and the authorities cited to sustain it are inapposite to the case to be here decided,
because the argument rests upon an imaginary premise -- that is, that the ruling of the court
below denied that right under the Spanish law to make a conditional sale, or held that such a sale,
if made, would not have the effect which the argument insists it was entitled to. This is true
because the action of the court was solely based upon a premise of fact, viz., that, under the
circumstances of the case and in view of the prior sale with the equity of redemption, the
cancellation of that sale, and the transfer made by the corporation to Valdes, and the immediate
transfer of the same rights by him to the corporation in the form of a conditional sale, the failure
to register any of the contracts, and the relation of Valdes to the corporation at the time the
contracts were made, it resulted that whatever might be the mere form, in substance and effect,
no conditional sale was made, but a mere contract was entered into which the parties intended to
be a mere security to Valdes for money advanced and to be advanced by him. This being the
case, it is manifest that it is wholly irrelevant to argue that error was committed in not applying
the assumed principles of the Porto Rican and Spanish law governing in the case of a conditional
sale, when the ruling which the court made proceeded upon the conclusion that there was no
conditional sale.
Page 225 U. S. 75
The contention that, under the Porto Rican law, the form was controlling because proof of the
substance was not admissible seems not to have been raised below, but, if it had been, is
obviously without merit, as the case as presented involved not a controversy alone between the
parties to the contract, but the effect and operation of the contract upon third parties, the creditors
of the corporation. The contention is additionally without merit since it assumes that the mere
form of the contract excluded the power of creditors to inquire into its reality and substance,
even although the contract was never inscribed upon the public records so as to bind third
parties. That its character was such as to require inscription we shall in a few moments
demonstrate in coming to consider the second proposition -- that is, upon the hypothesis that
Valdes was but a secured creditor, was error committed in subordinating his claim to the prior
claim of Nevers & Callaghan under their judgment and execution?
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 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
Page 225 U. S. 76
implements intended by the owner of the tenements for the industry 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, 164; Laurent, Tit. 5, No. 447, and decisions quoted in
Fuzier-Herman ed., Code Napoleon, under article 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 of 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.
Page 225 U. S. 77
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. It is true, says Aubry and Rau, vol. 2, 164, par. 2, p.
12, that
"the immobilization with which the article is concerned can only arise from an act of the owner
himself or his representative. Hence, the objects which are dedicated to the use of a piece of land
or a building by a lessee cannot be considered as having become immovable by destination
except in the case where they have been applied for account of the proprietor, or in execution of
an obligation imposed by the lease."
It follows that the machinery placed by the corporation in the plant, by the fact of its being so
placed, lost its character as a movable, and became united with and a part of the plant as an
immovable by destination. It also follows that, as to Valdes, who claimed under the lease, and
who had expressly assumed the obligations of the lease, the machinery, for all the purposes of
the exercise of his rights, was but a part of the real estate -- a conclusion which cannot be
avoided without saying that Valdes could at one and the same time assert the existence in himself
of rights and yet repudiate the obligations resulting from the rights thus asserted.
Nevers & Callaghan were creditors of the corporation. They were not parties to nor had they
legal notice of the lease and its conditions from which alone it arose that machinery put in the
premises by the Altagracia became immovable property. The want of notice arose from the
failure to record the transfer from Castello to the Altagracia, or from the Altagracia to Valdes,
and from Valdes apparently conditionally back to the corporation -- a clear result of 613 of the
Civil Code of Porto Rico, providing,
"The titles of ownership or of other real rights relating
Page 225 U. S. 78
to immovables which are not properly inscribed or annotated in the registry of property shall not
be prejudicial to third parties."
It is not disputable that the duty to inscribe the lease by necessary implication resulted from the
general provisions of article 2 of the mortgage law of Porto Rico, as stated in paragraphs 1, 2,
and 3 thereof, and explicitly also arose from the express requirement of paragraph 6, relating to
the registry of "contracts for the lease of real property for a period exceeding six years. . . ." It is
true that, in a strict sense, the contracts between Castello and the Altagracia Company and with
Valdes were not contracts of lease, but for the transfer of a contract of that character. But such a
transfer was clearly a contract concerning real rights to immovable property within the purview
of article 613 of the Civil Code, just previously quoted. Especially is this the case in view of the
stipulations of the lease as to the immobilization of movable property placed in the plant, and the
other obligations imposed upon the lessee.
"The sale which a lessee makes to a third person to whom he transfers his right of lease is the
sale of an immovable right, and not simply a sale of a movable one."
See numerous decisions of the courts of France, beginning with the decision on February 2,
1842, of the Court of Cassation (Journal du Palais [1842] vol. 1, 171). See also numerous
authorities collected under the heading above stated in paragraph 21, under articles 516, 517, and
518 of the Code Napoleon. Fuzier-Herman ed. of that Code, p. 643.
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
Page 225 U. S. 79
of his obligations under the lease, he could not, for the purpose of collecting his debt, proceed
separately against.
As a matter of precaution, we say that nothing we have said affects the rights, whatever they may
be, of the heirs of Sanchez, the original lessor.
Affirmed.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
DECISION
January 18, 1921
G.R. No. 16513
THE UNITED STATES, plaintiff-appellee,
vs.
MANUEL TAMBUNTING, defendant-appellant.
Manuel Garcia Goyena for appellant. Acting Attorney-General
Feria for appellee.
STREET, J .:
This appeal was instituted for the purpose of reversing a judgment
of the Court of First Instance of the city of Manila, finding the
accused, Manuel Tambunting, guilty of stealing a quantity of gas
belonging to the Manila Gas Corporation, and sentencing him to
undergo imprisonment for two months and one day, of arresto
mayor, with the accessories prescribed by law; to indemnify the said
corporation in the sum of P2, with subsidiary imprisonment in case
of insolvency; and to pay the costs.
The evidence submitted in behalf of the prosecution shows that in
January of the year 1918, the accused and his wife became
occupants of the upper floor of the house situated at No. 443, Calle
Evangelista, in the city of Manila. In this house the Manila Gas
Corporation had previously installed apparatus for the delivery of
gas on both the upper and lower floors, consisting of the necessary
piping and a gas meter, which last mentioned apparatus was
installed below. When the occupants at whose request this
installation had been made vacated the premises, the gas company
disconnected the gas pipe and removed the meter, thus cutting off
the supply of gas from said premises.
Upon June 2, 1919, one of the inspectors of the gas company visited
the house in question and found that gas was being used, without the
knowledge and consent of the gas company, for cooking in the
quarters occupied by the defendant and his wife: to effect which a
short piece of iron pipe had been inserted in the gap where the gas
meter had formerly been placed, and piece of rubber tubing had
been used to connect the gas pipe of rubber tubing had been used to
connect the gas pipe in kitchen with the gas stove, or plate, used for
cooking.
At the time this discovery was made, the accused, Manuel
Tambunting, was not at home, but he presently arrived and admitted
to the agent to the gas company that he had made the connection
with the rubber tubing between the gas pipe and the stove, though he
denied making the connection below. He also admitted that he knew
he was using gas without the knowledge of the company and that he
had been so using it for probably two or three months.
The clandestine use of gas by the accused in the manner stated is
thus established in our opinion beyond a doubt; and inasmuch as
the animo lucrandi is obvious, it only remains to consider, first,
whether gas can be the subject to larceny and, secondly, whether the
quantity of gas appropriated in the two months, during which the
accused admitted having used the same, has been established with
sufficient certainty to enable the court to fix an appropriate penalty.
Some legal minds, perhaps more academic than practical, have
entertained doubt upon the question whether gas can be the subject
of larceny; but no judicial decision has been called to our attention
wherein any respectable court has refused to treat it as such. In U.S.
vs. Genato (15 Phil., 170, 175), this court, speaking through Mr.
Justice Torres, said ". . . the right of the ownership of electric
current is secured by article 517 and 518 of the Penal Code; the
application of these articles in cases of subtraction of gas, a fluid
used for lighting, and in some respects resembling electricity, is
confirmed by the rule laid down in the decisions of the supreme
court of Spain of January 20, 1887, and April 1, 1897, construing
and enforcing the provisions of articles 530 and 531 of the Penal
Code of that country, articles identical with articles 517 and 518 of
the code in force in these Islands." These expressions were used in a
case which involved the subtraction and appropriation of electrical
energy and the court held, in accordance with the analogy of the
case involving the theft of gas, that electrical energy could also be
the subject of theft. The same conclusion was reached in U.S. vs.
Carlos (21 Phil., 553), which was also a case of prosecution for
stealing electricity.
The precise point whether the taking of gas may constitute larceny
has never before, so far as the present writer is aware, been the
subject of adjudication in this court, but the decisions of Spanish,
English, and American courts all answer the question in the
affirmative. (See U.S. vs. Carlos, 21 Phil., 553, 560.)
In this connection it will suffice to quote the following from the
topic "Larceny," at page 34, Vol. 17, of Ruling Case Law:
There is nothing in the nature of gas used for illuminating purposes
which renders it incapable of being feloniously taken and carried
away. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or
larger quantity and of being transported from place to place.
Likewise water which is confined in pipes and electricity which is
conveyed by wires are subjects of larceny."
As to the amount and value of the gas appropriated by the accused
in the period during which he admits having used it, the proof is not
entirely satisfactory. Nevertheless we think the trial court was
justified in fixing the value of the gas at P2 per month, which is the
minimum charge for gas made by the gas company, however small
the amount consumed. That is to say, no person desiring to use gas
at all for domestic purposes can purchase the commodity at a lower
rate per month than P2. There was evidence before the court
showing that the general average of the monthly bills paid by
consumers throughout the city for the use of gas in a kitchen
equipped like that used by the accused is from P18 to 20, while the
average minimum is about P8 per month. We think that the facts
above stated are competent evidence; and the conclusion is
inevitable that the accused is at least liable to the extent of the
minimum charge of P2 per month. The market value of the property
at the time and place of the theft is of court the proper value to be
proven (17 R.C.L., p. 66); and when it is found that the least amount
that a consumer can take costs P2 per months, this affords proof that
the amount which the accused took was certainly worth that much.
Absolute certainty as to the full amount taken is of course
impossible, because no meter wad used; but absolute certainty upon
this point is not necessary, when it is certain that the minimum that
could have been taken was worth a determinable amount.
It appears that before the present prosecution was instituted, the
accused had been unsuccessfully prosecuted for an infraction of
section 504 of the Revised Ordinances of the city of Manila, under a
complaint charging that the accused, not being a registered installer
of gas equipment had placed a gas installation in the house at No.
443, Calle Evangelista. Upon this it is argued for the accused that,
having been acquitted of that charge, he is not now subject to
prosecution for the offense of theft, having been acquitted of the
former charge. The contention is evidently not well-founded, since
the two offenses are of totally distinct nature. Furthermore, a
prosecution for violation of a city ordinance is not ordinarily a bar to
a subsequent prosecution for the same offense under the general law
of the land. (U.S. vs. Garcia Gavieres, 10 Phil., 694.)
The conclusion is that the accused is properly subject to punishment,
under No. 5 of article 518 of the Penal Code, for the gas taken in the
course of two months a the rate of P2 per month. There being no
aggravating or attenuating circumstance to be estimated, it results
that the proper penalty is two months and one day of arresto mayor,
as fixed by the trial court. The judgment will therefore be affirmed,
with costs against the appellant, it being understood that the amount
of the indemnity which the accused shall pay to the gas company is
P4, instead of P2, with subsidiary imprisonment for one day in case
of insolvency. So ordered.
Mapa, C.J., Araullo, Malcolm and Villamor, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-42091 November 2, 1935
GONZALO CHUA GUAN, plaintiff-appellant,
vs.
SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G. SOTTO, and EMILIO
VERGARA, as president, secretary and treasurer respectively of the same, defendants-
appellees.
Buenaventura C. Lopez for appellant.
Domingo L. Vergara for appellees.

BUTTE, J .:
This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action for a writ
of mandamus. The case is remarkable for the following reason: that the parties entered into a
stipulation in which the defendants admitted all of the allegations of the complaint and the plaintiff
admitted all of the special defenses in the answer of the defendants, and on this stipulation they
submitted the case for decision.
The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly
organized under the laws of the Philippine Islands with principal office in Cabanatuan, Nueva Ecija,
and that the individual defendants are the president, secretary and treasurer respectively of the
same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894 shares of the capital
stock of the said corporation represented by nine certificates having a par value of P5 per share; that
on said date Gonzalo H. Co Toco, a resident of Manila, mortgaged said 5,894 shares to Chua Chiu
to guarantee the payment of a debt of P20,000 due on or before June 19, 1932. The said certificates
of stock were delivered with the mortgage to the mortgagee, Chua Chiu. The said mortgage was
duly registered in the office of the register of deeds of Manila on June 23, 1931, and in the office of
the said corporation on September 30, 1931.
On November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage to the
plaintiff and the assignment was registered in the office of the register of deeds in the City of Manila
on December 28, 1931, and in the office of the said corporation on January 4, 1932.
The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity, the
plaintiff foreclosed said mortgage and delivered the certificates of stock and copies of the mortgage
and assignment to the sheriff of the City of Manila in order to sell the said shares at public auction.
The sheriff auctioned said 5,894 shares of stock on December 22, 1932, and the plaintiff having
been the highest bidder for the sum of P14,390, the sheriff executed in his favor a certificate of sale
of said shares.
The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the
proper officers of the corporation for cancellation and demanded that they issue new certificates in
the name of the plaintiff. The said officers (the individual defendants) refused and still refuse to issue
said new shares in the name of the plaintiff.
The prayer is that a writ of mandamus be issued requiring the defendants to transfer the said 5,894
shares of stock to the plaintiff by cancelling the old certificates and issuing new ones in their stead.
The special defenses set up in the answer are as follows: that the defendants refuse to cancel the
said certificates standing in the name of Gonzalo H. Co Toco on the books of the corporation and to
issue new ones in the name of the plaintiff because prior to the date when the plaintiff made his
demand, to wit, February 4, 1933, nine attachments had been issued and served and noted on the
books of the corporation against the shares of Gonzalo H. Co Toco and the plaintiff objected to
having these attachments noted on the new certificates which he demanded. These attachments
noted on the books of the corporation against the shares of Gonzalo H. Co Toco are as follows:
MISSING PAGES: 475-477.
It will be noted that the first eight of the said writs of attachment were served on the corporation and
noted on its records before the corporation received notice from the mortgagee Chua Chiu of the
mortgage of said shares dated June 18, 1931. No question is raised as to the validity of said
mortgage or of said writs of attachment and the sole question presented for decision is whether the
said mortgage takes priority over the said writs of attachment.
It is not alleged that the said attaching creditors had actual notice of the said mortgage and the
question therefore narrows itself down to this: Did the registration of said chattel mortgage in the
registry of chattel mortgages in the office of the register of deeds of Manila, under date of July 23,
1931, give constructive notice to the said attaching creditors?
In passing, let it be noted that the registration of the said chattel mortgage in the office of the
corporation was not necessary and had no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) The
long mooted question as to whether or not shares of a corporation could be hypothecated by placing
a chattel mortgage on the certificate representing such shares we now regard as settled by the case
of Monserrat vs. Ceron, supra. But that case did not deal with any question relating to the
registration of such a mortgage or the effect of such registration. Nothing appears in the record of
that case even tending to show that the chattel mortgage there involved was ever registered
anywhere except in the office of the corporation, and there was no question involved there as to the
right of priority among conflicting claims of creditors of the owner of the shares.
The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496, contains the following
provision:
SEC. 4. A chattel mortgage shall not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the property is delivered to and
retained by the mortgagee or unless the mortgage is recorded in the office of the register of
deeds of the province in which the mortgagor resides at the time of making the same, or, if
he resides the Philippine Islands, in the province in which the property is situated: Provided,
however, That if the property is situated in a different province from that in which the
mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of
both the province in which the mortgagor resides and that in which the property is situated,
and for the purposes of this Act the City of Manila Shall be deemed to be a province.
The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents
considerable difficulty and we have obtained little aid from the decisions of other jurisdictions
because that form of mortgage is ill suited to the hypothecation of shares of stock and has been
rarely used elsewhere. In fact, it has been doubted whether shares of stock in a corporation are
chattels in the sense in which that word is used chattel mortgage statutes. This doubt is reflected in
our own decision in the case of Fua Cun vs. Summers and China Banking Corporation (44 Phil.,
705), in which we said:
". . . an equity in shares of stock is of such an intangible character that it is somewhat difficult to see
how it can be treated as a chattel and mortgaged in such a manner that the recording of the
mortgage will furnish constructive notice to third parties. . . ."And we held that the chattel mortgage
there involved: "at least operated as a conditional equitable assignment." In that case we quoted the
following from Spalding vs. Paine's Adm'r. (81 Ky., 416), with regard to a chattel mortgage of shares
of stock:
"These certificates of stock are in the pockets of the owner, and go with him where he may
happen to locate, as choses in action, or evidence of his right, without any means on the part
of those with whom he proposes to deal on the faith of such a security of ascertaining
whether or not this stock is in pledge or mortgaged to others. He finds the name of the owner
on the books of the company as a subscriber of paid-up stock, amounting to 180 shares, with
the certificates in his possession, pays for these certificates their full value, and has the
transfer to him made on the books of the company, thereby obtaining a perfect title. What
other inquiry is he to make, so as to make his investment certain and secure? Where is he to
look, in order to ascertain whether or not this stock has been mortgaged? The chief office of
the company may be at one place today and at another tomorrow. The owner may have no
fixed or permanent abode, and with his notes in one pocket and his certificates of stock in
the other the one evidencing the extent of his interest in the stock of the corporation, the
other his right to money owing him by his debtor, we are asked to say that the mortgage is
effectual as to the one and inoperative as to the other."
But the case of Fua Cun vs. Summers and China Banking Corporation, supra, did not decide the
question here presented and gave no light as to the registration of a chattel mortgage of shares of
stock of a corporation under the provisions of section 4 of the Chattel Mortgage Law, supra.
Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage which shall be
effective against third persons. First, the possession of the property mortgage must be delivered to
and retained by the mortgagee; and, second, without such delivery the mortgage must be recorded
in the proper office or offices of the register or registers of deeds. If a chattel mortgage of shares of
stock of a corporation may validly be made without the delivery of possession of the property to the
mortgagee and the mere registration of the mortgage is sufficient to constructive notice to third
parties, we are confronted with the question as to the proper place of registration of such a
mortgage. Section 4 provides that in such a case the mortgage resides at the time of making the
same or, if he is a non-resident, in the province in which the property is situated; and it also provides
that if the property is situated in a different province from that in which the mortgagor resides the
mortgage shall be recorded both in the province of the mortgagor's residence and in the province
where the property is situated.
If with respect to a chattel mortgage of shares of stock of a corporation, registration in the province
of the owner's domicile should be sufficient, those who lend on such security would be confronted
with the practical difficulty of being compelled not only to search the records of every province in
which the mortgagor might have been domiciled but also every province in which a chattel mortgage
by any former owner of such shares might be registered. We cannot think that it was the intention of
the legislature to put this almost prohibitive impediment upon the hypothecation of shares of stock in
view of the great volume of business that is done on the faith of the pledge of shares of stock as
collateral.
It is a common but not accurate generalization that the situs of shares of stock is at the domicile of
the owner. The term situs is not one of fixed of invariable meaning or usage. Nor should we lose
sight of the difference between the situs of the shares and the situs of the certificates of shares. The
situs of shares of stock for some purposes may be at the domicile of the owner and for others at the
domicile of the corporation; and even elsewhere. (Cf. Vidal vs. South American Securities Co., 276
Fed., 855; Black Eagle Min. Co. vs. Conroy, 94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City
Southern Ry. Co., 7 Fed. [2d]. 158.) It is a general rule that for purposes of execution, attachment
and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation
which is decisive. (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 11, paragraph 5106.
Cf. sections 430 and 450, Code of Civil Procedure.)
By analogy with the foregoing and considering the ownership of shares in a corporation as property
distinct from the certificates which are merely the evidence of such ownership, it seems to us a
reasonable construction of section 4 of Act No. 1508 to hold that the property in the shares may be
deemed to be situated in the province in which the corporation has its principal office or place of
business. If this province is also the province of the owner's domicile, a single registration sufficient.
If not, the chattel mortgage should be registered both at the owner's domicile and in the province
where the corporation has its principal office or place of business. In this sense the property
mortgaged is not the certificate but the participation and share of the owner in the assets of the
corporation.
Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel
mortgage, it appears that in the present state of our law, the only safe way to accomplish the
hypothecation of share of stock of a Philippine corporation is for the creditor to insist on the
assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the
books of the corporation by the cancellation of the certificate and the issuance of a new one to him.
From the standpoint of the debtor this may be unsatisfactory because it leaves the creditor as the
ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency of the
creditor. Of course, the mere possession and retention of the debtor's certificate by the creditor gives
some security to the creditor against an attempted voluntary transfer by the debtor, provided the by-
laws of the corporation expressly enact that transfers may be made only upon the surrender of the
certificate. It is to be noted, however, that section 35 of the Corporation Law (Act No. 1459) enacts
that shares of stock "may be transferred by delivery of the certificate endorsed by the owner or his
attorney in fact or other person legally authorized to make the transfer." The use of the verb "may"
does not exclude the possibility that a transfer may be made in a different manner, thus leaving the
creditor in an insecure position even though he has the certificate in his possession. Moreover, the
shares still standing in the name of the debtor on the books of the corporation will be liable to seizure
by attachment or levy on execution at the instance of other creditors. (Cf. Uy Piaoco vs.McMicking,
10 Phil., 286, and Uson vs. Diosomito, 61 Phil., 535.) This unsatisfactory state of our law is well
known to the bench and bar. (Cf. Fisher, The Philippine Law of Stock Corporations, pages 163-168.)
Loans upon stock securities should be facilitated in order to foster economic development. The
transfer by endorsement and delivery of a certificate with intention to pledge the shares covered
thereby should be sufficient to give legal effect to that intention and to consummate the juristic act
without necessity for registration.lawphil. net
We are fully conscious of the fact that our decisions in the case of Monserrat vs. Ceron, supra, and
in the present case have done little perhaps to ameliorate the present uncertain and unsatisfactory
state of our law applicable to pledges and chattel mortgages of shares of stock of Philippine
corporations. The remedy lies with the legislature.
In view of the premises, the attaching creditors are entitled to priority over the defectively registered
mortgage of the appellant and the judgment appealed from must be affirmed without special
pronouncement as to costs in this instance.
1

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

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 79167 May 7, 1992
THE HEIRS OF PROCESO BAUTISTA represented by PEDRO
BAUTISTA, petitioners,
vs.
SPOUSES SEVERO BARZA and ESTER P. BARZA, and COURT OF
APPEALS, respondents.
Miguel and Valenson Law Offices for petitioners.
Rogelio A. Barba and Aguinaldo, Barza & Associates for private respondents.

ROMERO, J .:
The facts of this case began as far back as 1946, when the Philippines was still a
new republic and frontier lands and bountiful natural resources down south
beckoned the adventurous-like Proceso Bautista and Ester Barza.
It was on October 25, 1946, to be exact, when Proceso Bautista applied for a
fishpond permit over a thirty-hectare parcel of marshy public land located in Sitio
Central, Lupon, Davao (Fishpond Application No. 1205). The application was
acknowledge on December 12, 1946, by the then Division of Fisheries. Said
application was, however, rejected by the same office on November 9, 1948
because the area applied for was needed for firewood production as certified to
by the Bureau of Forestry. The rejection covered an area of 49 hectares as
against the 30 hectares applied for by Proceso Bautista.
1
Between October 25, 1946
and November 9, 1948, Bautista occupied an area which extended beyond the boundary of the one he
had applied for and introduced improvements thereon.
2

On September 23, 1948, Ester Barza filed a fishpond application covering an
area of approximately 14.85 hectares at Sitio Bundas, Lupon, Davao (Fishpond
Application. No. 2984). Subsequent investigation revealed that the portion
applied for by Barza overlapped the area originally applied for by Proceso
Bautista.
3

Despite the rejection of his application, Proceso Bautista filed another fishpond
application on February 8, 1949 with the Bureau of Fisheries (Fishpond
Application No. 3346). The 49 hectares applied for was in Sitio Bundas instead of
Sitio Central.
4

The records of the Bureau of Fisheries further show that while the 14.85 hectares
applied for by Barza in Fishpond Application No. 2984 had been released by the
Bureau of Forestry as available for fishpond purposes, the 49 hectares applied
for by Bautista in Fishpond Application No. 3346 had not yet been similarly
released by the said bureau. It must be emphasized that the area, including the
portion applied for by Barza had been greatly improved by Proceso Bautista.
5
As
expected, an administrative case involving the two applicants arose.
On September 19, 1953, the Director of Fisheries ruled in favor of Ester Barza.
The dispositive portion
6
of his order reads:
IN VIEW OF THE FOREGOING, Fp. A. No. 2984 of Ester F. Barza
should be, as hereby it is, GIVEN DUE COURSE, subject however
to the reimbursement of the amounts of improvements in the area to
Proceso Bautista within a period of sixty days from the date hereof,
the said amounts to be appraised and determined by the District
Fishery Officer at Davao City; and Fp. A. No. 3346 of Proceso
Bautista should be, as hereby it is, REJECTED.
SO ORDERED.
Bautista appealed the said order to the Secretary of Agriculture and Natural
Resources (DANR Case No. 836). In a decision dated April 28, 1954, the
Secretary, through Undersecretary Jaime M. Ferrer, dismissed the appeal and
affirmed in toto the order of the Director of Fisheries giving due course to the
fishpond application of Barza.
7
Bautista moved for reconsideration but the same was denied on
October 8, 1954. 8
It was not until February 2, 1955, that the Director of Fisheries, in pursuance of
the order of September 19, 1953, required Ester Barza to remit the amount of
P3,391.34 which represented the value of the improvements introduced by
Bautista.
9
This figure was protested by Mrs. Barza in her letter dated March 6, 1955 where she
expressed her willingness to pay the amount of P1,763.31 only. On April 18, 1955, the Director of
Fisheries advised her to remit a reappraised amount of P2,263.33. Subsequent reappraisals on the value
of the improvements became necessary in view of Bautista's claim that the improvements were worth
P14,000.
10

Meanwhile, since the parties could not agree on the amount of reimbursement,
on October 13, 1956, Bautista moved for the rejection of the fishpond application
of Barza in view of her non-compliance with the order of the Director of Fisheries
dated September 19, 1953 mandating Barza's deposit of the value of the
improvements.
11
Bautista appealed to the then Secretary of Agriculture and Natural Resources, who,
in his decision dated May 5, 1959 denied Bautista's appeal thereby enforcing the Director of Fisheries
order of September 19, 1953.
12

On October 19, 1960, Jose Montilla, Assistant Director of Fisheries, ordered
Ester Barza by letter to reimburse Bautista P1,789.18, the total value of the
improvements pursuant to the appraisal report of District Fishery Officer Crispin
Mondragon dated October 31, 1958.
13
On December 22, 1960, Barza, agreeing to said
appraisal, consigned the sum of P1,789.18 with the then Justice of the Peace of Lupon,
Davao.
14
Bautista, however, refused to accept the same. On July 11, 1961, another reappraisal of the
improvements was made establishing the value of the dikes, dams, trees and houses in the area involved
to be P14,569.08.
15
On December 12, 1962, this amount was reduced to P9,514.33 in view of the finding
that certain improvements were suitable for agricultural and not for fishpond purposes.
16
In the
meantime, the decision of the Secretary of Agriculture and Natural Resources dated May 5, 1959 became
final.
17

More than seven years after the last reappraisal of the improvements or on
December 12, 1968, Ester Barza and her husband, Engr. Severo M. Barza, filed
in the then Court of First Instance of Davao Oriental, an action against Bautista
praying for recovery of possession over the 14.85-hectare fishpond area she had
applied for, a declaration of the validity of the consignation made before the
Justice of the Peace of Lupon, and damages and attorney's fees.
On January 30, 1971, while the case was pending resolution, Proceso Bautista
died.
18
Consequently, his heirs were substituted as party defendants.
The lower court at first dismissed the case for lack of jurisdiction but later, it
reconsidered the dismissal.
19
After a protracted trial, on November 15, 1983, the Regional Trial
Court of Davao Oriental,
20
rendered a decision
21
in favor of defendant Bautista. While disagreeing with
the Bautistas that the priority rule in applications for permits was inapplicable because Proceso Bautista's
application was made before the area was declared available for fishpond purposes, the lower court ruled
that the Barzas had not acquired a vested right to possess the areas concerned as they had not complied
with the "condition precedent" to such possession the reimbursement of the value of the improvements
made by Bautista. Hence, the court ruled, it was premature for the Barzas to demand possession of the
area.
On whether the action for recovery of possession had prescribed,
22
the lower court
said:
. . . Besides, a review of the established facts and circumstances
would show that Proceso Bautista started to possess the property
adversely as early as 1946. It was only on September 23, 1948
when Ester Barza filed her application and protested Bautista's
entry. Under Article 2253 of the New Civil Code, "the Civil Code of
1899 and other previous laws shall govern rights originating, under
said laws, from acts done or events which took place under their
regime, even though this Code may regulate them in a different
manner or may not recognize them." Prescription therefore which
started prior to the effectivity of the New Civil Code on August 30,
1950 should be governed by the law prior to the effectivity of the
New Civil Code, which was the Code of Civil Procedure, under which
the action of recovery of (possession) prescribed within ten (10)
years. In this case, the adverse possession of Proceso Bautista
which could be a basis for prescription was interrupted with the filing
of the application of Ester Barza and her protest against the acts of
the former which she lodged with the Bureau of Fisheries in 1948.
When the decision of the Department of Agriculture and Natural
Resources dated May 5, 1959 became final on July 4, 1959 as per
Exhibit "D" and as in fact admitted by the parties, the said
prescription by adverse possession continued (sic). This is clear
from the provision of Art. 1123 of the New Civil Code which provides
that civil interruption of possession for the purpose of prescription is
produced by the judicial summons to the possessor which, in the
conflict between the parties, took the form of the fishpond application
and the protest filed by Ester Barza with the Bureau of Fisheries in
1948. From July 4, 1959 to December 12, 1968, a period of more
than nine (9) years elapsed, and as the same should be tacked with
the period of almost two (2) years which elapsed from 1946 to 1948,
when Proceso Bautista started to adversely possess the area and
when, on September 23, 1948, Ester Barza filed her application,
more than ten (10) years had expired and therefore by reason of
prescription, the recovery of possession is also barred.
Emphasizing that Barza's failure to reimburse Bautista for the improvements
introduced on the area was inconsistent with good faith, the lower court held that
the order of the Director of Fisheries giving due course to her fishpond
application and the decision of the Secretary of Agriculture and Natural
Resources "had all become stale." Moreover, the consignation of the amount of
P1,789.18 was illegal as it was not in accordance with Art. 1258 of the New Civil
Code and, the court added, Barza's failure to pay the sum required of her and to
file the necessary action within ten years was tantamount to a non-user of her
rights under the September 19, 1953 order of the Director of Fisheries. Citing by
analogy Art. 506 of the Civil Code providing that the right to make use of public
waters is extinguished by the lapse of the concession and by non-user for five (5)
years, the lower court held that the cancellation of Barza's application, as
recommended by Fishery Product Examiner Abdul Bakir, was proper.
On the other hand, the lower court ruled that Bautista's right to retain possession
over his improvements was implied by the order of September 19, 1953 while
Barza's failure to pay the value of the improvements was "unfair and unsporting"
and violative of Art. 19 of the New Civil Code. The lower court believed that
P9,514.33 was the "right amount" that Barza should have properly consigned.
The dispositive portion of the decision
23
reads:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs, dismissing the complaint and
the plaintiffs are hereby directed to pay defendants the sum of
P10,000 by way of litigation expenses and P10,000 by way of
attorney's fees and to pay the costs.
SO ORDERED.
The Barzas appealed to the Court of Appeals. On June 30, 1986 said court
reversed the decision of the lower court.
24
It interpreted the decision of the Secretary of
Agriculture and Natural Resources as an "official imprimatur" on the application of Barza and as an
implication that Bautista had no right to continue possession over the 49 hectares covered by Fishpond
Application No. 3346.
While stating that consignation in an action for recovery of possession of realty is
not required by law and that the reimbursement of the value of the improvements
is not an obligation, the appellate court nonetheless held that the consignation of
P1,789.18 was "proper and effective."
25
It found that Bautista was not a possessor in good
faith nor a planter in good faith because he filed Fishpond Application No. 3346 after Barza had filed
Fishpond Application No. 2984. It concluded that Bautista's claim to prescriptive rights, acquired or
vested, did not arise "because it infringe(d) on the rights of other(s) like Barza whose Fishpond
Application No. 2984 was given due course by the proper officials of the government."
26
It disposed of the
case as follows:
Wherefore, the decision a quo is hereby set aside and reversed and
another one is rendered ordering the heirs of Proceso Bautista to
accept or withdraw the sum of P1,789.18 from the Municipal Trial
Court Lupon, Davao Oriental (formerly Municipal Court of Lupon,
Davao Oriental) representing the value of the improvements
introduced on the controverted area and to surrender possession of
the contested area to the heirs of Ester Barza both within 10 days
from receipt of the entry of judgment. No damages and cost.
SO ORDERED. (Rollo, p. 55)
On July 29, 1986, petitioners filed a motion for reconsideration of the decision of
the Court of Appeals but the same was denied on June 18, 1987.
27

Hence, this recourse. Petitioners contend that the private respondents cannot be
given the right to possess the fishpond in question as they themselves did not
comply with the Director of Fisheries' order to reimburse Bautista for the
improvements thereon. They assert that whatever rights the Barzas had under
their fishpond application had become stale by non-user.
At the outset, it should be remembered that until timber or forest lands are
released as disposable or alienable, neither the Bureau of Lands nor the Bureau
of Fisheries has authority to lease, grant, sell, or otherwise dispose of these
lands for homesteads, sales patents, leases for grazing purposes, fishpond
leases and other modes of utilization.
28
On October 25, 1946 when Bautista filed Fishpond
Application No. 1205, the area applied for could not yet be granted to him as it was yet to be released for
public utilization. The situation, however, changed when Barza filed Fishpond Application No. 2984 for the
area had, by then, been opened for fishpond purposes.
Thus, even if Bautista were ahead of Barza by two years in terms of occupation,
possession and introduction of substantial improvements, he was not placed in a
better position than Barza. The priority rule under Fisheries Administrative Order
No. 14 applies only to public lands already released by the Bureau of Fisheries.
Until such lands had been properly declared available for fishpond purposes, any
application is ineffective because there is no disposable land to speak
of.
29
Accordingly, Bautista's application was premature and the ruling of the Director of Fisheries on this
matter was, therefore, correct.
Although in administrative decision does not necessarily bind us, it is entitled to
great weight and respect. It should be stressed that the function of administering
and disposing of lands of the public domain in the manner prescribed by law is
not entrusted to the courts but to executive officials.
30
Matters involved in the grant,
cancellation, reinstatement and revision of fishpond licenses and permits are vested under the executive
supervision of the appropriate department head who in this case is the Secretary of Agriculture and
Natural Resources. As such, his discretion must be respected in the absence of a clear showing of
abuse.
31
This is in consonance with our well settled ruling that administrative decisions on matters within
the jurisdiction of the executive department can only be set aside on proof of gross abuse of jurisdiction,
fraud or error of law.
32
As earlier noted, and there being no motion for its reconsideration, the decision of
the Secretary of Agriculture and Natural Resources become final on July 3, 1959, thirty (30) days from
receipt by the parties of copies of the decision.
33

Petitioners' contention that the action for recovery of possession had prescribed
when the Barzas filed it on December 12, 1968 is erroneous for it was filed within
the ten-year period for enforcing a judgment, which in this case is the May 5,
1959 decision of the Secretary of Agriculture and Natural Resources,
as provided for in Art. 1144 of the Civil Code. Hence, the ultimate issue in this
case is whether or not the Barzas may rightfully seek enforcement of the decision
of the Director of Fisheries and that of the Secretary of Agriculture and Natural
Resources, notwithstanding their refusal to reimburse the Bautistas for the
improvements in the area. We find that the peculiar circumstances of this case
compel as to rule in the affirmative.
Although Bautista was in possession of the area for quite a number of years, he
ceased to become a bona fidepossessor upon receipt of the decision of the
Director of Fisheries granting due course to Barza's fishpond application. Under
Art. 528 of the Civil Code, "(p)ossession acquired in good faith does not lose its
character except in the case and from the moment facts exist which show that
the possessor is not unaware that he possesses the thing improperly or
wrongfully." Thus, Bautista should have desisted from introducing improvements
on the property when he learned that Barza's application had been approved.
However, Bautista may not be solely faulted for holding on to the area
notwithstanding that he had no right over it. The Barzas, after receiving the
administrative decision in their favor, should have complied with its directive to
reimburse the Bautistas for the improvements introduced thereon. This is not to
say; however, that such failure to abide by the decision of the Director of
Fisheries rendered "stale" the said decision. There is also the established fact
that Bautista refused the payments tendered by the Barzas. However, the
Barzas' failure to question the last reappraisal of the improvements constituted
inaction on their part, for which they should bear its consequences.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED
subject to the modification that the petitioners shall be REIMBURSED the
amount of P9,514.33 (inclusive of the consigned amount of P1,789.18) with legal
interest from December 12, 1962 until fully paid. Upon payment of said
reimbursement, the Bautistas shall SURRENDER possession of the 14.85
hectares, including the improvements thereon, for which the Barzas had been
granted the right to operate as fishpond. This decision is immediately executory.
No costs.
SO ORDERED.
Gutierrez, Jr., Feliciano and Davide, Jr., JJ., concur.
Bidin, J., took no part.

[G.R. No. L-58997. May 28, 1988.]

MARCELINO TIBURCIO, Petitioner, v. HON. JOSE P. CASTRO, as Presiding Judge, Court of First Instance of
Rizal, Branch IX Quezon City; TRINIDAD KATIGBAK, and the COMMISSIONER, LAND REGISTRATION
COMMISSION, Respondents.

Venancio C. Calpotura for Petitioner.

The Solicitor General for public Respondent.


SYLLABUS


1. REMEDIAL LAW; CIVIL PROCEDURE; DEFAULT; REMEDIES AVAILABLE TO A PARTY DECLARED IN DEFAULT. Under
the Rules of Court, there are several remedies available to a defaulted party, namely: "a) The defendant in default may, at
any time after discovery thereof and before judgment, file a motion, under oath, to set aside the order of default on the
ground that his failure to answer was due to fraud, accident, mistake or excusable neglect, and that he has meritorious
defenses; (Sec 3, Rule 18) "b) If the judgment has already been rendered when the defendant discovered the default, but
before the same has become final and executory, he may file a motion for new trial under Section 1(a) of Rule 37; "c) If
the defendant discovered the default after the judgment has become final and executory, he may file a petition for relief
under Section 2 of Rule 38; and "d) He may also appeal from the judgment rendered against him as contrary to the
evidence or to the law, even if no petition to set aside the order of default has been presented by him. (Sec. 2, Rule 41)"
(Lina v. Court of Appeals, 135 SCRA 637, 642)

2. ID.; ID.; ID.; PARTY WHO HAS NOT AVAILED OF ANY REMEDIES AVAILABLE TO HIM AS A DEFAULTED PARTY LOSES
HIS STANDING IN COURT. After the general order of default dated June 4, 1970, nothing was heard from the petitioner
for nearly ten years until he filed his motion to present evidence in April 5, 1980. The provisions of Sec. 2, Rule 18 and
Section 9, Rule 13 of the Rules of Court clearly show that the petitioner has lost his standing in court in the instant case
and, therefore, is no longer allowed to adduce evidence nor take part in the trial.

3. ID.; ID.; ID.; DOCTRINE BARS RELITIGATION ON THE SAME SUBJECT MATTER. Moreover, the case at bar is barred
under the rule on res judicata. As noted by the Solicitor General: . . . "Petitioner is barred from interjecting again
ownership based on the said Spanish title over the disputed property as it was found in Marcelino Tiburcio v. PHHC (G.R.
No. L-13479, October 31, 1959); Galvez v. Tuazon (S.C. G.R. No. L-15644, February 29, 1964); PHHC v. Hon. Mencias
(S.C. G.R. No. L-24114, August 16, 1967) that such document cannot confer title since the property at issue had long been
decreed and titled to the University of the Philippines and the PHHC under the Torrens System. In Katigbak v. IAC (S.C.
G.R. No. 67414), this Honorable Court had declared the University of the Philippines the titled owner of the property now
in dispute in the present case. "Thus, under the rule on res judicata, there can be no relitigation on the same subject
matter even in another certiorariproceeding of a question when it was already litigated (Revised Rules of Court, Rule 39,
Sec. 49(b); PCIB v. Pleider, 65 SCRA 13; Tenoro v. Labor, 67 SCRA 248; Comilang v. Court of Appeals, 65 SCRA 69; Tan
v. Valdchueza, 66 SCRA 61; Director of Lands v. CA, 104 SCRA 426; Gamboa v. CA, 108 SCRA 1), and the same principle
applies despite the inclusion of additional parties in a subsequent litigation (Mallari v. CA, 105 SCRA 480), the reason being
that once the judgment has become final, it is the law of the case (Denove v. Cartano, 103 SCRA 377)."


D E C I S I O N


GUTIERREZ, JR., J.:


This is a petition for review on certiorari of the following orders of the then Court of First Instance of Rizal, Branch IX,
Quezon City: 1) Order dated July 30, 1980 denying petitioners motion to present evidence on the Opposition; (2) Order
dated December 19, 1980 denying petitioners motion for reconsideration and new trial; and (3) Order dated April 29,
1981 denying petitioners motion for reconsideration of the December 19, 1980 order.

On March 7, 1967, herein private respondent Trinidad Katigbak filed before the above court an application for registration
and confirmation of title over a parcel of land known as Lot 2 of LRC-SWO-9564 and/or SWO-04-000250 located in
Diliman, Quezon City.

The application was published in the June 17 and 24, 1968 issues of the Official Gazette.

On June 4, 1970, the lower court, with then presiding Judge Lorenzo Relova, issued an order of general default against the
whole world, with the exception of the University of the Philippines; the Peoples Homesite and Housing Corporation; the
Director of Lands; the heirs of Marcos Estanislao and heirs of Luan Josep and heirs of Laureano Estanislao.

On March 6, 1980, the lower court presided by herein respondent Judge Jose P. Castro issued an order submitting the
application for decision and ordering the parties to submit their respective memoranda.

Petitioner Marcelino Tiburcio filed a motion to present evidence supporting his opposition.

The motion was denied in one of the questioned orders on the ground that Tiburcios opposition was filed long after the
issuance of the order of general default dated June 4, 1970.

Thereafter, the lower court rendered a decision on August 29, 1980 declaring that applicant Katigbak has registerable title
over the parcel of land described as Lot 2 of the LRC SWO-9564 and/or SWO-04-000250, with an area of 1,025,010 square
meters, more or less. It also declared substituted parties as purchasers/assignee over the portions of the property
specified in the deeds of conveyance as attached to their respective motions.

On January 19, 1981, the lower court issued an order approving the partition plan of the respective shares of the applicant
and the substituted parties.

Meantime, on September 22, 1980, the petitioner filed a motion for reconsideration and new trial praying that the decision
dated August 29, 1980 be set aside and that a new trial be granted to afford him a chance to present evidence.

This motion was denied on the ground that the petitioner has not done anything to seek relief from said order (of general
default) during the period of ten (10) years that this case has been pending."cralaw virtua1aw l ibrary

The subsequent motion for reconsideration of this December 9, 1980 order was denied for being pro-forma.

A motion for clarification of the orders dated July 30, 1980, December 19, 1980, and April 29, 1981 was then filed.cralawnad

After some five months had elapsed without the respondent courts action on his clarificatory motion, the petitioner filed on
December 7, 1981 this present petition for review on certiorari, prohibition with preliminary injunction, or restraining
order.

The petitioner contends that the denial by the respondent court of his motion to present evidence on the opposition and
later, of his motion for a new trial unduly deprived him of his right to be heard.

The contention is devoid of merit.

Under the Rules of Court, there are several remedies available to a defaulted party, namely:jgc:chanrobles. com.ph

"a) The defendant in default may, at any time after discovery thereof and before judgment, file a motion, under oath, to
set aside the order of default on the ground that his failure to answer was due to fraud, accident, mistake or excusable
neglect, and that he has meritorious defenses; (Sec 3, Rule 18)

"b) If the judgment has already been rendered when the defendant discovered the default, but before the same has
become final and executory, he may file a motion for new trial under Section 1(a) of Rule 37;

"c) If the defendant discovered the default after the judgment has become final and executory, he may file a petition for
relief under Section 2 of Rule 38; and

"d) He may also appeal from the judgment rendered against him as contrary to the evidence or to the law, even if no
petition to set aside the order of default has been presented by him. (Sec. 2, Rule 41)" (Lina v. Court of Appeals, 135
SCRA 637, 642)

The petitioner did not avail of any of these remedies. After the general order of default dated June 4, 1970, nothing was
heard from the petitioner for nearly ten years until he filed his motion to present evidence in April 5, 1980.

Rule 18, Sec. 2 of the Rules of Court provides that:jgc:chanrobles.com.ph

"Section 2. Effect of order of default. Except as provided in section 9 of Rule 13, a party declared in default shall not be
entitled to notice of subsequent proceedings nor to take part in the trial."cralaw virtua1aw library

Meanwhile, Rule 13, Sec. 9 states:jgc:chanrobles.com.ph

"Section 9. Service upon party in default. No service of papers other than substantially amended or supplemental
pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion to set aside the
order of default, in which event he shall be entitled to notice of all further proceedings regardless of whether the order of
default is set aside or not."cralaw virtua1aw l ibrary

The foregoing provisions clearly show that the petitioner has lost his standing in court in the instant case and, therefore, is
no longer allowed to adduce evidence nor take part in the trial.

We agree with the lower court which observed in its order dated December 19, 1980 that:jgc:chanrobles.com.ph

"A thorough examination of the records of these proceedings has revealed that the movant as alleged heir of Eladio
Tiburcio, is included in the order of general default issued by this Court on June 4, 1970, and has not done anything to
seek relief from said order during the period of ten (10) years that this case has been pending in this Court.

"To allow movant to present evidence at this stage of the proceedings will run counter to the mandate of Sections 2 and 3
of the Rules of Court.

"Notwithstanding that herein movant appeared in court and participated in the proceedings, he did not gain legal
personality, considering that said appearance was made after the order of general default bad been entered and no formal
motion to lift the order of default, under the grounds specified by law was ever filed by him." (Rollo, p. 52)

The petitioner questions orders which had long become final and executory. As such, they may no longer be challenged.

Moreover, the case at bar is barred under the rule on res judicata.

As noted by the Solicitor General:jgc:chanrobles.com.ph

"In the subsequent two motions for reconsideration against the decision dated August 29, 1980, neither did petitioner raise
reasonable grounds of fraud, mistake or excusable negligence to set aside the default order, but merely emphasized his
claim of ownership over the disputed property.
x x x


"Petitioner, in instituting the instant case, proceeds under his impression that review of the orders and decisions of the
respondent judge may be filed at any time.

"The default order and the decision finding private respondent Katigbak having a registerable title over the property
covered by SWO-04-000250 had long been issued in 1980. The orders denying petitioners motions for reconsideration
against the aforestated decision were issued in 1981, such that they have become final and executory. The instant
petition, as we earlier adverted, comes 5 years too late, and thirty years late from the time this Honorable Court found
that he has no legal nor equitable claim over the property decreed under the name of the PHHC and the University of the
Philippines.

The instant suit is barred under the rule on res judicata.

"Petitioner, in those cases mentioned had previously sought the review of findings of the trial courts rejecting proprietary
rights over the property covered by the Spanish possessory titles issued on March 27, 1877. He presently relies on the
same document to assert his title over the property covered by the survey plan of private respondent Trinidad Katigbak.

"Petitioner is barred from interjecting again ownership based on the said Spanish title over the disputed property as it was
found in Marcelino Tiburcio v. PHHC (G.R. No. L-13479, October 31, 1959); Galvez v. Tuazon (S.C. G.R. No. L-15644,
February 29, 1964); PHHC v. Hon. Mencias (S.C. G.R. No. L-24114, August 16, 1967) that such document cannot confer
title since the property at issue had long been decreed and titled to the University of the Philippines and the PHHC under
the Torrens System. In Katigbak v. IAC (S.C. G.R. No. 67414), this Honorable Court had declared the University of the
Philippines the titled owner of the property now in dispute in the present case.

"Thus, under the rule on res judicata, there can be no relitigation on the same subject matter even in
another certiorari proceeding of a question when it was already litigated (Revised Rules of Court, Rule 39, Sec. 49(b); PCIB
v. Pleider, 65 SCRA 13; Tenoro v. Labor, 67 SCRA 248; Comilang v. Court of Appeals, 65 SCRA 69; Tan v. Valdchueza, 66
SCRA 61; Director of Lands v. CA, 104 SCRA 426; Gamboa v. CA, 108 SCRA 1), and the same principle applies despite the
inclusion of additional parties in a subsequent litigation (Mallari v. CA, 105 SCRA 480), the reason being that once the
judgment has become final, it is the law of the case (Denove v. Cartano, 103 SCRA 377)." (Rollo, pp. 215-217).

The award by respondent Judge Jose P. Castro of the 1,025,010 square meters of prime property in favor of Trinidad
Katigbak has been set aside by the Court of Appeals and the Supreme Court in the main case. The titles of the PHHC and
the University of the Philippines to the disputed property have been sustained in other petitions elevated to this Court. In
three earlier cases, Marcelino Tiburcio, Et. Al. v. PHHC, (G.R. No. L-13479, October 31, 1959); Galvez, Et. Al. v. Tuazon, Et
Al., (G.R. No. L-15644, February 29, 1966); and PHHC v. Hon. Mencias, (G.R. No. L-24144, August 16, 1967) - the
petitioners claims to 430 hectares of land in Quezon City, including the property covered by the Katigbak petition, were
categorically rejected. This petition is manifestly without merit.

WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-66575 September 30, 1986
ADRIANO MANECLANG, JULIETA, RAMONA, VICTOR, ANTONINA,
LOURDES, TEODORO and MYRNA, all surnamed MANECLANG, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ALFREDO MAZA, CORLETO
CASTRO, SALOME RODRIGUEZ, EDUCARDO CUISON, FERNANDO
ZARCILLA, MARIANO GABRIEL, NICOMEDES CORDERO, CLETO
PEDROZO, FELIX SALARY and JOSE PANLILIO, respondents.
Loreto Novisteros for petitioners.
Corleto R. Castro for respondents.

FERNAN, J .:
Petitioners Adriano Maneclang, et. al. filed before the then Court of First Instance
of Pangasinan, Branch XI a complaint for quieting of title over a certain fishpond
located within the four [41 parcels of land belonging to them situated in Barrio
Salomague, Bugallon, Pangasinan, and the annulment of Resolutions Nos. 38
and 95 of the Municipal Council of Bugallon Pangasinan. The trial court
dismissed the complaint in a decision dated August 15, 1975 upon a finding that
the body of water traversing the titled properties of petitioners is a creek
constituting a tributary of the Agno River; therefore public in nature and not
subject to private appropriation. The lower court likewise held that Resolution No.
38, ordering an ocular inspection of the Cayangan Creek situated between
Barrios Salomague Sur and Salomague Norte, and Resolution No. 95 authorizing
public bidding for the lease of all municipal ferries and fisheries, including the
fishpond under consideration, were passed by respondents herein as members
of the Municipal Council of Bugallon, Pangasinan in the exercise of their
legislative powers.
Petitioners appealed said decision to the Intermediate Appellate Court, which
affirmed the same on April 29, 1983. Hence, this petition for review on certiorari.
Acting on the petition, the Court required the respondents to comment thereon.
However, before respondents could do so, petitioners manifested that for lack of
interest on the part of respondent Alfredo Maza, the awardee in the public
bidding of the fishpond, the parties desire to amicably settle the case by
submitting to the Court a Compromise Agreement praying that judgment be
rendered recognizing the ownership of petitioners over the land the body of water
found within their titled properties, stating therein, among other things, that "to
pursue the case, the same will not amount to any benefit of the parties, on the
other hand it is to the advantage and benefit of the municipality if the ownership
of the land and the water found therein belonging to petitioners be recognized in
their favor as it is now clear that after the National Irrigation Administration [NIA]
had built the dike around the land, no water gets in or out of the land.
1

The stipulations contained in the Compromise Agreement partake of the nature
of an adjudication of ownership in favor of herein petitioners of the fishpond in
dispute, which, as clearly found by the lower and appellate courts, was originally
a creek forming a tributary of the Agno River. Considering that as held in the
case of Mercado vs. Municipal President of Macabebe, 59 Phil. 592 [1934], a
creek, defined as a recess or arm extending from a river and participating in the
ebb and flow of the sea, is a property belonging to the public domain which is not
susceptible to private appropriation and acquisitive prescription, and as a public
water, it cannot be registered under the Torrens System in the name of any
individual [Diego v. Court of Appeals, 102 Phil. 494; Mangaldan v. Manaoag, 38
Phil. 4551; and considering further that neither the mere construction of irrigation
dikes by the National Irrigation Administration which prevented the water from
flowing in and out of the subject fishpond, nor its conversion into a fishpond, alter
or change the nature of the creek as a property of the public domain, the Court
finds the Compromise Agreement null and void and of no legal effect, the same
being contrary to law and public policy.
The finding that the subject body of water is a creek belonging to the public
domain is a factual determination binding upon this Court. The Municipality of
Bugallon, acting thru its duly-constituted municipal council is clothed with
authority to pass, as it did the two resolutions dealing with its municipal waters,
and it cannot be said that petitioners were deprived of their right to due process
as mere publication of the notice of the public bidding suffices as a constructive
notice to the whole world.
IN VIEW OF THE FOREGOING, the Court Resolved to set aside the
Compromise Agreement and declare the same null and void for being contrary to
law and public policy. The Court further resolved to DISMISS the instant petition
for lack of merit.
SO ORDERED.
Feria (Chairman), Alampay, Gutierrez, Jr. and Paras, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28379 March 27, 1929
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, applicant-appellant,
vs.
CONSORCIA CABANGIS, ET AL., claimants-appellees.
Attorney-General Jaranilla for appellant.
Abad Santos, Camus & Delgado for appellees.
VILLA-REAL, J .:
The Government of the Philippine Islands appeals to this court from the judgment of the Court of First Instance
of Manila in cadastral proceeding No. 373 of the Court of First Instance of Manila, G. L. R. O. Cadastral Record
No. 373, adjudicating the title and decreeing the registration of lots Nos. 36, 39 and 40, block 3055 of the
cadastral survey of the City of Manila in favor of Consuelo, Consorcia, Elvira and Tomas, surnamed Cabangis,
in equal parts, and dismissing the claims presented by the Government of the Philippine Islands and the City of
Manila.
In support of its appeal, the appellant assigns the following alleged errors as committed by the trial court in its
judgment, to wit:
1. The lower court erred in not holding that the lots in question are of the public domain, the same
having been gained from the sea (Manila Bay) by accession, by fillings made by the Bureau of Public
Works and by the construction of the break-water (built by the Bureau of Navigation) near the mouth of
Vitas Estero.
2. The lower court erred in holding that the lots in question formed part of the big parcel of land
belonging to the spouses Maximo Cabangis and Tita Andres, and in holding that these spouses and
their successors in interest have been in continuous, public, peaceful and uninterrupted possession of
said lots up to the time this case came up.
3. The lower court erred in holding that said lots existed before, but that due to the current of the Pasig
River and to the action of the big waves in Manila Bay during the south-west monsoons, the same
disappeared.
4. The lower court erred in adjudicating the registration of the lands in question in the name of the
appellees, and in denying the appellant's motion for a new trial.
A preponderance of the evidence in the record which may properly be taken into consideration in deciding the
case, proves the following facts:
Lots 36, 39 and 40, block 3035 of cadastral proceeding No. 71 of the City of Manila, G. L. R. O. Record No.
373, were formerly a part of a large parcel of land belonging to the predecessor of the herein claimants and
appellees. From the year 1896 said land began to wear away, due to the action of the waves of Manila Bay,
until the year 1901 when the said lots became completely submerged in water in ordinary tides, and remained
in such a state until 1912 when the Government undertook the dredging of Vitas Estuary in order to facilitate
navigation, depositing all the sand and silt taken from the bed of the estuary on the low lands which were
completely covered with water, surrounding that belonging to the Philippine Manufacturing Company, thereby
slowly and gradually forming the lots, the subject matter of this proceeding.
Up to the month of February, 1927 nobody had declared lot 39 for the purposes of taxation, and it was only in
the year 1926 that Dr. Pedro Gil, in behalf of the claimants and appellees, declared lot No. 40 for such purpose.
In view of the facts just stated, as proved by a preponderance of the evidence, the question arises: Who owns
lots 36, 39 and 40 in question?
The claimants-appellees contend that inasmuch as the said lots once formed a part of a large parcel of land
belonging to their predecessors, whom they succeeded, and their immediate predecessor in interest, Tomas
Cabangis, having taken possession thereof as soon as they were reclaimed, giving his permission to some
fishermen to dry their fishing nets and deposit their bancas thereon, said lots belong to them.
Article 339, subsection 1, of the Civil Code, reads:
Article 339. Property of public ownership is
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, riverbanks, shorts, roadsteads, and that of a similar character.
x x x x x x x x x
Article 1, case 3, of the Law of Waters of August 3, 1866, provides as follows:
ARTICLE 1. The following are part of the national domain open to public use:
x x x x x x x x x
3. The Shores. By the shore is understood that space covered and uncovered by the movement of the
tide. Its interior or terrestrial limit is the line reached by the highest equinoctial tides. Where the tides
are not appreciable, the shore begins on the land side at the line reached by the sea during ordinary
storms or tempests.
In the case of Aragon vs. Insular Government (19 Phil., 223), with reference to article 339 of the Civil Code just
quoted, this court said:
We should not be understood, by this decision, to hold that in a case of gradual encroachment or erosion by
the ebb and flow of the tide, private property may not become 'property of public ownership,' as defined in
article 339 of the code, where it appears that the owner has to all intents and purposes abandoned it and
permitted it to be totally destroyed, so as to become a part of the 'playa' (shore of the seas), 'rada' (roadstead),
or the like. . . .
In the Enciclopedia Juridica Espanola, volume XII, page 558, we read the following:
With relative frequency the opposite phenomenon occurs; that is, the sea advances and private
properties are permanently invaded by the waves, and in this case they become part of the shore or
beach. They then pass to the public domain, but the owner thus dispossessed does not retain any right
to the natural products resulting from their new nature; it is a de facto case of eminent domain, and not
subject to indemnity.
Now then , when said land was reclaimed, did the claimants-appellees or their predecessors recover it as their
original property?
As we have seen, the land belonging to the predecessors of the herein claimants-appellees began to wear way
in 1896, owing to the gradual erosion caused by the ebb and flow of the tide, until the year 1901, when the
waters of Manila Bay completely submerged a portion of it, included within lots 36, 39 and 40 here in question,
remaining thus under water until reclaimed as a result of certain work done by the Government in 1912.
According to the above-cited authorities said portion of land, that is, lots 36, 39 and 40, which was private
property, became a part of the public domain. The predecessors of the herein claimants-appellees could have
protected their land by building a retaining wall, with the consent of competent authority, in 1896 when the
waters of the sea began to wear it away, in accordance with the provisions of Article 29 of the aforecited Law of
Waters of August 3, 1866, and their failure to do so until 1901, when a portion of the same became completely
covered by said waters, remaining thus submerged until 1912, constitutes abandonment.
Now then: The lots under discussion having been reclaimed from the seas as a result of certain work done by
the Government, to whom do they belong?
The answer to this question is found in article 5 of the aforementioned Law of Waters, which is as follows:


ART. 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the
provinces, pueblos or private persons, with proper permission, shall become the property of the party
constructing such works, unless otherwise provided by the terms of the grant of authority.
The fact that from 1912 some fishermen had been drying their fishing nets and depositing their bancas on lots
36, 39 and 40, by permission of Tomas Cabangis, does not confer on the latter or his successors the
ownership of said lots, because, as they were converted into public land, no private person could acquire title
thereto except in the form and manner established by the law.
In the case of Buzon vs. Insular Government and City of Manila (13 Phil., 324), cited by the claimants-
appellees, this court, admitting the findings and holdings of the lower court, said the following:
If we heed the parol evidence, we find that the seashore was formerly about one
hundred brazas distant from the land in question; that, in the course of time, and by the removal of a
considerable quantity of sand from the shore at the back of the land for the use of the street car
company in filling in Calle Cervantes, the sea water in ordinary tides now covers part of the land
described in the petition.
The fact that certain land, not the bed of a river or of the sea, is covered by sea water during the period
of ordinary high tide, is not a reason established by any law to cause the loss thereof, especially when,
as in the present case, it becomes covered by water owing to circumstances entirely independent of
the will of the owner.
In the case of Director of Lands vs. Aguilar (G.R. No. 22034),
1
also cited by the claimants-appellees, wherein
the Government adduced no evidence in support of its contention, the lower court said in part:
The contention of the claimants Cabangis is to the effect that said lots are a part of the adjoining land
adjudicated to their deceased father, Don Tomas Cabangis, which, for over fifty years had belonged to
their deceased grandmother, Tita Andres, and that, due to certain improvements made in Manila Bay,
the waters of the sea covered a large part of the lots herein claimed.
The Government of the Philippine Islands also claims the ownership of said lots, because, at ordinary
high tide, they are covered by the sea.
Upon petition of the parties, the lower court made an ocular inspection of said lots on September 12,
1923, and on said inspection found some light material houses built thereon, and that on that occasion
the waters of the sea did not reach the aforesaid lots.
From the evidence adduced at the trial of this cause, it may be inferred that Tita Andres, during her
lifetime was the owner of a rather large parcel of land which was adjudicated by a decree to her son
Tomas Cabangis; the lots now in question are contiguous to that land and are covered by the waters of
the sea at extraordinary high tide; some 50 years before the sea did not reach said strip of land, and
on it were constructed, for the most part, light material houses, occupied by the tenants of Tita Andres,
to whom they paid rent. Upon her death, her son Tomas Cabangis succeeded to the possession, and
his children succeeded him, they being the present claimants, Consuelo, Jesus, Tomas, and
Consorcia Cabangis.
The Government of the Philippine Islands did not adduce any evidence in support of its contention,
with the exception of registry record No. 8147, to show that the lots here in question were not excluded
from the application presented in said proceeding.
It will be seen that in the case of Buzon vs. Insular Government and City of Manila, cited above, the rise of the
waters of the sea that covered the lands there in dispute, was due not to the action of the tide but to the fact
that a large quantity of sand was taken from the sea at the side of said land in order to fill in Cervantes Street,
and this court properly held that because of this act, entirely independent of the will of the owner of said land,
the latter could not lose the ownership thereof, and the mere fact that the waters of the sea covered it as a
result of said act, is not sufficient to convert it into public land, especially, as the land was high and appropriate
for building purposes.
In the case of the Director of Lands vs. Aguilar also cited by the claimants-appellees, the Insular Government
did not present any evidence in support of its contention, thus leaving uncontradicted the evidence adduced by
the claimants Aguilar et al., as to the ownership, possession and occupation of said lots.
In the instant case the evidence shows that from 1896, the waves of Manila Bay had been gradually and
constantly washing away the sand that formed the lots here in question, until 1901, when the sea water
completely covered them, and thus they remained until the year 1912. In the latter year they were reclaimed
from the sea by filling in with sand and silt extracted from the bed of Vitas Estuary when the Government
dredged said estuary in order to facilitate navigation. Neither the herein claimants-appellees nor their
predecessors did anything to prevent their destruction.
In conclusion, then, we hold that the lots in question having disappeared on account of the gradual erosion due
to the ebb and flow of the tide, and having remained in such a state until they were reclaimed from the sea by
the filling in done by the Government, they are public land. (Aragon vs. Insular Government, 19 Phil., 223;
Francisco vs. Government of the Philippine Islands, 28 Phil., 505).
By virtue whereof, the judgment appealed from is reversed and lots Nos. 36, 39 and 40 of cadastral proceeding
No. 373 of the City of Manila are held to be public land belonging to the Government of the United States under
the administration and control of the Government of the Philippine Islands. So ordered.
Johnson, Street, Malcolm, Ostrand, Johns and Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-69002 June 30, 1988
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
AMANDA LAT VDA. DE CASTILLO, FLORENCIO T. CASTILLO, SOLEDAD
LOTA CASTILLO, CARLOS L. CASTILLO, NIEVES KATIGBAK CASTILLO,
MARIANO L. CASTILLO, HIPOLITA DYTIAPCO CASTILLO, AIDA CASTILLO
HERRERA, HERMITO HERRERA, JOSE L. CASTILLO, LILIA MACEDA
CASTILLO, TERESITA L. CASTILLO, REGISTER OF DEEDS OF BATANGAS
and THE INTERMEDIATE APPELLATE COURT, respondents.
Castro, Nardo, Quintanilla, Gonzales & Macatangay Law Office for respondents.

PARAS, J .:
This is a petition for review on certiorari of the April 26, 1984 Decision of the then
Intermediate Appellate Court *reversing the February 6, 1976 Decision of the then Court of First Instance of Batangas,
Branch VI, in Civil Case No. 2044.
The antecedental facts of this case, as found by the then Intermediate Appellate
Court, are as follows:
Sometime in 1951, the late Modesto Castillo applied for the
registration of two parcels of land, Lots 1 and 2, located in
Banadero, Tanauan, Batangas, described in Plan Psu-119166, with
a total area of 39,755 square meters. In a decision dated August 31,
1951, the said Modesto Castillo, married to Amanda Lat, was
declared the true and absolute owner of the land with the
improvements thereon, for which Original Certificate of Title No. 0-
665 was, issued to him by the Register of Deeds at Batangas,
Batangas, on February 7, 1952. By virtue of an instrument dated
March 18, 1960, the said Lots 1 and 2 covered by Original Certificate
of Title No. 0-665, together with Lot No. 12374 covered by Transfer
Certificate of Title No. 3254-A and Lot No. 12377 covered by
Transfer Certificate of Title No. 3251-A, were consolidated and sub-
divided into Lots 1 to 9 under Pcs-1046. After the death of Modesto
Castillo, or on August 31, 1960, Amanda Lat Vda. de Castillo, et al.,
executed a deed of partition and assumption of mortgage in favor of
Florencio L. Castillo, et al., as a result of which Original Certificate of
Title No. D-665 was cancelled, and in lieu thereof, new transfer
cerfificates of title were issued to Florencio Castillo, et al., to wit:
Transfer Certificate of Title No. 21703 (Lot 4) (and) Transfer
Certificate of Title No. 21704 to Florencio Castillo (Lot 5); Transfer
Certificate of Title No. T-21708 to Carlos L. Castillo (Lot 7); Transfer
Certificate of Title No. T-21712 to Mariano L. Castillo (Lot 6);
Transfer Certificate of Title No. T-21713 to Jose L. Castillo (Lot 9);
Transfer Certificate of Title No. T-21718 to Aida C. Herrera (Lot 2);
and Transfer Certificate of Title No. T-21727 to Teresita L. Castillo
(Lot 8).
The Republic of the Philippines filed Civil Case No. 2044 with the
lower court for the annulment of the certificates of title issued to
defendants Amanda Lat Vda. de Castillo, et al., as heirs/successors
of Modesto Castillo, and for the reversion of the lands covered
thereby (Lots 1 and 2, Psu-119166) to the State. It was alleged that
said lands had always formed part of the Taal Lake, washed and
inundated by the waters thereof, and being of public ownership, it
could not be the subject of registration as private property.
Appellants herein, defendants below, alleged in their answer that the
Government's action was already barred by the decision of the
registration court; that the action has prescribed; and that the
government was estopped from questioning the ownership and
possession of appellants.
After trial, the then Court of First Instance of Batangas, Branch VI, presided over
by Honorable Benjamin Relova, in a Decision dated February 6, 1976 (Record on
Appeal, pp. 62-69), ruled in favor of herein petitioner Republic of the Philippines.
The decretal portion of the said decision, reads:
WHEREFORE, the Register of Deeds of Batangas is hereby ordered
to cancel Original Certificate of Title No. 0-665 in the name of
Modesto Castillo and the subsequent Transfer of Certificates of Title
issued over the property in the names of the defendants. Lots Nos. 1
and 2 of Plan Psu-19166 are hereby declared public lands belonging
to the state. Without pronouncement as to costs.
The Court of Appeals, on appeal, in a Decision promulgated on April 26,1984,
reversed and set aside the appealed decision, and dismissed the complaint
(Record, pp. 31-41). Herein petitioner filed a Motion for Reconsideration (Record,
pp. 42-51), but the same was denied in a Resolution promulgated on October
12,1984 (Record, p. 52). Hence, the instant petition.
The sole issue raised in this case is whether or not the decision of the Land
Registration Court involving shore lands constitutes res adjudicata.
There is no question that one of the requisites of res judicata is that the court
rendering the final judgment must have jurisdiction over the subject matter
(Ramos v. Pablo, 146 SCRA 24 [1986]; that shores are properties of the public
domain intended for public use (Article 420, Civil Code) and, therefore, not
registrable. Thus, it has long been settled that portions of the foreshore or of the
territorial waters and beaches cannot be registered. Their inclusion in a certificate
of title does not convert the same into properties of private ownership or confer
title upon the registrant (Republic v. Ayala y Cia, 14 SCRA, 259 [1965], citing the
cases of Dizon, et al. v. Bayona, et al., 98 Phil. 943; and Dizon, et al. v.
Rodriguez, et al., 13 SCRA 704).
But an important bone of contention is the nature of the lands involved in this
case.
Petitioner contends "that "Lots 1 and 2, PSU-119166 had always formed part of
the Taal Lake, washed and inundated by the waters thereof. Consequently, the
same were not subject to registration, being outside the commerce of men; and
that since the lots in litigation are of public domain (Art. 502), par. 4 Civil Code)
the registration court (of 1951) did not have jurisdiction to adjudicate said lands
as private property, hence, res judicata does not apply. (Rollo, pp. 37-38).
The Government presented both oral and documentary evidence.
As summarized by the Intermediate Appelate Court (now Court of Appeals), the
testimonies of the witnesses for the petitioner are as follows:
1. Rosendo Arcenas, a Geodetic Engineer connected with the
Bureau of Lands since 1961, testified to the effect that Lots 1 and 2,
Psu-119166, which are the lots in question, adjoin the cadastral
survey of Tanauan, Batangas (Cad. 168); that the original boundary
of the original cadastral survey was foreshore land as indicated on
the plan; that the cadastral survey of Tanauan was executed
sometime in 1923; that the first survey executed of the land after
1923 was the one executed in 1948 under Plan Psu-119166 that in
the relocation survey of the disputed lots in 1962 under SWO-40601,
said lots were annotated on the plan as claimed by the Republic of
the Philippines in the same manner that it was so annotated in Plan
Psu-119166; thus showing that the Government was the only
claimant of the land during the survey in 1948; that during the
relocation survey made in 1962, old points cannot be Identified or
located because they were under water by about forty centimeters;
that during the ocular inspection of the premises on November 23,
1970, he found that 2 monuments of the lots in question were
washed out by the waters of the Baloyboy Creek; that he also found
duck pens along the lots in question; that there are houses in the
premises as well as some camotes and bananas; and that he found
also some shells ('suso') along the banks of the Taal lake (Tsn, Nov.
16, 1970, pp. 13-21; Feb. 16, 1971, pp. 4-36).
2. Braulio Almendral testified to the effect that he is a resident of
Tanauan, Batangas, near the Taal lake; that like himself there are
other occupants of the land among whom are Atanacio Tironas,
Gavino Mendoza, Juliano Tirones, Agapito Llarena, etc.; that it was
they who filled up the area to make it habitable; that they filled up the
area with shells and sand; that their occupation is duck raising; and
that the Castillos never stayed in or occupied the premises (Tsn,
Nov. 16, 1970, pp. 32-50).
3. Arsenio Ibay, a Geodetic Engineer connected with the Bureau of
Lands since 1968, also testified to the effect that in accordance with
the cadastral plan of Tanauan, the only private claim of Sixto Castillo
referred to Lots 1006 to 1008; that the Castillos never asserted any
private claim to the lots in question during the cadastral survey;' that
in the preparation of plan Psu-119166, Lots 12374 and 12377 were
made as reference to conform to previously approved plans; that lot
12374 is a portion of cadastral lot 10107, SWO-86738 while Lot
22377 is a portion of Lot 10108 of the same plan (Tsn, Nov. 25,
1970, pp. 115-137).
4. Jose Isidro, a Land Investigator of the Bureau of Lands, testified
to the effect that pursuant to the order of the Director of Lands, he,
together with Engineer Rufino Santiago and the barrio captain of
Tanauan, Batangas, conducted an investigation of the land in
question; that he submitted a report of investigation, dated October
19, 1970 (Exh. H-1); that portions of the lot in question were covered
by public land applications filed by the occupants thereof; that
Engineer Santiago also submitted a report (Exh. H-8); that he had
notified Dr. Mariano Castillo before conducting the investigation
(Tsn, Nov. 25,1970, pp. 137-162).
5. Rufino Santiago, another Geodetic Engineer connected with the
Bureau of Lands, testified to the effect that on October 19,1970, he
submitted a report of investigation regarding the land in question;
that he noted on the plan Exhibit H-9 the areas on which the houses
of Severo Alcantara and others were built; that he found that the
land was planted to coconuts which are about 15 years old; that the
land is likewise improved with rice paddies; that the occupants
thereof are duck raisers; that the area had been elevated because of
the waste matters and duck feeds that have accumulated on the
ground through the years (Tsn, Nov. 26,1970, pp. 163-196).
6. Pablo Tapia, Barrio Captain of Tanauan, Batangas, since 1957,
testified to the effect that the actual occupants of Lots I and 2 are
Atanacio Tirones,tc.; that during the war the water line reached up to
a point marked Exhibit A-9 and at present the water has receded to
a point up to Exhibit A-12; that the reasons why the waters of Taal
lake have receded to the present level is because of the fillings
made by the people living in Lots 1 and 2; that there are several
duck pens all over the place; that the composition of the soil is a
mixture of mud and duck feeds; that improvements consist of
bananas, bamboos and palay; that the shoreline is not even in
shape because of the Baloyboy Creek; that the people in the area
never came to know about the registration case in which the lots in
question were registered; that the people living in the area, even
without any government aid, helped one another in the construction
of irrigated rice paddies; that he helped them file their public land
applications for the portions occupied by them; that the Castillos
have never been in possession of the premises; that the people
depend upon duck raising as their means of their livelihood; that
Lots 1 and 2 were yet inexistent during the Japanese occupation;
and that the people started improving the area only during liberation
and began to build their houses thereon. (Tsn, Nov. 26,1970, pp.
197-234).
Among the exhibits formally offered by the Government are: the Original Plan of
Tanauan, Batangas, particularly the Banader Estate, the Original Plan of PSU-
119166, Relocation Verification Survey Plan, maps, and reports of Geodetic
Engineers, all showing the original shoreline of the disputed areas and the fact
that the properties in question were under water at the time and are still under
water especially during the rainy season (Hearing, March 17,1971, TSN, pp. 46-
47).
On the other hand, private respondents maintain that Lots 1 and 2 have always
been in the possession of the Castillo family for more than 76 years and that their
possession was public, peaceful, continuous, and adverse against the whole
world and that said lots were not titled during the cadastral survey of Tanauan,
because they were still under water as a result of the eruption of Taal Volcano on
May 5, 1911 and that the inundation of the land in question by the waters of Taal
Lake was merely accidental and does not affect private respondents' ownership
and possession thereof pursuant to Article 778 of the Law of Waters. They finally
insisted that this issue of facts had been squarely raised at the hearing of the
land registration case and, therefore, res judicata (Record on Appeal, pp. 63-64).
They submitted oral and documentary evidence in support of their claim.
Also summarized by respondent Appellate Court, the testimonies of the
witnesses of private respondents are as follows:
1. Silvano Reano, testified to the effect that he was the overseer of
the property of the late Modesto Castillo located at
Banadero,Tanauan, Batangas since 1944 to 1965; that he also
knows Lots 1 and 2, the parcels of land in question, since he was
managing said property; that the occupants of said Lots 1 and 2
were engaged in duck raising; that those occupants were paying the
Castillos certain amount of money because their animals used to get
inside the lots in question; that he was present during the survey of
the land in 1948; and that aside from the duck pens which are built
in the premises, the land is planted to rice (Tsn, April 14, 1971, pp.
62-88).
2. Dr. Mariano Castillo, testified to the effect that the late Modesto
Castillo was a government official who held high positions in the
Government; and that upon his death the land was subdivided
among his legal heirs. (Appellee's Brief, pp. 4-9).
As above-stated, the trial court decided the case in favor of the government but
the decision was reversed on appeal by the Court of Appeals.
A careful study of the merits of their varied contentions readily shows that the
evidence for the government has far outweighed the evidence for the private
respondents. Otherwise stated, it has been satisfactorily established as found by
the trial court, that the properties in question were the shorelands of Taal Lake
during the cadastral survey of 1923.
Explaining the first survey of 1923, which showed that Lots 1 and 2 are parts of
the Taal Lake, Engineer Rosendo Arcenas testified as follows:
ATTY. AGCAOILI:
Q Now, you mentioned Engineer that a subject matter of
that plan which appears to be Lots 1 and 2 are adjoining
cadastral lots of the Tanauan Cadastre, now, will you
please state to the Court what is the basis of that
statement of yours?
A The basis of that statement is the plan itself, because
there is here an annotation that the boundary on the
northeastern side is Tanauan Cadastre 168 which
indicates that the boundary of the original cadastral
survey of Tanauan Cadastre way back in the year 1923
adjoins a foreshore land which is also indicated in this
plan as foreshore lands of Taal lake, sir.
xxx xxx xxx
Q Now, on this plan Exhibit "A-2", there are two lots
indicated namely, Lots 12374 and 12377, what do these
lots represent?
A This is the cadastral lot executed in favor of a certain
Modesto Castillo that corresponds to Lots 12374 and
another Lot 12377, sir.
Q At the time this survey plan Psu-119166 and marked
as Exhibit "A-2" was executed in 1948, were these lots
1 and 2 already in existence as part of the cadastral
survey?
A No, sir, because there is already a foreshore
boundary.
Q Do I understand from you Mr. Witness at the time of
the survey of this land these two lots form part of this
portion?
A Yes, sir.
Q When again was the cadastral survey of Tanauan,
Batangas, executed if you know?
A In the year 1923, sir. (Hearing of Nov. 16, 1970, TSN
pp. 15-17).
Such fact was further verified in the Verification-Relocation Survey of 1948 by
Engineer Arcenas who conducted said survey himself and reported the following:
That as per original plan Psu-119166, it appears that Lot 1 and Lot
2, Psu-119166 surveyed and approved in the name of Modesto
Castillo is a portion of Taal Lake and as such it appears to be under
water during the survey of cadastral Lot No. 12374 and Lot No.
12377, which was surveyed and approved in the name of Modesto
Castillo under Cad. 168. To support this theory is the annotation
appearing and printed along lines 2-3-4-5 of Lot 1, Psu-119166 and
along lines 4-5-6 of Lot 2, Psu-119166 which notations clearly
indicates that such boundary of property was a former shorelines of
Taal Lake, in other words, it was the extent of cultivation being the
shorelines and the rest of the area going to the southwestern
direction are already covered by water level.
Another theory to bolster and support this Idea is the actual location
now in the verification-relocation survey of a known geographic point
were Barrio Boundary Monument (BBM N. 22) is under water level
quite for sometimes as evidence by earthworks (collection of mud)
that amount over its surface by eighty (80) centimeters below the
ground, see notation appearing on verification-relocation plan
previously submitted. (Re-Verification-Relocation Survey Exhibits,
pp. 64-65).
Said surveys were further confirmed by the testimonies of witnesses to the effect
that from 1950 to 1969, during rainy season, the water of Taal lake even went
beyond the questioned lots; and that the water, which was about one (1) foot,
stayed up to more or less two (2) to three (3) months (Testimonies of Braulio
Almendral and Anastacio Tirones both residents of Banadero, Tanauan,
Batangas (Hearing of Nov. 16, 1970, TSN, pp. 41-42 and Hearing of Nov. 23,
1970, TSN, pp. 93, 98-99, respectively). In the Relocation Survey of 1962, there
were no definite boundary or area of Lots 1 and 2 because a certain point is
existing which was under water by 40 centimeters (Testimony of Engineer
Arcena, Hearing of Nov. 16,1970, TSN, p. 20).
Lakeshore land or lands adjacent to the lake, like the lands in question must be
differentiated from foreshore land or that part of the land adjacent to the sea
which is alternately covered and left dry by the ordinary flow of the tides (Castillo,
Law on Natural Resources, Fifth Edition, 1954, p. 67).
Such distinction draws importance from the fact that accretions on the bank of a
lake, like Laguna de Bay, belong to the owners of the estate to which they have
been added (Gov't. v. Colegio de San Jose, 53 Phil. 423) while accretion on a
sea bank still belongs to the public domain, and is not available for private
ownership until formally declared by the government to be no longer needed for
public use (Ignacio v. Director of Lands, 108 Phil. 335 [1960]).
But said distinction will not help private respondents because there is no
accretion shown to exist in the case at bar. On the contrary, it was established
that the occupants of the lots who were engaged in duck raising filled up the area
with shells and sand to make it habitable.
The defense of long possession is likewise not available in this case because, as
already ruled by this Court, mere possession of land does not by itself
automatically divest the land of its public character (Cuevas v. Pineda, 143
SCRA 674 [1968]).
PREMISES CONSIDERED, the April 26,1984 Decision of the then Intermediate
Appellate Court is hereby SET ASIDE and REVERSED and the February 6,1976
Decision of the then Court of First Instance of Batangas is hereby AFFIRMED
and REINSTATED.
SO ORDERED.
Yap, C.J., Padilla and Sarmiento, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15829 December 4, 1967
ROMAN R. SANTOS, petitioner-appellee,
vs.
HON. FLORENCIO MORENO, as Secretary of Public Works and
Communications and JULIAN C. CARGULLO, respondents-appellants.
Gil R. Carlos and Associates for petitioner-appellee.
Office of the Solicitor General for respondents-appellants.
BENGZON, J.P., J .:
THE APPEAL
The Honorable Secretary of Public Works & Communications appeals from the
decision of the Court of First Instance of Manila declaring of private ownership
certain creeks situated in barrio San Esteban, Macabebe, Pampanga.
THE BACKGROUND
The Zobel family of Spain formerly owned vast track of marshland in the
municipality of Macabebe, Pampanga province. Called Hacienda San Esteban, it
was administered and managed by the Ayala y Cia. From the year 1860 to about
the year 1924 Ayala y Cia., devoted the hacienda to the planting and cultivation
of nipa palms from which it gathered nipa sap or "tuba." It operated a distillery
plant in barrio San Esteban to turn nipa tuba into potable alcohol which was in
turn manufactured into liquor.
Accessibility through the nipa palms deep into the hacienda posed as a problem.
Ayala y Cia., therefore dug canals leading towards the hacienda's interior where
most of them interlinked with each other. The canals facilitated the gathering of
tuba and the guarding and patrolling of the hacienda by security guards called
"arundines." By the gradual process of erosion these canals acquired the
characteristics and dimensions of rivers.
In 1924 Ayala y Cia shifted from the business of alcohol production to bangus
culture. It converted Hacienda San Esteban from a forest of nipa groves to a web
of fishponds. To do so, it cut down the nipa palm, constructed dikes and closed
the canals criss-crossing the hacienda.
Sometime in 1925 or 1926 Ayala y Cia., sold a portion of Hacienda San Esteban
to Roman Santos who also transformed the swamp land into a fishpond. In so
doing, he closed and built dikes across Sapang Malauling Maragul, Quiorang
Silab, Pepangebunan, Bulacus, Nigui and Nasi.
The closing of the man-made canals in Hacienda San Esteban drew complaints
from residents of the surrounding communities. Claiming that the closing of the
canals caused floods during the rainy season, and that it deprived them of their
means of transportation and fishing grounds, said residents demanded re-
opening of those canals. Subsequently, Mayor Lazaro Yambao of Macabebe,
accompanied by policemen and some residents went to Hacienda San Esteban
and opened the closure dikes at Sapang Malauling Maragul Nigui and Quiorang
Silab. Whereupon, Roman Santos filed Civil Case No. 4488 in the Court of First
Instance of Pampanga which preliminarily enjoined Mayor Yambao and others
from demolishing the dikes across the canals. The municipal officials of
Macabebe countered by filing a complaint (docketed as Civil Case No. 4527) in
the same court. The Pampanga Court of First Instance rendered judgment in
both cases against Roman Santos who immediately elevated the case to the
Supreme Court.
In the meantime, the Secretary of Commerce and Communications
1
conducted
his own investigation and found that the aforementioned six streams closed by
Roman Santos were natural, floatable and navigable and were utilized by the
public for transportation since time immemorial. He consequently ordered Roman
Santos on November 3, 1930 to demolish the dikes across said six streams.
However, on May 8, 1931 the said official revoked his decision of November 3,
1930 and declared the streams in question privately owned because they were
artificially constructed. Subsequently, upon authority granted under Act 3982 the
Secretary of Commerce and Communications entered into a contract with
Roman Santos whereby the former recognized the private ownership of Sapang
Malauling Maragul, Quiorang Silab, Pepangebunan, Bulacus, Nigui and Nasi
and the latter turned over for public use two artificial canals and bound himself to
maintain them in navigable state. The Provincial Board of Pampanga and the
municipal councils of Macabebe and Masantol objected to the contract. However,
the Secretary of Justice, in his opinion dated March 6, 1934, upheld its legality.
Roman Santos withdraw his appeals in the Supreme Court.
With respect to the portion of Hacienda San Esteban still owned by the Zobel
family, the municipal authorities of Macabebe filed in 1930 an administrative
complaint, in the Bureau of Public Works praying for the opening of the dikes and
dams across certain streams in Hacienda San Esteban. Whereupon, the district
engineer of Pampanga and a representative of the Bureau of Public Works
conducted investigations. In the meantime, the Attorney General, upon a query
from the Secretary of Commerce and Communications, rendered an opinion
dated October 11, 1930 sustaining the latter's power to declare streams as
publicly owned under Sec. 4 of Act 2152, as amended by Act 3208.
On September 29, 1930 the investigator of the Bureau of Public Works, Eliseo
Panopio, submitted his report recommending the removal of the dikes and dams
in question. And on the basis of said report, the Secretary of Commerce and
Communications rendered his decision on November 3, 1930 ordering Ayala y
Cia., to demolish the dikes and dams across the streams named therein situated
in Hacienda San Esteban. Ayala y Cia., moved for reconsideration, questioning
the power of the Secretary of Commerce and Communications to order the
demolition of said dikes.
Days before the Secretary of Commerce and Communications rendered his
aforementioned decision, Ayala y Cia., thru counsel, made representations with
the Director of Public Works for a compromise agreement. In its letter dated
October 11, 1930, Ayala y Cia., offered to admit public ownership of the following
creeks:
Antipolo, Batasan Teracan, Biuas or Batasan, Capiz, Carbon, Cutut,
Dalayap, Enrique, Iba, Inaun, Margarita, Malauli or Budbud, Matalaba
Palapat, Palipit Maisao, Panlovenas, Panquitan, Quinapati, Quiorang,
Bubong or Malauli Malati, Salop, Sinubli and Vitas.
provided the rest of the streams were declared private. Acting on said offer, the
Director of Public Works instructed the surveyor in his office, Eliseo Panopio, to
proceed to Pampanga and conduct another investigation.
On January 23, 1931 Panopio submitted his report to the Director of Public
Works recommending that some streams enumerated therein be declared public
and some private on the ground that they were originally dug by the hacienda
owners. The private streams were:
Agape, Atlong, Cruz, Balanga, Batasan, Batasan Matlaue, Balibago, Baliti,
Bato, Buengco Malati, Bungalin, Bungo Malati, Bungo Maragui, Buta-buta,
Camastiles, Catlu, Cauayan or Biabas, Cela, Dampalit, Danlimpu,
Dilinquente, Fabian, Laguzan, Lalap Maburac, Mabutol, Macabacle,
Maragul or Macanduli, Macabacle or Mababo, Maisac, Malande, Malati,
Magasawa, Maniup, Manulit, Mapanlao, Maisac, Maragul Mariablus
Malate, Masamaral, Mitulid, Nasi, Nigui or Bulacus, Palipit, Maragul,
Pangebonan, Paumbong, Pasco or Culali, Pilapil, Pinac Malati, Pinac,
Maragul or Macabacle, Quiorang Silab or Malauli Maragul, Raymundo,
Salamin, Salop Maisac, Salop Maragul, Sermon and Sinca or Mabulog.
He therefore recommended revocation of the decision already mentioned above,
dated November 3, 1930 of the Secretary of Commerce and Communications
ordering the demolition of the dikes closing Malauling Maragul, Quiorang, Silab,
Pepangebonan, Nigui, Bulacus, Nasi, and Pinac. On February 13, 1931 the
Director of Public Works concurred in Panopio's report and forwarded the same
the Secretary of Commerce and Communications.
On February 25, 1935 the municipality of Macabebe and the Zobel family
executed an agreement whereby they recognized the nature of the streams
mentioned in Panopio's report as public or private, depending on the findings in
said report. This agreement was approved by the Secretary of Public Works and
Communications on February 27, 1935 and confirmed the next day by the
municipal council of Macabebe under Resolution No. 36.
A few months later, that is, on June 12, 1935, the then Secretary of Justice
issued an opinion holding that the contract executed by the Zobel family and the
municipality of Macabebe has no validity for two reasons, namely, (1) the
streams although originally dug by Ayala y Cia., lost their private nature by
prescription inasmuch as the public was allowed to use them for navigation and
fishing, citing Mercado vs. Municipality of Macabebe, 59 Phil. 592; and (2) at the
time the Secretary of Commerce and Communications approved the said
contract, he had no more power so to do, because such power under Sec. 2 of
Act 2152 was revoked by the amending Act 4175 which took effect on December
7, 1934.
Despite the above ruling of the Secretary of Justice, the streams in question
remained closed.
In 1939 administrative investigations were again conducted by various agencies
of the Executive branch of our government culminating in an order of President
Manuel Quezon immediately before the national elections in 1941 requiring the
opening of Sapang Macanduling, Maragul Macabacle, Balbaro and Cansusu.
Said streams were again closed in 1942 allegedly upon order of President
Quezon.
THE CASE
Roman Santos acquired in 1940 from the Zobel family a larger portion of
Hacienda San Esteban wherein are located 25 streams which were closed by
Ayala y Cia., and are now the subject matter in the instant controversy.
Eighteen years later, that is in 1958, Congress enacted Republic Act No.
2056
2
following a congressional inquiry which was kindled by a speech delivered
by Senator Rogelio de la Rosa in the Senate. On August 15, 1958 Senator de la
Rosa requested in writing the Secretary of Public Works and communications to
proceed in pursuance of Republic Act No. 2056 against fishpond owners in the
province of Pampanga who have closed rivers and appropriated them as
fishponds without color of title. On the same day, Benigno Musni and other
residents in the vicinity of Hacienda San Esteban petitioned the Secretary of
Public Works and Communications to open the following streams:
Balbaro, Batasan Matua, Bunga, Cansusu, Macabacle, Macanduling,
Maragul, Mariablus, Malate, Matalabang, Maisac, Nigui, Quiorang Silab,
Sapang Maragul and Sepung Bato.
Thereupon, the Secretary of Public Works and Communications instructed Julian
C. Cargullo to conduct an investigation on the above named streams.
On October 20, 1958 Musni and his co-petitioners amended their petition to
include other streams. The amended petition therefore covered the following
streams:
Balbaro, Balili, Banawa, Batasan Matua Bato, Bengco, Bunga, Buta-buta,
Camastiles, Cansusu, Cela, Don Timpo, Mabalanga, Mabutol, Macabacle,
Macabacle qng. Iba, Macanduling, Maragul, Malauli, Magasawa, Mariablus
Malate Masamaral, Matalabang Maisa, Mariablus,
3
Nigui, Pita, Quiorang,
Silab, Sapang Maragul, Sepung Bato, Sinag and Tumbong.
On March 2, 4, 10, 30 and 31, and April 1, 1959, the Secretary of Public Works
and Communications rendered his decisions ordering the opening and
restoration of the channel of all the streams in controversy except Sapang
Malauling, Maragul, Quiorang, Silab, Nigui Pepangebonan, Nasi and Bulacus,
within 30 days on the ground that said streams belong to the public domain.
On April 29, 1959, that is, after receipt of the Secretary's decision dated March 4,
1959, Roman Santos filed a motion with the Court of First Instance of Man for
junction against the Secretary of Public Works and Communications and Julian
C. Cargullo. As prayed for preliminary injunction was granted on May 8, 1959.
The Secretary of Public Work and Communications answered and alleged as
defense that venue was improperly laid; that Roman Santos failed to exhaust
administrative remedies; that the contract between Ayala y Cia., and the
Municipality of Macabebe is null and void; and, that Section 39 of Act 496
excludes public streams from the operation of the Torrens System.
On April 29 and June 12, 1969, Roman Santos received the decision of the
Secretary of Public Works and Communications dated March 10 and March 30,
March 31, and April 1, 1959. Consequently, on June 24, 1959 he asked the court
to cite in contempt Secretary Florendo Moreno, Undersecretary M.D. Bautista
and Julian Cargullo for issuing and serving upon him the said decisions despite
the existence of the preliminary injunction. The Solicitor General opposed the
motion alleging that the decisions in question had long been issued when the
petition for injunction was filed, that they were received after preliminary
injunction issued because they were transmitted through the District Engineer of
Pampanga to Roman Santos; that their issuance was for Roman Santos'
information and guidance; and, that the motion did not allege that respondents
took steps to enforce the decision. Acting upon said motion, on July 17, 1959, the
trial court considered unsatisfactory the explanation of the Solicitor General but
ruled that Secretary Florencio Moreno, Undersecretary M.D. Bautista and Julian
Cargullo acted in good faith. Hence, they were merely "admonished to desist
from any and further action in this case, observe the preliminary injunction issued
by this Court, with the stern warning, however, that a repetition of the acts
complained of shall be dealt with severely."
On July 18, 1959 the trial court declared all the streams under litigation private,
and rendered the following judgment:
The Writ of preliminary injunction restraining the respondent Secretary of
Public Works & Communications from enforcing the decisions of March 2
And 4, 1959 and all other similar decisions is hereby made permanent.
The Secretary of Public Works and Communication and Julian Cargullo appealed
to this Court from the order of July 17, 1959 issued in connection with Roman
Santos' motion for contempt and from the decision of the lower court on the
merits of the case.
ISSUES
The issues are: (1) Did Roman Santos exhaust administrative remedies? (2) Was
venue properly laid? (3) Did the lower court err in conducting a trial de novo of
the case and in admitting evidence not presented during the administrative
proceeding? (4) Do the streams involved in this case belong to the public domain
or to the owner of Hacienda San Esteban according to law and the evidence
submitted to the Department of Public Works and Communications?
DISCUSSION OF THE ISSUES
1. Respondents maintain that Roman Santos resorted to the courts without first
exhausting administrative remedies available to him, namely, (a) motion for
reconsideration of the decisions of the Secretary of Public Works and
Communications; and, (b) appeal to the President of the Philippines.
Whether a litigant, in exhausting available administrative remedies, need move
for the reconsideration of an administrative decision before he can turn to the
courts for relief, would largely depend upon the pertinent law,
4
the rules of
procedure and the usual practice followed in a particular office.
5

Republic Act No. 2056 does not require the filing of a motion for reconsideration
as a condition precedent to judicial relief. From the context of the law, the
intention of the legislators to forego a motion for reconsideration manifests itself
clearly.1awphil.net Republic Act No. 2056 underscores the urgency and summary nature of
the proceedings authorized thereunder. Thus in Section 2 thereof the Secretary
of Public Works and Communications under pain of criminal liability is duty bound
to terminate the proceedings and render his decision within a period not
exceeding 90 days from the filing of the complaint. Under the same section, the
party respondent concerned is given not than 30 days within which to comply
with the decision of the Secretary of Public Works and Communications,
otherwise the removal of the dams would be done by the Government at the
expense of said party. Congress has precisely provided for a speedy and a most
expeditious proceeding for the removal of illegal obstructions to rivers and on the
basis of such a provision it would be preposterous to conclude that it had in mind
to require a party to file a motion for reconsideration an additional proceeding
which would certainly lengthen the time towards the final settlement of existing
controversies. The logical conclusion is that Congress intended the decision of
the Secretary of Public Works and Communications to be final and executory
subject to a timely review by the courts without going through formal and time
consuming preliminaries.
Moreover, the issues raised during the administrative proceedings of this case
are the same ones submitted to court for resolution. No new matter was
introduced during the proceeding in the court below which the Secretary of Public
Works and Communications had no opportunity to correct under his authority.
Furthermore, Roman Santos assailed the constitutionality of Republic Act No.
2056 and the jurisdiction of the Secretary of Public Works and Communications
to order the demolition of dams across rivers or streams. Those questions are
not within the competence of said Secretary to decide upon a motion for
reconsideration.itc- alf They are purely legal questions, not administrative in nature,
and should properly be aired before a competent court as was rightly done by
petitioner Roman Santos .
At any rate, there is no showing in the records of this case that the Secretary of
Public Works and Communications adopted rule of procedure in investigations
authorized under Republic Act No. 2056 which require a party litigant to file a
motion for the reconsideration of the Secretary's decision before he can appeal to
the courts. Roman Santos however stated in his brief that the practice is not to
entertain motions for reconsideration for the reason that Republic Act No. 2056
does not expressly or impliedly allow the Secretary to grant the same. Roman
Santos' statement is supported by Opinion No. 61, Series of 1959, dated April 14,
1959 of the Secretary of Justice.
As to the failure of Roman Santos to appeal from the decision of the Secretary of
Public Works and Communications to the President of the Philippines, suffice it
to state that such appeal could be dispensed with because said Secretary is the
alter ego of the President.itc- alf The actions of the former are presumed to have the
implied sanction of the latter.
6

2. It is contended that if this case were considered as an ordinary civil action,
venue was improperly laid when the same was instituted in the Court of First
Instance of Manila for the reason that the case affects the title of a real property.
In fine, the proposition is that since the controversy dwells on the ownership of or
title to the streams located in Hacienda San Esteban, the case is real action
which, pursuant to Sec. 3 of Rule 5 of the Rules of Court should have been filed
in the Court of First Instance of Pampanga.
The mere fact that the resolution of the controversy in this case would wholly rest
on the ownership of the streams involved herein would not necessarily classify it
as a real action. The purpose of this suit is to review the decision of the Secretary
of Public Works and Communications to enjoin him from enforcing them and to
prevent him from making and issuing similar decisions concerning the stream in
Hacienda San Esteban. The acts of the Secretary of Public Works and
Communications are the object of the litigation, that is, petitioner Roman Santos
seeks to control them, hence, the suit ought to be filed in the Court of First
Instance whose territorial jurisdiction encompasses the place where the
respondent Secretary is found or is holding office. For the rule is that outside its
territorial limits, the court has no power to enforce its order.
7

Section 3 of Rule 5 of the Rules of Court does not apply to determine venue of
this action. Applicable is Sec. 1 the same rule, which states:
Sec. 1. General rule. Civil actions in Courts of First Instance may be
commenced and tried where the defendant any of the defendants
residents or may be found or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff.
Accordingly, the Petition for injunction who correctly filed in the Court of First
Instance of Manila. Respondents Secretary of Public Works and
Communications and Julian Cargullo are found and hold office in the City of
Manila.
3. The lower court tried this case de novo. Against this procedure respondents
objected and maintained that the action, although captioned as an injunction is
really a petition for certiorari to review the decision of the Secretary of Public
Works and Communications. Therefore they now contend that the court should
have confined itself to reviewing the decisions of the respondent Secretary of
Public Works and Communications only on the basis of the evidence presented
in the administrative proceedings. On the other hand, Roman Santos now,
submits that the action is a proceeding independent and distinct from the
administrative investigation; that, accordingly, the lower court correctly acted in
trying the case anew and rendering judgment upon evidence adduced during the
trial.
Whether the action instituted in the Court of First Instance be for mandamus,
injunction or certiorari is not very material. In reviewing the decision of the
Secretary of Public Works and Communications, the Court of First Instance shall
confine its inquiry to the evidence presented during, the administrative
proceedings. Evidence not presented therein shall not be admitted, and
considered by the trial court. As aptly by this Court speaking through Mr. Justice
J.B.L. Reyes, in a similar case:
The findings of the Secretary can not be enervated by new evidence not
laid before him, for that would be tantamount to holding a new
investigation, and to substitute for the discretion and judgment of the
Secretary the discretion and judgment of the court, to whom the statute
had not entrusted the case. It is immaterial that the present action should
be one for prohibition or injunction and not one for certiorari; in either event
the case must be resolved upon the evidence submitted to the Secretary,
since a judicial review of executive decisions does not import a trial de
novo, but only an ascertainment of whether the "executive findings are not
in violation of the Constitution or of the laws, and are free from fraud or
imposition, and whether they find reasonable support in the evidence. . . .
8

The case at bar, no matter what the parties call it, is in reality a review of several
administrative decisions of the Secretary of Public Works and Communications.
Being so, it was error for the lower court to conduct a trial de novo. Accordingly,
for purposes of this review, only the evidence presented and admitted in the
administrative investigation will be considered in our determination of whether on
the basis thereof the decisions of the Secretary of Public Works and
Communications were correct.
4. We come to the question whether the streams involved in this case belong to
the public domain or to the owner of Hacienda San Esteban. If said streams are
public, then Republic Act 2056 applies, if private, then the Secretary of Public
Works and Communications cannot order demolition of the dikes and dams
across them pursuant to his authority granted by said law.
First, we come to the question of the constitutionality of Republic Act No. 2056.
The lower court held Republic Act No. 2056 constitutional but ruled that it was
applied by respondents unconstitutionally. That is, it held that Roman Santos was
being deprived of his property without due process of law, for the dikes of his
fishponds were ordered demolished through an administrative, instead of a
judicial, proceeding. This conclusion and rationalization of the lower court amount
in effect to declaring the law unconstitutional, stated inversely. Note that the law
provides for an expeditious administrative process to determine whether or not a
dam or dike should be declare a public nuisance and ordered demolished. And to
say that such an administrative process, when put to operation, is
unconstitutional is tantamount to saying that the law itself violates the
Constitution. In Lovina vs. Moreno, supra, We held said law constitutional. We
see no reason here to hold otherwise.
Discussing now the applicability of Republic Act 2056, the same applies to two
types of bodies of water, namely (1)public navigable rivers, streams, coastal
waters, or waterways and (b) areas declared as communal fishing grounds, as
provided for in Section 1 thereof:
Sec. 1. . . . the construction or building of dams, dikes or any other works
which encroaches into any public navigable river, stream, coastal waters
and any other navigable public waters or waterways as well as the
construction or building of dams, dikes or any other works in areas
declared as communal fishing grounds, shall be ordered removed as
public nuisances or as prohibited constructions as herein provided: . . .
We are not concerned with communal fishing grounds because the streams here
involved have not been so declared, but with public navigable streams. The
question therefore is: Are the streams in Hacienda San Esteban which are
mentioned in the petition of Benigno Musni and others, public and navigable?
Respondents contend that said streams are public on the following grounds:
(1) Hacienda San Esteban was formerly a marshland and being so, it is not
susceptible to appropriation. It therefore belongs to the State. Respondents rely
on Montano vs. Insular Government, 12 Phil. 572.
(2) The streams in question are natural streams. They are tributaries of public
streams. Cited are the cases ofSamson vs. Dionisio, et al., 11 Phil. 538
and Bautista vs. Alarcon, 23 Phil. 636.
(3) The streams have for their source public rivers, therefore they cannot be
classified as canals.
(4) Assuming the streams were artificially made by Ayala y Cia., said titleholder
lost ownership over them by prescription when it allowed the public to use them
for navigation for a long time. Respondents cite Mercado vs. Municipal President
of Macabebe, 59 Phil. 592.
(5) Assuming the streams in question are not mentioned as public in the
certificates of title held by Ayala y Cia., over Hacienda San Esteban, still they
cannot be considered as privately owned for Section 39 of Act 496 expressly
excepts public streams from private ownership.
(6) The Panopio Report, which found the streams in question of private
ownership was nullified by the Secretary of Justice in his opinion dated June 12,
1935.1awphil.net And, the contract between Ayala y Cia., and the Secretary of Commerce
and Communications agreeing on the ownership of the streams in question
is ultra vires.
The doctrine in Montano vs. Insular Government, supra, that a marshland which
is inundated by the rise of the tides belongs to the State and is not susceptible to
appropriation by occupation has no application here inasmuch as in said case
the land subject matter of the litigation was not yet titled and precisely Isabelo
Montano sought title thereon on the strength of ten years' occupation pursuant to
paragraph 6, section 54 of Act 926 of the Philippine Commission. Whereas, the
subject matter in this case Hacienda San Esteban is titled land and private
ownership thereof by Ayala y Cia., has been recognized by the King of Spain and
later by the Philippine Government when the same was registered under Act 496.
Respondents further cite Bautista vs. Alarcon, 23 Phil. 631, where the plaintiff
sought injunction against the defendants who allegedly constructed a dam across
a public canal which conveyed water from the Obando River to fishponds
belonging to several persons. The canal was situated within a public land. In
sustaining the injunction granted by the Court of First Instance, this Court said:
No private persons has right to usurp possession of a watercourse, branch
of a river, or lake of the public domain and use, unless it shall have been
proved that he constructed the same within in property of his exclusive
ownership, and such usurpation constitutes a violation of the legal
provisions which explicity exclude such waterways from the exclusive use
or possession of a private party. (Emphasis supplied)
As indicated in the above-cited case, a private person may take possession of a
watercourse if he constructed the same within his property.it c-alf This puts Us into
inquiry whether the streams in question are natural or artificial. In so doing,
We shall examine only the evidence presented before the Department of Public
Works and Communications and disregard that which was presented for the first
time before the lower court, following our ruling in Lovina vs. Moreno, supra.
(1) Sapang Macanduling Maragul or Macanduli is presently enclosed in Fishpond
No. 12 of Roman Santos. Its banks cannot anymore be seen but some traces of
them could be noted by a row of isolated nipa palms. Its water is subject to the
rise and fall of the tides coming from Guagua and Antipolo Rivers and it is
navigable by light watercrafts. Its inlet is Antipolo River; another dike at its outlet
along the Palapat River.
9
It is closed by four dikes: One dike at its inlet along the
Antipolo River; another dike at its cutlet along the Palatpat River; and, two dikes
in between. Then exist channel at the Palapat River where the fishpond gate lies
has been filled up with dredge spoils from the Pampanga River Control Project.
(2) Sapang Macabacle is found in Fishpond No. 13. Its banks are still evident.
This stream is about 30 meters wide, two meters deep and one and one-half to
two kilometers long. Its source is Rio Cansusu. Like Macanduli, its channel is
obstructed by four dikes. One of them was constructed by the engineers of the
Pampanga River Control Project.
(3) Sapang Balbaro which is found in Fishpond No. 13, runs from Canal Enrique
near Rio Cansusu to Sapang Macabacle, a distance of about one-half kilometer.
It is passable by banca. The closures of this stream consist of two dikes located
at each ends on Canal Enrique and Sapang Macabacle.
(4) Sapang Cansusu is a continuation of the Cansusu River. The Cansusu River
opens at the Guagua River and allegedly ends at the Palanas River in front of
Barrio San Esteban. At a point near the mouth of Sapang Balbaro, the owners of
Hacienda San Esteban built a canal leading straight to one end of Barrio San
Esteban. They called this canal "Canal Enrique." And at the point where Canal
Enrique joins Cansusu they built a dike across Cansusu, thus closing this very
portion of the river which extends up to Palanas River where they built another
closure dike. This closed portion, called "Sapang Cansusu," is now part of
Fishpond No. 1.
Sapang Cansusu is half a kilometer long and navigable by banca.
Appellant's witnesses, Beligno Musni, 41, Macario Quiambao, 96, Roman
Manansala, 55 and Castor Quiambao, 76, all residents of Barrio San Esteban,
testified that prior to their closure, Sapang Macaduli, Macabacle, Balbaro and
Cansusu were used as passageway and as fishing grounds; that people
transported through them tuba,
10
wood and sasa,
11
and that the tuba was brought
to the distillery in Barrio San Esteban. Macario Quiambao testified also that said
four streams "were created by God for the town people"; and that if any digging
was done it was only to deepen the shallow parts to make passage easier.
According to witness Anastacio Quiambao said streams were navigable, even
Yangco's ship "Cababayan" could pass through. Simplicio Quiambao, 36, and
Marcelino Ocampo, 55, stated on direct examination that before closure of the
above named four streams, people from the surrounding towns of Guagua,
Bacolor, Macabebe, Masantol and Sexmoan fished and navigated in them.
Against the aforementioned, testimonial evidence Roman Santos presented the
testimony of Nicanor Donarber, 80, Mariano Guinto, 71, and his own. Donarber,
who started working as an arundin
12
testified that Ayala y Cia., dug Sapang
Macanduli, Balbaro and Macabacle; that he worked also in the construction
together with other workers; and, that as an overseer he inspected their work.
Mariano Guinto testified that he worked for Ayala y Cia., as a tuba gatherer; that
in order to reach remote nipa groves by banca, they made canals; and, that he
was one of the who worked in the construction of those canals. Roman Santos
also testified that Sapang Macanduli, Macabacle, Balbaro and Cansusu are
artificial canals excavated as far back as 1850 and due to erosion coupled with
the spongy nature of the land, they acquired the proportion of rivers; that he
joined Sapang Balbaro to Sapang Macabacle because the former was a dying
canal; and that Cansusu River is different from Sapang Cansusu Witness
Domingo Yumang likewise testified that Sapang Balbaro man-made.
We observe that witnesses positively stated that Sapang Macanduli, Macabacle
and Balbaro were made by the owners of Hacienda San Esteban. With respect to
Sapang Cansusu none, except Roman Santos himself, testified that Sapang
Cansusu is an artificial canal. It is not one of the streams found and
recommended to be declared private in the Panopio Report. Sapang Cansusu
follows a winding course different and, distinct from that of a canal such as that of
Canal Enrique which is straight. Moreover, Sapang Cansusu is a part of Cansusu
River, admittedly a public stream.
(5) Sapang Maragul, Mabalanga and Don Timpo are all part of Fishpond No. 1.
Maragul is 600 meters long and 30 to 35 meters wide. Mabalanga is 250 meters
in length and 50 meters in width. Don Timpo is 220 meters long and 20 meters
wide. All of them are navigable by banca. Maragul and Mabalanga open at
Guagua River and join each other inside the hacienda to form one single stream,
Sapang Don Timpo, which leads to the Matalaba River. Maragul, Mabalanga and
Don Timpo, formerly ended inside the hacienda but later Mabalanga was
connected to Don Timpo. Maragul was connected to Mabalanga and Sapang
Cela was extended to join Maragul.
Witnesses Nicanor Donarber, Mariano Ocampo and Mariano Guinto testified that
Maragul, Mabalanga and Don Timpo are artificial canals dug by Ayala y Cia., and
that they (Donarber and Mariano Guinto) worked in said excavations.
13
Witness
Mariano Guinto clarified that Don Timpo was originally dug but Mabalanga and
Maragul were formerly small non-navigable streams which were deepened into
artificial navigable canals by Ayala y Cia.
14

Exhibit F, which is a map showing the streams and rivers in Hacienda San
Esteban, shows that Maragul, Mabalanga and Don Timpo are more or less
straight. From the big rivers (Guagua and Matalaba Rivers) they lead deep into
the interior of the hacienda, thus confirming the testimony that they were built
precisely as a means of reaching the interior of the estate by banca. The weight
of evidence, therefore, indicate that said streams are manmade.
(6) Sapang Bunga, now part of Bunga fishpond, gets its water from Sapanga Iba
and empties at Sta. Cruz River. It is about 300-400 meters long, 5-6 meters wide
and 1-1.60 meters deep.
(7) Sapang Batu is found in Capiz Fishpond. About 300-400 meters long, 4-5
meters wide and 1.50-2.20 meters deep, it starts at Capiz River and ends at
Malauling Maragul. From Capiz River until it intersects Sapang Nigui the stream
is called Sapang Batu Commencing from Sapang Nigui and up to its end at
Sapang Malauling Maragul, the stream is called Sapang Batu. Commencing from
Sapang Nigui and up to its end at Sapang Malauling Maragul, the stream is
called Sepong Batu. Sepong Batu is not among those streams declared in the
Panopio Report as private.
(8) Sapang Banawa has one end at Palanas River and the other at Sapang
Macabacle. It is about 300 meters long, 3-4 meters wide and 1.30-1.40 meters
deep. Its whole length is within Fishpond No. 13 of Roman Santos.
(9) Sapang Mabutol is a dead-end stream, that is, it ends inside the hacienda. It
opens along Guagua river. Since its closure, it has become part of Fishpond No.
1.
(10) Sapang Buta-buta, like Mabutol, dies inside the hacienda. It connects with
Cansusu River and is about 100 meters long, 3-4 meters wide and 1.2-1.5
meters deep. It is now a part of Fishpond No. 13.
(11) Sapang Masamaral, another stream which opens at Cansusu River And
ends inside the hacienda., is 100-200 meters long, 3-4 meters wide and 1.50-2
meters deep. It now forms part of Fishpond No. 13.
The uncontradicted testimony of Marcos Guinto is that Sapang Bunga, Batu,
Sepong Batu, Banawa, Mabutol, Buta-Buta and Masamaral were constructed by
Ayala y Cia., to gain access to the nipa the, interior of the hacienda. This
testimony tallies with the findings in the Panopio Report which will be discussed
herein later. The evidence adduced in the administrative proceeding conducted
before a representative of the Secretary of Public Works and Communications
supports the contention that said streams are merely canals built by Ayala y Cia.,
for easy passage into the hinterland of its hacienda.
(12) Sapang Magasawa consists of two streams running parallel to each other
commencing from Matalaba River and terminating at Mariablus Rivers. About
600-700 meters long, 4-5 meters wide and 1.5-2 meters deep, these two streams
are navigable by banca. They are enclosed within Fishpond No. 1.
(13) Sapang Mariablus Malate, about 3-4 meters wide and 250 meters long, is
another stream that ends inside the hacienda and gets its water from Guagua
River. It is no part of Fishpond No. 1.
(14) Sapang Matalabang Malate or Maisac opens at Guagua River and ends at
Sapang Cela and Matalabang Maragul. This stream, which is about 800 meters
long and 18 meters wide, forms part of Fishpond No. 1 of Roman Santos.
(15) Sapang Batasan Matua about 600 meters long, three meters wide and .80
meters deep at low tide and 1.90 meters deep at high tide crosses the hacienda
from Mariablus River to Cansusu River. It is at present a part of Fishpond No. 1-
A.
(16) Sapang Camastiles, a dead end stream of about 200 to 300 meters in
length, gets its water from Biuas River. It is within Fishpond No. 1.
(17) Sapang Cela is within Fishpond No. 1. Its whole length situated inside the
hacienda, it opens at Sapang Matalabang Malate or Maisac and ends at Sapang
Malungkot. Latter Cela was extended to connect with Sapang Maragul. It is about
200 meters long and four meters wide.
Mariano Guinto, 71, testified without contradiction that Sapang Mariablus Malate
and Matalabang Malate were formerly small and non-navigable streams which
were dug by Ayala y Cia.,
15
while Batasan Matua Camastiles, Magasawa and
Cela are original canals made by Ayala y Cia.,
16
that he was one of those who
worked in the construction of said canals; and that it took years to construct
them. All these streams were recommended in the Panopio Report for
declaration as private streams.
(18) Sapang Sinag, 200 meters long, four to five meters wide, one meter and one
and one-half meters deep at low and high tides, respectively, gets its water from
Cutod River and leads inside the hacienda to connect with Sapang Atlong Cruz,
a stream declared private in the Panopio Report. It is now inside Fishpond No.
14.
(19) Sapang Balili, also found inside Fishpond No. 14, is about 200 meters long,
three to four meters wide and one meter deep at low tide. From its mouth at
Cutod River it drifts into the interior of the hacienda and joins Sapang Bengco.
17

(20) Sapang Pita is within Fishpond Capiz. It takes water from Capiz River but
dies 250 meters inside the hacienda. It is about four to five meters wide, and one
meter deep at low tide and 1.50 meters deep at high tide.
(21) Sapang Tumbong, situated inside Capiz Fishpond, derives its water from
Sapang Quiorang Silab, a stream declared private by the Secretary of Public
Works and Communications, and ends inside the hacienda.
18

(22) Sapang Bengco is found within Fishpond No. 14.1awphil.net Two hundred meters long,
five meters wide, and one meter deep at low tide and 1.50 meters deep at high
tide it gets water from Sapang Biabas and connects with Baliling Maisac.
19

According to Marcos Guinto, a witness for Roman Santos, Sapang Sinag, Balili,
Pita Tumbong and Bengco were excavated a long time ago by Ayala y Cia.; and
that they have a winding course because when they were made the workers
followed the location of the nipa palms.
20
On the other hand, Marcelo Quiambao,
testified that Sapang Tumbong is a natural stream and that the reason he said so
is because the stream was already there as far back as 1910 when he reached
the age of ten. No other oral evidence was presented to contradict the testimony
of Marcos Guinto that the said five streams were artificially made by Ayala y Cia.
To show that the streams involved in this case were used exclusively by the
hacienda personnel and occasionally by members of their families, Roman
Santos introduced the testimony of Eliseo Panopio, Nicanor Donarber, Blas
Gaddi, Mariano Ocampo, Mariano Guinto, Alejandro Manansala and himself. The
witnesses categorically testified that the public was prohibited from using the
streams as a means of navigation and that the prohibition was enforced by
guards called arundines.
One and all, the evidence, oral and documentary, presented by Roman Santos in
the administrative proceedings supports the conclusion of the lower court that the
streams involved in this case were originally man-made canals constructed by
the former owners of Hacienda San Esteban and that said streams were not held
open for public use. This same conclusion was reached 27 years earlier by an
investigator of the Bureau of Public Works whose report and recommendations
were approved by the Director of Public Works and submitted to the Secretary of
Commerce and Communications.
As stated, pursuant to Act 2152, as amended by Act 3208, the Bureau of Public
Works and the Department of Commerce and Communications locked into and
settled the question of whether or not the streams situated within Hacienda San
Esteban are publicly or privately owned. We refer to the so-called Panopio
Report which contains the findings and recommendations of Eliseo Panopio, a
surveyor in the Bureau of Public Works, who was designated to conduct formal
hearings and investigation. Said report found the following streams, among
others, of private ownership:
Camastiles, Cela Balanga, Bato, Batasan, Bengco, Buta-buta, Don Timpo,
Mabutol, Macabacle, Macanduli, Malande Malate (Bunga), Magasawa,
Masamaral, Maragul, Mariablus Malate, Matalaba Malate, Nasi, Nigui,
Pangebonan and Quiorang Silab
on the ground that
The preponderance of the probatory facts, . . ., shows that the rivers,
creeks, esteros and canals listed in (1) have originally been constructed,
deepened, widened, and lengthened by the owners of the Hacienda San
Esteban. That they have been used as means of communication from one
place to another and to the inner most of the nipales, exclusively for the
employees, colonos and laborers of the said Hacienda San Esteban. That
they have never been used by the public for navigation without the express
consent of the owners of the said Hacienda.
21

Bases for the above-quoted conclusion were "the reliable informations gathered
from old residents of the locality, from outsiders, the sworn statements obtained
from different persons not interested in this case and the comparison of the three
plans prepared in 1880, 1906 and 1930.
22
The persons referred to are Martin Isip,
Hilarion Lobo, Emigdio Ignacio, Castor Quiambao, Matias Sunga facio Cruz,
Inocencio Dayrit, Gabriel Manansala, Lope Quiambao, Marcelino Bustos and
Juan Lara .
On February 13, 1931 the Director of Public Works transmitted the Panopio
Report to the Secretary of Commerce and Communications recommending
approval thereof. Later, on February 27, 1935, Secretary of Public Works and
Communications De las Alas approved the agreement of Ayala y Cia., and the
Municipality of Macabebe, concerning the ownership of the streams in Hacienda
San Esteban, for being in conformity with said Panopio Report.
This agreement of Ayala y Cia and the Municipality of Macabebe which was
approved by the Secretary of Public Works and Communications only on
February 27, 1935, could not however bind the Government because the power
of the Secretary of Public Works and Communication to enter thereto had been
suppressed by the Philppine Legislature when it enacted Act 4175 which effect
on December 7, 1934.
Nullity of the aforesaid contract would not of course affect the findings of fact
contained in the Panopio Report.
In weighing the evidence presented before the administrative investigation which
culminated in this appeal, respondent Secretary seemed to have ignored the
Panopio Report and other documentary evidence as well as the testimony of
witnesses presented by petitioner but instead gave credence only to the
witnesses of Benigno Musni, et al. Upon review, however, the lower court, taking
into account all the evidence adduced in the administrative hearing, including the
Panopio Report, as well as those presented for the first time before it, sustained
petitioner's averment that the streams in question were artificially made, hence of
private ownership. As stated, this conclusion of the lower court which is in accord
with the findings of Panopio as contained in his report, finds ample support from
the evidence presented and admitted in the administrative investigation.
Accordingly, we see no merit in disturbing the lower court's findings fact.
We next consider the issue of whether under pertinent laws, the streams in
question are public or private.
We quote Articles 339, 407 and 408 of the Spanish Civil Code of 1889:
Art. 339. Property of public ownerships is
1. That devoted to public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, river banks, shores, roadsteads, and
that of a similar character;
Art. 407. The following are of public ownership:
1. Rivers and their natural channels;
2. Continuous or intermittent waters from springs or brooks running in their
natural channels and the channels themselves.
3. Waters rising continuously or intermittently on lands of public ownership;
4. Lakes and ponds formed by nature, on public lands, and their beds;
5. Rain waters running through ravines or sand beds, the channels of
which are of public ownership;
6. Subterranean waters on public lands;
7. Waters found within the zone of operation of public works, even though
constructed under contract;
8. Waters which flow continuously or intermittently from lands belonging to
private persons, to the State, to provinces, or to towns, from the moment
they leave such lands;
9. The waste waters of fountains, sewers, and public institutions.
Art. 408. The following are of private ownership:
1. Waters, either continuous or intermittent rising on private etates, while
they run through them;
2. Lakes and ponds and their beds when formed by nature on such
estates;
3. Subterranean waters found therein;
4. Rain water falling thereon as long as their bounderies.
5. The channels of flowing streams, continuous or intermittent, formed by
rain water, and those of brooks crossing estates which are not of public
ownership.
The water, bed, banks, and floodgates of a ditch or aqueduct are deemed
to be an integral part of the estate or building for which the waters are
intended. The owners of estates through or along the boundaries of which
the aqueduct passes can assert no ownership over it, nor any right to
make use. of it beds or banks, unless they base their claims on title deed
which specify the right or the ownership claimed.
Articles 71 and 72 of the Spanish Law of Waters of August 3, 1866 state:
Art. 71. The water-beds of all creeks belong to the owners of the estates or
lands over which they flow.
Art. 72. The water-beds on public land, of creeks through which spring
waters run, are a part of the public domain.
The natural water-beds or channels of rivers are also part of the public
domain.
Pursuant to Article 71 of the Spanish Law of Waters of August 3, 1866, and
Article 408(5) of the Spanish Civil Code, channels of creeks and brooks belong to
the owners of estates over which they flow. The channels, therefore, of the
streams in question which may be classified creeks, belong to the owners of
Hacienda San Esteban.
The said streams, considered as canals, of which they originally were, are of
private ownership in contemplation of Article 339(l) of the Spanish Civil Code.
Under Article 339, canals constructed by the State and devoted to public use are
of public ownership. Conversely, canals constructed by private persons within
private lands and devoted exclusively for private use must be of private
ownership.
Our attention has been called to the case of Mercado v. Municipal President of
Macabebe, 59 Phil. 592. There the creek (Batasan-Limasan) involved was
originally dug by the estate's owner who, subsequently allowed said creek to be
used by the public for navigation and fishing purposes for a period of 22 years.
Said this Court through Mr. Justice Diaz:
And even granting that the Batasan-Limasan creek acquired the
proportions which it had, before it was closed, as a result of excavations
made by laborers of the appellant's predecesor in interest, it being a fact
that, since the time it was opened as a water route between the Nasi River
and Limasan creek, the owners thereof as well as strangers, that is, both
the residents of the hacienda and those of other nearby barrios and
municipalities, had been using it not only for their bancas to pass through
but also for fishing purposes, and it being also a fact that such was the
condition of the creek at least since 1906 until it was closed in 1928, if the
appellant and her predecessors in interest had acquired any right to the
creek in question by virtue of excavations which they had made thereon,
they had such right through prescription, inasmuch as they failed to obtain,
and in fact they have not obtained, the necessary authorization to devote it
to their own use to the exclusion of all others. The use and enjoyment of a
creek, as any other property simceptible of appropriation, may be acquired
or lost through prescription, and the appellant and her predecessors in
interest certainly lost such right through the said cause, and they cannot
now claim it exclusively for themselves after the general public had been
openly using the same from 1906 to 1928. . . .
In the cited case, the creek could have been of private ownership had not its
builder lost it by prescription. Applying the principle therein enunciated to the
case at bar, the conclusion would be inevitably in favor of private ownership,
considering that the owners of Hacienda San Esteban held them for their
exclusive use and prohibited the public from using them.
It may be noted that in the opinion, mentioned earlier, issued on June 12, 1935,
the Secretary of Justice answered in the negative the query of the Secretary of
Public Works and Communications whether the latter can declare of private
ownership those streams which "were dug up artificially", because it was
assumed that the streams were used "by the public as fishing ground and in
transporting their commerce in bancas or in small crafts without the objection of
the parties who dug" them. Precisely, Mercado v. Municipality of Macabebe was
given application therein. However, the facts, as then found by the Bureau of
Public Works, do not support the factual premise that the streams in question
were used by the public "without the objection of the parties who dug" them. We
cannot therefore take as controlling in determining the merits of this the factual
premises and the legal conclusion contained in said opinion.
The case at bar should be differentiated from those cases where We held illegal
the closing and/or appropriation of rivers or streams by owners of estates through
which they flow for purposes of converting them into fishponds or other
works.
23
In those cases, the watercourses which were dammed were natural
navigable streams and used habitually by the public for a long time as a means
of navigation. Consequently, they belong to the public domain either as rivers
pursuant to Article 407 (1) of the Spanish Civil Code of 1889 or as property
devoted to public use under Article 339 of the same code. Whereas, the streams
involved in this case were artificially made and devoted to the exclusive use of
the hacienda owner.
Finally, Sapang Cansusu, being a natural stream and a continuation of the
Cansusu River, admittedly a public stream, belongs to the public domain. Its
closure therefore by the predecessors of Roman Santos was illegal.
The petition for the opening of Sapang Malauling Maragul, Quiorang Silab,
Nigui, Pepangebunan, Nasi and Bulacus was dismissed by the Secretary of
Public Works and Communications and the case considered closed. The said
administrative decision has not been questioned in this appeal by either party.
Hence, they are deemed excluded herein.
All the other streams, being artificial and devoted exclusively for the use of the
hacienda owner and his personnel, are declared of private ownership. Hence, the
dams across them should not he ordered demolished as public nuisances.
With respect to the issue of contempt of court on the part of the Secretary of
Public Works and Communications and Julian Cargullo for the alleged issuance
of a administrative decisions ordering demolition of dikes involved in this case
after the writ of injunction was granted and served, suffice it to state that the
lower court made no finding of contempt of court. Necessarily, there is no
conviction for contempt reviewable by this Court and any discussion on the
matter would be academic.
WHEREFORE, the decision appealed from is affirmed, except as to Sapang
Cansusu which is hereby declared public and as to which the judgment of the
lower court is reversed. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal. Zaldivar, Sanchez, Castro,
Angeles and Fernando, JJ.,concur.