Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning

machinery company from the defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It included in the mortgage
deed the building of strong materials in which the machinery was installed, without any
reference to the land on which it stood. The indebtedness secured by this instrument not
having been paid when it fell due, the mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage instrument, and was bought in by the machinery
company. The mortgage was registered in the chattel mortgage registry, and the sale of
the property to the machinery company in satisfaction of the mortgage was annotated in
the same registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although executed in a public document, was
not registered. This deed makes no reference to the building erected on the land and
would appear to have been executed for the purpose of curing any defects which might be
found to exist in the machinery company's title to the building under the sheriff's
certificate of sale. The machinery company went into possession of the building at or
about the time when this sale took place, that is to say, the month of December, 1913, and
it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to
the plaintiff upon the building, separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for that amount,
levied execution upon the building, bought it in at the sheriff's sale on or about the 18th
of December, 1914, and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its
claim of title and demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in
the sum of P12,000, in reliance upon which the sheriff sold the property at public auction
to the plaintiff, who was the highest bidder at the sheriff's sale.

This action was instituted by the plaintiff to recover possession of the building from the
machinery company.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment
in favor of the machinery company, on the ground that the company had its title to the
building registered prior to the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership
shall be transfer to the person who may have the first taken possession thereof
in good faith, if it should be personal property.

Should it be real property, it shall belong to the person acquiring it who first
recorded it in the registry.

Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.

The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to
say, mortgages of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning machinery was
installed by the "Compaia Agricola Filipina" was real property, and the mere fact that
the parties seem to have dealt with it separate and apart from the land on which it stood in
no wise changed its character as real property. It follows that neither the original registry
in the chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any effect whatever
so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on
the ground assigned by the trial judge. We are of opinion, however, that the judgment
must be sustained on the ground that the agreed statement of facts in the court below
discloses that neither the purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and that the machinery
company must be held to be the owner of the property under the third paragraph of the
above cited article of the code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the machinery company
long prior to the date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require
"good faith," in express terms, in relation to "possession" and "title," but contain no
express requirement as to "good faith" in relation to the "inscription" of the property on
the registry, it must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention of the legislator to base
the preferential right secured under this article of the code upon an inscription of title in
bad faith. Such an interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be converted into
instruments of fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public record presupposes
the good faith of him who enters such inscription; and rights created by statute, which are
predicated upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain
held in its sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in
the first paragraph; therefore, it having been found that the second purchasers
who record their purchase had knowledge of the previous sale, the question is
to be decided in accordance with the following paragraph. (Note 2, art. 1473,
Civ. Code, Medina and Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the
registry shall have preference, this provision must always be understood on the
basis of the good faith mentioned in the first paragraph; the legislator could not
have wished to strike it out and to sanction bad faith, just to comply with a
mere formality which, in given cases, does not obtain even in real disputes
between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers
of the La Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the
building at the sheriff's sale and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from plaintiff's judgment debtor;
that it had gone into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an indemnity
bond by the plaintiff in favor of the sheriff, after the machinery company had filed its
sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time of the levy and sale the
building had already been sold to the machinery company by the judgment debtor, the
plaintiff cannot be said to have been a purchaser in good faith; and of course, the
subsequent inscription of the sheriff's certificate of title must be held to have been tainted
with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be understood
as questioning, in any way, the good faith and genuineness of the plaintiff's claim against
the "Compaia Agricola Filipina." The truth is that both the plaintiff and the defendant
company appear to have had just and righteous claims against their common debtor. No
criticism can properly be made of the exercise of the utmost diligence by the plaintiff in
asserting and exercising his right to recover the amount of his claim from the estate of the
common debtor. We are strongly inclined to believe that in procuring the levy of
execution upon the factory building and in buying it at the sheriff's sale, he considered
that he was doing no more than he had a right to do under all the circumstances, and it is
highly possible and even probable that he thought at that time that he would be able to
maintain his position in a contest with the machinery company. There was no collusion
on his part with the common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have hoped, and
doubtless he did hope, that the title of the machinery company would not stand the test of
an action in a court of law; and if later developments had confirmed his unfounded hopes,
no one could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of ownership
was well founded, he cannot be said to have been an innocent purchaser for value. He
took the risk and must stand by the consequences; and it is in this sense that we find that
he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of
the land or of an interest therein; and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor. A purchaser
cannot close his eyes to facts which should put a reasonable man upon his guard, and
then claim that he acted in good faith under the belief that there was no defect in the title
of the vendor. His mere refusal to believe that such defect exists, or his willful closing of
his eyes to the possibility of the existence of a defect in his vendor's title, will not make
him an innocent purchaser for value, if afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution which may reasonably be
acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a
question of intention; but in ascertaining the intention by which one is actuated on a
given occasion, we are necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with safety, be determined. So it is
that "the honesty of intention," "the honest lawful intent," which constitutes good faith
implies a "freedom from knowledge and circumstances which ought to put a person on
inquiry," and so it is that proof of such knowledge overcomes the presumption of good
faith in which the courts always indulge in the absence of proof to the contrary. "Good
faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather
a state or condition of mind which can only be judged of by actual or fancied tokens or
signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La.
Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against
the appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

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

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

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

MALCOLM, J.:

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

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

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

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

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

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

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

B.H. BERKENKOTTER, plaintiff-appellant,

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

Briones and Martinez for appellant.

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

VILLA-REAL, J.:

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

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

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

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

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

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

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements,

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

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

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES

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

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In

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

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

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

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

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

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

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

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

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with
costs to the appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial
court and as set forth by counsel for the parties on appeal, involves the determination of
the nature of the properties described in the complaint. The trial judge found that those
properties were personal in nature, and as a consequence absolved the defendants from
the complaint, with costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government
of the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business
was conducted belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements thus used were
clearly personal property, the conflict concerning machines which were placed and
mounted on foundations of cement. In the contract of lease between the sawmill company
and the owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and
buildings introduced and erected by the party of the second part shall pass to
the exclusive ownership of the party of the first part without any obligation on
its part to pay any amount for said improvements and buildings; also, in the
event the party of the second part should leave or abandon the land leased
before the time herein stipulated, the improvements and buildings shall
likewise pass to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries and
accessories are not included in the improvements which will pass to the party
of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant in that action; a writ of execution issued
thereon, and the properties now in question were levied upon as personalty by the sheriff.
No third party claim was filed for such properties at the time of the sales thereof as is
borne out by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the sale, proceeded
to take possession of the machinery and other properties described in the corresponding
certificates of sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill
Co., Inc., has on a number of occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of such persons is the appellee
by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code,
real property consists of

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the

owner of any building or land for use in connection with any industry or trade
being carried on therein and which are expressly adapted to meet the
requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph.
We entertain no doubt that the trial judge and appellees are right in their appreciation of
the legal doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard Oil Co. of
New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the
key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on
side issues. It is machinery which is involved; moreover, machinery not intended by the
owner of any building or land for use in connection therewith, but intended by a lessee
for use in a building erected on the land by the latter to be returned to the lessee on the
expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when
so placed by a tenant, a usufructuary, or any person having only a temporary right, unless
such person acted as the agent of the owner. In the opinion written by Chief Justice
White, whose knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of the
property from the point of view of the rights of Valdes and its nature and
character from the point of view of Nevers & Callaghan as a judgment creditor
of the Altagracia Company and the rights derived by them from the execution
levied on the machinery placed by the corporation in the plant. Following the
Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of the
destination to which it is applied. "Things," says section 334 of the Porto Rican
Code, "may be immovable either by their own nature or by their destination or
the object to which they are applicable." Numerous illustrations are given in the
fifth subdivision of section 335, which is as follows: "Machinery, vessels,
instruments or implements intended by the owner of the tenements for the
industrial or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works." (See
also Code Nap., articles 516, 518 et seq. to and inclusive of article 534,
recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing
machinery placed in the plant it is plain, both under the provisions of the
Porto Rican Law and of the Code Napoleon, that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner of
the property or plant. Such result would not be accomplished, therefore, by the
placing of machinery in a plant by a tenant or a usufructuary or any person
having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit.
2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-
Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not presumed by the law to
have applied movable property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the property of another. It
follows that abstractly speaking the machinery put by the Altagracia Company
in the plant belonging to Sanchez did not lose its character of movable property
and become immovable by destination. But in the concrete immobilization took
place because of the express provisions of the lease under which the Altagracia
held, since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the lessor the cost
such machinery, and it was expressly stipulated that the machinery so put in
should become a part of the plant belonging to the owner without compensation
to the lessee. Under such conditions the tenant in putting in the machinery was
acting but as the agent of the owner in compliance with the obligations resting
upon him, and the immobilization of the machinery which resulted arose in
 legal effect from the act of the owner in giving by contract a permanent
destination to the machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was
placed in the plant by the Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had the right to levy on it
under the execution upon the judgment in their favor, and the exercise of that
right did not in a legal sense conflict with the claim of Valdes, since as to him
the property was a part of the realty which, as the result of his obligations under
the lease, he could not, for the purpose of collecting his debt, proceed
separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed,
the costs of this instance to be paid by the appellant.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7057 October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON,
JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, IPO
LIMESTONE CO., INC., and ANTONIO VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies

Inc., from a decision of the Court of Appeals denying an original petition
for certiorari filed by said petitioner against Hon. Potenciano Pecson, Ipo Limestone Co.,
Inc., and Antonio Villarama, the respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we
quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the
Court of First Instance of Manila, Civil Case No. 19067, entitled "Machinery
and Engineering Supplies, Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr.
Antonio Villarama, defendants", for the recovery of the machinery and
equipment sold and delivered to said defendants at their factory in barrio Bigti,
Norzagaray, Bulacan. Upon application ex-parte of the petitioner company, and
upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff
of Bulacan to seize and take immediate possession of the properties specified in
the order (Appendix I, Answer). On March 19, 1953, two deputy sheriffs of
Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers
proceeded to Bigti, for the purpose of carrying the court's order into effect.
Leonardo Contreras, Manager of the respondent Company, and Pedro Torres,
in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan,
signed by Atty. Adolfo Garcia of the defendants therein, protesting against the
seizure of the properties in question, on the ground that they are not personal
properties. Contending that the Sheriff's duty is merely ministerial, the deputy
 sheriffs, Roco, the latter's crew of technicians and laborers, Contreras and
Torres, went to the factory. Roco's attention was called to the fact that the
equipment could not possibly be dismantled without causing damages or
injuries to the wooden frames attached to them. As Roco insisted in
dismantling the equipment on his own responsibility, alleging that the bond was
posted for such eventuality, the deputy sheriffs directed that some of the
supports thereof be cut (Appendix 2). On March 20, 1953, the defendant
Company filed an urgent motion, with a counter-bond in the amount of
P15,769, for the return of the properties seized by the deputy sheriffs. On the
same day, the trial court issued an order, directing the Provincial Sheriff of
Bulacan to return the machinery and equipment to the place where they were
installed at the time of the seizure (Appendix 3). On March 21, 1953, the
deputy sheriffs returned the properties seized, by depositing them along the
road, near the quarry, of the defendant Company, at Bigti, without the benefit
of inventory and without re-installing hem in their former position and
replacing the destroyed posts, which rendered their use impracticable. On
March 23, 1953, the defendants' counsel asked the provincial Sheriff if the
machinery and equipment, dumped on the road would be re-installed tom their
former position and condition (letter, Appendix 4). On March 24, 1953, the
Provincial Sheriff filed an urgent motion in court, manifesting that Roco had
been asked to furnish the Sheriff's office with the expenses, laborers, technical
men and equipment, to carry into effect the court's order, to return the seized
properties in the same way said Roco found them on the day of seizure, but said
Roco absolutely refused to do so, and asking the court that the Plaintiff therein
be ordered to provide the required aid or relieve the said Sheriff of the duty of
complying with the said order dated March 20, 1953 (Appendix 5). On March
30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to
reinstate the machinery and equipment removed by them in their original
condition in which they were found before their removal at the expense of the
Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated April
15, 1953, praying for an extension of 20 days within which to comply with the
order of the Court (appendix 10) was denied; and on May 4, 1953, the trial
court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days
with the necessary funds, technical men, laborers, equipment and materials to
effect the repeatedly mentioned re-installation (Appendix 13). (Petitioner's
brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R,
entitled "Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson,
Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the
petition therein filed, it was alleged that, in ordering the petitioner to furnish the
provincial sheriff of Bulacan "with necessary funds, technical men, laborers, equipment
and materials, to effect the installation of the machinery and equipment" in question, the
Court of Firs Instance of Bulacan had committed a grave abuse if discretion and acted in
excess of its jurisdiction, for which reason it was prayed that its order to this effect be
nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the
enforcement o said order of may 4, 1953. Although the aforementioned writ was issued
by the Court of Appeals, the same subsequently dismissed by the case for lack of merit,
with costs against the petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered by the
respondent Court, it is, however, logical to presume that said court did not
authorize the petitioner or its agents to destroy, as they did, said machinery and
equipment, by dismantling and unbolting the same from their concrete
basements, and cutting and sawing their wooden supports, thereby rendering
them unserviceable and beyond repair, unless those parts removed, cut and
sawed be replaced, which the petitioner, not withstanding the respondent
Court's order, adamantly refused to do. The Provincial Sheriff' s tortious act, in
obedience to the insistent proddings of the president of the Petitioner, Ramon S.
Roco, had no justification in law, notwithstanding the Sheriffs' claim that his
duty was ministerial. It was the bounden duty of the respondent Judge to give
redress to the respondent Company, for the unlawful and wrongful acts
committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its
jurisdiction to issue. The ministerial duty of the Sheriff should have its
limitations. The Sheriff knew or must have known what is inherently right and
inherently wrong, more so when, as in this particular case, the deputy sheriffs
were shown a letter of respondent Company's attorney, that the machinery were
not personal properties and, therefore, not subject to seizure by the terms of the
order. While it may be conceded that this was a question of law too technical to
decide on the spot, it would not have costs the Sheriff much time and difficulty
to bring the letter to the court's attention and have the equipment and machinery
guarded, so as not to frustrate the order of seizure issued by the trial court. But
acting upon the directives of the president of the Petitioner, to seize the
properties at any costs, in issuing the order sought to be annulled, had not
committed abuse of discretion at all or acted in an arbitrary or despotic manner,
by reason of passion or personal hostility; on the contrary, it issued said order,
guided by the well known principle that of the property has to be returned, it
should be returned in as good a condition as when taken (Bachrach Motor Co.,
Inc., vs. Bona, 44 Phil., 378). If any one had gone beyond the scope of his
authority, it is the respondent Provincial Sheriff. But considering that fact that
he acted under the pressure of Ramon S. Roco, and that the order impugned
was issued not by him, but by the respondent Judge, We simply declare that
said Sheriff' act was most unusual and the result of a poor judgment. Moreover,
the Sheriff not being an officer exercising judicial functions, the writ may not
reach him, for certiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded
his manifestation that the machinery and equipment seized were and still are
the Petitioner's property until fully paid for and such never became immovable.
The question of ownership and the applicability of Art. 415 of the new Civil
Code are immaterial in the determination of the only issue involved in this case.
It is a matter of evidence which should be decided in the hearing of the case on
the merits. The question as to whether the machinery or equipment in litigation
 are immovable or not is likewise immaterial, because the only issue raised
before the trial court was whether the Provincial Sheriff of Bulacan, at the
Petitioner's instance, was justified in destroying the machinery and in refusing
to restore them to their original form , at the expense of the Petitioner.
Whatever might be the legal character of the machinery and equipment, would
not be in any way justify their justify their destruction by the Sheriff's and the
said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied
, petitioner has brought the case to Us for review by writ of certiorari. Upon examination
of the record, We are satisfied, however that the Court of Appeals was justified in
dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable
only to "personal property".

Ordinarily replevin may be brought to recover any specific personal property

unlawfully taken or detained from the owner thereof, provided such property is
capable of identification and delivery; but replevin will not lie for the recovery
of real property or incorporeal personal property. (77 C. J. S. 17) (Emphasis
supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc.,
machinery and equipment in question appeared to be attached to the land, particularly to
the concrete foundation of said premises, in a fixed manner, in such a way that the former
could not be separated from the latter "without breaking the material or deterioration of
the object." Hence, in order to remove said outfit, it became necessary, not only to unbolt
the same, but , also, to cut some of its wooden supports. Moreover, said machinery and
equipment were "intended by the owner of the tenement for an industry" carried on said
immovable and tended." For these reasons, they were already immovable property
pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which are
substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As
such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as

part of the realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to
be part as to be part thereof, as, for example, a house or a turbine pump
constituting part of a building's cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question,

petitioner's agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own
responsibility," stating that., precisely, "that is the reason why plaintiff posted a bond ."
In this manner, petitioner clearly assumed the corresponding risks.
Such assumption of risk becomes more apparent when we consider that, pursuant to
Section 5 of Rule 62 of the Rules of Court, the defendant in an action for replevin is
entitled to the return of the property in dispute upon the filing of a counterbond, as
provided therein. In other words, petitioner knew that the restitution of said property to
respondent company might be ordered under said provision of the Rules of Court, and
that, consequently, it may become necessary for petitioner to meet the liabilities incident
to such return.

Lastly, although the parties have not cited, and We have not found, any authority
squarely in point obviously real property are not subject to replevin it is well settled
that, when the restitution of what has been ordered, the goods in question shall be
returned in substantially the same condition as when taken (54 C.J., 590-600, 640-641).
Inasmuch as the machinery and equipment involved in this case were duly installed and
affixed in the premises of respondent company when petitioner's representative caused
said property to be dismantled and then removed, it follows that petitioner must also do
everything necessary to the reinstallation of said property in conformity with its original
condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the
petitioner. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,

vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Taedo, Jr. for plaintiff-appellee.

Renato A. Santos for defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales
(married to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of
P2,500.00, payable 6 months after said date or on June 14, 1959. To secure the
indebtedness, Rufino executed a document captioned "DEED OF REAL ESTATE and
CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real Estate
Mortgage hypothecated a parcel of land, belonging to her, registered with the Register of
Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and Rufino G. Pineda, by
way of Chattel Mortgage, mortgaged his two-story residential house, having a floor area
of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.
San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor
Vehicle Registration Certificate No. A-171806. Both mortgages were contained in one
instrument, which was registered in both the Office of the Register of Deeds and the
Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made
on them, failed to pay. They, however, asked and were granted extension up to June 30,
1960, within which to pay. Came June 30, defendants again failed to pay and, for the
second time, asked for another extension, which was given, up to July 30, 1960. In the
second extension, defendant Pineda in a document entitled "Promise", categorically
stated that in the remote event he should fail to make good the obligation on such date
(July 30, 1960), the defendant would no longer ask for further extension and there would
be no need for any formal demand, and plaintiff could proceed to take whatever action he
might desire to enforce his rights, under the said mortgage contract. In spite of said
promise, defendants, failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for
damages, which consisted of liquidated damages in the sum of P500.00 and 12% per
annum interest on the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated

Defendants admit that the loan is overdue but deny that portion of paragraph 4
of the First Cause of Action which states that the defendants unreasonably
failed and refuse to pay their obligation to the plaintiff the truth being the
defendants are hard up these days and pleaded to the plaintiff to grant them
more time within which to pay their obligation and the plaintiff refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed that this

Honorable Court render judgment granting the defendants until January 31,
1961, within which to pay their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming
that the Answer failed to tender any genuine and material issue. The motion was set for
hearing, but the record is not clear what ruling the lower court made on the said motion.
On November 11, 1960, however, the parties submitted a Stipulation of Facts, wherein
the defendants admitted the indebtedness, the authenticity and due execution of the Real
Estate and Chattel Mortgages; that the indebtedness has been due and unpaid since June
14, 1960; that a liability of 12% per annum as interest was agreed, upon failure to pay the
principal when due and P500.00 as liquidated damages; that the instrument had been
registered in the Registry of Property and Motor Vehicles Office, both of the province of
Tarlac; that the only issue in the case is whether or not the residential house, subject of
the mortgage therein, can be considered a Chattel and the propriety of the attorney's fees.

On February 24, 1961, the lower court held

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and
Ramon Reyes, to pay jointly and severally and within ninety (90) days from the
receipt of the copy of this decision to the plaintiff Conrado P. Navarro the
principal sum of P2,550.00 with 12% compounded interest per annum from
June 14, 1960, until said principal sum and interests are fully paid, plus
P500.00 as liquidated damages and the costs of this suit, with the warning that
in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize
said mortgage debt, interests, liquidated damages and costs, in accordance with
the pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14 of
the Chattel Mortgage Law, Act 1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties
 mentioned in said Annex "A", immediately after the lapse of the ninety (90)
days above-mentioned, in default of such payment.

The above judgment was directly appealed to this Court, the defendants therein assigning
only a single error, allegedly committed by the lower court, to wit

In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant
Rufino G. Pineda was made the subject of the chattel mortgage, for the reason
that it is erected on a land that belongs to a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as
immovable property, makes no distinction whether the owner of the land is or not the
owner of the building; the fact that the land belongs to another is immaterial, it is enough
that the house adheres to the land; that in case of immovables by incorporation, such as
houses, trees, plants, etc; the Code does not require that the attachment or incorporation
be made by the owner of the land, the only criterion being the union or incorporation with
the soil. In other words, it is claimed that "a building is an immovable property,
irrespective of whether or not said structure and the land on which it is adhered to, belong
to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since
only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the
mortgage in question which is the basis of the present action, cannot give rise to an action
for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v.
Adriano Valino, et al., L-10838, May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid
solely on the ground that the house mortgaged was erected on the land which belonged to
a third person, but also and principally on the doctrine of estoppel, in that "the parties
have so expressly agreed" in the mortgage to consider the house as chattel "for its
smallness and mixed materials of sawali and wood". In construing arts. 334 and 335 of
the Spanish Civil Code (corresponding to arts. 415 and 416, N.C.C.), for purposes of the
application of the Chattel Mortgage Law, it was held that under certain conditions, "a
property may have a character different from that imputed to it in said articles. It is
undeniable that the parties to a contract may by agreement, treat as personal property
that which by nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44
Phil. 632-633)."There can not be any question that a building of mixed materials may be
the subject of a chattel mortgage, in which case, it is considered as between the parties as
personal property. ... The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is so agreed by the
parties interested even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in
Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p.
3954.) The view that parties to a deed of chattel mortgagee may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the principles of estoppel ..."
(Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house
built on a rented land, was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part of the land
(Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled that an object placed
on land by one who has only a temporary right to the same, such as a lessee or
usufructuary, does not become immobilized by attachment (Valdez v. Central Altagracia,
222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another person, it may
be mortgaged as a personal property is so stipulated in the document of mortgage.
(Evangelista v. Abad, supra.) It should be noted, however, that the principle is predicated
on statements by the owner declaring his house to be a chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v. C. N.
Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been considered as a
chattel between them, has been recognized, it has been a constant criterion nevertheless
that, with respect to third persons, who are not parties to the contract, and specially in
execution proceedings, the house is considered as an immovable property (Art. 1431,
New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by
the parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino
G. Pineda conveyed by way of "Chattel Mortgage" "my personal properties", a residential
house and a truck. The mortgagor himself grouped the house with the truck, which is,
inherently a movable property. The house which was not even declared for taxation
purposes was small and made of light construction materials: G.I. sheets
roofing, sawali and wooden walls and wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-
10837-38, supra), refer to a building or a house of strong materials, permanently adhered
to the land, belonging to the owner of the house himself. In the case of Lopez v. Orosa,
(L-10817-18), the subject building was a theatre, built of materials worth more than
P62,000, attached permanently to the soil. In these cases and in the Leung Yee
case, supra, third persons assailed the validity of the deed of chattel mortgages; in the
present case, it was one of the parties to the contract of mortgages who assailed its
validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should
be, as it is hereby affirmed, with costs against appellants.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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

CALTEX (PHILIPPINES) INC., petitioner,

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

AQUINO, J.:

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

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

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

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

The controversial underground tank, depository of gasoline or crude

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

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

pump and the gasoline pump is commonly placed or constructed
under the shed. The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the shed, and
evidence that the gasoline underground tank is attached and
connected to the shed or building through the pipe to the pump and
the pump is attached and affixed to the cement pad and pavement
covered by the roof of the building or shed.
 The building or shed, the elevated water tank, the car hoist under a
separate shed, the air compressor, the underground gasoline tank,
neon lights signboard, concrete fence and pavement and the lot where
they are all placed or erected, all of them used in the pursuance of the
gasoline service station business formed the entire gasoline service-
station.

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

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

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

The underground gasoline tank is attached to the shed by the steel

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

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

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

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

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

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's
place) in its resolution of January 12, 1978, denying Caltex's motion for reconsideration,
a copy of which was received by its lawyer on April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside
of the Board's decision and for a declaration that t he said machines and equipment are
personal property not subject to realty tax (p. 16, Rollo).

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

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

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

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

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

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

assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:

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

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

m) Machinery shall embrace machines, mechanical contrivances,

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

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

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

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

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

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

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

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

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

WHEREFORE, the questioned decision and resolution of the Central Board of

Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack of
merit. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,

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

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

CRUZ, J.:

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

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

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

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

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

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

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

xxx xxx xxx

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

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

This petition for certiorari now seeks to reverse the above ruling.

The principal contention of the petitioner is that the tailings dam is not subject to realty
tax because it is not an "improvement" upon the land within the meaning of the Real
Property Tax Code. More particularly, it is claimed

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

(a) that the tailings dam has no value separate

from and independent of the mine; hence, by
itself it cannot be considered an improvement
separately assessable;

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

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

petitioner corporation in the area, the tailings dam
will benefit the local community by serving as an
irrigation facility;
 (d) that the building of the dam has stripped the
property of any commercial value as the property
is submerged under water wastes from the mine;

(e) that the tailings dam is an environmental

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

(f) that the installation and utilization of the

tailings dam as a pollution control device is a
requirement imposed by law;

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

(a) that the subject properties have no market

value as they cannot be sold independently of the
mine;

(b) that the valuation of the tailings dam should

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

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

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

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

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

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

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

(b) that no other mining companies in the

Philippines operating a tailings dam have been
made to declare the dam for realty tax purposes.

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

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

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

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

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

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

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

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States.
This case involved drain tunnels constructed by plaintiff when it expanded its mining
operations downward, resulting in a constantly increasing flow of water in the said mine.
It was held that:
 Whatever value they have is connected with and in fact is an integral
part of the mine itself. Just as much so as any shaft which descends
into the earth or an underground incline, tunnel, or drift would be
which was used in connection with the mine.

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

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

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

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

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

The pipeline system in question is indubitably a construction

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

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

The oil tanks are structures within the statute, that they are designed
and used by the owner as permanent improvement of the free hold,
and that for such reasons they were properly assessed by the
respondent taxing district as improvements. (Standard Oil Co. of
New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property" and simply
says that the realty tax is imposed on "real property, such as lands, buildings, machinery
and other improvements affixed or attached to real property." In the absence of such a
definition, we apply Article 415 of the Civil Code, the pertinent portions of which state:

Art. 415. The following are immovable property.

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Respondent Provincial Assessor explained the use of the "residual value formula" as
follows:

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

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

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

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

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

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

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

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

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

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

DECISION
PANGANIBAN, J.:

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

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

The Case

Before us is a Petition for Review on Certiorari assailing the January 6,

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

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]

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

The undisputed facts are summarized by the Court of Appeals as

follows:[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short)
filed with the RTC-QC a complaint for [a] sum of money (Annex E), with an application
for a writ of replevin docketed as Civil Case No. Q-98-33500.

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued
a writ of replevin (Annex B) directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word that he [would] return for the other
machineries.

On March 25, 1998, petitioners filed a motion for special protective order (Annex C),
invoking the power of the court to control the conduct of its officers and amend and
control its processes, praying for a directive for the sheriff to defer enforcement of the
writ of replevin.

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.
 FIRST DIVISION

[G.R. No. 156295. September 23, 2003]

MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA

GALIT, respondents.

DECISION
YNARES-SANTIAGO, J.:

Petitioner was issued a writ of possession in Civil Case No. 6643 [1] for Sum of
Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of possession
was, however, nullified by the Court of Appeals in CA-G.R. SP No. 65891[2] because it
included a parcel of land which was not among those explicitly enumerated in the
Certificate of Sale issued by the Deputy Sheriff, but on which stand
the immovables covered by the said Certificate. Petitioner contends that the sale of
these immovables necessarily encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the
total sum of P480,000.00, evidenced by four promissory notes in the amount of
P120,000.00 each dated August 2, 1996;[3] August 15, 1996;[4] September 4,
1996[5] and September 14, 1996.[6] This loan was secured by a real estate mortgage over a
parcel of land covered by Original Certificate of Title No. 569.[7] After he failed to pay his
obligation, Soriano filed a complaint for sum of money against him with
the Regional Trial Court of Balanga City, Branch 1, which was docketed as Civil Case No.
6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their answer.
Hence, upon motion of Marcelo Soriano, the trial court declared the spouses in default and
proceeded to receive evidence for petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered
judgment[9] in favor of petitioner Soriano, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter to pay:

1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed

from the dates of maturity of the promissory notes until the same are
fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and

3. the costs of suit.

SO ORDERED.[10]

The judgment became final and executory. Accordingly, the trial court issued a writ
of execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles levied on
the following real properties of the Galit spouses:

1. A parcel of land covered by Original Certificate of Title No. T-569

(Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by Lot
No. 3, Cad. 145; containing an area of THIRTY FIVE THOUSAND
SEVEN HUNDRED FIFTY NINE (35,759) SQUARE METERS,
more or less x x x;

2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong

materials G.I. roofing situated at Centro I, Orani, Bataan,
x x x containing an area of 30 sq. meters, more or less
x x x(constructed on TCT No. T40785);

3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing,

situated in Centro I, Orani, Bataan, x x x with a floor area of 42.75
sq. m. more or less x x x.[11]

At the sale of the above-enumerated properties at public auction held on December

23, 1998, petitioner was the highest and only bidder with a bid price of
P483,000.00. Accordingly, on February 4, 1999, Deputy Sheriff Robles issued a
Certificate of Sale of Execution of Real Property, [12] which reads:

CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY

TO ALL WHO MAY SEE THESE PRESENTS:

GREETINGS:

I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued in
the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the Provincial
Sheriff of Bataan or her authorized Deputy Sheriff to cause to be made (sic) the sum of
P350,000.00 plus 12% interest to be computed from the date of maturity of the
promissory notes until the same are fully paid; P20,000.00 as attorneys fees plus legal
expenses in the implementation of the writ of execution, the undersigned Deputy Sheriff
sold at public auction on December 23, 1998 the rights and interests of defendants Sps.
Ricardo and Rosalina Galit, to the plaintiff Marcelo Soriano, the highest and only bidder
for the amount of FOUR HNDRED EIGHTY THREE THOUSAND PESOS
(P483,000.00, Philippine Currency), the following real estate properties more particularly
described as follows :

ORIGINAL CERTIFICATE OF TITLE NO. T-569

A parcel of land (Homestead Patent No. 14692) situated in the Bo.

of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No. 3, Cad.
145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY
NINE (35,759) SQUARE METERS, more or less x x x

TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02

STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing situated
at Centro I, Orani, Bataan x x x containing an area of 30 sq. meters, more or less
x x (constructed on TCT No. 40785)

TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02

BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in
Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x

IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,

Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff of Bataan the
amount of P483,000.00, the sale price of the above-described property which amount was
credited to partial/full satisfaction of the judgment embodied in the writ of execution.

The period of redemption of the above described real properties together with all the
improvements thereon will expire One (1) year from and after the registration of this
Certificate of Sale with the Register of Deeds.

This Certificate of Sheriffs Sale is issued to the highest and lone bidder, Marcelo Soriano,
under guarantees prescribed by law.

Balanga, Bataan, February 4, 1999.

On April 23, 1999, petitioner caused the registration of the Certificate of Sale on
Execution of Real Property with the Registry of Deeds.
The said Certificate of Sale registered with the Register of Deeds includes at the
dorsal portion thereof the following entry, not found in the Certificate of Sale on file with
Deputy Sheriff Renato E. Robles:[13]
 ORIGINAL CERTIFICATE OF TITLE NO. T-40785

A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the improvements
thereon, situated in the Municipality of Orani, Bounded on the NE; by Calle P. Gomez;
on the E. by Lot No. 1104; on the SE by Calle Washington; and on the W. by Lot 4102,
containing an area of ONE HUNDRED THIRTY NINE (139) SQUARE METERS, more
or less. All points referred to are indicated on the plan; bearing true; declination 0 deg.
40E., date of survey, February 191-March 1920.

On February 23, 2001, ten months from the time the Certificate of Sale on Execution
was registered with the Registry of Deeds, petitioner moved[14] for the issuance of a writ of
possession. He averred that the one-year period of redemption had elapsed without the
respondents having redeemed the properties sold at public auction; thus, the sale of said
properties had already become final. He also argued that after the lapse of the redemption
period, the titles to the properties should be considered, for all legal intents and purposes,
in his name and favor.[15]
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the
motion for issuance of writ of possession.[16] Subsequently, on July 18, 2001, a writ of
possession[17]was issued in petitioners favor which reads:

WRIT OF POSSESSION

Mr. Renato E. Robles

Deputy Sheriff
RTC, Br. 1, Balanga City

Greetings :

WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance
of Writ of Possession;

WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Writ
of Possession;

WHEREFORE, you are hereby commanded to place the herein plaintiff

Marcelo Soriano in possession of the property involved in this case situated (sic) more
particularly described as:

1. STORE HOUSE constructed on Lot No. 1103 situated at Centro

1, Orani, Bataan covered by TCT No. 40785;

2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square

meters under Tax Declaration No. 86 situated at Centro
1, Orani, Bataan;
 3. Original Certificate of Title No. 40785 with an area of 134 square meters
known as Lot No. 1103 of the Cadastral Survey of Orani

against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic)
heirs, successors, assigns and all persons claiming rights and interests adverse to the
petitioner and make a return of this writ every thirty (30) days from receipt hereof
together with all the proceedings thereon until the same has been fully satisfied.

WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this

18th day of July 2001, at Balanga City.

Sgd) GILBERT S. ARGONZA

IC
Respondents filed a petition for certiorari with the Court of Appeals, which was
docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel of land covered
by Transfer Certificate of Title No. T-40785 among the list of real properties in the writ of
possession.[18] Respondents argued that said property was not among those sold on
execution by Deputy Sheriff Renato E. Robles as reflected in the Certificate of Sale on
Execution of Real Property.
In opposition, petitioner prayed for the dismissal of the petition because respondent
spouses failed to move for the reconsideration of the assailed order prior to the filing of the
petition.Moreover, the proper remedy against the assailed order of the trial court is an
appeal, or a motion to quash the writ of possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of

possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18 July
2001 is declared NULL and VOID.

In the event that the questioned writ of possession has already been implemented, the
Deputy Sheriff of the Regional Trial Court of Balanga City, Branch 1, and private
respondent Marcelo Soriano are hereby ordered to cause the redelivery of Transfer
Certificate of Title No. T-40785 to the petitioners.

SO ORDERED.[19]

Aggrieved, petitioner now comes to this Court maintaining that

1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65

IS NOT THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF
THE RESPONDENTS IN ASSAILING THE WRIT OF
 POSSESSION ISSUED BY THE LOWER COURT BUT THERE
WERE STILL OTHER REMEDIES AVAILABLE TO THEM AND
WHICH WERE NOT RESORTED TO LIKE THE FILING OF A
MOTION FOR RECONSIDERATION OR MOTION TO QUASH
OR EVEN APPEAL.

2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DECLARAING THE CERTIFICATE OF SALE ON EXECUTION
OF REAL PROPERTY AS NULL AND VOID AND
SUBSEQUENTLY THE WRIT OF POSSESSION BECAUSE THE
SAME IS A PUBLIC DOCUMENT WHICH ENJOYS THE
PRESUMPTION OF REGULARITY AND IT CANNOT BE
OVERCOME BY A MERE STRANGE FEELING THAT
SOMETHING IS AMISS ON ITS SURFACE SIMPLY BECAUSE
THE TYPEWRITTEN WORDS ON THE FRONT PAGE AND AT
THE DORSAL PORTION THEREOF IS DIFFERENT OR THAT
IT IS UNLIKELY FOR THE SHERIFF TO USE THE DORSAL
PORTION OF THE FIRST PAGE BECAUSE THE SECOND
PAGE IS MERELY HALF FILLED AND THE NOTATION ON
THE DORSAL PORTION COULD STILL BE MADE AT THE
SECOND PAGE.

On the first ground, petitioner contends that respondents were not without remedy
before the trial court. He points out that respondents could have filed a motion for
reconsideration of the Order dated June 4, 1999, but they did not do so. Respondents could
also have filed an appeal but they, likewise, did not do so. When the writ of possession was
issued, respondents could have filed a motion to quash the writ. Again they did
not. Respondents cannot now avail of the special civil action for certiorari as a substitute
for these remedies. They should suffer the consequences for sleeping on their rights.
We disagree.
Concededly, those who seek to avail of the procedural remedies provided by the rules
must adhere to the requirements thereof, failing which the right to do so is lost. It is,
however, equally settled that the Rules of Court seek to eliminate undue reliance on
technical rules and to make litigation as inexpensive as practicable and as convenient as
can be done.[20] This is in accordance with the primary purpose of the 1997 Rules of Civil
Procedure as provided in Rule 1, Section 6, which reads:

Section 6. Construction. These rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive determination of every action and
proceeding.[21]

The rules of procedure are not to be applied in a very rigid, technical sense and are
used only to help secure substantial justice. If a technical and rigid enforcement of the rules
is made, their aim would be defeated.[22] They should be liberally construed so that litigants
can have ample opportunity to prove their claims and thus prevent a denial of justice due
to technicalities.[23] Thus, in China Banking Corporation v. Members of the Board of
Trustees of Home Development Mutual Fund,[24] it was held:

while certiorari as a remedy may not be used as a substitute for an appeal, especially for a
lost appeal, this rule should not be strictly enforced if the petition is genuinely
meritorious.[25] It has been said that where the rigid application of the rules would
frustrate substantial justice, or bar the vindication of a legitimate grievance, the courts
are justified in exempting a particular case from the operation of the
rules.[26] (Emphasis ours)

Indeed, well-known is the rule that departures from procedure may be forgiven where
they do not appear to have impaired the substantial rights of the parties.[27] Apropos in this
regard is Cometa v. CA,[28] where we said that

There is no question that petitioners were remiss in attending with dispatch to the
protection of their interests as regards the subject lots, and for that reason the case in the
lower court was dismissed on a technicality and no definitive pronouncement on the
inadequacy of the price paid for the levied properties was ever made. In this regard, it
bears stressing that procedural rules are not to be belittled or dismissed simply because
their non-observance may have resulted in prejudice to a partys substantive rights as in
this case. Like all rules, they are required to be followed except when only for the most
persuasive of reasons they may be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness in not complying with the
procedure prescribed.[29] (emphasis and italics supplied.)

In short, since rules of procedure are mere tools designed to facilitate the attainment
of justice, their strict and rigid application which would result in technicalities that tend to
frustrate rather than promote substantial justice must always be avoided.[30] Technicality
should not be allowed to stand in the way of equitably and completely resolving the rights
and obligations of the parties.[31]
Eschewing, therefore, the procedural objections raised by petitioner, it behooves us
to address the issue of whether or not the questioned writ of possession is in fact a nullity
considering that it includes real property not expressly mentioned in the Certificate of Sale
of Real Property.
Petitioner, in sum, dwells on the general proposition that since the certificate of sale
is a public document, it enjoys the presumption of regularity and all entries therein are
presumed to be done in the performance of regular functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of Real
Properties issued on February 4, 1999 involved, namely: (a) copy which is on file with the
deputy sheriff; and (b) copy registered with the Registry of Deeds. The object of scrutiny,
however, is not the copy of the Certificate of Sale on Execution of Real Properties issued
by the deputy sheriff on February 4, 1999,[32] but the copy thereof subsequently registered
by petitioner with the Registry of Deeds on April 23, 1999, [33] which included an entry on
the dorsal portion of the first pagethereof describing a parcel of land covered by OCT No.
T-40785 not found in the Certificate of Sale of Real Properties on file with the sheriff.
True, public documents by themselves may be adequate to establish the presumption
of their validity. However, their probative weight must be evaluated not in isolation but in
conjunction with other evidence adduced by the parties in the controversy, much more so
in this case where the contents of a copy thereof subsequently registered for documentation
purposes is being contested. No reason has been offered how and why the questioned entry
was subsequently intercalated in the copy of the certificate of sale subsequently registered
with the Registry of Deeds. Absent any satisfactory explanation as to why said entry was
belatedly inserted, the surreptitiousness of its inclusion coupled with the furtive manner of
its intercalation casts serious doubt on the authenticity of petitioners copy of the Certificate
of Sale. Thus, it has been held that while a public document like a notarized deed of sale is
vested with the presumption of regularity, this is not a guarantee of the validity of its
contents.[34]
It must be pointed out in this regard that the issuance of a Certificate of Sale is an
end result of judicial foreclosure where statutory requirements are strictly adhered to;
where even the slightest deviations therefrom will invalidate the proceeding[35] and the
sale.[36] Among these requirements is an explicit enumeration and correct description of
what properties are to be sold stated in the notice. The stringence in the observance of these
requirements is such that an incorrect title number together with a correct technical
description of the property to be sold and vice versa is deemed a substantial and fatal error
which results in the invalidation of the sale.[37]
The certificate of sale is an accurate record of what properties were actually sold to
satisfy the debt. The strictness in the observance of accuracy and correctness in the
description of the properties renders the enumeration in the certificate exclusive. Thus,
subsequently including properties which have not been explicitly mentioned therein for
registration purposes under suspicious circumstances smacks of fraud. The explanation that
the land on which the properties sold is necessarily included and, hence, was belatedly
typed on the dorsal portion of the copy of the certificate subsequently registered is at best
a lame excuse unworthy of belief.
The appellate court correctly observed that there was a marked difference in the
appearance of the typewritten words appearing on the first page of the copy of the
Certificate of Sale registered with the Registry of Deeds[38] and those appearing at the
dorsal portion thereof. Underscoring the irregularity of the intercalation is the clearly
devious attempt to let such an insertion pass unnoticed by typing the same at the back of
the first page instead of on the second page which was merely half-filled and could
accommodate the entry with room to spare.
The argument that the land on which the buildings levied upon in execution is
necessarily included is, likewise, tenuous. Article 415 of the Civil Code provides:

ART. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
 xxxxxxxxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking them material or deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a manner that it reveals the
intention to attach them permanently to the tenements;

(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;

(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention to have
them permanently attached to the land, and forming a permanent part of it; the animals in
these places are also included;

xxxxxxxxx

(9) Docks and structures which, though floating, are intended by their nature and object
to remain at a fixed place on a river, lake or coast;

x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and
buildings separately. This can only mean that a building is, by itself, considered
immovable.[39] Thus, it has been held that

. . . while it is true that a mortgage of land necessarily includes, in the absence of

stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such mortgage would be still
a real estate mortgage for the building would still be considered immovable property
even if dealt with separately and apart from the land.[40] (emphasis and italics supplied)

In this case, considering that what was sold by virtue of the writ of execution issued
by the trial court was merely the storehouse and bodega constructed on the parcel of land
covered by Transfer Certificate of Title No. T-40785, which by themselves are real
properties of respondents spouses, the same should be regarded as separate and distinct
from the conveyance of the lot on which they stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack
of merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-G.R. SP No.
65891, which declared the writ of possession issued by
the Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and void, is
AFFIRMED in toto.
SO ORDERED.
 SPECIAL FIRST DIVISION

[G.R. No. 124293. September 24, 2003]

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS,

COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST and PHILYARDS
HOLDINGS, INC., respondents.

RESOLUTION
PUNO, J.:

The core issue posed by the Motions for Reconsideration is whether a shipyard is a
public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our
resolution of this issue will determine the fate of the shipbuilding and ship repair industry.
It can either spell the industrys demise or breathe new life to the struggling but potentially
healthy partner in the countrys bid for economic growth. It can either kill an initiative yet
in its infancy, or harness creativity in the productive disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation
(NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently
became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the
JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively.[1] One of its salient features is the
grant to the parties of the right of first refusal should either of them decide to sell, assign
or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right of
first refusal. This provision shall not apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI affiliate.[2]

On November 25, 1986, NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently
transferred to the National Government pursuant to Administrative Order No. 14. On
December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing
the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of the
National Government. Thereafter, on February 27, 1987, a trust agreement was entered
into between the National Government and the APT wherein the latter was named the
trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National
Governments shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%.[3]
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private entities.
After a series of negotiations between the APT and KAWASAKI, they agreed that the
latters right of first refusal under the JVA be exchanged for the right to top by five percent
(5%) the highest bid for the said shares. They further agreed that KAWASAKI would be
entitled to name a company in which it was a stockholder, which could exercise the right
to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc.
(PHI) would exercise its right to top.[4]
At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific
Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in
PHILSECO.[5] The provisions of the ASBR were explained to the interested bidders who
were notified that the bidding would be held on December 2, 1993. A portion of the ASBR
reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Governments equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECOs outstanding capital stock), which will be sold as a
whole block in accordance with the rules herein enumerated.

...

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the
APT Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price
set for the National Governments 87.67% equity in PHILSECO is PESOS: ONE
BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

...

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its
regular meeting following the bidding, for the purpose of determining whether or not it
should be endorsed by the APT Board of Trustees to the COP, and the latter approves the
same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
Philyards Holdings, Inc., that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period
of thirty (30) calendar days from the date of receipt of such advice from APT within
which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the
highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their
Option to Top the Highest Bid, they shall so notify the APT about such exercise of their
option and deposit with APT the amount equivalent to ten percent (10%) of the highest
bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they shall have
a period of ninety (90) days from the receipt of the APTs notice within which to pay the
balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to
exercise their Option to Top the Highest Bid within the thirty (30)-day period, APT will
declare the highest bidder as the winning bidder.

...

12.0 The bidder shall be solely responsible for examining with appropriate care these
rules, the official bid forms, including any addenda or amendments thereto issued during
the bidding period. The bidder shall likewise be responsible for informing itself with
respect to any and all conditions concerning the PHILSECO Shares which may, in any
manner, affect the bidders proposal. Failure on the part of the bidder to so examine and
inform itself shall be its sole risk and no relief for error or omission will be given by APT
or COP. . ..[6]

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days
to act on APTs recommendation based on the result of this bidding. Should the COP
approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then
have a period of thirty (30) calendar days from the date of receipt of such advice from
APT within which to exercise their Option to Top the Highest Bid by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.[7]
 As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 subject to the right of Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules.[8]
On December 29, 1993, petitioner informed APT that it was protesting the offer of
PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the losing bidders thereby circumventing
the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the
right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a
third party; (d) no right of first refusal can be exercised in a public bidding or auction sale;
and (e) the JG Summit consortium was not estopped from questioning the proceedings.[9]
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of
the purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner
that PHI had exercised its option to top the highest bid and that the COP had approved the
same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement.[10] Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the
Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit.
It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was exercised
by KAWASAKI/PHI, and that the matter must be brought by the proper party in the proper
forum at the proper time and threshed out in a full blown trial. The Court of Appeals further
ruled that the right of first refusal and the right to top are prima facie legal and that the
petitioner, by participating in the public bidding, with full knowledge of the right to top
granted to KASAWASAKI/Philyards is . . .estopped from questioning the validity of the
award given to Philyards after the latter exercised the right to top and had paid in full the
purchase price of the subject shares, pursuant to the ASBR. Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus
filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part
of the appellate court.[11]
On November 20, 2000, this Court rendered the now assailed Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the sole ground of
the impropriety of the special civil action of mandamus because the petition was also one
of certiorari.[12] It further ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned.[13] Consequently, the right to
top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for
the sale of the 87.67% equity of the National Government in PHILSECO is illegal---not
only because it violates the rules on competitive bidding--- but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard. [14] It also held that
although the petitioner had the opportunity to examine the ASBR before it participated in
the bidding, it cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof.[15] Thus, this Court voided the transfer of the national
governments 87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right
of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this Decision.
In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks

representing 87.6% of PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.[16]

In separate Motions for Reconsideration,[17] respondents submit three basic issues for
our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977
JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total
capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI
violates the principles of competitive bidding.

I.
Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that
PHILSECO is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying the public
with some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service.[18] To constitute a public utility, the facility
must be necessary for the maintenance of life and occupation of the residents. However,
the fact that a business offers services or goods that promote public good and serve the
interest of the public does not automatically make it a public utility. Public use is not
synonymous with public interest. As its name indicates, the term public utility
implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an indefinite
public or portion of the public as such which has a legal right to demand and receive its
services or commodities. Stated otherwise, the owner or person in control of a public utility
must have devoted it to such use that the public generally or that part of the public which
has been served and has accepted the service, has the right to demand that use or service
so long as it is continued, with reasonable efficiency and under proper charges. [19] Unlike
a private enterprise which independently determines whom it will serve, a public utility
holds out generally and may not refuse legitimate demand for service. [20] Thus, in Iloilo
Ice and Cold Storage Co. vs. Public Utility Board, [21] this Court defined public use, viz:

Public use means the same as use by the public. The essential feature of the public use is
that it is not confined to privileged individuals, but is open to the indefinite public. It is
this indefinite or unrestricted quality that gives it its public character. In determining
whether a use is public, we must look not only to the character of the business to be done,
but also to the proposed mode of doing it. If the use is merely optional with the owners,
or the public benefit is merely incidental, it is not a public use, authorizing the exercise of
jurisdiction of the public utility commission. There must be, in general, a right which the
law compels the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with public
interest. The true criterion by which to judge the character of the use is whether the
public may enjoy it by right or only by permission. [22] (emphasis supplied)

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired.[23] Its nature
dictates that it serves but a limited clientele whom it may choose to serve at its discretion.
While it offers its facilities to whoever may wish to avail of its services, a shipyard is not
legally obliged to render its services indiscriminately to the public. It has no legal
obligation to render the services sought by each and every client. The fact that it publicly
offers its services does not give the public a legal right to demand that such services be
rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued
with public interest as it involves the maintenance of the seaworthiness of vessels dedicated
to the transportation of either persons or goods. Nevertheless, the fact that a business is
affected with public interest does not imply that it is under a duty to serve the public. While
the business may be regulated for public good, the regulation cannot justify the
classification of a purely private enterprise as a public utility. The legislature cannot, by its
mere declaration, make something a public utility which is not in fact such; and a private
business operated under private contracts with selected customers and not devoted to
public use cannot, by legislative fiat or by order of a public service commission, be
declared a public utility, since that would be taking private property for public use
without just compensation, which cannot be done consistently with the due process
clause.[24]
 It is worthy to note that automobile and aircraft manufacturers, which are of similar
nature to shipyards, are not considered public utilities despite the fact that their operations
greatly impact on land and air transportation. The reason is simple. Unlike commodities or
services traditionally regarded as public utilities such as electricity, gas, water,
transportation, telephone or telegraph service, automobile and aircraft manufacturing---and
for that matter ship building and ship repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the
intent of any law. The succession of laws affecting the status of shipyards ought not to
obliterate, but rather, give us full picture of the intent of the legislature. The totality of the
circumstances, including the contemporaneous interpretation accorded by the
administrative bodies tasked with the enforcement of the law all lead to a singular
conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission
(PUC) until its repeal by Commonwealth Act No. 146, establishing the Public Service
Commission (PSC), a shipyard, by legislative declaration, has been considered a public
utility.[25] A Certificate of Public Convenience (CPC) from the PSC to the effect that the
operation of the said service and the authorization to do business will promote the public
interests in a proper and suitable manner is required before any person or corporation may
operate a shipyard.[26] In addition, such persons or corporations should abide by the
citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution, [27] viz:

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
other entities organized under the laws of the Philippines, sixty per centum of the capital
of which is owned by citizens of the Philippines, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm or corporation, except under the
condition that it shall be subject to amendment, alteration, or repeal by the National
Assembly when the public interest so requires. (emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry, former

President Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:

SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime
Industry Authority shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery, equipment
and materials for shipbuilding, ship repair and/or alteration, including indirect import, as
well as replacement and spare parts for the repair and overhaul of vessels such as steel
plates, electrical machinery and electronic parts, shall be exempt from the payment of
customs duty and compensating tax: Provided, however, That the Maritime Industry
Authority certifies that the item or items imported are not produced locally in sufficient
quantity and acceptable quality at reasonable prices, and that the importation is directly
and actually needed and will be used exclusively for the construction, repair, alteration,
or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the
above machinery, equipment, materials and spare parts are sold to non-tax exempt
persons or entities, the corresponding duties and taxes shall be paid by the original
importer; Provided, finally, That local dealers and/or agents who sell machinery,
equipment, materials and accessories to shipyards for shipbuilding and ship repair are
entitled to tax credits, subject to approval by the total tariff duties and compensating tax
paid for said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the
shipbuilder and ship repairer, be depreciated for any number of years between five years
and expected economic life.

(c) Exemption from contractors percentage tax.- The gross receipts derived by
shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be
exempt from the Contractors Tax provided in Section 91 of the National Internal
Revenue Code during the first ten years from registration with the Maritime Industry
Authority, provided that such registration is effected not later than the year 1990;
Provided, That any and all amounts which would otherwise have been paid as contractors
tax shall be set aside as a separate fund, to be known as Shipyard Development Fund, by
the contractor for the purpose of expansion, modernization and/or improvement of the
contractors own shipbuilding or ship repairing facilities; Provided, That, for this purpose,
the contractor shall submit an annual statement of its receipts to the Maritime Industry
Authority; and Provided, further, That any disbursement from such fund for any of the
purposes hereinabove stated shall be subject to approval by the Maritime Industry
Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the
list of public utilities, thereby freeing the industry from the 60% citizenship requirement
under the Constitution and from the need to obtain Certificate of Public Convenience
pursuant to section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.- The business of constructing and
repairing vessels or parts thereof shall not be considered a public utility and no
Certificate of Public Convenience shall be required therefor. However, no shipyard,
graving dock, marine railway or marine repair shop and no person or enterprise shall
engage in construction and/or repair of any vessel, or any phase or part thereof, without a
valid Certificate of Registration and license for this purpose from the Maritime Industry
Authority, except those owned or operated by the Armed Forces of the Philippines or by
foreign governments pursuant to a treaty or agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No.
666 were repealed or modified accordingly.[28] Consequently, sections 13 (b) and 15 of
C.A. No. 146 were repealed in so far as the former law included shipyards in the list of
public utilities and required the certificate of public convenience for their operation. Simply
stated, the repeal was due to irreconcilable inconsistency, and by definition, this kind of
repeal falls under the category of an implied repeal.[29]
 On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive
Policy Act of 1983, was enacted. It laid down the general policy of the government to
encourage private domestic and foreign investments in the various sectors of the economy,
to wit:

Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private
domestic and foreign investments in industry, agriculture, mining and other sectors of the
economy which shall: provide significant employment opportunities relative to the
amount of the capital being invested; increase productivity of the land, minerals, forestry,
aquatic and other resources of the country, and improve utilization of the products
thereof; improve technical skills of the people employed in the enterprise; provide a
foundation for the future development of the economy; accelerate development of less
developed regions of the country; and result in increased volume and value of exports for
the economy.

It is the policy of the State to extend to projects which will significantly contribute to the
attainment of these objectives, fiscal incentives without which said projects may not be
established in the locales, number and/or pace required for optimum national economic
development. Fiscal incentive systems shall be devised to compensate for market
imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial
operations of the enterprise, and shall terminate after a period of not more than 10 years
from registration or start-up of operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in
particular will supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the
following laws, viz:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
 5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30,
39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended
only with respect to domestic and export producers.

All other laws, decrees, executive orders, administrative orders, rules and regulations or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed,
amended or modified accordingly.

All other incentive systems which are not in any way affected by the provisions of this
Act may be restructured by the President so as to render them cost-efficient and to make
them conform with the other policy guidelines in the declaration of policy provided in
Section 2 of this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section
1 was expressly and categorically repealed. As a consequence, the provisions of C.A. No.
146, which were impliedly repealed by P.D. No. 666, section 1 were revived.[30] In other
words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its
status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas
Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon C.
Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not
revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence
of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of
C.A. No. 146, as originally written, owed their continued existence to Batas Pambansa Blg.
391. Had the latter not repealed P.D. No. 666, the former should have been modified
accordingly and shipyards effectively removed from the list of public utilities. Ergo, with
the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13
(b) and 15 of C.A. No. 146 had no more leg to stand on. A law that has been expressly
repealed ceases to exist and becomes inoperative from the moment the repealing law
becomes effective.[31] Hence, there is simply no basis in the conclusion that shipyards
remain to be a public utility. A repealed statute cannot be the basis for classifying shipyards
as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard
is not a pubic utility. A shipyard has been considered a public utility merely by legislative
declaration. Absent this declaration, there is no more reason why it should continuously be
regarded as such. The fact that the legislature did not clearly and unambiguously express
its intention to include shipyards in the list of public utilities indicates that that it did not
intend to do so. Thus, a shipyard reverts back to its status as non-public utility prior to the
enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the
Board of Investments (BOI), which was entrusted by the legislature with the preparation
of annual Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards
as part of the manufacturing sector and not of the public utilities sector. The enactment of
Batas Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been,
as at present, classified as part of the manufacturing and not of the public utilities sector. [32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered
with the MARINA,[33] none appears to have an existing franchise. If we continue to hold
that a shipyard is a pubic utility, it is a necessary consequence that all these entities should
have obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But
MARINA remains without authority, pursuant to P.D. No. 474[34] to issue franchises for
the operation of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard
as a public utility without giving MARINA the power to issue a Certificate of Public
Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as
required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing
that prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall
thereafter increase their subscription in Philseco as may be necessary and as called by the
Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI
respectively, up to a total subscribed and paid-up capital stock of P312 million.

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[renamed PHILSECO] to any third party without giving the other under the same terms
the right of first refusal. This provision shall not apply if the transferee is a corporation
owned and controlled by the GOVERMENT [of the Philippines] or by a Kawasaki
affiliate.

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to
unissued shares of SNS [PHILSECO].[35]

Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to time
until the total subscribed and paid-up capital reaches P312 million. The phrase maintaining
a proportion of 60%-40% refers to their respective share of the burden each time the Board
of Directors decides to increase the subscription to reach the target paid-up capital of P312
million. It does not bind the parties to maintain the sharing scheme all throughout the
existence of their partnership.
 The parties likewise agreed to arm themselves with protective mechanisms to
preserve their respective interests in the partnership in the event that (a) one party decides
to sell its shares to third parties; and (b) new Philseco shares are issued. Anent the first
situation, the non-selling party is given the right of first refusal under section 1.4 to have
a preferential right to buy or to refuse the selling partys shares. The right of first refusal is
meant to protect the original or remaining joint venturer(s) or shareholder(s) from the entry
of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The
joint venture between the Philippine Government and KAWASAKI is in the nature of a
partnership[36] which, unlike an ordinary corporation, is based on delectus personae.[37] No
one can become a member of the partnership association without the consent of all the
other associates. The right of first refusal thus ensures that the parties are given control
over who may become a new partner in substitution of or in addition to the original
partners. Should the selling partner decide to dispose all its shares, the non-selling partner
may acquire all these shares and terminate the partnership. No person or corporation can
be compelled to remain or to continue the partnership. Of course, this presupposes that
there are no other restrictions in the maximum allowable share that the non-selling partner
may acquire such as the constitutional restriction on foreign ownership in public
utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs
shares is correct only if a shipyard is a public utility. In such instance, the non-selling
partner who is an alien can acquire only a maximum of 40% of the total capitalization of a
public utility despite the grant of first refusal. The partners cannot, by mere agreement,
avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public
utility and no other restriction is present that would limit the right of KAWASAKI to
purchase the Governments share to 40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares
only to the extent of its original proportionate contribution of 40% to the total capitalization
of the PHILSECO. Taken together with the whole of section 1.4, the phrase under the
same terms means that a partner to the joint venture that decides to sell its shares to
a third party shall make a similar offer to the non-selling partner. The selling partner
cannot make a different or a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the
terms of the conditions attendant to the sale for it to have a guided choice. While the right
of first refusal protects the non-selling partner from the entry of third persons, it cannot
also deprive the other partner the right to sell its shares to third persons if, under the same
offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not
contemplate transfer of a partners shares to third parties but the issuance of new Philseco
shares. The grant of preemptive rights preserves the proportionate shares of the original
partners so as not to dilute their respective interests with the issuance of the new shares.
Unlike the right of first refusal, a preemptive right gives a partner a preferential right over
the newly issued shares only to the extent that it retains its original proportionate share in
the joint venture.
 The case at bar does not concern the issuance of new shares but the transfer of a
partners share in the joint venture. Verily, the operative protective mechanism is the right
of first refusal which does not impose any limitation in the maximum shares that the non-
selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation
to prospective contractors whereby the government manifests its intention to make
proposals for the purpose of supplies, materials and equipment for official business or
public use, or for public works or repair.[38] The three principles of public bidding are: (1)
the offer to the public; (2) an opportunity for competition; and (3) a basis for comparison
of bids.[39] As long as these three principles are complied with, the public bidding can be
considered valid and legal. It is not necessary that the highest bid be automatically
accepted. The bidding rules may specify other conditions or the bidding process be
subjected to certain reservation or qualification such as when the owner reserves to himself
openly at the time of the sale the right to bid upon the property, or openly announces a
price below which the property will not be sold. Hence, where the seller reserves the right
to refuse to accept any bid made, a binding sale is not consummated between the seller and
the bidder until the seller accepts the bid. Furthermore, where a right is reserved in the
seller to reject any and all bids received, the owner may exercise the right even after the
auctioneer has accepted a bid, and this applies to the auction of public as well as private
property. [40] Thus:

It is a settled rule that where the invitation to bid contains a reservation for the
Government to reject any or all bids, the lowest or the highest bidder, as the case may be,
is not entitled to an award as a matter of right for it does not become a ministerial duty of
the Government to make such an award. Thus, it has been held that where the right to
reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere
technicality, that all bids may be rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound discretion, the award may be made to another
than the lowest bidder. And so, where the Government as advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to
complain nor right to dispute that choice, unless an unfairness or injustice is shown.
Accordingly, he has no ground of action to compel the Government to award the contract
in his favor, nor compel it to accept his bid.[41]

In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were laid
down. All bids were accepted sealed and were opened and read in the presence of the COAs
official representative and before all interested bidders. The only question that remains is
whether or not the existence of KAWASAKIs right to top destroys the essence of
competitive bidding so as to say that the bidders did not have an opportunity for
competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal
footing. This means that all qualified bidders have an equal chance of winning the auction
through their bids. In the case at bar, all of the bidders were exposed to the same risk and
were subjected to the same condition, i.e., the existence of KAWASAKIs right to top.
Under the ASBR, the Government expressly reserved the right to reject any or all bids, and
manifested its intention not to accept the highest bid should KAWASAKI decide to
exercise its right to top under the ABSR. This reservation or qualification was made known
to the bidders in a pre-bidding conference held on September 28, 1993. They all expressly
accepted this condition in writing without any qualification. Furthermore, when the
Committee on Privatization notified petitioner of the approval of the sale of the National
Government shares of stock in PHILSECO, it specifically stated that such approval was
subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top
JGSMIs bid by 5% as specified in the bidding rules. Clearly, the approval of the sale was
a conditional one. Since Philyards eventually exercised its right to top petitioners bid by
5%, the sale was not consummated. Parenthetically, it cannot be argued that the existence
of the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc.
failed or refused to exercise its right to top, the sale between the petitioner and the National
Government would have been consummated. In like manner, the existence of the right to
top cannot be likened to a second bidding, which is countenanced, except when there is
failure to bid as when there is only one bidder or none at all. A prohibited second bidding
presupposes that based on the terms and conditions of the sale, there is already a highest
bidder with the right to demand that the seller accept its bid. In the instant case, the highest
bidder was well aware that the acceptance of its bid was conditioned upon the non-exercise
of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs
nominee to exercise the right to top has among its stockholders some losing bidders cannot
also be deemed unfair.
It must be emphasized that none of the parties questions the existence of
KAWASAKIs right of first refusal, which is concededly the basis for the grant of the right
to top. Under KAWASAKIs right of first refusal, the National Government is under the
obligation to give preferential right to KAWASAKI in the event it decides to sell its shares
in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to buy or
refuse under the same terms for which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the
incidents of which are governed by the law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after
a public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices
are eliminated or minimized.[42] But the requirement for public bidding does not negate the
exercise of the right of first refusal. In fact, public bidding is an essential first step in the
exercise of the right of first refusal because it is only after the public bidding that the terms
upon which the Government may be said to be willing to sell its shares to third parties may
be known. It is only after the public bidding that the Government will have a basis with
which to offer KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the
right to top, KAWASAKI would have been able to buy the National Governments shares
in PHILSECO under the same terms as offered by the highest bidder. Stated otherwise,
by exercising its right of first refusal, KAWASAKI could have bought the shares for
only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in
the submission that the right to top unfairly favored KAWASAKI. In fact, with the right to
top, KAWASAKI stands to pay higher than it should had it settled with its right of first
refusal. The obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with
the right to top is that KAWASAKI can name a nominee, which it is a shareholder, to
exercise the right to top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal consequences of its exercise.
As aforesaid, all bidders were aware of the existence of the right to top, and its possible
effects on the result of the public bidding was fully disclosed to them. The petitioner, thus,
cannot feign ignorance nor can it be allowed to repudiate its acts and question the
proceedings it had fully adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to
raise P2.131 billion necessary in exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised) or
KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase
price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a
free enterprise system. The appellate court is thus correct in holding the petitioner estopped
from questioning the validity of the transfer of the National Governments shares in
PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was
illegal because no prior approval was given by the COA for it, specifically the provision
on the right to top the highest bidder and that the public auction on December 2, 1993 was
not witnessed by a COA representative. No evidence was proffered to prove these
allegations and the Court cannot make legal conclusions out of mere allegations. Regularity
in the performance of official duties is presumed[44] and in the absence of competent
evidence to rebut this presumption, this Court is duty bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby
GRANTED. The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.