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The court eventually concluded that both parties had rights to the
Background Edit ball and neither could be deprived of it lawfully, and the best
solution was an equitable division. The two of them would sell the
ball and split the proceeds evenly.[3][1][4][2]
Significance Edit
At that same time, defendant Patrick Hayashi was also knocked over
by the same group of wrongdoers. While on the ground the ball
rolled towards him and he picked it up claiming it as his own. He did
not wrong Popov in any way and had acquired the ball legally. Popov This was such an unusual case in property law since if any of the
believed the ball was rightfully his and, when Hayashi refused, took facts were slightly different it would have completely changed the
the case to court. The whole event was videotaped allowing all decision of the case and given complete ownership to one party
parties to view it.[3][1][4][2] over the other. If Popov had not been attacked and dropped the ball
on his own accord, Hayashi would have been the legal owner.
Conversely, if Hayashi had been one of the wrongdoers he would
have committed wrongful conversion and the ball would legally be
Case Edit Popovs property.[3][1][4][2]
Before the baseball was hit, it was considered property of MLB and
after it was hit was considered intentionally abandoned property.
Under this theory, whoever comes into possession of it first is the
rightful owner.[3][1][4][2]
However, in all legal sense, Hayashi had come by the ball lawfully as
well. In fact, if Popov had dropped the ball without having been
attacked by the group of wrongdoers, it would have still been
considered abandoned property that would be acquired by
whomever successfully grasped it first.[3][1][4][2]
Harvey F. JACQUE and Lois C. Jacque, Plaintiffs-Appellants- observed the mobile home parked on the corner of the town road
Petitioners, v. STEENBERG HOMES, INC., Defendant-Respondent. adjacent to his property. He told them that Steenberg had been
refused permission to cross the Jacques' land. ross and that
95-1028. No. Steenberg did not have permission to cross their land.
Decided: May 16, 1997 Once everyone was present, the Jacques showed the assistant
manager an aerial map and plat book of the township to prove their
For the plaintiffs-appellants there were briefs by Patrick A. Dewane, ownership of the land, and reiterated their demand that the home
Jr. and Dewane, Dewane, Kummer, Lambert & Fox, Manitowoc, and not be moved across their land. In the meantime, the Jacques
oral argument by Patrick A. Dewane, Jr. For the defendant- called and asked some of their neighbors and the town chairman to
respondent there were briefs by Mark J. Mingo, Daniel L. Zitzer and come over immediately. 5 One of Steenberg's employees called
Mingo & Yankala, S.C., Milwaukee, and oral argument by Mark the assistant manager, who then came out to the Jacques' home.
Mingo.
Steenberg employees left the meeting without permission to cross
Accordingly, we reverse and remand for reinstatement of the the land. Mr. Jacque testified that he told Steenberg to [F]ollow
punitive damage award. We further conclude that the $100,000 the road, that is what the road is for. Mr. Jacque responded that
awarded by the jury is not excessive. We conclude that when it was not a question of money; the Jacques just did not want
nominal damages are awarded for an intentional trespass to land, Steenberg to cross their land. 6 At that point, the assistant
punitive damages may, in the discretion of the jury, be awarded. manager asked Mr. Jacque how much money it would take to get
The court of appeals affirmed, reluctantly concluding that it could permission.
not reinstate the punitive damages because it was bound by
precedent establishing that an award of nominal damages will not The assistant manager denied giving these instructions, and
sustain a punitive damage award. Although the jury awarded the Steenberg argued that the road was blocked for safety reasons.
Jacques $1 in nominal damages and $100,000 in punitive damages, The other Steenberg employee confirmed this testimony and further
the circuit court set aside the jury's award of $100,000. At trial, testified that the assistant manager told him to park the company
Steenberg Homes conceded the intentional trespass, but argued truck in such a way that no one could get down the town road to see
that no compensatory damages had been proved, and that punitive the route the employees were taking with the home. 7 At trial,
damages could not be awarded without compensatory damages. one of Steenberg's employees testified that, upon coming out of the
Consequently, the Jacques sued Steenberg Homes for intentional Jacques' home, the assistant manager stated: I don't give a ----
trespass. Despite adamant protests by the Jacques, Steenberg what [Mr. Jacque] said, just get the home in there any way you can.
plowed a path through the Jacques' snow-covered field and via that
path, delivered the mobile home. Unfortunately for Harvey and The assistant manager disputed this testimony. The other
Lois Jacque (the Jacques), the easiest route of delivery was across employee confirmed this testimony. One employee testified that
their land. Steenberg Homes had a mobile home to deliver. upon returning to the office and informing the assistant manager
that they had gone across the field, the assistant manager reacted
I. by giggling and laughing. 8 The employees, after beginning down
the private road, ultimately used a bobcat to cut a path through
Delivery of the mobile home was included in the sales price. In the the Jacques' snow-covered field and hauled the home across the
fall of 1993, a neighbor of the Jacques purchased a mobile home Jacques' land to the neighbor's lot.
from Steenberg. The defendant, Steenberg Homes, Inc.
(Steenberg), is in the business of selling mobile homes. Plaintiffs, After interviewing the parties and observing the scene, an officer
Lois and Harvey Jacques, are an elderly couple, now retired from from the sheriff's department issued a $30 citation to Steenberg's
farming, who own roughly 170 acres near Wilke's Lake in the town assistant manager. 9 When a neighbor informed the Jacques that
of Schleswig. 2 The relevant facts follow. Steenberg had, in fact, moved the mobile home across the Jacques'
land, Mr. Jacque called the Manitowoc County Sheriff's Department.
Despite repeated refusals from the Jacques, Steenberg decided to
sell the mobile home, which was to be used as a summer cottage, 805.14(3)(1993-94). At the completion of the Jacques' case,
and delivered it on February 15, 1994. The Jacques were sensitive Steenberg moved for a directed verdict under Wis. Stat. The case
about allowing others on their land because they had lost property was tried before a jury on December 1, 1994. 10 The Jacques
valued at over $10,000 to other neighbors in an adverse possession commenced an intentional tort action in Manitowoc County Circuit
action in the mid-1980's. The Jacques refused. Steenberg asked Court, Judge Allan J. Deehr presiding, seeking compensatory and
the Jacques on several separate occasions whether it could move punitive damages from Steenberg. 1 Consequently, it did not reach
the home across the Jacques' farm field. Steenberg preferred Steenberg's motion for remittitur. The circuit court granted
transporting the home across the Jacques' land because the only Steenberg's motion to set aside the award. Alternatively,
alternative was a private road which was covered in up to seven feet Steenberg asked the circuit court to remit the punitive damage
of snow and contained a sharp curve which would require sets of award. Steenberg filed post-verdict motions claiming that the
rollers to be used when maneuvering the home around the curve. punitive damage award must be set aside because Wisconsin law did
3 Steenberg determined that the easiest route to deliver the not allow a punitive damage award unless the jury also awarded
mobile home was across the Jacques' land. compensatory damages. The jury awarded the Jacques $1 nominal
damages and $100,000 punitive damages. The circuit court denied
Mr. Jacque informed the movers that it was the Jacques' land they Steenberg's motion and the questions of punitive and compensatory
were planning to c The path cut across the Jacques' land. The damages were submitted to the jury. For purposes of the motion,
movers, who were Steenberg employees, showed Mr. Jacque the Steenberg admitted to an intentional trespass to land, but asked the
path they planned to take with the mobile home to reach the circuit court to find that the Jacques were not entitled to
neighbor's lot. He decided to find out where the movers planned compensatory damages or punitive damages based on insufficiency
to take the home. 4 On the morning of delivery, Mr. Jacque of the evidence.
11 This case presents three issues: (1) whether an award of never been squarely addressed by this court. 2 McWilliams v.
nominal damages for intentional trespass to land may support a Bragg, 3 Wis. 424, 425 (1854). In 1854 the court established
punitive damage award and, if so; (2) whether the law should apply punitive damages, allowing the assessment of damages as a
to Steenberg or should only be applied prospectively and, if we punishment to the defendant for the purpose of making an
apply the law to Steenberg; (3) whether the $100,000 in punitive example. Nonetheless, Wisconsin law is not without reference to
damages awarded by the jury is excessive. this situation. 3 The McWilliams court related the facts and an
illustrative tale from the English case of Merest v. Harvey, 128
Fahrenberg v. Tengel, 96 Wis.2d 211, 230, 291 N.W.2d 516 (1980). Eng.Rep. 761 (C.P.1814), to explain the rationale underlying punitive
Finally, where, as here, the circuit court did not provide a reasoned damages.
analysis supporting or rejecting remittitur, in order to determine
whether to remit the punitive damages awarded, a reviewing court McWilliams, 3 Wis. 424 at 428. Although little actual harm had
must review the entire record as a matter of first impression and been caused, the English court upheld damages of 500 pounds,
determine whether, in its judgment, the damage award is excessive. explaining in a case where a man disregards every principle which
Colby v. Columbia County, 202 Wis.2d 342, 364, 550 N.W.2d 124 actuates the conduct of gentlemen, what is to restrain him except
(1996). The court allows prospective application for the purpose of large damages? When the landowner continued to object, the
mitigating hardships that may occur with the retroactive application magistrate threatened to have him jailed and dared him to file suit.
of new rules. Harmann v. Hadley, 128 Wis.2d 371, 378, 382 Although the landowner refused, the magistrate proceeded to hunt.
N.W.2d 673 (1986). The second issue involves the prospective 18 In Merest, a landowner was shooting birds in his field when he
application of a judicial holding which is a question of policy to be was approached by the local magistrate who wanted to hunt with
determined by this court. 12 The first issue is a question of law him.
which we review de novo.
19 To explain the need for punitive damages, even where actual
II. harm is slight, McWilliams related the hypothetical tale from Merest
of an intentional trespasser:
Bank of Sun Prairie v. Esser, 155 Wis.2d 724, 736, 456 N.W.2d 585
(1990); Lievrouw, 157 Wis.2d at 344, 459 N.W.2d 850. To I cannot say that it would be Would that be a compensation?
determine whether, as a matter of law, the question of punitive Suppose a gentleman has a paved walk in his paddock, before his
damages should have been submitted to the jury, this court reviews window, and that a man intrudes and walks up and down before the
the record de novo. Lievrouw v. Roth, 157 Wis.2d 332, 344, 459 window of his house, and looks in while the owner is at dinner, is the
N.W.2d 850 (Ct.App.1990). 13 Before the question of punitive trespasser permitted to say here is a halfpenny for you which is the
damages in a tort action can properly be submitted to the jury, the full extent of the mischief I have done.
circuit court must determine, as a matter of law, that the evidence
will support an award of punitive damages. Thus, in the case establishing punitive damages in this state, this
court recognized that in certain situations of trespass, the actual
We agree with the Jacques. The Jacques contend that the rationale harm is not in the damage done to the land, which may be minimal,
supporting the compensatory damage award requirement is but in the loss of the individual's right to exclude others from his or
inapposite when the wrongful act is an intentional trespass to land. her property and, the court implied that this right may be punished
14 Steenberg argues that, as a matter of law, punitive damages by a large damage award despite the lack of measurable harm.
could not be awarded by the jury because punitive damages must be McWilliams, 3 Wis. at 428.
supported by an award of compensatory damages and here the jury
awarded only nominal and punitive damages. An examination of the individual interests invaded by an intentional
trespass to land, and society's interests in preventing intentional
Then, we analyze the rationale supporting the rule in light of these trespass to land, leads us to the conclusion that the Barnard rule
interests. First, we consider the individual and societal interests should not apply when the tort supporting the award is intentional
implicated when an intentional trespass to land occurs. 15 Our trespass to land. We agree with the Jacques. The Jacques argue
analysis begins with a statement of the rule and the rationale that both the individual and society have significant interests in
supporting the rule. deterring intentional trespass to land, regardless of the lack of
measurable harm that results. The Jacques argue that the
Jacque v. Steenberg Homes, Inc., 201 Wis.2d 22, 548 N.W.2d 80 rationale for not allowing nominal damages to support a punitive
(Ct.App.1996); Maxwell v. Kennedy, 50 Wis. 645, 649, 7 N.W. 657 damage award is inapposite when the wrongful act involved is an
(1880). The rationale for the compensatory damage requirement is intentional trespass to land. Because the Jacques did not receive a
that if the individual cannot show actual harm, he or she has but a compensatory damage award, Steenberg contends that the punitive
nominal interest, hence, society has little interest in having the damage award must be set aside. 20 Steenberg contends that the
unlawful, but otherwise harmless, conduct deterred, therefore, rule established in Barnard prohibits a punitive damage award, as a
punitive damages are inappropriate. See Tucker v. Marcus, 142 matter of law, unless the plaintiff also receives compensatory
Wis.2d 425, 438-40, 418 N.W.2d 818 (1988). Barnard continues to damages.
state the general rule of punitive damages in Wisconsin. Id. at. 418.
With the bare assertion that authority and better reason supported Accord Nollan v. California Coastal Comm'n, 483 U.S. 825, 831, 107
its conclusion, the Barnard court said no. 16 The general rule was S.Ct. 3141, 3145, 97 L.Ed.2d 677 (1987) (quoting Loretto v.
stated in Barnard v. Cohen, 165 Wis. 417, 162 N.W. 480 (1917), Teleprompter Manhattan CATV Corp., 458 U.S. 419, 433, 102 S.Ct.
where the question presented was: In an action for libel, can there 3164, 3175, 73 L.Ed.2d 868 (1982)). Dolan v. City of Tigard, 512 U.S.
be a recovery of punitory damages if only nominal compensatory 374, 384, 114 S.Ct. 2309, 2316, 129 L.Ed.2d 304 (1994); (quoting
damages are found? Kaiser Aetna v. United States, 444 U.S. 164, 176, 100 S.Ct. 383, 391,
62 L.Ed.2d 332 (1979)). The United States Supreme Court has
17 However, whether nominal damages can support a punitive recognized that the private landowner's right to exclude others from
damage award in the case of an intentional trespass to land has his or her land is one of the most essential sticks in the bundle of
rights that are commonly characterized as property. 21 We turn refuses to heed no trespass warnings. McWilliams, 3 Wis. at 428.
first to the individual landowner's interest in protecting his or her In McWilliams, the court recognized the importance of prevent
land from trespass. 4 Thus, both this court and the Supreme Court [ing] the practice of dueling, [by permitting] juries [] to punish insult
recognize the individual's legal right to exclude others from private by exemplary damages. When landowners have confidence in
property. Diana Shooting Club v. Lamoreux, 114 Wis. 44, 59, 89 the legal system, they are less likely to resort to self-help
N.W. 880 (1902) (holding that the victim of an intentional trespass remedies. Private landowners should feel confident that
should have been allowed to take judgment for nominal damages wrongdoers who trespass upon their land will be appropriately
and costs). This court has long recognized [e]very person ['s] punished. Society has an interest in preserving the integrity of the
constitutional right to the exclusive enjoyment of his own property legal system. Society has an interest in punishing and deterring
for any purpose which does not invade the rights of another intentional trespassers beyond that of protecting the interests of the
person. individual landowner.
Felix Cohen offers the following analysis summarizing the An appropriate punitive damage award probably will. A $30
relationship between the individual and the state regarding property forfeiture and a $1 nominal damage award are unlikely to restrain
rights: 22 Yet a right is hollow if the legal system provides Steenberg Homes from similar conduct in the future. Steenberg
insufficient means to protect it. Homes plowed a path across the Jacques' land and dragged the
mobile home across that path, in the face of the Jacques' adamant
[T]hat is property to which the following label can be attached: refusal. Moreover, what is to stop Steenberg Homes from
concluding, in the future, that delivering its mobile homes via an
To the world: intentional trespass and paying the resulting Class B forfeiture, is not
more profitable than obeying the law? If punitive damages are not
Keep off X unless you have my permission, which I may grant or allowed in a situation like this, what punishment will prohibit the
withhold. intentional trespass to land? It was more akin to Merest's
halfpenny. The $30 forfeiture was certainly not an appropriate
Signed: Private Citizen punishment for Steenberg's egregious trespass in the eyes of the
Jacques. Kink v. Combs, 28 Wis.2d 65, 135 N.W.2d 789 (1965).
Endorsed: The state
Punitive damages have the effect of bringing to punishment types of
conduct that, though oppressive and hurtful to the individual,
And, as this court recognized as early as 1854, a halfpenny award
almost invariably go unpunished by the public prosecutor. 27
does not constitute state protection. But that right has no practical
People expect wrongdoers to be appropriately punished.
meaning unless protected by the State. Harvey and Lois Jacque
have the right to tell Steenberg Homes and any other trespasser,
Accordingly, assuming that the other requirements for punitive
No, you cannot cross our land. Felix S. Cohen, Dialogue on Private
damages have been met, we hold that nominal damages may
Property, IX Rutgers Law Review 357, 374 (1954).
support a punitive damage award in an action for intentional
trespass to land. Consequently, the Barnard rationale will not
Thus, in the case of intentional trespass to land, the nominal damage
support a refusal to allow punitive damages when the tort involved
award represents the recognition that, although immeasurable in
is an intentional trespass to land. Intentional trespass to land
mere dollars, actual harm has occurred. Id. The law recognizes
causes actual harm to the individual, regardless of whether that
actual harm in every trespass to land whether or not compensatory
harm can be measured in mere dollars. We conclude that both the
damages are awarded. Id. The law infers some damage from
private landowner and society have much more than a nominal
every direct entry upon the land of another. 13 (5th ed.1984). W.
interest in excluding others from private land. 943.13. As long as
Page Keeton, Prosser and Keeton on Torts, The action for
they cause no compensable harm, the only deterrent intentional
intentional trespass to land is directed at vindication of the legal
trespassers face is the nominal damage award of $1, the modern
right. Because a legal right is involved, the law recognizes that
equivalent of Merest's halfpenny, and the possibility of a Class B
actual harm occurs in every trespass. 23 The nature of the
forfeiture under Wis. Stat. It implicitly tells them that they are
nominal damage award in an intentional trespass to land case
free to go where they please, regardless of the landowner's wishes.
further supports an exception to Barnard.
28 In sum, as the court of appeals noted, the Barnard rule sends
893.28. See Wis. Stat. The conduct of an intentional trespasser, the wrong message to Steenberg Homes and any others who
if repeated, might ripen into prescription or adverse possession and, contemplate trespassing on the land of another.
as a consequence, the individual landowner can lose his or her
The Restatement (Second) of Torts supports the proposition that an
property rights to the trespasser. A series of intentional trespasses,
award of nominal damages will support an award of punitive
as the Jacques had the misfortune to discover in an unrelated action,
damages in a trespass to land action: 29 Our holding is supported
can threaten the individual's very ownership of the land. 24 The
by respected legal commentary.
potential for harm resulting from intentional trespass also supports
an exception to Barnard.
The fact that the actor knows that his entry is without the consent of
the possessor and without any other privilege to do so, while not
We turn next to society's interest in protecting private property
necessary to make him liable, may affect the amount of damages
from the intentional trespasser. Although only nominal damages
recoverable against him, by showing such a complete disregard of
were awarded to the Jacques, Steenberg's intentional trespass
the possessor's legally protected interest in the exclusive possession
caused actual harm. 25 In sum, the individual has a strong
of his land as to justify the imposition of punitive in addition to
interest in excluding trespassers from his or her land.
nominal damages for even a harmless trespass, or in addition to
Although dueling is rarely a modern form of self-help, one can easily compensatory damages for one which is harmful.
imagine a frustrated landowner taking the law into his or her own
hands when faced with a brazen trespasser, like Steenberg, who
908 cmt. c (1979). Restatement (Second) of Torts The This type of reliance does not give rise to the inequity that
Restatement reiterates this position under the punitive damages sunbursting is designed to prevent. At this point, when
section: nominal damages support an award of punitive damages overwhelming evidence clearly established Steenberg's intentional
when a tort, such as trespass to land, is committed for an trespass on the Jacques' land, then and only then, did Steenberg rely
outrageous purpose, but no significant harm has resulted. 163 on Barnard and concede intentional trespass. Steenberg did not
cmt. e (1979). Restatement (Second) of Torts concede the intentional trespass until after the Jacques rested at
trial. We find Steenberg's contention that it relied on the Barnard
30 Prosser also finds the compensatory damages prerequisite rule misleading. We disagree. Therefore, it contends that a
unsupportable: holding in this case, recognizing an exception to the Barnard rule
should only apply prospectively, i.e., not to Steenberg Homes.
Since it is precisely in the cases of nominal damages that the policy Steenberg explains that its trial strategy was dependent on the
of providing an incentive for plaintiffs to bring petty outrages into Barnard rule. 36 Steenberg contends that its reliance on Barnard
court comes into play, the view very much to be preferred appears at trial creates a compelling judicial reason to sunburst.
to be that of the minority which have held that there is sufficient
support for punitive damages. See also Kojis v. Doctors Hospital, 12 Wis.2d 367, 107 N.W.2d 131,
107 N.W. 292 (1961) (abrogating charitable immunity); Holytz v.
See, Annotation, Sufficiency of Showing of Actual Damages to Milwaukee, 17 Wis.2d 26, 115 N.W.2d 618 (1962) (abrogating
Support Award of Punitive Damages-Modern Cases, 40 A.L.R.4th 11, governmental immunity); Widell v. Holy Trinity Catholic Church, 19
36 (1985). A minority of other jurisdictions follow this approach. Wis.2d 648, 121 N.W.2d 249 (1963) (abrogating immunity of religi
2, at 14 (5th ed.1984) (citations omitted). Page Keeton, et. al., Id. Prospective application of a holding based on reliance on an old
Prosser and Keeton on the Law of Torts rule has occurred when there has been reliance on an overruled
decision by a substantial number of persons and considerable harm
III. or detriment could result to them. Rolo v. Goers, 174 Wis.2d 709,
723, 497 N.W.2d 724 (1993). The court does not prospectively
Steenberg argues that its reliance at trial on the well-established apply a holding merely because of reliance on an old rule. 37
Barnard rule compels this court to either apply our holding Steenberg's reliance on the Barnard rule is not the type of reliance
prospectively, or grant a new trial. 31 Next we consider the effect that normally forms the basis for sunbursting. Steenberg only refers
of our holding on the parties before us. to its own reliance, and to its own punishment. Steenberg does not
claim that others will be adversely affected by our recognition of an
Steenberg misunderstands Colby and the doctrine of sunbursting.
exception to the Barnard rule. Harmann, 128 Wis.2d at 381, 382
Steenberg argues that because it relied on the well-established
N.W.2d 673. When tort law is changed, the court is concerned
Barnard rule at trial, and our holding today recognizes an exception
about exposing many individuals and institutions to liability who
to the Barnard rule, today's holding should not apply to this case.
would have obtained liability insurance had they known they would
Steenberg cites Colby, 202 Wis.2d 342, 550 N.W.2d 124, for the
no longer enjoy immunity. ous entity).
proposition that a holding that departs from past precedent should
only be applied prospectively. 32 Steenberg argues if we should Accordingly, we hold that the exception to Barnard that we
hold, as we do, that punitive damages can be awarded with only a recognize today shall be applied to Steenberg. That, we conclude,
nominal damage award, our holding should not apply to them. would be the greater injustice. To refuse to apply the new rule
here would deprive the Jacques of any benefit from their effort and
33 Sunbursting 5 Fitzgerald v. Meissner is an exception to the
expense in challenging the old rule which we now declare
general rule referred to as the Blackstonian Doctrine. & Thomas
erroneous. Retroactivity is usually justified as a reward for the
E. Fairchild, Limitation of New Judge-Made Law to Prospective Effect
litigant who has persevered in attacking an unsound rule. In
Only: Prospective Overruling or Sunbursting, 51 Marq.L.Rev.
determining whether hardship or injustice will occur, the court must
254 (1967-68). This classic doctrine provides that a decision which
also consider the effect of prospective application on the party who
overrules precedent is accorded retroactive effect. Hicks, Inc., 38
sought to change the law. 38 The Jacques' interests also prevent
Wis.2d 571, 575, 157 N.W.2d 595 (1968).
us from sunbursting in this case.
In an effort to avoid inequity on these rare occasions, the court has
IV.
recognized exceptions to the Blackstonian Doctrine and used the
device of prospective overruling, known as sunbursting, to limit Accordingly, we do not order remittitur. We conclude that it is not.
the effect of a newly announced rule when retroactive application Therefore, we review the $100,000 award to determine whether it is
would be inequitable. At times, inequities will occur when a court clearly excessive. Because we conclude that the nominal damages
departs from precedent and announces a new rule of law. awarded to the Jacques support the jury's punitive damage award,
and because we conclude that our holding today applies to
Instead, the equities peculiar to a given rule or case determine the
Steenberg, the issue is not moot. In this case, the circuit court,
rule adopted by the court in each case. Id. No simple rule helps us
finding that the issue was moot, rejected Steenberg's motion for
determine the existence of a judicial reason for sunbursting.
remittitur without review. 39 Finally, we consider whether the
Harmann, 128 Wis.2d at 379, 382 N.W.2d 673 (citation omitted).
jury's $100,000 punitive damage award to the Jacques is excessive.
This court will not sunburst absent a compelling judicial reason for
doing so. Colby, 202 Wis.2d at 364, 550 N.W.2d 124. The court Management Computer Serv., Inc. v. Hawkins, Ash, Baptie
allows sunbursting for the purpose of mitigating hardships that may Nonetheless, the Due Process Clause of the Fourteenth Amendment
occur with the retroactive application of a new rule. Harmann, 128 imposes substantive limits on the size of punitive damage awards.
Wis.2d at 378, 382 N.W.2d 673. 35 Prospective application of a TXO, 509 U.S. at 457, 113 S.Ct. at 2720. A punitive damage award
judicial holding is a question of policy to be determined by this that is the product of a fair process is entitled to a strong
court. presumption of validity. Fahrenberg, 96 Wis.2d at 231, 291 N.W.2d
516. When we review the record to determine whether a punitive the matter was resolved, and Steenberg would not trespass on the
damage award is excessive, the evidence must be viewed in the light Jacques' land. 45 Furthermore, these deceitful acts were
most favorable to the plaintiff. Fuchs v. Kupper, 22 Wis.2d 107, 125 egregious; Steenberg Homes acted deviously.
N.W.2d 360 (1963). A jury's punitive damage award will not be
disturbed unless the verdict is so clearly excessive as to indicate Gore, 517 U.S. at ----, 116 S.Ct. at 1601. 46 We now turn to the
passion and prejudice. Fahrenberg v. Tengel, 96 Wis.2d 211, 236, next factor in the Gore analysis: the disparity between the harm or
291 N.W.2d 516 (1980). We are reluctant to set aside an award potential harm suffered by the Jacques and the punitive damage
merely because it is large or we would have awarded less. Malco v. award.
Midwest Aluminum Sales, 14 Wis.2d 57, 65, 109 N.W.2d 516 (1961).
Notwithstanding the jury's broad discretion, the circuit court has the We address them separately. This requirement combines the
power to reduce the amount of punitive damages to an amount that second and third Gore factors. Management Computer Serv., 206
it determines is fair and reasonable. 40 The award of punitive Wis.2d at 193, 557 N.W.2d 67. 47 In Management Computer
damages in a particular case is entirely within the discretion of the Services, this court concluded that a reasonable relationship
jury. & Co., 206 Wis.2d 157, 557 N.W.2d 67 (1996). between the amount of compensatory damages, the potential
criminal penalties, and the punitive damage award is required.
Id. at ----, 116 S.Ct. at 1595. Only when a punitive damage award
can be fairly categorized as grossly excessive in relation to the See James D. Ghiardi, Punitive Damages in Wisconsin, 1977
State's legitimate interests in punishment and deterrence does it Wis.L.Rev. 753, 771. Id. While a constitutional line ought not be
enter the zone of arbitrariness that violates the Due Process Clause. marked by a simple mathematical formula, the proportionate rule
Gore, 517 U.S. at ----, 116 S.Ct. at 1598. The Due Process Clause for punitive damages is one factor in determining the
dictates that an individual receive fair notice not only of the conduct reasonableness of the punitive damage award. However, in the
that will subject him or her to punishment, but also of the severity of appropriate case, a comparison of the compensatory damages and
the penalty that a state may impose. BMW of North America, Inc. the punitive award is important. Id. 48 We have expressly
v. Gore, 517 U.S. 559, ----, 116 S.Ct. 1589, 1592, 134 L.Ed.2d 809 rejected the use of a fixed multiplier, either a fixed ratio of
(1996) (quoting TXO Production Corp. v. Alliance Resources Corp., compensatory to punitive damages or of criminal fine to punitive
509 U.S. 443, 454, 113 S.Ct. 2711, 2718, 125 L.Ed.2d 366 (1993)). damages, to calculate the amount of reasonable punitive damages.
41 The Due Process Clause prohibits the court from imposing a
grossly excessive punishment on a tortfeasor. In these instances, as in the case before us, a mathematical bright
line between the constitutional and the unconstitutional would turn
Gore, 517 U.S. at ---------, ----, 116 S.Ct. at 1598-99, 1603. 42 The the concept of punitive damages on its head. This could include
Supreme Court has recently clarified the three factors a court must situations where egregious acts result in injuries that are hard to
consider when determining whether a punitive damage award detect or noneconomic harm that is difficult to measure. However,
violates the Due Process Clause: (1) the degree of reprehensibility of in the proper case, a $1 nominal damage award may properly
the conduct; (2) the disparity between the harm or potential harm support a $100,000 punitive damage award where a much larger
suffered by the plaintiff and the punitive damage award; and (3) the compensatory award might not. If it did, the breathtaking 100,000
difference between this remedy and the civil or criminal penalties to 1 ratio of this case could not be upheld. However, when
authorized or imposed in comparable cases. nominal damages support a punitive damage award, use of a
multiplier is of dubious assistance because the nominal damage
43 We turn f In this case, the crime was Steenberg's brazen, award may not reflect the actual harm caused. This is so because
intentional trespass on the Jacques' land. In other words, some compensatory damages represent the actual harm inflicted on the
wrongs are more blameworthy than others and the punishment plaintiff. 49 When compensatory damages are awarded, we
should fit the crime. Id. at ----, 116 S.Ct. at 1599. Punitive consider the ratio of compensatory to punitive damages.
damages should reflect the egregiousness of the offense. The most
important indicium of the reasonableness of a punitive damage A reviewing court engaged in determining whether a punitive
award is the degree of reprehensibility of the defendant's conduct. damages award is excessive should accord Meke v. Nicol, 56
irst to the reprehensibility factor. Wis.2d 654, 664, 203 N.W.2d 129 (1973). Since punitive damages
are assessed for punishment, it is relevant to compare the punitive
Despite numerous unambiguous refusals by the Jacques to allow damage award to the maximum fine in the section of the Wisconsin
Steenberg access to their land, Steenberg delivered the mobile Criminal Code that contains a similar offense. Gore, 517 U.S. at ----,
home across the Jacques' land. We are further troubled by 116 S.Ct. at 1603. 50 Finally, we turn to the third factor in the
Steenberg's utter disregard for the rights of the Jacques. We reject Gore analysis: we compare the punitive damage award and the civil
that position. At trial, Steenberg took an arrogant stance, arguing or criminal penalties that could be imposed for comparable
essentially that yes, we intentionally trespassed on the Jacques' misconduct. Gore, 517 U.S. at ----, 116 S.Ct. at 1603 (citation
land, but we cannot be punished for that trespass because the law omitted). substantial deference to legislative judgments concerning
protects us. 44 Steenberg's intentional trespass reveals an appropriate sanctions for the conduct at issue.
indifference and a reckless disregard for the law, and for the rights
of others. Without punitive damages, Steenberg has a financial incentive to
trespass again. And we see no reason why the legislative penalty
We conclude that the degree of reprehensibility of Steenberg's for simple trespass will deter future conduct by Steenberg.
conduct supports the imposition of a substantial punitive award. Furthermore, the statute failed to deter Steenberg's egregious
This conduct is reprehensible. Nevertheless, the Steenberg misconduct. Here, not only did Steenberg Homes illegally enter
employees testified that as they walked out of the Jacques' home, and remain on the Jacques' land, first they plowed a path across the
the assistant manager told them to use any means to deliver the Jacques' field, then they transported a mobile home over the path.
mobile home. After the conversation in the Jacques' kitchen, the Steenberg's egregious conduct could scarcely have been
Jacques, their neighbors, and the town chairman were satisfied that contemplated by the legislature when it enacted this statute which
provides a penalty for simply entering or remaining on the land of
another. 939.52(3)(b). The maximum penalty for a Class B
forfeiture is $1000. Section 943.13(1)(b) provides that [w]hoever
[e]nters or remains on any land of another after having been
notified by the owner or occupant not to enter or remain on the
premises is subject to a Class B forfeiture. 939.52(3)(b). Wis. Stat.
943.13, a Class B forfeiture. Steenberg received a citation for
trespass to land under Wis. Stat. 51 We consider this factor
largely irrelevant in the present case because the conduct at issue
here was scarcely that contemplated by the legislative action.
We feel certain that the $100,000 will serve to encourage the latter
course by removing the profit from the intentional trespass. Today
we alleviate the uncertainty for Steenberg Homes. Or, should they
take the more costly course and obey the law? Should they
trespass and pay the forfeiture, which in this case was $30? It is,
therefore, likely that they will again be faced with what was,
apparently for them, a dilemma. Steenberg sells and delivers
mobile homes. 52 Our concern for deterrence is guided by our
recognition of the nature of Steenberg's business.
One hundred thousand dollars will. It can hardly be said that the
$30 forfeiture paid by Steenberg significantly affected its profit for
delivery of the mobile home. In order to effectively do this,
punitive damages must be in excess of the profit created by the
misconduct so that the defendant recognizes a loss. 53 Punitive
damages, by removing the profit from illegal activity, can help to
deter such conduct.
No. 71-492
Syllabus
KENNETH S. USTON, RESPONDENT, v. RESORTS INTERNATIONAL Kenneth Uston is a renowned teacher and practitioner of a complex
HOTEL, INC., APPELLANT, AND NEW JERSEY CASINO CONTROL strategy for playing blackjack known as card counting.[1] Card
COMMISSION, INTERVENOR-APPELLANT, AND ATLANTIC CITY counters keep track of the playing cards as they are dealt and adjust
CASINO HOTEL ASSOCIATION, INTERVENOR-APPELLANT. their betting patterns when the odds are in their favor. When used
over a period of time, this method allegedly ensures a profitable
The Supreme Court of New Jersey. encounter with the casino.
Argued February 9, 1982. Uston first played blackjack at Resorts' casino in November 1978.
Resorts took no steps to bar Uston at that time, apparently because
Decided May 5, 1982. the Commission's blackjack rules then in operation minimized the
advantages of card counting.
*165 Joel H. Sterns argued the cause for appellant Resorts
International Hotel, Inc. (Sterns, Herbert & Weinroth, attorneys; On January 5, 1979, however, a new Commission rule took effect
John M. Donnelly, on the briefs). that dramatically improved the card counter's odds. N.J.A.C. 19:47-
2.5. The new rule, which remains in effect, restricted *167 the
Matthew P. Boylan argued the cause for appellant Atlantic City
reshuffling of the deck in ways that benefitted card counters.
Casino Hotel Association (Lowenstein, Sandler, Brochin, Kohl, Fisher
Resorts concedes that the Commission could promulgate blackjack
& Boylan, attorneys; Clive S. Cummis, Morris Brown, Nicholas L.
rules that virtually eliminate the advantage of card counting.
Rubis, Alfred J. Luciani, John Walker Daniels, David M. Satz, Jr.,
However, such rules would slow the game, diminishing the casino's
Martin L. Blatt and Charles C. Carella, of counsel).
"take" and consequently its profits from blackjack gaming.
Michael A. Santaniello, Senior Assistant Counsel, argued the cause
By letter dated January 30, 1979, attorneys for Resorts wrote to
for appellant New Jersey Casino Control Commission (Robert J.
Commission Chairman Lordi, asking the Commission's position on
Genatt, General Counsel, attorney; Robert J. Genatt, R. Benjamin
the legality of summarily removing card counters from its blackjack
Cohen and Michael A. Santaniello, of counsel; R. Benjamin Cohen,
tables. That same day, Commissioner Lordi responded in writing that
Anthony J. Sposaro and Michael A. Santaniello, on the briefs).
no statute or regulation barred Resorts from excluding professional
card counters from its casino. Before the day had ended, Resorts
Morris M. Goldings, a member of the Massachusetts bar, and
terminated Uston's career at its blackjack tables, on the basis that in
Kenneth F. Hense argued the cause for respondent (Reed & Hense,
its opinion he was a professional card counter. Resorts subsequently
attorneys; Morris M. Goldings and H. Glenn Alberich, members of
formulated standards for identification of card counters and
the Massachusetts bar, of counsel; Kenneth F. Hense, on the brief).
adopted a general policy to exclude such players.[2]
Irwin I. Kimmelman, Attorney General of New Jersey, argued the
The Commission upheld Resorts' decision to exclude Uston. Relying
cause for amicus curiae Department of Law and Public Safety,
on Garifine v. Monmouth Park Jockey Club, 29 N.J. 47 (1959), the
Division of Gaming Enforcement (Irwin I. Kimmelman, attorney;
Commission held that Resorts enjoys a common law right to exclude
Anthony J. Parrillo, Deputy Attorney General, of counsel; Stephen C.
anyone it chooses, as long as the exclusion does not violate state
Becker and Mary L. Cupo, Deputy Attorneys General, on the brief).
and federal civil rights laws. The Appellate Division reversed, 179
John Walker Daniels submitted a letter in lieu of a brief on behalf of N.J. Super. 223 (1981). Although we interpret the Casino Control Act,
amicus curiae Harrah's Marina Hotel Casino (Horn, Kaplan, Goldberg N.J.S.A. 5:12-1 to -152 somewhat differently than did the Appellate
& Gorny, attorneys; Philip G. Satre, a member of the Nevada bar, of Division, we affirm that court's holding that the Casino Control Act
counsel). precludes Resorts from excluding Uston. The Commission alone has
the authority to exclude patrons based upon their strategies for
The opinion of the Court was delivered by PASHMAN, J. playing licensed casino games. Any common law right Resorts may
have had to exclude Uston for these reasons is abrogated by the act.
Since January 30, 1979, appellant Resorts International Hotel, Inc. We therefore need not decide the precise extent of Resorts' *168
(Resorts) has excluded respondent, Kenneth Uston, from the *166 common law right to exclude patrons for reasons not covered by the
blackjack tables in its casino because Uston's strategy increases his act. Nonetheless, we feel constrained to refute any implication
chances of winning money. Uston concedes that his strategy of card arising from the Commission's opinion that absent supervening
counting can tilt the odds in his favor under the current blackjack statutes, the owners of places open to the public enjoy an absolute
rules promulgated by the Casino Control Commission (Commission). right to exclude patrons without good cause. We hold that the
However, Uston contends that Resorts has no common law or common law right to exclude is substantially limited by a competing
statutory right to exclude him because of his strategy for playing common law right of reasonable access to public places.
blackjack.
II
We hold that the Casino Control Act, N.J.S.A. 5:12-1 to -152 gives the
Commission exclusive authority to set the rules of licensed casino This Court has recognized that "[t]he statutory and administrative
games, which includes the methods for playing those games. The controls over casino operations established by the [Casino Control]
Act are extraordinarily pervasive and intensive." Knight v. Margate,
86 N.J. 374, 380-81 (1981). The almost 200 separate statutory Uston for the reasons stated, it is important for us to address the
provisions "cover virtually every facet of casino gambling and its asserted common law right for two reasons. First, Resorts'
potential impact upon the public." Id. at 381. See Bally Mfg. Corp. v. contentions and the Commission's position concerning the common
N.J. Casino Control Comm'n, 85 N.J. 325 (1981) (upholding law right are incorrect. Second, the act has not completely divested
Commission regulation barring a licensed casino from acquiring Resorts of its common law right to exclude.
more than 50% of its slot machines from any one manufacturer).
These provisions include a preemption clause, stating that the act The right of an amusement place owner to exclude unwanted
prevails over "any other provision of law" in conflict or inconsistent patrons and the patron's competing right of reasonable access both
with its provisions. N.J.S.A. 5:12-133(b). Moreover, the act declares have deep roots in the common law. See Arterburn, "The Origin and
as public policy of this State "that the institution of licensed casino First Test of Public Callings," 75 U.Pa.L.Rev. 411 (1927); Wyman,
establishments in New Jersey be strictly regulated and controlled." "The Law of Public Callings as a Solution of the Trust Problem," 17
N.J.S.A. 5:12-1(13). Harv.L.Rev. 156 (1904). In this century, however, courts have
disregarded the right of reasonable access in the common law of
At the heart of the Casino Control Act are its provisions for the some jurisdictions at the time the Civil War Amendments and Civil
regulation of licensed casino games. N.J.S.A. 5:12-100 provides: Rights Act of 1866 were passed.
... e. All gaming shall be conducted according to rules promulgated *171 As Justice Goldberg noted in his concurrence in Bell v.
by the commission. All wagers and pay-offs of winning wagers at Maryland, 378 U.S. 226, 84 S. Ct. 1814, 12 L. Ed. 2d 822 (1964):
table games shall be made according to rules promulgated by the
commission, which shall establish such minimum wagers and other Underlying the congressional discussions and at the heart of the
limitations as may be necessary to assure the vitality of casino Fourteenth Amendment's guarantee of equal protection, was the
operations and fair odds to and maximum participation by casino assumption that the State by statute or by "the good old common
patrons; .... law" was obligated to guarantee all citizens access to places of
public accommodation. [378 U.S. at 296, 84 S. Ct. at 1852, 12 L. Ed.
*169 This provision on games and gaming equipment reinforces the 2d at 839, Goldberg, J., joined by Warren, C.J. and Douglas, J.,
general statutory provisions codified at N.J.S.A. 5:12-70. Those concurring]
provisions provide in part:
See, e.g., Ferguson v. Gies, 82 Mich. 358, 46 N.W. 718 (1890) (after
The Commission shall, without limitation on the powers conferred in passage of the Fourteenth Amendment, both the civil rights statutes
the preceding section, include within its regulations the following and the common law provided grounds for a non-white plaintiff to
specific provisions in accordance with the provisions of the act; * * * recover damages from a restaurant owner's refusal to serve him,
* * * * * f. Defining and limiting the areas of operation, the rules of because the common law as it existed before passage of the civil
authorized games, odds, and devices permitted, and the method of rights laws "gave to the white man a remedy against any unjust
operation of such games and devices; .... discrimination to the citizen in all public places"); Donnell v. State,
48 Miss. 661 (1873) (state's common law includes a right of
Pursuant to these statutes, the Commission has promulgated reasonable access to all public places).
exhaustive rules on the playing of blackjack. N.J.A.C. 19:47-2.1 to -
2.13. These rules cover every conceivable aspect of the game, from The current majority American rule has for many years disregarded
determining how the cards are to be shuffled and cut, N.J.A.C. the right of reasonable access,[4] granting to proprietors of
19:47-2.5, to providing that certain cards shall not be dealt "until the amusement places an absolute right arbitrarily to eject or exclude
dealer has first announced `Dealer's Card' which shall be stated by any person consistent with state and federal civil rights laws. See
the dealer in a tone of voice calculated to be heard by each person Annot., "Propriety of exclusion of persons from horseracing tracks
at the table." N.J.A.C. 19:47-2.6(g). It is no exaggeration to state that for reasons other than color or race," 90 A.L.R.3d 1361 (1979);
the Commission's regulation of blackjack is more extensive than the Turner & Kennedy, "Exclusion, Ejection and Segregation of Theater
entire administrative regulation of many industries. Patrons," 32 Iowa L.Rev. 625 (1947). See also Garifine v. Monmouth
Park Jockey Club, 29 N.J. at 50.
These exhaustive statutes and regulations make clear that the
Commission's control over the rules and conduct of licensed casino At one time, an absolute right of exclusion prevailed in this state,
games is intended to be comprehensive. The ability of casino though more for reasons of deference to the noted English
operators to determine how the games will be played would precedent of Wood v. Leadbitter, 13 M&W 838, 153 Eng.Rep. 351,
undermine this control and subvert the important policy of ensuring (Ex. 1845), than for reasons of policy. In Shubert v. Nixon *172
the "credibility and integrity of the regulatory process and of casino Amusement Co., 83 N.J.L. 101 (Sup.Ct. 1912), the former Supreme
operations." N.J.S.A. 5:12-1(b). The Commission has promulgated Court dismissed a suit for damages resulting from plaintiff's ejection
the blackjack rules that give Uston a comparative advantage, and it from defendants' theater. Noting that plaintiff made no allegation of
has sole authority to change those rules. There is no indication that exclusion on the basis of race, color or previous condition of
Uston has violated any Commission rule on the playing of blackjack. servitude, the Court concluded:
N.J.A.C. 19:47-2.1 to -2.13. Put simply, Uston's gaming is "conducted
according to rules promulgated by the Commission." N.J.S.A. 5:12- In view of the substantially uniform approval of, and reliance on, the
100(e). Resorts has no right to exclude Uston on *170 grounds that decision in Wood v. Leadbitter in our state adjudications, it must
he successfully plays the game under existing rules.[3] fairly be considered to be adopted as part of our jurisprudence, and
whatever views may be entertained as to the natural justice or
III injustice of ejecting a theater patron without reason after he has
paid for his ticket and taken his seat, we feel constrained to follow
Resorts claimed that it could exclude Uston because it had a that decision as the settled law. [83 N.J.L. at 106]
common law right to exclude anyone at all for any reason. While we
hold that the Casino Control Act precludes Resorts from excluding
It hardly bears mention that our common law has evolved in the disrupted the functioning of any casino operations. Absent a valid
intervening 70 years. In fact, Leadbitter itself was disapproved three contrary rule by the Commission, Uston possesses the usual right of
years after the Shubert decision by Hurst v. Picture Theatres Limited, reasonable access to Resorts International's blackjack tables.
(1915) 1 K.B. 1 (1914). Of far greater importance, the decisions of
this Court have recognized that "the more private property is IV
devoted to public use, the more it must accommodate the rights
which inhere in individual members of the general public who use Although the Commission alone has authority to exclude persons
that property." State v. Schmid, 84 N.J. 535, 562 (1980). based upon their methods of playing licensed casino games, that
authority has constitutional and statutory limits. We expressly
State v. Schmid involved the constitutional right to distribute decline to decide whether the Casino Control Act empowers the
literature on a private university campus. The Court's approach in Commission to exclude card counters.
that case balanced individual rights against property rights. It is
therefore analogous to a description of the common law right of If the Commission decides to consider promulgating a rule banning
exclusion. Balancing the university's interest in controlling its card counters, it should review the statutory mandates regarding
property against plaintiff's interest in access to that property to both the public policy of this State and the rules of licensed games.
express his views, the Court clearly refused to protect unreasonable The Casino Control Act commands the Commission to regulate
exclusions. Justice Handler noted that gambling with such "limitations as may be necessary to assure the
vitality of casino operations and fair odds to and maximum
Regulations ... devoid of reasonable standards designed to protect participation by casino patrons," N.J.S.A. 5:12-100(e) (emphasis
both the legitimate interests of the University as an institution of added). The Court recognizes that the goals of casino vitality, fair
higher education and the individual exercise of expressional odds to all players and maximum player participation may be in
freedom cannot constitutionally be invoked to prohibit the conflict. It is the Commission which must strike the appropriate
otherwise noninjurious and reasonable exercise of [First balance.
Amendment] freedoms." [Id. at 567]
The Commission should also consider that the Legislature has
In State v. Shack, 58 N.J. 297 (1971), the Court held that although an declared as public policy of this state that "[c]onfidence in casino
employer of migrant farm workers "may reasonably require" those gaming operations is eroded to the extent the State of New Jersey
visiting his employees to identify themselves, "the employer may does not provide a regulatory framework for casino gaming that
not deny the worker his privacy or interfere *173 with his permits and promotes stability and continuity in *175 casino gaming
opportunity to live with dignity and to enjoy associations customary operations." N.J.S.A. 5:12-1(14). Moreover, "[a]n integral and
among our citizens." Id. at 308. The Court reversed the trespass essential element of the regulation and control of such casino
convictions of an attorney and a social services worker who had facilities by the State rests in the public confidence and trust in the
entered the property to assist farm-workers there. credibility and integrity of the regulatory process and of casino
operations." N.J.S.A. 5:12-1(6). The exclusion of persons who can
Schmid recognizes implicitly that when property owners open their play the licensed games to their advantage may diminish public
premises to the general public in the pursuit of their own property confidence in the fairness of casino gaming. To the extent persons
interests, they have no right to exclude people unreasonably. On the not counting cards would be mistakenly excluded, public confidence
contrary, they have a duty not to act in an arbitrary or discriminatory might be further diminished. However, the right of the casinos to
manner toward persons who come on their premises. That duty have the rules drawn so as to allow some reasonable profit must
applies not only to common carriers, Messenger v. Pennsylvania also be recognized in any realistic assessment. The Commission
Railroad Co., 37 N.J.L. 531 (E. & A. 1874), innkeepers, see Garifine, should consider the potentially broad ramifications of excluding card
supra, owners of gasoline service stations, Streeter v. Brogan, 113 counters before it seeks to promulgate such a rule. Fairness and the
N.J. Super. 486 (Ch.Div. 1971), or to private hospitals, Doe v. integrity of casino gaming are the touchstones.
Bridgeton Hospital Ass'n, Inc., 71 N.J. 478 (1976), cert. den., 433 U.S.
914, 97 S. Ct. 2987, 53 L. Ed. 2d 1100 (1977), but to all property V
owners who open their premises to the public. Property owners
have no legitimate interest in unreasonably excluding particular In sum, absent a valid Commission regulation excluding card
members of the public when they open their premises for public counters, respondent Uston will be free to employ his card-counting
use. strategy at Resorts' blackjack tables. There is currently no
Commission rule banning Uston, and Resorts has no authority to
No party in this appeal questions the right of property owners to exclude him for card counting. However, it is not clear whether the
exclude from their premises those whose actions "disrupt the Commission would have adopted regulations involving card counters
regular and essential operations of the [premises]," State v. Schmid, had it known that Resorts could not exclude Uston. The Court
84 N.J. at 566 (quoting Princeton University Regulations on therefore continues the temporary order banning Uston from
solicitation), or threaten the security of the premises and its Resorts' blackjack tables for 90 days from the date of this opinion.
occupants, see State v. Shack, 58 N.J. at 308. In some circumstances, After that time, respondent is free to play blackjack at Resorts'
proprietors have a duty to remove disorderly or otherwise casino absent a valid Commission rule excluding him.
dangerous persons from the premises. See Holly v. Meyers Hotel
and Tavern, Inc., 9 N.J. 493, 495 (1952). These common law
principles enable the casino to bar from its entire facility, for
instance, the disorderly, the intoxicated, and the repetitive petty
offender.
The "Compaia Agricola Filipina" bought a considerable The trial judge, relying upon the terms of article 1473 of
quantity of rice-cleaning machinery company from the the Civil Code, gave judgment in favor of the machinery
defendant machinery company, and executed a chattel company, on the ground that the company had its title to
mortgage thereon to secure payment of the purchase the building registered prior to the date of registry of the
price. It included in the mortgage deed the building of plaintiff's certificate.
strong materials in which the machinery was installed,
without any reference to the land on which it stood. The
Article 1473 of the Civil Code is as follows:
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 If the same thing should have been sold to
mortgage instrument, and was bought in by the different vendees, the ownership shall be
machinery company. The mortgage was registered in transfer to the person who may have the first
the chattel mortgage registry, and the sale of the taken possession thereof in good faith, if it
property to the machinery company in satisfaction of the should be personal property.
mortgage was annotated in the same registry on
December 29, 1913. Should it be real property, it shall belong to the
person acquiring it who first recorded it in the
A few weeks thereafter, on or about the 14th of January, registry.
1914, the "Compaia Agricola Filipina" executed a deed
of sale of the land upon which the building stood to the Should there be no entry, the property shall
machinery company, but this deed of sale, although belong to the person who first took possession
executed in a public document, was not registered. This of it in good faith, and, in the absence thereof, to
deed makes no reference to the building erected on the the person who presents the oldest title,
land and would appear to have been executed for the provided there is good faith.
purpose of curing any defects which might be found to
exist in the machinery company's title to the building The registry her referred to is of course the registry of
under the sheriff's certificate of sale. The machinery real property, and it must be apparent that the
company went into possession of the building at or about annotation or inscription of a deed of sale of real
the time when this sale took place, that is to say, the property in a chattel mortgage registry cannot be given
month of December, 1913, and it has continued in the legal effect of an inscription in the registry of real
possession ever since. property. By its express terms, the Chattel Mortgage
Law contemplates and makes provision for mortgages of
At or about the time when the chattel mortgage was personal property; and the sole purpose and object of
executed in favor of the machinery company, the the chattel mortgage registry is to provide for the registry
mortgagor, the "Compaia Agricola Filipina" executed of "Chattel mortgages," that is to say, mortgages of
another mortgage to the plaintiff upon the building, personal property executed in the manner and form
separate and apart from the land on which it stood, to prescribed in the statute. The building of strong materials
secure payment of the balance of its indebtedness to the in which the rice-cleaning machinery was installed by the
plaintiff under a contract for the construction of the "Compaia Agricola Filipina" was real property, and the
building. Upon the failure of the mortgagor to pay the mere fact that the parties seem to have dealt with it
amount of the indebtedness secured by the mortgage, separate and apart from the land on which it stood in no
the plaintiff secured judgment for that amount, levied wise changed its character as real property. It follows
that neither the original registry in the chattel mortgage this provision must always be understood on the
of the building and the machinery installed therein, not basis of the good faith mentioned in the first
the annotation in that registry of the sale of the paragraph; the legislator could not have wished
mortgaged property, had any effect whatever so far as to strike it out and to sanction bad faith, just to
the building was concerned. comply with a mere formality which, in given
cases, does not obtain even in real disputes
We conclude that the ruling in favor of the machinery between third persons. (Note 2, art. 1473, Civ.
company cannot be sustained on the ground assigned Code, issued by the publishers of theLa Revista
by the trial judge. We are of opinion, however, that the de los Tribunales, 13th edition.)
judgment must be sustained on the ground that the
agreed statement of facts in the court below discloses The agreed statement of facts clearly discloses that the
that neither the purchase of the building by the plaintiff plaintiff, when he bought the building at the sheriff's sale
nor his inscription of the sheriff's certificate of sale in his and inscribed his title in the land registry, was duly
favor was made in good faith, and that the machinery notified that the machinery company had bought the
company must be held to be the owner of the property building from plaintiff's judgment debtor; that it had gone
under the third paragraph of the above cited article of the into possession long prior to the sheriff's sale; and that it
code, it appearing that the company first took was in possession at the time when the sheriff executed
possession of the property; and further, that the building his levy. The execution of an indemnity bond by the
and the land were sold to the machinery company long plaintiff in favor of the sheriff, after the machinery
prior to the date of the sheriff's sale to the plaintiff. company had filed its sworn claim of ownership, leaves
no room for doubt in this regard. Having bought in the
It has been suggested that since the provisions of article building at the sheriff's sale with full knowledge that at
1473 of the Civil Code require "good faith," in express the time of the levy and sale the building had already
terms, in relation to "possession" and "title," but contain been sold to the machinery company by the judgment
no express requirement as to "good faith" in relation to debtor, the plaintiff cannot be said to have been a
the "inscription" of the property on the registry, it must be purchaser in good faith; and of course, the subsequent
presumed that good faith is not an essential requisite of inscription of the sheriff's certificate of title must be held
registration in order that it may have the effect to have been tainted with the same defect.
contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the Perhaps we should make it clear that in holding that the
legislator to base the preferential right secured under inscription of the sheriff's certificate of sale to the plaintiff
this article of the code upon an inscription of title in bad was not made in good faith, we should not be
faith. Such an interpretation placed upon the language of understood as questioning, in any way, the good faith
this section would open wide the door to fraud and and genuineness of the plaintiff's claim against the
collusion. The public records cannot be converted into "Compaia Agricola Filipina." The truth is that both the
instruments of fraud and oppression by one who secures plaintiff and the defendant company appear to have had
an inscription therein in bad faith. The force and effect just and righteous claims against their common debtor.
given by law to an inscription in a public record No criticism can properly be made of the exercise of the
presupposes the good faith of him who enters such utmost diligence by the plaintiff in asserting and
inscription; and rights created by statute, which are exercising his right to recover the amount of his claim
predicated upon an inscription in a public registry, do not from the estate of the common debtor. We are strongly
and cannot accrue under an inscription "in bad faith," to inclined to believe that in procuring the levy of execution
the benefit of the person who thus makes the inscription. upon the factory building and in buying it at the sheriff's
sale, he considered that he was doing no more than he
Construing the second paragraph of this article of the had a right to do under all the circumstances, and it is
code, the supreme court of Spain held in its sentencia of highly possible and even probable that he thought at that
the 13th of May, 1908, 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
This rule is always to be understood on the
thought of the perpetration of a fraud upon the rights of
basis of the good faith mentioned in the first
another, in the ordinary sense of the word. He may have
paragraph; therefore, it having been found that
the second purchasers who record their hoped, and doubtless he did hope, that the title of the
purchase had knowledge of the previous sale, machinery company would not stand the test of an
action in a court of law; and if later developments had
the question is to be decided in accordance with
confirmed his unfounded hopes, no one could question
the following paragraph. (Note 2, art. 1473, Civ.
the legality of the propriety of the course he adopted.
Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, But it appearing that he had full knowledge of the
machinery company's claim of ownership when he
provides that the title of conveyance of
executed the indemnity bond and bought in the property
ownership of the real property that is first
at the sheriff's sale, and it appearing further that the
recorded in the registry shall have preference,
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.
The issue in this case, as announced in the opening sentence 5. Machinery, liquid containers, instruments or
of the decision in the trial court and as set forth by counsel for implements intended by the owner of any building or
the parties on appeal, involves the determination of the nature land for use in connection with any industry or trade
of the properties described in the complaint. The trial judge being carried on therein and which are expressly
found that those properties were personal in nature, and as a adapted to meet the requirements of such trade of
consequence absolved the defendants from the complaint, with industry.
costs against the plaintiff.
Appellant emphasizes the first paragraph, and appellees the
The Davao Saw Mill Co., Inc., is the holder of a lumber last mentioned paragraph. We entertain no doubt that the trial
concession from the Government of the Philippine Islands. It judge and appellees are right in their appreciation of the legal
has operated a sawmill in the sitio of Maa, barrio of Tigatu, doctrines flowing from the facts.
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 In the first place, it must again be pointed out that the appellant
which housed the machinery used by it. Some of the should have registered its protest before or at the time of the
implements thus used were clearly personal property, the sale of this property. It must further be pointed out that while
conflict concerning machines which were placed and mounted not conclusive, the characterization of the property as chattels
on foundations of cement. In the contract of lease between the by the appellant is indicative of intention and impresses upon
sawmill company and the owner of the land there appeared the the property the character determined by the parties. In this
following provision: connection the decision of this court in the case of Standard Oil
Co. of New Yorkvs. Jaramillo ( [1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a
That on the expiration of the period agreed upon, all situation.
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 It is, however not necessary to spend overly must time in the
without any obligation on its part to pay any amount resolution of this appeal on side issues. It is machinery which
for said improvements and buildings; also, in the is involved; moreover, machinery not intended by the owner of
event the party of the second part should leave or any building or land for use in connection therewith, but
abandon the land leased before the time herein intended by a lessee for use in a building erected on the land
stipulated, the improvements and buildings shall by the latter to be returned to the lessee on the expiration or
likewise pass to the ownership of the party of the first abandonment of the lease.
part as though the time agreed upon had expired:
Provided, however, That the machineries and A similar question arose in Puerto Rico, and on appeal being
accessories are not included in the improvements taken to the United States Supreme Court, it was held that
which will pass to the party of the first part on the machinery which is movable in its nature only becomes
expiration or abandonment of the land leased. immobilized when placed in a plant by the owner of the
property or plant, but not when so placed by a tenant, a
In another action, wherein the Davao Light & Power Co., Inc., usufructuary, or any person having only a temporary right,
was the plaintiff and the Davao, Saw, Mill Co., Inc., was the unless such person acted as the agent of the owner. In the
defendant, a judgment was rendered in favor of the plaintiff in opinion written by Chief Justice White, whose knowledge of the
that action against the defendant in that action; a writ of Civil Law is well known, it was in part said:
execution issued thereon, and the properties now in question
were levied upon as personalty by the sheriff. No third party To determine this question involves fixing the nature
claim was filed for such properties at the time of the sales and character of the property from the point of view of
thereof as is borne out by the record made by the plaintiff the rights of Valdes and its nature and character from
herein. Indeed the bidder, which was the plaintiff in that action, the point of view of Nevers & Callaghan as a
and the defendant herein having consummated the sale, judgment creditor of the Altagracia Company and the
proceeded to take possession of the machinery and other rights derived by them from the execution levied on
properties described in the corresponding certificates of sale the machinery placed by the corporation in the plant.
executed in its favor by the sheriff of Davao. Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property, not only land and
As connecting up with the facts, it should further be explained buildings, but also attributes immovability in some
that the Davao Saw Mill Co., Inc., has on a number of cases to property of a movable nature, that is,
occasions treated the machinery as personal property by personal property, because of the destination to which
executing chattel mortgages in favor of third persons. One of 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 Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
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.
Briones and Martinez for appellant. On June 10, 1927, B.A. Green, president of the
Araneta, Zaragoza and Araneta for appellees Cu Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos
Unjieng e Hijos. for an additional loan of P75,000 offering as security the
No appearance for the other appellees. additional machinery and equipment acquired by said
B.A. Green and installed in the sugar central after the
VILLA-REAL, J.: execution of the original mortgage deed, on April 27,
1927, together with whatever additional equipment
This is an appeal taken by the plaintiff, B.H. acquired with said loan. B.A. Green failed to obtain said
Berkenkotter, from the judgment of the Court of First loan.
Instance of Manila, dismissing said plaintiff's complaint
against Cu Unjiengs e Hijos et al., with costs. Article 1877 of the Civil Code provides as follows.
In support of his appeal, the appellant assigns six ART. 1877. A mortgage includes all natural
alleged errors as committed by the trial court in its accessions, improvements, growing fruits, and
decision in question which will be discussed in the rents not collected when the obligation falls due,
course of this decision. and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged
The first question to be decided in this appeal, which is property or by virtue of the exercise of the power
raised in the first assignment of alleged error, is whether of eminent domain, with the declarations,
or not the lower court erred in declaring that the amplifications, and limitations established by
additional machinery and equipment, as improvement law, whether the estate continues in the
incorporated with the central are subject to the mortgage possession of the person who mortgaged it or
deed executed in favor of the defendants Cu Unjieng e whether it passes into the hands of a third
Hijos. person.
It is admitted by the parties that on April 26, 1926, the In the case of Bischoff vs. Pomar and Compaia
Mabalacat Sugar Co., Inc., owner of the sugar central General de Tabacos (12 Phil., 690), cited with approval
situated in Mabalacat, Pampanga, obtained from the in the case of Cea vs. Villanueva (18 Phil., 538), this
defendants, Cu Unjieng e Hijos, a loan secured by a first court laid shown the following doctrine:
mortgage constituted on two parcels and land "with all its
buildings, improvements, sugar-cane mill, steel railway, 1. REALTY; MORTGAGE OF REAL ESTATE
telephone line, apparatus, utensils and whatever forms INCLUDES IMPROVEMENTS AND FIXTURES.
part or is necessary complement of said sugar-cane mill, It is a rule, established by the Civil Code and
steel railway, telephone line, now existing or that may in also by the Mortgage Law, with which the
the future exist is said lots." decisions of the courts of the United States are
in accord, that in a mortgage of real estate, the
On October 5, 1926, shortly after said mortgage had improvements on the same are included;
been constituted, the Mabalacat Sugar Co., Inc., decided therefore, all objects permanently attached to a
to increase the capacity of its sugar central by buying mortgaged building or land, although they may
additional machinery and equipment, so that instead of have been placed there after the mortgage was
milling 150 tons daily, it could produce 250. The constituted, are also included. (Arts. 110 and
estimated cost of said additional machinery and 111 of the Mortgage Law, and 1877 of the Civil
equipment was approximately P100,000. In order to Code; decision of U.S. Supreme Court in the
carry out this plan, B.A. Green, president of said matter of Royal Insurance Co. vs. R. Miller,
corporation, proposed to the plaintiff, B.H. Berkenkotter,
liquidator, and Amadeo [26 Sup. Ct. Rep., 46; encumbering them until Berkenkotter has been fully
199 U.S., 353].) reimbursed therefor, is not incompatible with the
permanent character of the incorporation of said
2. ID.; ID.; INCLUSION OR EXCLUSION OF machinery and equipment with the sugar central of the
MACHINERY, ETC. In order that it may be Mabalacat Sugar Co., Inc., as nothing could prevent B.A.
understood that the machinery and other objects Green from giving them as security at least under a
placed upon and used in connection with a second mortgage.
mortgaged estate are excluded from the
mortgage, when it was stated in the mortgage As to the alleged sale of said machinery and equipment
that the improvements, buildings, and machinery to the plaintiff and appellant after they had been
that existed thereon were also comprehended, it permanently incorporated with sugar central of the
is indispensable that the exclusion thereof be Mabalacat Sugar Co., Inc., and while the mortgage
stipulated between the contracting parties. constituted on said sugar central to Cu Unjieng e Hijos
remained in force, only the right of redemption of the
The appellant contends that the installation of the vendor Mabalacat Sugar Co., Inc., in the sugar central
machinery and equipment claimed by him in the sugar with which said machinery and equipment had been
central of the Mabalacat Sugar Company, Inc., was not incorporated, was transferred thereby, subject to the
permanent in character inasmuch as B.A. Green, in right of the defendants Cu Unjieng e Hijos under the first
proposing to him to advance the money for the purchase mortgage.
thereof, made it appear in the letter, Exhibit E, that in
case B.A. Green should fail to obtain an additional loan For the foregoing considerations, we are of the opinion
from the defendants Cu Unjieng e Hijos, said machinery and so hold: (1) That the installation of a machinery and
and equipment would become security therefor, said equipment in a mortgaged sugar central, in lieu of
B.A. Green binding himself not to mortgage nor another of less capacity, for the purpose of carrying out
encumber them to anybody until said plaintiff be fully the industrial functions of the latter and increasing
reimbursed for the corporation's indebtedness to him. production, constitutes a permanent improvement on
said sugar central and subjects said machinery and
Upon acquiring the machinery and equipment in equipment to the mortgage constituted thereon (article
question with money obtained as loan from the plaintiff- 1877, Civil Code); (2) that the fact that the purchaser of
appellant by B.A. Green, as president of the Mabalacat the new machinery and equipment has bound himself to
Sugar Co., Inc., the latter became owner of said the person supplying him the purchase money to hold
machinery and equipment, otherwise B.A. Green, as them as security for the payment of the latter's credit,
such president, could not have offered them to the and to refrain from mortgaging or otherwise
plaintiff as security for the payment of his credit. encumbering them does not alter the permanent
character of the incorporation of said machinery and
Article 334, paragraph 5, of the Civil Code gives the equipment with the central; and (3) that the sale of the
machinery and equipment in question by the purchaser
character of real property to "machinery, liquid
who was supplied the purchase money, as a loan, to the
containers, instruments or implements intended by the
person who supplied the money, after the incorporation
owner of any building or land for use in connection with
thereof with the mortgaged sugar central, does not vest
any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such the creditor with ownership of said machinery and
trade or industry. equipment but simply with the right of redemption.
The conditions of the mortgage contract which are 4) That subsequent releases on this
relevant to this case are the following: loan shall be controlled in such manner
that the amount to be released shall
2. The MORTGAGOR shall not sell, dispose of, depend on the progress of the work
mortgage, nor in any manner encumber the done on the proposed building but in no
case shall the amount to be released
and the amounts already released 1. The Trial Court erred in holding that it is not
exceed 60% of the appraised value of true that defendants have not defaulted in any of
the lots and the existing improvements their obligations under the mortgage contract.
thereon as of every release;
2. The Trial Court erred in ruling that with
xxx xxx xxx respect to the liens and encumbrances, the
defendants' failure to pay the balance of the
6) That the proposed building shall be purchase price of the mortgaged properties from
completed within twelve (12) months their original owners subjected the said
from the date the first release of this properties to a vendor's lien.
loan is made;
3. The Trial Court erred in holding that the
The first release in the amount of P819,000.00 was machineries on the mortgaged properties are
made on November 7, 1957, while the second (and last) part of the mortgage and that the removal and
release in the amount of P30,000.00 was made on May subsequent disposal of the same therefrom by
15, 1958. The checks covering both releases were the defendants violated the said mortgage
drawn in favor of the vendor of the mortgaged contract.
properties.
4. The Trial Court erred in holding that
In accordance with the agreement between the parties, defendant Calsons, Inc., has failed to reduce its
the old building standing on the mortgaged properties account on the loan to at least P819,000.00 and
was insured for P300,000.00 on December 1, 1959. that such failure is a clear violation of a contract
Appellee advanced the sum of P5,628.00 for the annual of mortgage.
premium, but appellants failed to reimburse the same.
5. The Trial Court erred in holding that the
Appellee filed a complaint for the foreclosure of the defendants failed despite demand therefor, to
mortgage with the Court of First Instance of Manila on pay the amortization due and payable, including
August 11, 1958, alleging a number of violations of the interests and surcharges on the portion of the
mortgage contract, to wit: (1) that the mortgaged loan released to them.
properties had not been freed by the mortgagor from
certain liens and encumbrances other than the mortgage 6. The Trial Court erred in rendering judgment
itself; (2) that without the prior written consent of plaintiff for plaintiff and against the defendants ordering
defendants removed and disposed of the complete band the latter to pay jointly and severally the plaintiff
sawmill and filing machine which formed part of the of the sum of (1) P819,000.00 with interests at
properties mortgaged; (3) that defendant Calsons, Inc., the rate of 7% per annum compounded monthly
failed to submit to appellee evidence showing the from November 8, 1957 until the same is fully
reduction of defendant's account on the lot to at least paid; (2) P30,000.00 with interests at the rate of
P819,000.00; (4) and that Calsons, Inc., failed to begin, 7% per annum compounded monthly, from May
much less complete, the construction of the supermarket 16, 1958 until the same is fully paid; (3)
building on the mortgaged properties. On August 11, P5,628.00 yearly insurance premium with
1959, plaintiff filed supplemental complaint, which was interests of 7% per annum compounded
admitted without opposition. Two additional grounds for monthly, from December, 1959 until the same is
the foreclosure of the mortgage were alleged, namely: fully paid; (4) the sum equivalent to 10% of the
(1) that defendants failed, despite demands therefor, to foregoing sums as expenses of collection and
pay the amortizations due and payable, including attorney's fees, plus the costs of this action.
accrued interest and surcharges, on the portion of the
loan released to them; and (2) that defendants failed to 7. The Trial Court erred in failing and/or
complete the construction of the textile market building neglecting to act and pass upon the
on the mortgaged properties within 12 months from counterclaim of the defendants-appellants
November 7, 1957, the date of the first release of notwithstanding the fact that said counterclaim is
P819,000.00. fully established by the evidence on records.
Judgment was rendered on March 3, 1962 in favor of The second and fourth errors assigned are interrelated
plaintiff, and defendants brought this appeal directly to and will first be taken up. The two certificates of title
this Court in view of the amount involved. covering the mortgaged properties do not show any lien
or encumbrance thereon other than the mortgage itself.
In their brief, appellants make the following assignment This is admitted by both parties. Appellee refers,
of errors: however, to the vendor's lien in favor of the former
owners, representing the unpaid balance of P280,000.00
on the purchase price of the lots mortgaged. The lien,
appellee point out, is a legal encumbrance and therefore
effective, although not recorded. On the other hand, all liens and encumbrances," as provided in the
appellants contend that appellee is estopped from mortgage contract.
invoking its right to have the mortgaged properties free
from the vendor's lien on two grounds, namely: (1) that Estoppel is invoked by appellants on the basis of a letter
appellant had previous knowledge of said lien as dated October 28, 1957, sent by the Manager of
evidenced by the two releases of P819,000 and P30,000 appellee's Real Estate Department to the vendor of the
directly to the vendor of the mortgaged properties, and properties, to the effect that the balance of the purchase
(2) that appellant committed itself to pay to the said price in the amount of P280,000.00 would be released
vendor the amount of P280,000.00, balance on the within six (6) months from the date of the said letter. The
purchase price, within a period of six (6) months from commitment of said Manager was not recognized by the
October 28, 1957. Board of Trustees of the appellee as shown by the fact
that it was not incorporated in the mortgage contract,
The contention cannot be sustained on the first ground. which was executed on a later date October 31, 1957.
One of the reasons why appellant Calsons, Inc., applied While the schedule of subsequent releases was clearly
for the P2,000,000.00 loan was precisely to use part defined in the mortgage contract, no mention was made
thereof to pay the balance of the purchase price of five about the said commitment. Thus, Paragraph 14 (4) of
(5) parcels of land it mortgaged to appellee. And to the mortgage contract states:
assure itself that no vendor's lien attached to the said
properties appellee caused the following conditions to be (4) .That subsequent releases on this loan shall
added to the original terms of the mortgage contract: be controlled in such manner that the amount to
be released shall depend in the progress of the
2) That the first release of P819,000.00 on this work done on the proposed building but in no
loan shall be made only after: case shall the amount to be released and the
amounts already released exceed 60% of the
e. The submission of evidence showing appraised value of the lots and the existing
the reduction of applicant's account on improvements thereon as of every release;
the lot to at least P819,000.00;
Regarding the third error assigned, appellants do not
d. The submission of the certificates of deny the fact that they removed and disposed of the
title in the name of the applicant to the machineries installed in the building which were standing
property offered as collateral for this on the mortgaged properties. However, they contend
loan; provided, that if the said that the said machineries were not included in the
certificates of title could not be secured mortgage. The contention is groundless.
without paying the balance of the
purchase price, said balance shall be The mortgage was on the lands "together with all the
paid first from the first release of this buildings and improvements now existing or which may
loan; hereafter be constructed" thereon. And the machineries,
as found by the trial court, were permanently attached to
3) That the check covering the obligation of the property, and installed there by the former owner to
applicant on the lots offered as collateral shall meet the needs of certain works or industry therein.
be drawn in favor of the vendor of said lots; They were therefore part of the immovable pursuant to
Article 415 of the Civil Code, and need not be the
subject of a separate chattel mortgage in order to be
Pursuant to the foregoing conditions the check covering
deemed duly encumbered in favor of appellee.
the first release of P819,000.00 was drawn in favor of
the vendor of the properties, and the release was made
upon submission of the two transfer certificates of title Under the fifth assignment of error, appellants point out
already in the name of appellant Calsons, Inc., as that there is no time specified in the mortgage contract
vendee, without any annotation thereon of any lien or within which the amortizations on the loan should begin
encumbrance except the mortgage itself in favor of to be paid, and conclude that they should begin only
appellee. It turned out, however, that appellants had from the time the proposed building started earning
failed to reduce their account on the lot to P819,000.00, rentals. The provision of Paragraph 14 (13) of the
as stipulated in the mortgage contract, since there was mortgage contract is invoked, to wit:
still a balance of P280,000 on the purchase price. With
respect to the second release of P30,000.00, the check That rentals from the proposed building
was also drawn in favor of the vendor with the equivalent to the monthly amortization on this
understanding that it would be used to pay the real loan shall be assigned in favor of and made
estate taxes due on said properties and thus remove the payable to the System.
corresponding tax lien imposed by law.
As a corollary argument, appellants add that since the
The steps taken by appellee negate any inference that it present action was instituted three (3) months before the
agreed to waive its right to have the properties "free from expiration of the twelve-month period (from November 7,
1957) within which the construction of the supermarket
building should be completed the premature institution of
the suit rendered the construction of said building
impossible, and hence no default in payment was
incurred.
(b) Storm Boring Machine, appearing in the 4. The Tax Court erred in denying petitioner's motion
attached photograph, marked Annex "B"; for reconsideration.
(c) Lathe machine with motor, appearing in Respondents contend that said equipments, tho movable, are
the attached photograph, marked Annex "C"; immobilized by destination, in accordance with paragraph 5 of
Article 415 of the New Civil Code which provides:
(d) Black and Decker Grinder, appearing in
the attached photograph, marked Annex "D"; Art. 415. The following are immovable properties:
Note that the stipulation expressly states that the equipment The law that governs the determination of the question at issue
are placed on wooden or cement platforms. They can be is as follows:
moved around and about in petitioner's repair shop. In the case
of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Art. 415. The following are immovable property:
Supreme Court said:
xxx xxx xxx
Article 344 (Now Art. 415), paragraph (5) of the Civil
Code, gives the character of real property to
"machinery, liquid containers, instruments or (5) Machinery, receptacles, instruments or
implements intended by the owner of any building or implements intended by the owner of the tenement for
land for use in connection with any industry or trade an industry or works which may be carried on in a
being carried on therein and which are expressly building or on a piece of land, and which tend directly
adapted to meet the requirements of such trade or to meet the needs of the said industry or works; (Civil
industry." Code of the Phil.)
If the installation of the machinery and equipment in Aside from the element of essentiality the above-quoted
question in the central of the Mabalacat Sugar Co., provision also requires that the industry or works be carried
Inc., in lieu of the other of less capacity existing on in a building or on a piece of land. Thus in the case
therein, for its sugar and industry, converted them into of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid
real property by reason of their purpose, it cannot be containers, and instruments or implements" are found in a
said that their incorporation therewith was not building constructed on the land. A sawmill would also be
permanent in character because, as essential and installed in a building on land more or less permanently, and
principle elements of a sugar central, without them the the sawing is conducted in the land or building.
sugar central would be unable to function or carry on
the industrial purpose for which it was established. But in the case at bar the equipments in question are destined
Inasmuch as the central is permanent in character, only to repair or service the transportation business, which is
the necessary machinery and equipment installed for not carried on in a building or permanently on a piece of land,
carrying on the sugar industry for which it has been as demanded by the law. Said equipments may not, therefore,
established must necessarily be permanent. be deemed real property.
(Emphasis ours.)
Resuming what we have set forth above, we hold that the
So that movable equipments to be immobilized in equipments in question are not absolutely essential to the
contemplation of the law must first be "essential and principal petitioner's transportation business, and petitioner's business is
elements" of an industry or works without which such industry not carried on in a building, tenement or on a specified land, so
or works would be "unable to function or carry on the industrial said equipment may not be considered real estate within the
purpose for which it was established." We may here meaning of Article 415 (c) of the Civil Code.
distinguish, therefore, those movable which become
immobilized by destination because they are essential and WHEREFORE, the decision subject of the petition for review is
principal elements in the industry for those which may not be hereby set aside and the equipment in question declared not
so considered immobilized because they are merely incidental, subject to assessment as real estate for the purposes of the
not essential and principal. Thus, cash registers, typewriters, real estate tax. Without costs.
etc., usually found and used in hotels, restaurants, theaters,
etc. are merely incidentals and are not and should not be
considered immobilized by destination, for these businesses
can continue or carry on their functions without these equity
comments. Airline companies use forklifts, jeep-wagons,
pressure pumps, IBM machines, etc. which are incidentals, not
essentials, and thus retain their movable nature. On the other
hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but
the delivery trucks and adding machines which they usually
own and use and are found within their industrial compounds
are merely incidental and retain their movable nature.
SECTION 1. How judgment rendered. All The second question raised in this appeal, which has been
judgments determining the merits of cases shall be in passed upon by the Court of Appeals, concerns the validity of
writing personally and directly prepared by the judge, the proceedings of the sheriff in selling the sawmill machineries
and signed by him, stating clearly and distinctly the and equipments at public auction with a notice of the sale
facts and the law on which it is based, filed with the having been previously published.
clerk of the court.
The record shows that after petitioner herein Pastor D. Ago
The court of first instance being a court of record, in order that had purchased the sawmill machineries and equipments he
a judgment may be considered as rendered, must not only be assigned the same to the Golden Pacific Sawmill, Inc. in
in writing, signed by the judge, but it must also be filed with the payment of his subscription to the shares of stock of said
clerk of court. The mere pronouncement of the judgment in corporation. Thereafter the sawmill machinery and equipments
open court with the stenographer taking note thereof does not, were installed in a building and permanently attached to the
therefore, constitute a rendition of the judgment. It is the filing ground. By reason of such installment in a building, the said
of the signed decision with the clerk of court that constitutes sawmill machineries and equipment became real estate
rendition. While it is to be presumed that the judgment that was properties in accordance with the provision of Art. 415 (5) of
dictated in open court will be the judgment of the court, the the Civil Code, thus:
court may still modify said order as the same is being put into
writing. And even if the order or judgment has already been put ART. 415. The following are immovable property:
into writing and signed, while it has not yet been delivered to
the clerk for filing it is still subject to amendment or change by
the judge. It is only when the judgment signed by the judge is xxx xxx xxx
actually filed with the clerk of court that it becomes a valid and
binding judgment. Prior thereto, it could still be subject to (5) Machinery, receptacles, instruments or
amendment and change and may not, therefore, constitute the implements tended by the owner of the tenement for
real judgment of the court. an industry or works which may be carried on in a
building or on a piece of land, and which tend directly
Regarding the notice of judgment, the mere fact that a party to meet the needs of the said industry or works;
heard the judge dictating the judgment in open court, is not a
valid notice of said judgment. If rendition thereof is constituted This Court in interpreting a similar question raised before it in
by the filing with the clerk of court of a signed copy (of the the case of Berkenkotter vs. Cu Unjieng e Hijos, 61 Phil. 683,
judgment), it is evident that the fact that a party or an attorney held that the installation of the machine and equipment in the
heard the order or judgment being dictated in court cannot be central of the Mabalacat Sugar Co., Inc. for use in connection
considered as notice of the real judgment. No judgment can be with the industry carried by the company, converted the said
notified to the parties unless it has previously been rendered. machinery and equipment into real estate by reason of their
The notice, therefore, that a party has of a judgment that was purpose. Paraphrasing language of said decision we hold that
being dictated is of no effect because at the time no judgment by the installment of the sawmill machineries in the building of
has as yet been signed by the judge and filed with the clerk. the Gold Pacific Sawmill, Inc., for use in the sawing of logs
carried on in said building, the same became a necessary and
Besides, the Rules expressly require that final orders or permanent part of the building or real estate on which the
judgments be served personally or by registered mail. Section same was constructed, converting the said machineries and
7 of Rule 27 provides as follows: equipments into real estate within the meaning of Article 415(5)
above-quoted of the Civil Code of the Philippines.
Considering that the machineries and equipments in question
valued at more than P15,000.00 appear to have been sold
without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of
Court, which is as follows:
the sale made by the sheriff must be declared null and void. G.R. No. 137705 August 22, 2000
WHEREFORE, the decision of the Court of Appeals sought to SERG'S PRODUCTS, INC., and SERGIO T.
be reviewed is hereby set aside and We declare that the GOQUIOLAY, petitioners,
issuance of the writ of execution in this case against the vs.
sawmill machineries and equipments purchased by petitioner PCI LEASING AND FINANCE, INC., respondent.
Pastor D. Ago from the Grace Park Engineering, Inc., as well
as the sale of the same by the Sheriff of Surigao, are null and
void. Costs shall be against the respondent Grace Park DECISION
Engineering, Inc.
PANGANIBAN, J.:
The Case
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 Resolution8 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 "Furthermore, to accord merit to this petition would be to
equipments he may have removed."9 preempt the trial court in ruling upon the case below, since the
merits of the whole matter are laid down before us via a
The Facts 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
The undisputed facts are summarized by the Court of Appeals are proper subjects of a full-blown trial, necessitating
as follows:10 presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a
"On February 13, 1998, respondent PCI Leasing and Finance, matter x x x which respondent court is in the best position to
Inc. ("PCI Leasing" for short) filed with the RTC-QC a determine."
complaint for [a] sum of money (Annex E), with an application
for a writ of replevin docketed as Civil Case No. Q-98-33500. Hence, this Petition.11
"On March 24, 1998, in implementation of said writ, the sheriff "A. Whether or not the machineries purchased and imported by
proceeded to petitioners factory, seized one machinery with SERGS became real property by virtue of immobilization.
[the] word that he [would] return for the other machineries.
B. Whether or not the contract between the parties is a loan or
"On March 25, 1998, petitioners filed a motion for special a lease."12
protective order (Annex C), invoking the power of the court to
control the conduct of its officers and amend and control its In the main, the Court will resolve whether the said machines
processes, praying for a directive for the sheriff to defer are personal, not immovable, property which may be a proper
enforcement of the writ of replevin. subject of a writ of replevin. As a preliminary matter, the Court
will also address briefly the procedural points raised by
"This motion was opposed by PCI Leasing (Annex F), on the respondent.
ground that the properties [were] still personal and therefore
still subject to seizure and a writ of replevin. The Courts Ruling
"In their Reply, petitioners asserted that the properties sought The Petition is not meritorious.
to be seized [were] immovable as defined in Article 415 of the
Civil Code, the parties agreement to the contrary Preliminary Matter:Procedural Questions
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 Respondent contends that the Petition failed to indicate
these machineries as personal because the contracts in which expressly whether it was being filed under Rule 45 or Rule 65
the alleged agreement [were] embodied [were] totally sham of the Rules of Court. It further alleges that the Petition
and farcical. erroneously impleaded Judge Hilario Laqui as respondent.
"On April 6, 1998, the sheriff again sought to enforce the writ of There is no question that the present recourse is under Rule
seizure and take possession of the remaining properties. He 45. This conclusion finds support in the very title of the Petition,
was able to take two more, but was prevented by the workers which is "Petition for Review on Certiorari."13
from taking the rest.
While Judge Laqui should not have been impleaded as a
"On April 7, 1998, they went to [the CA] via an original action respondent,14 substantial justice requires that such lapse by
for certiorari." 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.
Ruling of the Court of Appeals
Main Issue: Nature of the Subject Machinery
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 Petitioners contend that the subject machines used in their
ruled that the "words of the contract are clear and leave no factory were not proper subjects of the Writ issued by the RTC,
doubt upon the true intention of the contracting parties." because they were in fact real property. Serious policy
Observing that Petitioner Goquiolay was an experienced considerations, they argue, militate against a contrary
businessman who was "not unfamiliar with the ways of the characterization.
trade," it ruled that he "should have realized the import of the
document he signed." The CA further held: 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 "x x x. If a house of strong materials, like what was involved in
of the bond, the court shall issue an order and the the above Tumalad case, may be considered as personal
corresponding writ of replevin describing the personal property property for purposes of executing a chattel mortgage thereon
alleged to be wrongfully detained and requiring the sheriff as long as the parties to the contract so agree and no innocent
forthwith to take such property into his custody." third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and
On the other hand, Article 415 of the Civil Code enumerates becomes immobilized only by destination or purpose, may not
immovable or real property as follows: be likewise treated as such. This is really because one who
has so agreed is estopped from denying the existence of the
chattel mortgage."
"ART. 415. The following are immovable property:
In the present case, the Lease Agreement clearly provides that
xxx xxx xxx the machines in question are to be considered as personal
property. Specifically, Section 12.1 of the Agreement reads as
(5) Machinery, receptacles, instruments or implements follows:21
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, "12.1 The PROPERTY is, and shall at all times be and remain,
and which tend directly to meet the needs of the said industry personal property notwithstanding that the PROPERTY or any
or works; part thereof may now be, or hereafter become, in any manner
affixed or attached to or embedded in, or permanently resting
xxx xxx x x x" upon, real property or any building thereon, or attached in any
manner to what is permanent."
In the present case, the machines that were the subjects of the
Writ of Seizure were placed by petitioners in the factory built on Clearly then, petitioners are estopped from denying the
their own land. Indisputably, they were essential and principal characterization of the subject machines as personal property.
elements of their chocolate-making industry. Hence, although Under the circumstances, they are proper subjects of the Writ
each of them was movable or personal property on its own, all of Seizure.
of them have become "immobilized by destination because
they are essential and principal elements in the industry." 16 In It should be stressed, however, that our holding -- that the
that sense, petitioners are correct in arguing that the said machines should be deemed personal property pursuant to the
machines are real, not personal, property pursuant to Article Lease Agreement is good only insofar as the contracting
415 (5) of the Civil Code.17 parties are concerned.22 Hence, while the parties are bound by
the Agreement, third persons acting in good faith are not
Be that as it may, we disagree with the submission of the affected by its stipulation characterizing the subject machinery
petitioners that the said machines are not proper subjects of as personal.23 In any event, there is no showing that any
the Writ of Seizure. specific third party would be adversely affected.
The Court has held that contracting parties may validly Validity of the Lease Agreement
stipulate that a real property be considered as personal. 18After
agreeing to such stipulation, they are consequently estopped In their Memorandum, petitioners contend that the Agreement
from claiming otherwise. Under the principle of estoppel, a is a loan and not a lease.24 Submitting documents supposedly
party to a contract is ordinarily precluded from denying the showing that they own the subject machines, petitioners also
truth of any material fact found therein. argue in their Petition that the Agreement suffers from "intrinsic
ambiguity which places in serious doubt the intention of the
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention parties and the validity of the lease agreement itself." 25 In their
of the parties to treat a house as a personal property because Reply to respondents Comment, they further allege that the
it had been made the subject of a chattel mortgage. The Court Agreement is invalid.26
ruled:
These arguments are unconvincing. The validity and the nature
"x x x. Although there is no specific statement referring to the of the contract are the lis mota of the civil action pending
subject house as personal property, yet by ceding, selling or before the RTC. A resolution of these questions, therefore, is
transferring a property by way of chattel mortgage defendants- effectively a resolution of the merits of the case. Hence, they
appellants could only have meant to convey the house as should be threshed out in the trial, not in the proceedings
chattel, or at least, intended to treat the same as such, so that involving the issuance of the Writ of Seizure.
they should not now be allowed to make an inconsistent stand
by claiming otherwise." Indeed, in La Tondea Distillers v. CA,27 the Court explained
that the policy under Rule 60 was that questions involving title
Applying Tumalad, the Court in Makati Leasing and Finance to the subject property questions which petitioners are now
Corp. v. Wearever Textile Mills20 also held that the machinery raising -- should be determined in the trial. In that case, the
used in a factory and essential to the industry, as in the Court noted that the remedy of defendants under Rule 60 was
present case, was a proper subject of a writ of replevin either to post a counter-bond or to question the sufficiency of
because it was treated as personal property in a contract. the plaintiffs bond. They were not allowed, however, to invoke
Pertinent portions of the Courts ruling are reproduced the title to the subject property. The Court ruled:
hereunder:
"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 WHEREFORE, the Petition is DENIED and the assailed
relied upon therefor, as in proceedings on preliminary Decision of the Court of Appeals AFFIRMED. Costs against
attachment or injunction, and thereby put at issue the matter of petitioners.
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
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.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the In holding that the deed of real estate and chattel mortgages
mortgage and for damages, which consisted of liquidated damages appended to the complaint is valid, notwithstanding the fact that
in the sum of P500.00 and 12% per annum interest on the principal, the house of the defendant Rufino G. Pineda was made the subject
effective on the date of maturity, until fully paid. of the chattel mortgage, for the reason that it is erected on a land
that belongs to a third person.
Defendants, answering the complaint, among others, stated
Appellants contend that article 415 of the New Civil Code, in
Defendants admit that the loan is overdue but deny that portion of classifying a house as immovable property, makes no distinction
paragraph 4 of the First Cause of Action which states that the whether the owner of the land is or not the owner of the building;
defendants unreasonably failed and refuse to pay their obligation to the fact that the land belongs to another is immaterial, it is enough
the plaintiff the truth being the defendants are hard up these days that the house adheres to the land; that in case of immovables by
and pleaded to the plaintiff to grant them more time within which to incorporation, such as houses, trees, plants, etc; the Code does not
pay their obligation and the plaintiff refused; require that the attachment or incorporation be made by the owner
of the land, the only criterion being the union or incorporation with
WHEREFORE, in view of the foregoing it is most respectfully prayed the soil. In other words, it is claimed that "a building is an
that this Honorable Court render judgment granting the defendants immovable property, irrespective of whether or not said structure
until January 31, 1961, within which to pay their obligation to the and the land on which it is adhered to, belong to the same owner"
plaintiff. (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
On September 30, 1960, plaintiff presented a Motion for summary argue that since only movables can be the subject of a chattel
Judgment, claiming that the Answer failed to tender any genuine mortgage (sec. 1, Act No. 3952) then the mortgage in question
and material issue. The motion was set for hearing, but the record is which is the basis of the present action, cannot give rise to an action
not clear what ruling the lower court made on the said motion. On
for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. owner of the house himself. In the case of Lopez v. Orosa, (L-10817-
v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.) 18), the subject building was a theatre, built of materials worth
more than P62,000, attached permanently to the soil. In these cases
The trial court did not predicate its decision declaring the deed of and in the Leung Yee case, supra, third persons assailed the validity
chattel mortgage valid solely on the ground that the house of the deed of chattel mortgages; in the present case, it was one of
mortgaged was erected on the land which belonged to a third the parties to the contract of mortgages who assailed its validity.
person, but also and principally on the doctrine of estoppel, in that
"the parties have so expressly agreed" in the mortgage to consider CONFORMABLY WITH ALL THE FOREGOING, the decision appealed
the house as chattel "for its smallness and mixed materials from, should be, as it is hereby affirmed, with costs against
of sawali and wood". In construing arts. 334 and 335 of the Spanish appellants.
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).
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
G.R. No. L-58469 May 16, 1983 that the machinery in suit cannot be the subject of replevin,
much less of a chattel mortgage, because it is a real property
MAKATI LEASING and FINANCE pursuant to Article 415 of the new Civil Code, the same being
CORPORATION, petitioner, attached to the ground by means of bolts and the only way to
vs. remove it from respondent's plant would be to drill out or
WEAREVER TEXTILE MILLS, INC., and HONORABLE destroy the concrete floor, the reason why all that the sheriff
COURT OF APPEALS, respondents. could do to enfore the writ was to take the main drive motor of
said machinery. The appellate court rejected petitioner's
argument that private respondent is estopped from claiming
Loreto C. Baduan for petitioner. that the machine is real property by constituting a chattel
mortgage thereon.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for
petitioner. A motion for reconsideration of this decision of the Court of
Appeals having been denied, petitioner has brought the case
Jose V. Mancella for respondent. to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was
DE CASTRO, J.: rendered moot and academic by petitioner's act of returning
the subject motor drive of respondent's machinery after the
Court of Appeals' decision was promulgated.
Petition for review on certiorari of the decision of the Court of
Appeals (now Intermediate Appellate Court) promulgated on
August 27, 1981 in CA-G.R. No. SP-12731, setting aside The contention of private respondent is without merit. When
certain Orders later specified herein, of Judge Ricardo J. petitioner returned the subject motor drive, it made itself
Francisco, as Presiding Judge of the Court of First instance of unequivocably clear that said action was without prejudice to a
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the motion for reconsideration of the Court of Appeals decision, as
resolution dated September 22, 1981 of the said appellate shown by the receipt duly signed by respondent's
court, denying petitioner's motion for reconsideration. representative. 1 Considering that petitioner has reserved its
right to question the propriety of the Court of Appeals' decision,
the contention of private respondent that this petition has been
It appears that in order to obtain financial accommodations mooted by such return may not be sustained.
from herein petitioner Makati Leasing and Finance
Corporation, the private respondent Wearever Textile Mills,
Inc., discounted and assigned several receivables with the The next and the more crucial question to be resolved in this
former under a Receivable Purchase Agreement. To secure Petition is whether the machinery in suit is real or personal
the collection of the receivables assigned, private respondent property from the point of view of the parties, with petitioner
executed a Chattel Mortgage over certain raw materials arguing that it is a personality, while the respondent claiming
inventory as well as a machinery described as an Artos Aero the contrary, and was sustained by the appellate court, which
Dryer Stentering Range. accordingly held that the chattel mortgage constituted thereon
is null and void, as contended by said respondent.
From what has been said above, the error of the appellate
court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover, the case
of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to the case
at bar, the nature of the machinery and equipment involved
BENGUET CORPORATION, petitioner, We find the appraisal on the land
vs. submerged as a result of the
CENTRAL BOARD OF ASSESSMENT APPEALS, construction of the tailings dam, covered
BOARD OF ASSESSMENT APPEALS OF by Tax Declaration Nos.
ZAMBALES, PROVINCIAL ASSESSOR OF 002-0260 and 002-0266, to be in
ZAMBALES, PROVINCE OF ZAMBALES, and accordance with the Schedule of Market
MUNICIPALITY OF SAN MARCELINO, respondents. Values for Zambales which was
reviewed and allowed for use by the
Romulo, Mabanta, Buenaventura, Sayoc & De los Ministry (Department) of Finance in the
Angeles for petitioner. 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
CRUZ, J.: Respondent-Appellee Provincial
Assessor is indeed excessive and
The realty tax assessment involved in this case amounts unconscionable. Hence, we find no
to P11,319,304.00. It has been imposed on the cause to disturb the market value
petitioner's tailings dam and the land thereunder over its applied by Respondent Appellee
protest. Provincial Assessor of Zambales on the
properties of Petitioner-Appellant
The controversy arose in 1985 when the Provincial Benguet Corporation covered by Tax
Assessor of Zambales assessed the said properties as Declaration Nos. 002-0260 and 002-
taxable improvements. The assessment was appealed 0266.
to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was This petition for certiorari now seeks to reverse the
dismissed mainly on the ground of the petitioner's above ruling.
"failure to pay the realty taxes that fell due during the
pendency of the appeal." The principal contention of the petitioner is that the
tailings dam is not subject to realty tax because it is not
The petitioner seasonably elevated the matter to the an "improvement" upon the land within the meaning of
Central Board of Assessment Appeals, 1 one of the the Real Property Tax Code. More particularly, it is
herein respondents. In its decision dated March 22, claimed
1990, the Board reversed the dismissal of the appeal
but, on the merits, agreed that "the tailings dam and the (1) as regards the tailings dam as an
lands submerged thereunder (were) subject to realty "improvement":
tax."
(a) that the tailings dam
For purposes of taxation the dam is has no value separate
considered as real property as it comes from and independent
within the object mentioned in of the mine; hence, by
paragraphs (a) and (b) of Article 415 of itself it cannot be
the New Civil Code. It is a construction considered an
adhered to the soil which cannot be improvement separately
separated or detached without breaking assessable;
the material or causing destruction on
the land upon which it is attached. The
(b) that it is an integral
immovable nature of the dam as an
part of the mine;
improvement determines its character
as real property, hence taxable under
Section 38 of the Real Property Tax (c) that at the end of the
Code. (P.D. 464). mining operation of the
petitioner corporation in
the area, the tailings
Although the dam is partly used as an
anti-pollution device, this Board cannot dam will benefit the
accede to the request for tax exemption local community by
serving as an irrigation
in the absence of a law authorizing the
facility;
same.
We hold that while the two storage tanks Section 2 of C.A. No. 470, otherwise known as the
are not embedded in the land, they may, Assessment Law, provides that the realty tax is due "on
the real property, including land, buildings, machinery From the definitions and the cases cited above, it would
and other improvements" not specifically exempted in appear that whether a structure constitutes an
Section 3 thereof. A reading of that section shows that improvement so as to partake of the status of realty
the tailings dam of the petitioner does not fall under any would depend upon the degree of permanence intended
of the classes of exempt real properties therein in its construction and use. The expression "permanent"
enumerated. as applied to an improvement does not imply that the
improvement must be used perpetually but only until the
Is the tailings dam an improvement on the mine? Section purpose to which the principal realty is devoted has been
3(k) of the Real Property Tax Code defines improvement accomplished. It is sufficient that the improvement is
as follows: intended to remain as long as the land to which it is
annexed is still used for the said purpose.
(k) Improvements is a valuable
addition made to property or an The Court is convinced that the subject dam falls within
amelioration in its condition, amounting the definition of an "improvement" because it is
to more than mere repairs or permanent in character and it enhances both the value
replacement of waste, costing labor or and utility of petitioner's mine. Moreover, the immovable
capital and intended to enhance its nature of the dam defines its character as real property
value, beauty or utility or to adopt it for under Article 415 of the Civil Code and thus makes it
new or further purposes. taxable under Section 38 of the Real Property Tax Code.
The term has also been interpreted as "artificial The Court will also reject the contention that the
alterations of the physical condition of the ground that appraisal at P50.00 per square meter made by the
arereasonably permanent in character." 2 Provincial Assessor is excessive and that his use of the
"residual value formula" is arbitrary and erroneous.
The Court notes that in the Ontario case the plaintiff
admitted that the mine involved therein could not be Respondent Provincial Assessor explained the use of
operated without the aid of the drain tunnels, which were the "residual value formula" as follows:
indispensable to the successful development and
extraction of the minerals therein. This is not true in the A 50% residual value is applied in the
present case. computation because, while it is true
that when slime fills the dike, it will then
Even without the tailings dam, the petitioner's mining be covered by another dike or stage, the
operation can still be carried out because the primary stage covered is still there and still
function of the dam is merely to receive and retain the exists and since only one face of the
wastes and water coming from the mine. There is no dike is filled, 50% or the other face is
allegation that the water coming from the dam is the sole unutilized.
source of water for the mining operation so as to make
the dam an integral part of the mine. In fact, as a result In sustaining this formula, the CBAA gave the following
of the construction of the dam, the petitioner can now justification:
impound and recycle water without having to spend for
the building of a water reservoir. And as the petitioner We find the appraisal on the land
itself points out, even if the petitioner's mine is shut submerged as a result of the
down or ceases operation, the dam may still be used for construction of the tailings dam, covered
irrigation of the surrounding areas, again unlike in the by Tax Declaration Nos.
Ontario case. 002-0260 and 002-0266, to be in
accordance with the Schedule of Market
As correctly observed by the CBAA, the Kendrick case is Values for San Marcelino, Zambales,
also not applicable because it involved water reservoir which is fifty (50.00) pesos per square
dams used for different purposes and for the benefit of meter for third class industrial land
the surrounding areas. By contrast, the tailings dam in (TSN, page 17, July 5, 1989) and
question is being used exclusively for the benefit of the Schedule of Market Values for
petitioner. Zambales which was reviewed and
allowed for use by the Ministry
Curiously, the petitioner, while vigorously arguing that (Department) of Finance in the 1981-
the tailings dam has no separate existence, just as 1982 general revision. No serious
vigorously contends that at the end of the mining attempt was made by Petitioner-
operation the tailings dam will serve the local community Appellant Benguet Corporation to
as an irrigation facility, thereby implying that it can exist impugn its reasonableness, i.e, that the
independently of the mine. 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.
The Board concludes that while the tanks rest or sit on their k) Improvements is a valuable addition
foundation, the foundation itself and the walls, dikes and steps, made to property or an amelioration in its
which are integral parts of the tanks, are affixed to the land condition, amounting to more than mere
while the pipelines are attached to the tanks. (pp. 60-61, repairs or replacement of waste, costing
Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on labor or capital and intended to enhance its
the basis of an assessment made by the provincial assessor, value, beauty or utility or to adapt it for new
required Meralco to pay realty taxes on the two tanks. For the or further purposes.
five-year period from 1970 to 1974, the tax and penalties
amounted to P431,703.96 (p. 27, Rollo). The Board required We hold that while the two storage tanks are not embedded in
Meralco to pay the tax and penalties as a condition for the land, they may, nevertheless, be considered as
entertaining its appeal from the adverse decision of the improvements on the land, enhancing its utility and rendering it
Batangas board of assessment appeals. useful to the oil industry. It is undeniable that the two tanks
have been installed with some degree of permanence as
The Central Board of Assessment Appeals (composed of receptacles for the considerable quantities of oil needed by
Acting Secretary of Finance Pedro M. Almanzor as chairman Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil
Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.
SO ORDERED.