Property Session 2 Page |1
No. L-55729. March 28, 1983.* It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner
ANTONIO PUNSALAN, JR., petitioner, vs. REMEDIOS VDA. DE LACSAMANA
and THE HONORABLE JUDGE RODOLFO A. ORTIZ, respondents.
Civil Law; Property; Immovable Property; Warehouse considered immovable or
real property; Building always immovable under the Civil Code; Separate treatment
by parties of building from the land in which it stood, does not change immovable
character of the building.—The warehouse claimed to be owned by petitioner is an
immovable or real property as provided in article 415(1) of the Civil Code. Buildings
are always immovable under the Code. A building treated separately from the land
on which it stood is immovable property and the mere fact that the parties to a
contract seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as immovable property.
Same; Same; Same; Venue, improperly laid; Action for annulment of sale over
property and claim for damages does not operate to efface the prime objective
and nature of the case which is to recover said real property; Action of petitioner
treated as a real action, not personal action; Venue of real action is where the real
property or any part thereof is situated.—While it is true that petitioner does not
directly seek the recovery of title or possession of the property in question, his
action for annulment of sale and his claim for damages are closely intertwined with
the issue of ownership of the building which, under the law, is considered
immovable property, the recovery of which is petitioner’s primary objective. The
prevalent doctrine is that an action for the annulment or rescission of a sale of real
property does not operate to efface the fundamental and prime objective and
nature of the case, which is to recover said real property. It is a real action.
Respondent Court, therefore, did not err in dismissing the case on the ground of
improper venue (Section 2, Rule 4), which was timely raised (Section 1, Rule 16).
PETITION for certiorari to review the order of the Court of First Instance of Rizal,
Br. XXXI.
The facts are stated in the opinion of the Court.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.
MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether or not respondent
Court erred in denying the Motion to Set Case for Pre-trial with respect to
respondent Remedios Vda. de Lacsamana as the case had been dismissed on the
ground of improper venue upon motion of co-respondent Philippine National Bank
(PNB).
of a parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In
1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the
amount of P10,000.00, but for failure to pay said amount, the property was
foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the
highest bidder in said foreclosure proceedings. However, the bank secured title
thereto only on December 14, 1977.
In the meantime, in 1974, while the property was still in the alleged possession of
petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch),
and upon securing a permit from the Municipal Mayor, petitioner constructed a
warehouse on said property. Petitioner declared said warehouse for tax purposes
for which he was issued Tax Declaration No. 5619. Petitioner then leased the
warehouse to one Hermogenes Sibal for a period of 10 years starting January
1975.
On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac
Branch) and respondent Lacsamana over the property. This contract was amended
on July 31, 1978, particularly to include in the sale, the building and improvement
thereon. By virtue of said instruments, respondent Lacsamana secured title over
the property in her name (TCT No. 173744) as well as separate tax declarations
for the land and building.1
On November 22, 1979, petitioner commenced suit for “Annulment of Deed of Sale
with Damages” against herein respondents PNB and Lacsamana before respondent
Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning
the validity of the sale of the building as embodied in the Amended Deed of Sale.
In this connection, petitioner alleged:
“x x x
22. That defendant, Philippine National Bank, through its Branch Manager x x x by
virtue of the request of defendant x x x executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale x x x wherein said defendant bank
as Vendor sold to defendant Lacsamana the building owned by the plaintiff under
Tax Declaration No. 5619, notwithstanding the fact that said building is not owned
by the bank either by virtue of the public auction sale conducted by the Sheriff and
sold to the Philippine National Bank or by virtue of the Deed of Sale executed by
the bank itself in its favor on September 27, 1977 x x x;
23. That said defendant bank fraudulently mentioned x x x that the sale in its favor
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the sheriff
in its favor x x x only limited the sale to the land, hence, by selling the building

which never became the property of defendant, they have violated the principle
against ‘pactum commisorium’.
Petitioner prayed that the Deed of Sale of the building in favor of respondent
Lacsamana be declared null and void and that damages in the total sum of
P230,000.00, more or less, be awarded to him.2
In her Answer filed on March 4, 1980, respondent Lacsamana averred the
affirmative defense of lack of cause of action in that she was a purchaser for value
and invoked the principle in Civil Law that the “accessory follows the principal”.3
On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that
venue was improperly laid considering that the building was real property under
article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should
apply.4
Opposing said Motion to Dismiss, petitioner contended that the action for
annulment of deed of sale with damages is in the nature of a personal action,
which seeks to recover not the title nor possession of the property but to compel
payment of damages, which is not an action affecting title to real property.
On April 25, 1980, respondent Court granted respondent PNB’s Motion to Dismiss
as follows:
“Acting upon the ‘Motion to Dismiss’ of the defendant Philippine National Bank
dated March 13, 1980, considered against the plaintiff’s opposition thereto dated
April 1, 1980, including the reply therewith of said defendant, this Court resolves
to DISMISS the plaintiff’s complaint for improper venue considering that the
plaintiff’s complaint which seeks for the declaration as null and void, the
amendment to Deed of Absolute Sale executed by the defendant Philippine
National Bank in favor of the defendant Remedios T. Vda. de Lacsamana, on July
31, 1978, involves a warehouse allegedly owned and constructed by the plaintiff
on the land of the defendant Philippine National Bank situated in the Municipality
of Bamban, Province of Tarlac, which warehouse is an immovable property
pursuant to Article 415, No. 1 of the New Civil Code; and, as such the action of
the plaintiff is a real action affecting title to real property which, under Section 2,
Rule 4 of the New Rules of Court, must be tried in the province where the property
or any part thereof lies.”5
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated
the argument that the action to annul does not involve ownership or title to
property but is limited to the validity of the deed of sale and emphasized that the
case should proceed with or without respondent PNB as respondent Lacsamana
Property Session 2 Page |2
had already filed her Answer to the Complaint and no issue on venue had been
raised by the latter.
On September 1, 1980, respondent Court denied reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent
Lacsamana was concerned, as the issues had already been joined with the filing
of respondent Lacsamana’s Answer.
In the Order of November 10, 1980, respondent Court denied said Motion to Set
Case for Pre-trial as the case was already dismissed in the previous Orders of April
25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave due course.
We affirm respondent Court’s Order denying the setting for pre-trial.
The warehouse claimed to be owned by petitioner is an immovable or real property
as provided in article 415(1) of the Civil Code.6 Buildings are always immovable
under the Code.7 A building treated separately from the land on which it stood is
immovable property and the mere fact that the parties to a contract seem to have
dealt with it separate and apart from the land on which it stood in no wise changed
its character as immovable property.8
While it is true that petitioner does not directly seek the recovery of title or
possession of the property in question, his action for annulment of sale and his
claim for damages are closely intertwined with the issue of ownership of the
building which, under the law, is considered immovable property, the recovery of
which is petitioner’s primary objective. The prevalent doctrine is that an action for
the annulment or rescission of a sale of real property does not operate to efface
the fundamental and prime objective and nature of the case, which is to recover
said real property. It is a real action.9
Respondent Court, therefore, did not err in dismissing the case on the ground of
improper venue (Section 2, Rule 4)10, which was timely raised (Section 1, Rule
16)11.
Petitioner’s other contention that the case should proceed in so far as respondent
Lacsamana is concerned as she had already filed an Answer, which did not allege
improper venue and, therefore, issues had already been joined, is likewise
untenable. Respondent PNB is an indispensable party as the validity of the
Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent
Lacsamana alone.
 Property Session 2 Page |3

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the
case by petitioner Antonio Punsalan, Jr. in the proper forum.
Costs against petitioner.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Petition denied.

Notes.—In the absence of a written agreement, the venue of contract of sale

is at the place of the execution of the contract or the place where there was a
meeting of the minds of the parties and consummation of the contract. A purchase
order is merely an offer to buy. (Raza Appliance Center vs. Villaraza, 117 SCRA
576.)
Although venue is generally determined by residence of the parties, disputes
involving real property shall be brought in the barangay where the real property is
situated, notwithstanding that the parties reside elsewhere within the same city or
town. (Tabora vs. Veloso, 117 SCRA 613.)

Petitioner’s preference to file its petition for annulment of the reconstituted

title in the CFI branch in Bacolod City, which is more accessible, rather than
Himamaylan, is granted. (Register of Deeds of Negros Occ. vs. Mirasol, Jr., 75
SCRA 52.)

Venue is not a jurisdictional matter. (Tantoco vs. Court of Appeals, 77 SCRA

225.)

The venue of personal actions is at the residence of the plaintiff. (De Guzman
vs. Genato, 89 SCRA 671.)

No. L-58469. May 16, 1983.*
MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER
TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Moot and Academic; Return by mortgage creditor of property seized on replevin
does not make moot and academic the action for judicial foreclosure where the
return was expressly made to be “without prejudice”.—The contention of private
respondent is without merit. When petitioner returned the subject motor drive, it
made itself unequivocably clear that said action was without prejudice to a motion
for reconsideration of the Court of Appeals decision, as shown by the receipt duly
signed by respondent’s representative. Considering that petitioner has reserved its
right to question the propriety of the Court of Appeals’ decision, the contention of
private respondent that this petition has been mooted by such return may not be
sustained.
Property, Mortgage; Replevin; Where a chattel mortgage is constituted on
machinery permanently attached to the ground the machinery is to be considered
as personal property and the chattel mortgage constituted thereon is not null and
void, regardless of who owns the land.—Examining the records of the instant case,
We find no logical justification to exclude and rule out, as the appellate court did,
the present case from the application of the abovequoted pronouncement. If a
house of strong materials, like what was involved in the above Tumalad case, may
be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party
will be prejudiced thereby, there is absolutely no reason why a machinery, which
is movable in its nature and becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really because one who has so agreed
is estopped from denying the existence of the chattel mortgage.
Same; Same; Same; Same.—In rejecting petitioner’s assertion on the applicability
of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of such house.
But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated
by law.
Same: Same: Contracts: Equity; Execution of chattel mortgage on machinery
permanently attached to the ground is only an equitable ground for rendering the
contract voidable provided that the mortgagor has not been benefited by the
contract.—Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit be
considered as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank form at
the time of signing. This contention lacks persuasiveness. As aptly pointed out by
Property Session 2 Page |4
petitioner and not denied by the respondent, the status of the subject machinery
as movable or immovable was never placed in issue before the lower court and
the Court of Appeals except in a supplemental memorandum in support of the
petition filed in the appellate court. Moreover, even granting that the charge is
true, such fact alone does not render a contract void ab initio, but can only be a
ground for rendering said contract voidable, or annullable pursuant to Article 1390
of the new Civil Code, by a proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. On the other hand, as pointed out by petitioner and
again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another.
Private respondent could not now therefore, be allowed to impugn the efficacy of
the chattel mortgage after it has benefited therefrom.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1961 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First Instance of Rizal, Branch VI,
issued in Civil Case No. 36040, as well as the resolution dated September 22, 1981
of the said appellate court, denying petitioner’s motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent’s default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
to implement the foreclosure failed to gain entry into private respondent’s premises
and was not able to effect the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with the Court of First Instance

of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower
court.
Acting on petitioner’s application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent’s filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent’s filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises
of private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed
by herein private respondent, set aside the Orders of the lower court and ordered
the return of the drive motor seized by the sheriff pursuant to said Orders, after
ruling that the machinery in suit cannot be the subject of replevin, much less of a
chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the only
way to remove it from respondents plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enforce the writ was
to take the main drive motor of said machinery. The appellate court rejected
petitioner’s argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari.
It is contended by private respondent, however, that the instant petition was
rendered moot and academic by petitioner’s act of returning the subject motor
drive of respondent’s machinery after the Court of Appeals’ decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned
the subject motor drive, it made itself unequivocably clear that said action was
without prejudice to a motion for reconsideration of the Court of Appeals decision,
as shown by the receipt duly signed by respondent’s representative.1 Considering
that petitioner has reserved its right to question the propriety of the Court of
Appeals’ decision, the contention of private respondent that this petition has been
mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this petition is whether
the machinery in suit is real or personal property from the point of view of the
parties, with petitioner arguing that it is a personality, while the respondent
Property Session 2 Page |5
claiming the contrary, and was sustained by the appellate court, which accordingly
held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.
A similar, if not identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143
where this Court, speaking through Justice J.B.L. Reyes, ruled:
“Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not
now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely
had a temporary right as lessee, and although this can not in itself alone determine
the status of the property, it does so when combined with other factors to sustain
the interpretation that the parties, particularly the mortgagors, intended to treat
the house as personalty. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. &
Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein
third persons assailed the validity of the chattel mortgage, it is the defendants-
appellants themselves, as debtors-mortgagors, who are attacking the validity of
the chattel mortgage in this case. The doctrine of estoppel therefore applies to the
herein defendants-appellants, having treated the subject house as personality.”
Examining the records of the instant case, We find no logical justification to exclude
the rule out, as the appellate court did, the present case from the application of
the abovequoted pronouncement. If a house of strong materials, like what was
involved in the above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such.
This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner’s assertion on the applicability of the Tumalad doctrine, the
Court of Appeals lays stress on the fact that the house involved therein was built
on a land that did not belong to the owner of such house. But the law makes no
distinction with respect to the ownership of the land on which the house is built
and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel
by the private respondent is indicative of intention and impresses upon the
property the character determined by the parties. As stated in Standard Oil Co. of
New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract
 Property Session 2 Page |6

may by agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as personal
property but was merely required and dictated on by herein petitioner to sign a
printed form of chattel mortgage which was in a blank form at the time of signing.
This contention lacks persuasiveness. As aptly pointed out by petitioner and not
denied by the respondent, the status of the subject machinery as movable or
immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in
the appellate court. Moreover, even granting that the charge is true, such fact
alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new
Civil Code, by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same. On the other hand, as pointed out by petitioner and again not refuted
by respondent, the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage
after it has benefited therefrom.
For purposes of taxation, the term “real property” may include things which
should generally be regarded as personal property. (Manila Electric Co. vs. Central
Board of Assessment Appeals, 114 SCRA 273.)
The mere delivery of the mortgaged motor vehicle by the mortgagor does not
mean transfer of ownership to the mortgagee under the principle of dacion en
pago. What was transferred was merely possession of the property. (Filinvest
Credit Corp. vs. Philippine Acetylene Co., Inc., 11 SCRA 421.)
The filing of a guarantee bond to forestall foreclosure of mortgage does not
amount to a novation of the mortgage. (Santiago Syjuco, Inc. vs. Tecson, 116
SCRA 685.)
The CFI acting as a land registration court has jurisdiction to order the register of
deeds to cancel the annotation of mortgages on the Torrens titles covering the
mortgage lots. However, the issue of whether the foreclosure of the mortgage has
already prescribed should first be determined in a separate action before such
cancellation may be ordered. (In re: Nicanor T. Santos, 102 SCRA 747.)

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

WHEREFORE, the questioned decision and resolution of the Court of Appeals

are hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and Escolin, JJ.,
concur.
Abad Santos, J., in the result.
Decision and resolution reversed and set aside.

Notes.—The provisions of the Charter of the Philippine National Bank are to

be deemed included in all mortgage loan contracts of the PNB. (Co vs. Philippine
National Bank, 114 SCRA 671.)

No. L-46245. May 31, 1982.*
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA,
respondents.
Remedial Law; Special Civil Actions; Certiorari; Nature and purpose of remedy;
Petition for certiorari can be availed of to review the decision of the Central Board
of Assessment Appeals in the absence of judicial review of the Board’s decision
provided for in the Real Property Tax Code; Purpose of judicial review.—We hold
that certiorari was properly availed of in this case. It is a writ issued by a superior
court to an inferior court, board or officer exercising judicial or quasijudicial
functions whereby the record of a particular case is ordered to be elevated for
review and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power there
is an underlying power in the courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56). “The purpose of judicial review is to keep the
administrative agency within its jurisdiction and protect substantial rights of parties
affected by its decisions” (73 C.J.S. 507, Sec. 165). The review is a part of the
system of checks and balances which is a limitation on the separation of powers
and which forestalls arbitrary and unjust adjudications.
Taxation; Property; Real Property Tax Code; Pipeline System of Meralco Securities
classified as real property and subject to tax they being machinery or
improvements; And does not fall within the classes of exempt real property.—
Meralco Securities insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of article 415. This contention is not
sustainable under the provisions of the Assessment Law, the Real Property Tax
Code and the Civil Code. Section 2 of the Assessment Law provides that the realty
tax is due “on real property, including land, buildings, machinery, and other
improvements” not specifically exempted in section 3 thereof. It is incontestable
that the pipeline of Meralco Securities does not fall within any of the classes of
exempt real property enumerated in section 3 of the Assessment Law and section
40 of the Real Property Tax Code.
Same; Same; Same; Petroleum Law does not exempt Meralco Securities from
payment of realty taxes; Realty tax distinguished from local tax.—Meralco
Securities argues that the realty tax is a local tax or levy and not a tax of general
application. This argument is untenable because the realty tax has always been
imposed by the lawmaking body and later by the President of the Philippines in
the exercise of his lawmaking powers, as shown in sections 342 et seq. of the
Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and
Presidential Decree No. 464. The realty tax is enforced throughout the Philippines
Property Session 2 Page |7
and not merely in a particular municipality or city but the proceeds of the tax
accrue to the province, city, municipality and barrio where the realty taxed is
situated (Sec. 86, P.D. No. 464). In contrast, a local tax is imposed by municipal
or city council by virtue of the Local Tax Code, Presidential Decree No. 231, which
took effect on July 1, 1973 (69 O.G. 6197).
Concepcion, J.: Took no part.
SPECIAL CIVIL ACTION of certiorari to review the decision of the Central Board
of Assessment Appeals.
The facts are stated in the opinion of the Court.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation
assails the decision of the Central Board of Assessment Appeals (composed of the
Secretary of Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated May 6, 1976,
holding that Meralco Securities’ oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the
Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from
Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the shoulder
of the public highway. The portion passing through Laguna is about thirty
kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six
feet with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black
oil measure sixteen inches by forty-eight feet with a maximum capacity of 100,000
barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so
as to preclude breakage or damage thereto and prevent leakage or seepage of
the oil. The valves are welded to the pipes so as to make the pipeline system one
single piece of property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes
have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried. In points where the
pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof.
Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved
from one place to another as shown in the permit issued by the Secretary of Public

Works and Communications which permit provides that the government reserves
the right to require the removal or transfer of the pipes by and at the
concessionaire’s expense should they be affected by any road repair or
improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax
Declarations Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta.
Rosa; 9882-9885, Binan and 15806-15810, Calamba, containing the assessed
values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals
of Laguna composed of the register of deeds as chairman and the provincial
auditor as member. That board in its decision of June 18, 1975 upheld the
assessments (pp. 47-49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals.
As already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary
of Local Government and Community Development Jose Roño as members, ruled
that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities’ counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, provides that the Board’s decision becomes final and
executory after the lapse of fifteen days from the date of receipt of a copy of the
decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of
Assessment Appeals (70 O.G. 10085), a party may ask for the reconsideration of
the Board’s decision within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant’s counsel on May 24, 1977 (p. 4, Rollo). On June
6, 1977, Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no
jurisdiction to review the decision of the Central Board of Assessment Appeals and
Property Session 2 Page |8
because no judicial review of the Board’s decision is provided for in the Real
Property Tax Code, Meralco Securities’ recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-
judicial functions whereby the record of a particular case is ordered to be elevated
for review and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd
777).
The rule is that as to administrative agencies exercising quasi-judicial power there
is an underlying power in the courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).
“The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions” (73
C.J.S. 507, Sec. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary and
unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising
quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave
abuse of discretion, fraud or collusion or in case the administrative decision is
corrupt, arbitrary or capricious (Mafinco Trading Corporation vs. Ope, L-37790,
March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor,
L-39195, May 16, 1975, 64 SCRA 56, 60; Mun. Council of Lemery vs. Prov. Board
of Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities’
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax
under those laws; that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even under article 415,
the steel pipes can be regarded as realty because they are constructions adhered
to the soil and things attached to the land in a fixed manner and that Meralco
Securities is not exempt from realty tax under the Petroleum law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of article 415. This contention is not
sustainable under the provisions of the Assessment Law, the Real Property Tax
Code and the Civil Code Section 2 of the Assessment Law provides that the realty
tax is due “on real property. including land, buildings, machinery, and other

improvements” not specifically exempted in section 3 thereof. This provision is
reproduced with some modification in the Real Property Tax Code which provides:
“SEC. 38. Incidence of Real Property Tax.—There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted.”*
It is incontestable that the pipeline of Meralco Securities does not fall within any
of the classes of exempt real property enumerated in section 3 of the Assessment
Law and section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon
or in the earth, carrying with it the right to the use of the soil in which it is placed
(Note 21[10], 54 C.J.S. 561).
Article 415[1] and [3] provides that real property may consist of constructions of
all kinds adhered to the soil and everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil
(Exh. B, p. 39, Rollo). It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were welded to
form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow
of oil, it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are
not the steel pipes but the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist vs. Standard Pipe Line Co., 19. Fed.
2nd 3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark
vs. R. F. C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it
from the payment of realty taxes. The alleged exemption is predicated on the
following provisions of that law which exempt Meralco Securities from local taxes
and make it liable for taxes of general application:
“ART. 102. Work obligations, taxes, royalties not to be changed.—Work
obligations, special taxes and royalties which are fixed by the provisions of this Act
or by the concession for any of the kinds of concessions to which this Act relate,
are considered as inherent on such concessions after they are granted, and shall
Property Session 2 Page |9
not be increased or decreased during the life of the concession to which they apply;
nor shall any other special taxes or levies be applied to such concessions, nor shall
concessionaires under this Act be subject to any provincial municipal or other local
taxes or levies; nor shall any sales tax be charged on any petroleum produced
from the concession or portion thereof, manufactured by the concessionaires and
use in the working of his concession. All such concessionaires, however, shall be
subject to such taxes as are of general application, in addition to taxes and other
levies specifically provided in this Act.”
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines
in the exercise of his lawmaking powers, as shown in section 342 et seq. of the
Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and
Presidential Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464).
In contrast, a local tax is imposed by the municipal or city council by virtue of the
Local Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69
O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse
of discretion, did not commit any error of law and acted within its jurisdiction in
sustaining the holding of the provincial assessor and the local board of assessment
appeals that Meralco Securities’ pipeline system in Laguna is subject to realty tax.
WHEREFORE, the questioned decision and resolution are affirmed. The
petition is dismissed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr., J., no part.
Justice Abad Santos did not take part.
Decision and resolution affirmed.
Notes.—The Supreme Court can review or alter findings of fact of the Court
of Industrial Relations if such findings are completely devoid of basis and there is
a grave abuse of discretion. (Citizen’s League of Free Workers vs. Court of
Industrial Relations, 96 SCRA 225.)
Sound discretion should not frustrate the law by defeating its objective. (Chief
of Staff Armed Forces of the Philippines vs. Guadiz, Jr., 101 SCRA 827.)
 P r o p e r t y S e s s i o n 2 P a g e | 10

Disregard of available facts by a judge constitutes grave abuse of discretion.

(Commissioner of Customs vs. Geronimo, 80 SCRA 74.)

There is grave abuse of discretion justifying the issuance of the writ of

certiorari when there is such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. (Police Commission vs. Bello, 37 SCRA 231.)

No abuse of discretion could be attributed to the trial court when, after its
attention had been called to its mistake, it issued an order in effect reconsidering
and setting aside its erroneous order. (Tuason vs. Court of Appeals, 43 SCRA 664.)

Exemption of the GSIS from payment of realty taxes does not cover its property
the beneficial use of which is granted to a taxable person. (City of Baguio, 100
SCRA 116.)

P.D. 464 although inexistent at the time the taxes were assessed against the
purchaser aids in determining the legislative intent in the enactment of C.A. 186.
(City of Baguio vs. Busuego, 100 SCRA 116.)

An intestate proceeding cannot be closed and a document regarding legacy and

inheritance cannot be registered without proof of payment of estate and
inheritance taxes. (Gonzales vs. Court of Tax Appeals, 101 SCRA 633.)

Every buyer of real property must make a new declaration thereof. Failure to do
so shall make the assessment in the name of the previous owner binding. A
landowner is supposed to know that he has land taxes to pay. (Tajonera vs. Court
of Appeals, 103 SCRA 487.)

Where the taxpayer neither pays the tax assessed against him nor contests its
validity, the only remedy left to the Government, aside from distraint and levy, is
to enforce its collection. by judicial action in the ordinary courts of juctice (Republic
vs. Dy Chay, 1 SCRA 975.)

No. L-47943. May 31, 1982.*
MANILA ELECTRIC COMPANY, petitioner, vs. CENTRAL BOARD OF
ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.
Taxation; Civil Law; Property; Storage tanks although not embedded on land
considered as improvements and are subject to realty tax.—We hold that while the
two storage tanks are not embedded in the land, they may, nevertheless, be
considered as improvements on the land, enhancing its utility and rendering it
useful to the oil industry. It is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for the considerable quantities of
oil needed by Meralco for its operations. Oil storage tanks were held to be taxable
realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.
Same; Same; Same; Real property, for taxation purposes, defined.—For purposes
of taxation, the term “real property” may include things which should generally be
regarded as personal property (84 C.J.S. 171, Note 8). It is a familiar phenomenon
to see things classed as real property for purposes of taxation which on general
principle might be considered personal property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
SPECIAL CIVIL ACTION for certiorari to review the decision and resolution of the
Central Board of Assessment Appeals.
The facts are stated in the opinion of the Board.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed
in 1969 by Manila Electric Company on a lot in San Pascual, Batangas which it
leased in 1968 from Caltex (Phil.). Inc. The tanks are within the Caltex refinery
compound. They have a total capacity of 566,000 barrels. They are used for storing
fuel oil for Meralco’s power plants.
According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the intermediate layer and a two-inch
thick bituminous asphalt stratum as the top layer. The bottom of each tank is in
contact with the asphalt layer.
The steel sides of the tank are directly supported underneath by a circular wall
made of concrete, eighteen inches thick, to prevent the tank from sliding. Hence,
according to Meralco, the tank is not attached to its foundation. It is not anchored
or welded to the concrete circular wall. Its bottom plate is not attached to any part
P r o p e r t y S e s s i o n 2 P a g e | 11
of the foundation by bolts, screws or similar devices. The tank merely sits on its
foundation. Each empty tank can be floated by flooding its dike-inclosed location
with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central Board
of Assessment Appeals, the area where the two tanks are located is enclosed with
earthen dikes with electric steel poles on top thereof and is divided into two parts
as the site of each tank. The foundation of the tanks is elevated from the remaining
area. On both sides of the earthen dikes are two separate concrete steps leading
to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an
inch thick. Pipelines were installed on the sides of each tank and are connected to
the pipelines of the Manila Enterprises Industrial Corporation whose buildings and
pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the
foundation itself and the walls, dikes and steps, which are integral parts of the
tanks, are affixed to the land while the pipelines are attached to the tanks. (pp.
60-61, Rollo.)
In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an
assessment made by the provincial assessor, required Meralco to pay realty taxes
on the two tanks. For the five-year period from 1970 to 1974, the tax and penalties
amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the
tax and penalties as a condition for entertaining its appeal from the adverse
decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of
Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad
Santos and Secretary of Local Government and Community Development Jose
Roño as members) in its decision dated November 5, 1976 ruled that the tanks
together with the foundation, walls, dikes, steps, pipelines and other
appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth
day, it filed a motion for reconsideration which the Board denied in its resolution
of November 25, 1977, a copy of which was received by Meralco on February 28,
1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the
Board’s decision and resolution. It contends that the Board acted without
jurisdiction and committed a grave error of law in holding that its storage tanks
are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds
of real property enumerated in article 415 of the Civil Code and, therefore, they
cannot be categorized as realty by nature, by incorporation, by destination nor by
analogy. Stress is laid on the fact that the tanks are not attached to the land and
that they were placed on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the
classification of property where strong divergent opinions are inevitable. The issue
raised by Meralco has to be resolved in the light of the provisions of the Assessment
Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due “on real
property, including land, buildings, machinery, and other improvements” not
specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
“Sec. 38. Incidence of Real Property Tax.—They shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted.”
The Code contains the following definition in its section 3:
“k) Improvements—is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.”
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey
vs. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term “real property” may include things which should
generally be regarded as personal property (84 C.J.S. 171, Note 8). It is a familiar
phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property (Standard Oil Co. of
New York vs. Jaramillo, 44 Phil. 630, 633).
P r o p e r t y S e s s i o n 2 P a g e | 12
The case of Board of Assessment Appeals vs., Manila Electric Company, 119 Phil.
328, wherein Meralco’s steel towers were held not to be subject to realty tax, is
not in point because in that case the steel towers were regarded as poles and
under its franchise Meralco’s poles are exempt from taxation. Moreover, the steel
towers were not attached to any land or building. They were removable from their
metal frames. Nor is there any parallelism between this case and Mindanao Bus
Co. vs. City Assessor, 116 Phil. 501, where the tools and equipment in the repair,
carpentry and blacksmith shops of a transportation company were held not subject
to realty tax because they were personal property.
WHEREFORE, the petition is dismissed. The Board’s questioned decision and
resolution are affirmed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion Jr., J., is on leave.
Justice Abad Santos did not take part.
Decision and resolution affirmed.
Notes.—Tax exemptions are strictly constituted against the taxpayer and
liberally in favor of the taxing authority. (City of Baguio vs. Basuego, 100 SCRA
116.)
Taxes being the chief source of revenue for the Government to keep it running
must be paid immediately and without delay. (Collector of Internal Revenue vs.
Yuseco, 3 SCRA 313.)
Exceptions from taxation are considered in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. (Esso Standard Eastern, Inc.
vs. Acting Commissioner of Customs; 18 SCRA 488.)
The power of taxation should be exercised with caution to minimize injury to the
propriety rights of a taxpayer. (Roxas vs. Court of Tax Appeals, 23 SCRA 276.)
Local governments are without power to tax electric power companies already
subject to franchise tax, unless their franchise allows the imposition of an
additional tax. (Ilocos Norte Electric Co., Inc. vs. Municipality of Laoag, 18 SCRA
703.)
Where the law clearly refers to the condonation of unpaid taxes, it is held that it
cannot be extended to authorize the refund of paid taxes. (Surigao Consolidated
Mining Co., Inc. vs. Collector of Internal Revenue, 9 SCRA 728.)
 P r o p e r t y S e s s i o n 2 P a g e | 13

The term “insulating oil” comes within the meaning of the term “insulator” and
qualifies the Manila Electric Company for exemption from the tax due on the
importation thereof under the terms of its franchise which expressly exempts its
“insulator” from all taxes of whatever kind and nature. (Acting Commissioner of
Customs vs. Manila Electric Co., 77 SCRA 469.)

The forfeiture proceeding concluded by the collector in favor of the State, after
notice to unknown owners is made and when no claim is interposed in the
prescribed interim period, attains finality and cannot be the subject of any relief.
(Commissioner of Customs vs. Geronimo, 80 SCRA 74.)
The prohibition against the imposition of percentage taxes (formerly provided for
in Sec. 1 of C.A. 472) refers to municipalities and municipal districts but not to
chartered cities. (Philippine Match Co. vs. City of Cebu, 81 SCRA 99.)

Alleged lack of personal notice of tax sale to petitioner is negated by averments in

her pleading (Vda, de Gordon vs. Court of Appeals, 109 SCRA 388.)

Term “AS IS” in public auction of imported goods refers to the physical condition
of the merchandise and not the legal situation in which it was at the time of the
sale. (Auyong Hian vs. Court of Tax Appeals, 109 SCRA 472.)

No. L-50466. May 31, 1982.*
CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL BOARD OF
ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.
Taxation; Property; Courts; Jurisdiction; The Central Board of Assessment Appeals,
and not the Court of Tax Appeals has appellate jurisdiction over decisions of the
provincial or city boards of assessment appeals.—The Solicitor General’s
contention that the Court of Tax Appeals has exclusive appellate jurisdiction over
this case is not correct. When Republic Act No. 1125 created the Tax Court in
1954, there was as yet no Central Board of Assessment Appeals Section 7(3) of
that law in providing that the Tax Court had jurisdiction to review by appeal
decisions of provincial or city boards of assessment appeals had in mind the local
boards of assessment appeals but not the Central Board of Assessment Appeals
which under the Real Property Tax Code has appellate jurisdiction over decisions
of the said local boards of assessment appeals and is. therefore, in the same
category as the Tax Court.
Same; Same; Same; Same; Supreme Court; Certiorari; The Heal Property Tax
Code does not provide for Supreme Court review of decisions of the Central Board
of Assessment Appeals. The only remedy for Supreme Court review of the Central
Board’s decision is by Special Civil Action of Certiorari.—Section 36 of the Real
Property Tax Code provides that the decision of the Central Board of Assessment
Appeals shall become final and executory after the lapse of fifteen days from the
receipt of its decision by the appellant. Within that fifteen-day period, a petition
for reconsideration may be filed. The Code does not provide for the review of the
Board’s decision by this Court. Consequently, the only remedy available for seeking
a review by this Court of the decision of the Central Board of Assessment Appeals
is the special civil action of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.
Same; Same; Gasoline station equipments and machineries are subject to the real
property tax.—We hold that the said equipment and machinery, as appurtenances
to the gas station building or shed owned by Caltex (as to which it is subject to
realty tax) and which fixtures are necessary to the operation of the gas station, for
without them the gas station would be useless, and which have been attached or
affixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the
Real Property Tax Code.
Same; Same; Gasoline station equipments and machineries are permanent fixtures
for purposes of realty taxation.—Here, the question is whether the gas station
equipment and machinery permanently affixed by Caltex to its gas station and
pavement (which are indubitably taxable realty) should be subject to the realty
tax. This question is different from the issue raised in the Davao Saw Mill case.
P r o p e r t y S e s s i o n 2 P a g e | 14
Improvements on land are commonly taxed as realty even though for some
purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41).
“It is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property”
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
PETITION for certiorari to review the decision of the Central Board of
Assessment Appeals.
The facts are stated in the opinion of the Court.
AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank,
elevated water tanks, water tanks, gasoline pumps, computing pumps, water
pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The
city assessor described the said equipment and machinery in this manner:
“A gasoline service station is a piece of lot where a building or shed is erected, a
water tank if there is any is placed in one corner of the lot, car hoists are placed
in an adjacent shed, an air compressor is attached in the wall of the shed or at the
concrete wall fence.
“The controversial underground tank, depository of gasoline or crude oil, is dug
deep about six feet more or less, a few meters away from the shed. This is done
to prevent conflagration because gasoline and other combustible oil are very
inflammable.
“This underground tank is connected with a steel pipe to the gasoline pump and
the gasoline pump is commonly placed or constructed under the shed. The footing
of the pump is a cement pad and this cement pad is imbedded in the pavement
under the shed, and evidence that the gasoline underground tank is attached and
connected to the shed or building through the pipe to the pump and the pump is
attached and affixed to the cement pad and pavement covered by the roof of the
building or shed.
“The building or shed, the elevated water tank, the car hoist under a separate
shed, the air compressor, the underground gasoline tank, neon lights signboard,
concrete fence and pavement and the lot where they are all placed or erected, all
of them used in the pursuance of the gasoline service station business formed the
entire gasoline service station.

“As to whether the subject properties are attached and affixed to the tenement, it
is clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the
gasoline station and the improvement which holds all the properties under
question, they are attached and affixed to the pavement and to the improvement.
“The pavement covering the entire lot of the gasoline service station, as well as all
the improvements, machines, equipments and apparatus are allowed by Caltex
(Philippines) Inc. x x x.
“The underground gasoline tank is attached to the shed by the steel pipe to the
pump, so with the water tank it is connected also by a steel pipe to the pavement,
then to the electric motor which electric motor is placed under the shed. So to say
that the gasoline pumps, water pumps and underground tanks are outside of the
service station, and to consider only the building as the service station is grossly
erroneous.” (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators
under an appropriate lease agreement or receipt. It is stipulated in the lease
contract that the operators, upon demand, shall return to Caltex the machines and
equipment in good condition as when received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become the
owner of the machines and equipment installed therein. Caltex retains the
ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. The realty tax on said equipment
amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled
that they are personalty. The assessor appealed to the Central Board of
Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman,
Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local
Government and Community Development Jose Roño, held in its decision of June
3, 1977 that the said machines and equipment are real property within the
meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential
Decree No. 464, which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil Code are not
applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took
Macaraig’s place) in its resolution of January 12, 1978, denying Caltex’s motion for
reconsideration, a copy of which was received by its lawyer on April 2, 1979.
P r o p e r t y S e s s i o n 2 P a g e | 15
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting
aside of the Board’s decision and for a declaration that the said machines and
equipment are personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General’s contention that the Court of Tax Appeals has exclusive
appellate jurisdiction over this case is not correct. When Republic act No. 1125
created the Tax Court in 1954, there was as yet no Central Board of Assessment
Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction
to review by appeal decisions of provincial or city boards of assessment appeals
had in mind the local boards of assessment appeals but not the Central Board of
Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central
Board of Assessment Appeals shall become final and executory after the lapse of
fifteen days from the receipt of its decision by the appellant. Within that fifteen-
day period, a petition for reconsideration may be filed. The Code does not provide
for the review of the Board’s decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the
decision of the Central Board of Assessment Appeals is the special civil action of
certiorari, the recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already
enumerated are subject to realty tax. This issue has to be resolved primarily under
the provisions of the Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due “on real
property, including land, buildings, machinery, and other improvements” not
specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
“SEC. 38. Incidence of Real Property Tax.—There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted.”
The Code contains the following definitions in its section 3:
“k) Improvements—is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.”

“m) Machinery—shall embrace machines, mechanical contrivances, instruments,
appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes.” (See sec. 3[f], Assessment
Law).
We hold that the said equipment and machinery, as appurtenances to the gas
station building or shed owned by Caltex (as to which it is subject to realty tax)
and which fixtures are necessary to the operation of the gas station, for without
them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the
Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant but not
when so placed by a tenant, a usufructuary, or any person having only a temporary
right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs.
Castillo, 61 Phil. 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code
regarding machinery that becomes real property by destination. In the Davao Saw
Mills case the question was whether the machinery mounted on foundations of
cement and installed by the lessee on leased land should be regarded as real
property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriffs
action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals,
96 Phil. 70, where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery
permanently affixed by Caltex to its gas station and pavement (which are
indubitably taxable realty) should be subject to the realty tax. This quetion is
different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some
purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41).
“It is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property”
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs.
Manila Electric Co., 119 Phil. 328, where Meralco’s steel towers were considered
poles within the meaning of paragraph 9 of its franchise which exempts its poles
from taxation. The steel towers were considered personalty because they were
P r o p e r t y S e s s i o n 2 P a g e | 16
attached to square metal frames by means of bolts and could be moved from place
to place when unscrewed and dismantled.
Nor are Caltex’s gas station equipment and machinery the same as tools and
equipment in the repair shop of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil.
501).
The Central Board of Assessment Appeals did not commit a grave abuse of
discretion in upholding the city assessor’s imposition of the realty tax on Caltex’s
gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of
Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack
of merit. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion Jr., and Abad Santos, JJ., did not take part.
Petition dismissed.
Notes.—A tax assessment is deemed made when the notice to that effect is
released, mailed or sent to the taxpayer for the purpose of giving effect to the
assessment. (Republic vs. De la Rama, 18 SCRA 861.)
An assessment is illegal and void when the assessor has no power to act at all. It
is erroneous when the assessor has the power but errs in the exercise of that
power. (Victorias Milling Co. vs. Court of Tax Appeals, 22 SCRA 1008.)
It is obvious that the inclusion of the building, separate and distinct from the land,
in the enumeration of what may constitute real properties under the Civil Code
could only mean one thing—that a building is by itself an immovable property
irrespective of whether or not said structure and the land on which it is adhered
to belong to the same or different owner. (Tumalad vs. Vicencio, 41 SCRA 143.)
R.A. 1435 An Act to Provide Means for Increasing the Highway Special Fund is not
unconstitutional as it has only one project and proclaims just a single policy.
(Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710.)
The 5-year period for refund of specific tax paid for oils used in agricultural and
aviation activities is not applicable to partial refund of specific tax paid for oils used
by miners and forest concessionaries. (Insular Lumber Co. vs. Court of Tax
Appeals, 104 SCRA 710.)
The distinction between the power of Secretary of Finance and Court of Tax
Appeals over decisions of City Board of Tax Appeals is: the power of the Secretary
 P r o p e r t y S e s s i o n 2 P a g e | 17

of Finance under Republic Act 3275, amending Section 42 of the City Charter.
refers to administrative review, whereas the power of the latter refers to judicial
review by appeal. (Enriquez vs. Secretary of Finance, 27 SCRA 1261.)

Where an assessment made by the Collector of Internal Revenue was disputed by

the taxpayer at the opportune time, said Collector may not ignore the positive
dispute against the assessment by immediately bringing an action to collect, thus
depriving the taxpayer of his right to appeal the disputed assessment. (San Juan
vs. Vasquez, 3 SCRA 92.)

Tax Code does not bar the right to contest the legality of the tax after a taxpayer
pays it. (Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757.)

No. L-50008. August 31, 1987.*
PRUDENTIAL BANK, petitioner, vs. HONORABLE DOMINGO D. PANIS,
Presiding Judge of Branch III, Court of First Instance of Zambales and
Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE,
respondents.
Civil Law; Mortgages; Property; Under Art 415, Civil Code, the inclusion of a
building separate and distinct from the land means that a building is by itself an
immovable property.—In the enumeration of properties under Article 415 of the
Civil Code of the Philippines, this Court ruled that, "it is obvious that the inclusion
of 'building' separate and distinct from the land, in said provision of law can only
mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et
al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. lya, et al.,
L-10837-38, May 30, 1958).
Same; Same; Same; While a mortgage of land necessarily includes buildings, a
building by itself may be mortgaged apart from the land on which it has been built;
Mortgage is still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately from the land; Possessory rights
over property before title is vested on the grantee may be validly transferred as in
a deed of mortgage.—Thus, while it is true that a mortgage of land necessarily
includes, in the absence of stipulation of the improvements thereon, buildings, still
a building by itself may be mortgaged apart from the land on which it has been
built. Such a mortgage would be still a real estate mortgage for the building would
still be considered immovable property even if dealt with separately and apart from
the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner,
this Court has also established that possessory rights over said properties before
title is vested on the grantee, may be validly transferred or conveyed as in a deed
of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
Same; Same; Same; Same; A mortgage executed by a private respondent on his
own building erected on the land belonging to the government is a valid mortgage;
The original mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land.—Coming back to the
case at bar, the records show, as aforestated that the original mortgage deed on
the 2-storey semi-concrete residential building with warehouse and on the right of
occupancy on the lot where the building was erected, was executed on November
19, 1971 and registered under the provisions of Act 3344 with the Register of
Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776
on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was
issued in the name of private respondent Fernando Magcale on May 15, 1972. It
is therefore without question that the original mortgage was executed before the
issuance of the final patent and before the government was divested of its title to
the land, an event which takes effect only on the issuance of the sales patent and
P r o p e r t y S e s s i o n 2 P a g e | 18
its subsequent registration in the Office of the Register of Deeds (Visayan Realty
Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director
of Lands vs. Jurado, L-14702, May 23, 1961; Peña, "Law on Natural Resources",
p. 49). Under the foregoing considerations, it is evident that the mortgage
executed by private respondent on his own building which was erected on the land
belonging to the government is to all intents and purposes a valid mortgage.
Same; Same; Same; Same; Restrictions expressly mentioned on the face of the
respondents' title, are valid, as under the Public Land Act what are referred to are
lands or any improvements thereon, and have no application to the assailed
mortgage which was executed before such eventuality; Case at bar.—As to
restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it
will be noted that Sections 121,122 and 124 of the Public Land Act, refer to land
already acquired under the Public Land Act, or any improvement thereon and
therefore have no application to the assailed mortgage in the case at bar which
was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730,
also a restriction appearing on the face of private respondent's title has likewise
no application in the instant case, despite its reference to encumbrance or
alienation before the patent is issued because it refers specifically to encumbrance
or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.
Same; Same; Same; Same; A mortgage executed after the issuance of the sales
patent and of the original certificate of title falls squarely under the prohibition of
the Public Land Act and Republic Act 730, and is null and void.—But it is a different
matter, as regards the second mortgage executed over the same properties on
May 2, 1973 for an additional loan of P20.000.00 which was registered with the
Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident
that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections
121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is
therefore null and void.
Same; Same; Same; Same; As between parties to a contract validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy.—
Petitioner points out that private respondents, after physically possessing the title
for five years, voluntarily surrendered the same to the bank in 1977 in order that
the mortgaged may be annotated, without requiring the bank to get the prior
approval of the Ministry of Natural Resources beforehand, thereby implicitly
authorizing Prudential Bank to cause the annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which refers to
Sections 118,120, 122 and 123 of Commonwealth Act 141, has held: "x x x
Nonetheless, we apply our earlier rulings because we believe that as in pari delicto
may not be invoked to defeat the policy of the State neither may the doctrine of

estoppel give a validating effect to a void contract. Indeed, it is generally
considered that as between parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is
not within the competence of any citizen to barter away what public policy by law
seeks to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino, supra).
x x x" (Arsenal vs. IAC, 143 SCRA 54 [1986]).
PETITION for certiorari to review the decision of the Court of First Instance of
Zambales and Olongapo City, Br. III. Panis, J.
The facts are stated in the opinion of the Court.
PARAS, J.:
This is a petition for review on certiorari of the November 13,1978 Decision** of
the then Court of First Instance of Zambales and Olongapo City in Civil Case No.
2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs.
Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate
mortgage executed by respondent spouses in favor of petitioner bank are null and
void. The undisputed facts of this case by stipulation of the parties are as follows:
"x x x on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula
Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the following
described properties:
‘1. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse
spaces containing a total floor area of 263 sq. meters, more or less, generally
constructed of mixed hard wood and concrete materials, under a roofing of
cor. g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE
under Tax Declaration No. 21109, issued by the Assessor of Olongapo City
with an assessed value of P35,290.00. This building is the only improvement
of the lot.
‘2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the
right of occupancy on the lot where the above property is erected, and more
particularly described and bounded, as follows:
'A first class residential land identified as Lot No. 720, (Ts-308, Olongapo Townsite
Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of
465 sq. m., more or less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Declaration No. 19595 issued by the Assessor of Olongapo
City with an assessed value of P1 860.00; bounded on the
NORTH: By No. 6, Ardoin Street
P r o p e r t y S e s s i o n 2 P a g e | 19
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street
All corners of the lot marked by conc. cylindrical monuments of the Bureau of
Lands as visible limits.' (Exhibit "A," also Exhibit "1" for defendant).
Apart from the stipulations in the printed portion of the aforestated deed of
mortgage, there appears a rider typed at the bottom of the reverse side of the
document under the lists of the properties mortgaged which reads, as follows:
'AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied
for by the Mortgagors as herein stated is released or issued by the Bureau of
Lands, the Mortgagors hereby authorize the Register of Deeds to hold the
Registration of same until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the Secretary of Agriculture and
Natural Resources, which title with annotation, shall be released in favor of the
herein Mortgage.’
From the aforequoted stipulation, it is obvious that the mortgagee (defendant
Prudential Bank) was at the outset aware of the fact that the mortgagors
(plaintiffs) have already filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit" A" (Real Estate Mortgage) was registered under the Provisions of Act 3344
with the Registry of Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential
Bank in the sum of P 20,000.00. To secure payment of this additional loan,
plaintiffs executed in favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged in Exhibit "A." (Exhibit
"B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage was
likewise registered with the Registry of Deeds, this time in Olongapo City, on May
2, 1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent
No. 4776 over the parcel of land, possessory rights over which were mortgaged to
defendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid
Patent, and upon its transcription in the Registration Book of the Province of
Zambales, Original Certificate of Title No. P-2554 was issued in the name of
Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on
May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became
due, and upon application of said defendant, the deeds of Real Estate Mortgage
(Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the
highest bidder in a public auction sale conducted by the defendant City Sheriff on
April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel, dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit
"D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of
Real Estate Mortgage as null and void (Ibid, p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid, pp. 41-
53), opposed by private respondents on January 5, 1979 (Ibid, pp. 54-62), and in
an Order dated January 10, 1979 (Ibid, p. 63), the Motion for Reconsideration was
denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to
require the respondents to comment (Ibid, p. 65), which order was complied with
the Resolution dated May 18, 1979, (Ibid, p. 100), petitioner filed its Reply on June
2, 1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due
course and the parties were required to submit simultaneously their respective
memoranda. (Ibid, p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid, pp. 116-144), while
private respondents filed their Memorandum on August 1, 1979 (Ibid, pp. 146-
155).
In a Resolution dated August 10, 1979, this case was considered submitted for
decision (Ibid, p. 158). In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID;
AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE
RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL
24. 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE
OF TITLE NO. P-2554 ON MAY 15, 1972 HAVE THE EFFECT OF
INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum
for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
P r o p e r t y S e s s i o n 2 P a g e | 20
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the
Philippines, this Court ruled that, "it is obvious that the inclusion of 'building'
separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-
18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. lya, et al., L-10837-38,
May 30, 1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence
of stipulation of the improvements thereon, buildings, still a building by itself may
be mortgaged apart from the land on which it has been built. Such a mortgage
would be still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has
also established that possessory rights over said properties before title is vested
on the grantee, may be validly transferred or conveyed as in a deed of mortgage
(Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semiconcrete residential building with warehouse
and on the right of occupancy on the lot where the building was erected, was
executed on November 19, 1971 and registered under the provisions of Act 3344
with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous
Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of
which OCT No. 2554 was issued in the name of private respondent Fernando
Magcale on May 15, 1972. It is therefore without question that the original
mortgage was executed before the issuance of the final patent and before the
government was divested of its title to the land, an event which takes effect only
on the issuance of the sales patent and its subsequent registration in the Office of
the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil 515; Director of Lands
vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961;
Peña, "Law on Natural Resources", p. 49). Under the foregoing considerations, it
is evident that the mortgage executed by private respondent on his own building
which was erected on the land belonging to the government is to all intents and
purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-
2554, it will be noted that Sections 121,122 and 124 of the Public Land Act, refer
to land already acquired under the Public Land Act, or any improvement thereon
and therefore have no application to the assailed mortgage in the case at bar which
was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730,
 P r o p e r t y S e s s i o n 2 P a g e | 21

also a restriction appearing on the face of private respondent's title has likewise
no application in the instant case, despite its reference to encumbrance or
alienation before the patent is issued because it refers specifically to encumbrance
or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.
Estate Mortgage for P 70,000.00 is valid but ruling that the Deed of Real Estate
Mortgage for an additional loan of P 20,000.00 is null and void, without prejudice
to any appropriate action the Government may take against private respondents.
SO ORDERED.
Teehankee (C.J.), Narvasa, Cruz and Gancayco, JJ., concur.

But it is a different matter, as regards the second mortgage executed over the
same properties on May 2, 1973 for an additional loan of P20,000.00 which was
registered with the Registry of Deeds of Olongapo City on the same date. Relative
thereto, it is evident that such mortgage executed after the issuance of the sales
patent and of the Original Certificate of Title, falls squarely under the prohibitions
stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of
Republic Act 730, and is therefore null and void.
Decision modified.
Notes.—As it is an essential requisite for the validity of a mortgage that the
mortgagor be the absolute owner of the thing mortgaged, and it appearing that
the mortgage was constituted before the issuance of the patent to the mortgagor,
the mortgage in question is void and ineffective. (Vda. de Bautista vs. Marcos, 3
SCRA 434.)

Petitioner points out that private respondents, after physically possessing the title
for five years, voluntarily surrendered the same to the bank in 1977 in order that
the mortgaged may be annotated, without requiring the bank to get the prior
approval of the Ministry of Natural Resources beforehand, thereby implicitly
authorizing Prudential Bank to cause the annotation of said mortgage on their title.
Where several things are pledged or mortgaged, each thing for a determinate
portion of the debt, the pledges or mortgages are considered separate from each
other. (Dayrit vs. Court of Appeals, 36 SCRA 548.)

However, the Court, in recently ruling on violations of Section 124 which refers to
Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held:

"x x x Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the
doctrine of estoppel give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract, validity cannot be given
to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur.
802). It is not within the competence of any citizen to barter away what public
policy by law seeks to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino, supra). x x x" (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and
does not pass upon any new contract between the parties (Ibid), as in the case at
bar. It should not preclude new contracts that may be entered into between
petitioner bank and private respondents that are in accordance with the
requirements of the law. After all, private respondents themselves declare that
they are not denying the legitimacy of their debts and appear to be open to new
negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction,
however, would be subject to whatever steps the Government may take for the
reversion of the land in its f avor.

PREMISES CONSIDERED, the decision of the Court of First Instance of

Zambales & Olongapo City is hereby MODIFIED, declaring that the Deed of Real

G.R. No. 137705. August 22, 2000.*
SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE, INC., respondent.
Civil Law; Property; The machines although each of them was movable or personal
property on its own, all of them have become immobilized by destination because
they are essential and principal elements of petitioners chocolate-making
industry.—In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own land.
Indisputably, they were essential and principal elements of their chocolate-making
industry. Hence, although each of them was movable or personal property on its
own, all of them have become immobilized by destination because they are
essential and principal elements in the industry. In that sense, petitioners are
correct in arguing that the said machines are real, not personal, property pursuant
to Article 415 (5) of the Civil Code.
Same; Same; Contracting parties may validly stipulate that a real property be
considered as personal.—The Court has held that contracting parties may validly
stipulate that a real property be considered as personal. After agreeing to such
stipulation, they are consequently estopped from claiming otherwise. Under the
principle of estoppel, a party to a contract is ordinarily precluded from denying the
truth of any material fact found therein.
Same; Same; The Lease Agreement clearly provides that the machinesin question
are to be considered as personal property; Under the circumstances they are
proper subjects of the writ of seizure.—In the present case, the Lease Agreement
clearly provides that the machines in question are to be considered as personal
property. x x x Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal property. Under the
circumstances, they are proper subjects of the Writ of Seizure.
Same; Same; That the machines should be deemed personal property pursuant to
the Lease Agreement is good only insofar as the contracting parties are
concerned.—It should be stressed, however, that our holding—that the machines
should be deemed personal property pursuant to the Lease Agreement—is good
only insofar as the contracting parties are concerned. Hence, while the parties are
bound by the Agreement, third persons acting in good faith are not affected by its
stipulation characterizing the subject machinery as personal. In any event, there
is no showing that any specific third party would be adversely affected.
Remedial Law; Replevin; Policy under Rule 60 is that questions involving title to
the subject property should be determined in the trial; Remedy of defendants
under Rule 60 is either to post a counterbond or to question the sufficiency of the
plaintiff’s bond.—Indeed, in La Tondeña Distillers v. CA, the Court explained that
P r o p e r t y S e s s i o n 2 P a g e | 22
the policy under Rule 60 was that questions involving title to the subject property—
questions which petitioners are now raising—should be determined in the trial. In
that case, the Court noted that the remedy of defendants under Rule 60 was either
to post a counter-bond or to question the sufficiency of the plaintiff’s bond. They
were not allowed, however, to invoke the title to the subject property.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Antonio R. Bautista & Partners for petitioners.
Perez & Calima Law Offices for respondent.
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently claiming
otherwise. Hence, such property is a proper subject of a writ of replevin obtained
by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and its February
26, 1999 Resolution3 denying reconsideration. The decretal portion of the CA
Decision reads as follows:
“WHEREFORE, premises considered, the assailed Order dated February 18, 1998
and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby
AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is hereby
LIFTED.”4
In its February 18, 1998 Order,5 the Regional Trial Cour (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 equipments he may have removed.”9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
“On February 13, 1998, respondent PCI Leasing and Finance, Inc. (“PCI Leasing”
for short) filed with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with
an application for a writ of replevin docketed as Civil Case No. Q-98-33500.

“On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge
issued a writ of replevin (Annex ‘B’) directing its sheriff to seize and deliver the
machineries and equipment to PCI Leasing after 5 days and upon the payment of
the necessary expenses.
“On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioner’s factory, seized one machinery with [the] word that he [would] return
for the other machineries.
“On March 25, 1998, petitioners filed a motion for special protective order (Annex
‘C’), invoking the power of the court to control the conduct of its officers and
amend and control its processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
“This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ of
replevin.
“In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties’ agreement to
the contrary notwithstanding. They argued that to give effect to the agreement
would be prejudicial to innocent third parties. They further stated that PCI Leasing
[was] estopped from treating these machineries as personal because the contracts
in which the alleged agreement [were] embodied [were] totally sham and farcical.
“On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was
prevented by the workers from taking the rest.
“On April 7, 1998, they went to [the CA] via an original action for certiorari.”
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned,
by petitioners. It also ruled that the “words of the contract are clear and leave no
doubt upon the true intention of the contracting parties.” Observing that Petitioner
Goquiolay was an experienced businessman who was “not unfamiliar with the ways
of the trade,” it ruled that he “should have realized the import of the document he
signed.” The CA further held:
“Furthermore, to accord merit to this petition would be to preempt the trial court
in ruling upon the case below, since the merits of the whole matter are laid down
before us via a petition whose sole purpose is to inquire upon the existence of a
grave abuse of discretion on the part of the [RTC] in issuing the assailed Order
and Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being
P r o p e r t y S e s s i o n 2 P a g e | 23
enforced by one, and [its] validity is attacked by the other—a matter x x x which
respondent court is in the best position to determine.”
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
“A. Whether or not the machineries purchased and imported by SERG’S
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.”12
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised
by respondent.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter: Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was
being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that
the Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion
finds support in the very title of the Petition, which is “Petition for Review on
Certiorari.”13
While Judge Laqui should not have been impleaded as a respon-dent,14 substantial
justice requires that such lapse by itself should not warrant the dismissal of the
present Petition. In this light, the Court deems it proper to remove, motu proprio,
the name of Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC because they were in fact real property.
Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.15 Section 3 thereof reads:

“SEC. 3. Order.—Upon the filing of such affidavit and approval of the bond, the
court shall issue an order and the corresponding writ of replevin describing the
personal property alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.”
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:
ART. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works, which may be carried on in a building or
on a piece of land, and which tend directly to meet the needs of the said industry
or works.
xxx xxx xxx
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them
have become immobilized by destination because they are essential and principal
elements in the industry.”16 In that sense, petitioners are correct in arguing that
the said machines are real, not personal, property pursuant to Article 415 (5) of
the Civil Code.17
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.18 After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel,
a party to a contract is ordinarily precluded from denying the truth of any material
fact found therein.
Hence, in Tumalad v. Vicencio19 the Court upheld the intention of the parties to
treat a house as a personal property because it had been made the subject of a
chattel mortgage. The Court ruled:
x x x Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.”
P r o p e r t y S e s s i o n 2 P a g e | 24
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills20 also held that the machinery used in a factory and essential to the
industry, as in the present case, was a proper subject of a writ of replevin because
it was treated as personal property in a contract. Pertinent portions of the Court’s
ruling are reproduced hereunder:
“x x x If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the chattel
mortgage.”
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of
the Agreement reads as follows:21
“12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently
resting upon, real property or a building thereon, or attached in any manner to
what is permanent.”
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure. It should be stressed, however, that our holding—
that the machines should be deemed personal property pursuant to the Lease
Agreement—is good only insofar as the contracting parties are concerned.22 Hence,
while the parties are bound by the Agreement, third persons acting in good faith
are not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party would
be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.24 Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
“intrinsic ambiguity which places in serious doubt the intention of the parties and
the validity of the lease agreement itself.”25 In their Reply to respondent’s
Comment, they further allege that the Agreement is invalid.26

These arguments are unconvincing. The validity and the nature of the contract are
the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence,
they should be threshed out in the trial, not in the proceedings involving the
issuance of the Writ of Seizure.
Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy under
Rule 60 was that questions involving title to the subject property—questions which
petitioners are now raising—should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the plaintiff’s bond. They were not
allowed, however, to invoke the title to the subject property. The Court ruled:
“In other words, the law does not allow the defendant to file a motion to dissolve
or discharge the writ of seizure (or delivery) on ground of insufficiency of the
complaint or of the grounds relied upon therefor, as in proceedings on preliminary
attachment or injunction, and thereby put at issue the matter of the title or right
of possession over the specific chattel being replevied, the policy apparently being
that said matter should be ventilated and determined only at the trial on the
merits.”28
Besides, these questions require a determination of facts and a presentation of
evidence, both of which have no place in a petition for certiorari in the CA under
Rule 65 or in a petition for review in this Court under Rule 45.29
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In
fact, petitioners assailed it first only in the RTC proceedings, which had ironically
been instituted by respondent. Accordingly, it must be presumed valid and binding
as the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this point. In
that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent had
allegedly been required “to sign a printed form of chattel mortgage which was in
a blank form at the time of signing.” The Court rejected the argument and relied
on the, Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by
a proper action in court. There is nothing on record to show that the mortgage has
P r o p e r t y S e s s i o n 2 P a g e | 25
been annulled. Neither is it disclosed that steps were taken to nullify the same, x
x x”
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that “if the Court allows these machineries to be seized, then
its workers would be out of work and thrown into the streets.”31 They also allege
that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners’ arguments do not preclude the implementation of the Writ. As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-
mentioned consequences, if they come true, should not be blamed on this Court,
but on the petitioners for failing to avail themselves of the remedy under Section
5 of Rule 60, which allows the filing of a counter-bond. The provision states:
“SEC. 5. Return of property.—If the adverse party objects to the sufficiency of the
applicant’s bond, or of the surety or sureties thereon, he cannot immediately
require the return of the property, but if he does not so object, he may, at any
time before the delivery of the property to the applicant, require the return thereof,
by filing with the court where the action is pending a bond executed to the
applicant, in double the value of the property as stated in the applicant’s affidavit
for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and
by serving a copy bond on the applicant.”
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo (Chairman), Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
Petition denied, judgment affirmed.
Note.—The Supreme Court is constrained to rule against petitioner on
grounds of fairness and equity particularly on the principle of estoppel. (Ysmael
vs. Court of Appeals, 273 SCRA 165 [1997])

G.R. No. 120098. October 2, 2001.*
RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE
MILLS, INC. and MAMERTO R. VILLALUZ, respondents.
G.R. No. 120109. October 2, 2001*
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF
APPEALS, EVER TEXTILE MILLS and MAMERTO R. VILLALUZ, respondents.
Appeals: The jurisdiction of the Supreme Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are devoid of support by
the evidence on record or the assailed judgment is based on misapprehension of
facts.—Well settled is the rule that the jurisdiction of the Supreme Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of Court is
limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts. This rule is applied more
stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.
Property; Mortgages; The nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged, does not make them
ipso facto immovable under Article 415 (3) and (5) of the New Civil Code, as the
parties’ intent has to be looked into.—Petitioners contend that the nature of the
disputed machineries, i.e., that they were heavy, bolted or cemented on the real
property mortgaged by EVERTEX to PBCom, make them ipso facto immovable
under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does
not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have
to look at the parties’ intent. While it is true that the controverted properties appear
to be immobile, a perusal of the contract of Real and Chattel Mortgage executed
by the parties herein gives us a contrary indication. In the case at bar, both the
trial and the appellate courts reached the same finding that the true intention of
PBCom and the owner, EVERTEX, is to treat machinery and equipment as chattels.
Same; Same; Estoppel; Even if the properties are immovable by nature, nothing
detracts the parties from treating them as chattels to secure an obligation under
the principle of estoppel.—Too, assuming arguendo that the properties in question
are immovable by nature, nothing detracts the parties from treating it as chattels
to secure an obligation under the principle of estoppel. As far back as Navarro v.
Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property
if there is a stipulation as when it is used as security in the payment of an obligation
where a chattel mortgage is executed over it, as in the case at bar.
Same; Same; Same; Where the facts, taken together, evince the conclusion that
the parties’ intention is to treat the units of machinery as chattels, a fortiori, the
P r o p e r t y S e s s i o n 2 P a g e | 26
after-acquired properties, which are of the same description as the units referred
to earlier, must also be treated as chattels.—In the instant case, the parties herein:
(1) executed a contract styled as “Real Estate Mortgage and Chattel Mortgage,”
instead of just “Real Estate Mortgage” if indeed their intention is to treat all
properties included therein as immovable, and (2) attached to the said contract a
separate “LIST OF MACHINERIES & EQUIPMENT.” These facts, taken together,
evince the conclusion that the parties’ intention is to treat these units of machinery
as chattels. A fortiori, the contested after-acquired properties, which are of the
same description as the units enumerated under the title “LIST OF MACHINERIES
& EQUIPMENT,” must also be treated as chattels.
Same; Same; Chattel Mortgage; A chattel mortgage shall be deemed to cover only
the property described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding.—
Accordingly, we find no reversible error in the respondent appellate court’s ruling
that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: “a chattel
mortgage shall be deemed to cover only the property described therein and not
like or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage
to the contrary notwithstanding.” And, since the disputed machineries were
acquired in 1981 and could not have been involved in the 1975 or 1979 chattel
mortgages, it was consequently an error on the part of the Sheriff to include
subject machineries with the properties enumerated in said chattel mortgages.
Sales; Purchaser in Good Faith; Well-settled is the rule that the person who asserts
the status of a purchaser in good faith and for value has the burden of proving
such assertion.—Petitioner Tsai also argued that assuming that PBCom’s title over
the contested properties is a nullity, she is nevertheless a purchaser in good faith
and for value who now has a better right than EVERTEX. To the contrary, however,
are the factual findings and conclusions of the trial court that she is not a purchaser
in good faith. Well-settled is the rule that the person who asserts the status of a
purchaser in good faith and for value has the burden of proving such assertion.
Petitioner Tsai failed to discharge this burden persuasively.
Same; Same; A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other person in the
property.—A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or

before he has notice of the claims or interest of some other person in the property.
Records reveal, however, that when Tsai purchased the controverted properties,
she knew of respondent’s claim thereon. As borne out by the records, she received
the letter of respondent’s counsel, apprising her of respondent’s claim, dated
February 27, 1987. She replied thereto on March 9, 1987. Despite her knowledge
of respondent’s claim, she proceeded to buy the contested units of machinery on
May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in
good faith.
Same; Land Titles; Torrens System; The defense of indefeasibility of Torrens Title
refers to sale of lands and not to sale of properties situated therein; The mere fact
that the lot where a factory and disputed properties stand in a person’s name does
not automatically make such person the owner of everything found therein.—
Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale of
lands and not to sale of properties situated therein. Likewise, the mere fact that
the lot where the factory and the disputed properties stand is in PBCom’s name
does not automatically make PBCom the owner of everything found therein,
especially in view of EVERTEX’s letter to Tsai enunciating its claim.
Laches; Doctrine of Stale Demands; The doctrine of stale demands would apply
only where by reason of the lapse of time, it would be inequitable to allow a party
to enforce his legal rights.—Petitioners’ defense of prescription and laches is less
than convincing. We find no cogent reason to disturb the consistent findings of
both courts below that the case for the reconveyance of the disputed properties
was filed within the reglementary period. Here, in our view, the doctrine of laches
does not apply. Note that upon petitioners’ adamant refusal to heed EVERTEX’s
claim, respondent company immediately filed an action to recover possession and
ownership of the disputed properties. There is no evidence showing any failure or
neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The
doctrine of stale demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal rights. Moreover, except
for very strong reasons, this Court is not disposed to apply the doctrine of laches
to prejudice or defeat the rights of an owner.
Damages; In determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of loss.—
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the
actual amount thereof. However, the allegations of respondent company as to the
amount of unrealized rentals due them as actual damages remain mere assertions
P r o p e r t y S e s s i o n 2 P a g e | 27
unsupported by documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Eduardo C. Ong for petitioner R.L. Tsai.
Laogan, Silva, Baeza & Llantino Law Offices for petitioner PBCom in G.R. No.
120109.
M.R. Villaluz & Associates for private respondents.
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R.
CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila,
Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court’s
resolution denying petitioners’ motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a
three million peso (P3,000,000.00) loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of
PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein as enumerated in a
schedule attached to the mortgage contract. The pertinent portions of the Real
and Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx
The MORTGAGOR(S) hereby transfers) and convey(s), by way of First Mortgage,
to the MORTGAGEE, x x x certain parcel(s) of land, together with all the buildings
and improvements now existing or which may hereafter exist thereon, situated in
x x x.
“Annex A”
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications—continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in
Hongkong:
 P r o p e r t y S e s s i o n 2 P a g e | 28

Serial Numbers Size of Machines On November 19, 1982, due to business reverses, EVERTEX filed insolvency
xxx proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First
Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24,
Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. 1982 declaring the corporation insolvent. All its assets were taken into the custody
xxx of the Insolvency Court, including the collateral, real and personal, securing the
C. Two (2) Circular Knitting Machines made in West Germany. two mortgages as abovementioned.
xxx
D. Four (4) Winding Machines. In the meantime, upon EVERTEX’s failure to meet its obligation to PBCom, the
xxx latter commenced extrajudicial foreclosure proceedings against EVERTEX under
SCHEDULE “A” Act 3135, otherwise known as “An Act to Regulate the Sale of Property under
I. Special Powers Inserted in or Annexed to Real Estate Mortgages” and Act 1506 or
TCT # 372097—RIZAL “The Chattel Mortgage Law.” A Notice of Sheriffs Sale was issued on December 1,
xxx 1982.

II.
Any and all buildings and improvements now existing or hereafter to exist on the
above-mentioned lot.
III.
MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
mentioned lot located at x x x
(a) Forty eight sets (48) Vayrow Knitting Machines x x x
(b) Sixteen sets (16) Vayrow Knitting Machines x x x
(c) Two (2) Circular Knitting Machines x x x
(d) Two (2) Winding Machines x x x
(e) Two (2) Winding Machines x x x
IV.
Any and all replacements, substitutions, additions, increases and accretions to
above properties.
x x x3
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX.
The loan was secured by a Chattel Mortgage over personal properties enumerated
in a list attached thereto. These listed properties were similar to those listed in
Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned
above, EVERTEX purchased various machines and equipments.
On December 15, 1982, the first public auction was held where petitioner PBCom
emerged as the highest bidder and a Certificate of Sale was issued in its favor on
the same date. On December 23, 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same
day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the
properties in it. In November 1986, it leased the entire factory premises to
petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the
factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested
machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with the Regional Trial Court against PBCom, alleging
inter alia that the extrajudicial foreclosure of subject mortgage was in violation of
the Insolvency Law. EVERTEX claimed that no rights having been transmitted to
PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights
over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and
Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the Notice of Sheriff’s Sale
dated December 1, 1982 and Certificate of Sale dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock
Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin
Equipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular
and illegal because they were not duly foreclosed nor sold at the December 15,
1982 auction sale since these were not included in the schedules attached to the
mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and
against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank
of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar
as it affects the personal properties listed in par. 9 of the complaint, and
their return to the plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done
within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use and
possession of the properties in question from November 1986 to February
1991 and P100,000.00 every month thereafter, with interest thereon at the
legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney’s fees and expenses
of litigation;
4. Ordering the defendants to pay jointly and severally the
plaintiffcorporation the sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued
its decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award for exemplary
damages, and reduction of the actual damages, from P100,000.00 to P20,000.00
per month, from November 1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby AFFIRMED, in all other respects.
No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for
review with this Court.
P r o p e r t y S e s s i o n 2 P a g e | 29
In G.R. No. 120098, petitioner Tsai ascribed the following errors to the respondent
court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR
EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING
THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED
PART OF THE MORTGAGE—DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING
PETITIONER ACTUAL DAMAGES, ATTORNEY’S FEES AND EXPENSES OF
LITIGATION—FOR WANT OF VALID FACTUAL AND LEGAL BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING
AGAINST PETITIONER’S ARGUMENTS ON PRESCRIPTION AND LACHES.6
In G.R. No. 120109, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED
UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY
OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM
FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE
THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES
DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND
DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY,
BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE
MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?
II.

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN
GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH
AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND
SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK
TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER
THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT
SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned
properties in the foreclosed properties is proper. The secondary issue is whether
or not the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the
parties by treating the 1981 acquired units of machinery as chattels instead of real
properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979
deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred
in holding that the disputed 1981 machineries are not real properties.9 Finally, she
contends that the Court of Appeals erred in holding against petitioner’s arguments
on prescription and laches10 and in assessing petitioner actual damages, attorney’s
fees and expenses of litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower
court’s judgment decreeing that the pieces of machinery in dispute were not duly
foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued
that the Court of Appeals’ pronouncement that the pieces of machinery in question
were personal properties have no factual and legal basis. Finally, it asserts that
the Court of Appeals erred in assessing damages and attorney’s fees against
PBCom.
In opposition, private respondents argue that the controverted units of machinery
are not “real properties” but chattels, and, therefore, they were not part of the
foreclosed real properties, rendering the lease and the subsequent sale thereof to
Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the
petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, unless the factual findings complained of
are devoid of support by the evidence on record or the assailed judgment is based
on misapprehension of facts.13 This rule is applied more stringently when the
findings of fact of the RTC is affirmed by the Court of Appeals.14
P r o p e r t y S e s s i o n 2 P a g e | 30
The following are the facts as found by the RTC and affirmed by the Court of
Appeals that are decisive of the issues: (1) the “controverted machineries” are not
covered by, or included in, either of the two mortgages, the Real Estate and Chattel
Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not
included in the list of properties appended to the Notice of Sale, and neither were
they included in the Sheriff’s Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property mortgaged by EVERTEX to
PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New
Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts
do not foreclose the controversy. We have to look at the parties’ intent.
While it is true that the controverted properties appear to be immobile, a perusal
of the contract of Real and Chattel Mortgage executed by the parties herein gives
us a contrary indication. In the case at bar, both the trial and the appellate courts
reached the same finding that the true intention of PBCom and the owner,
EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion
of respondent appellate court’s ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels;
never as real properties. Indeed, the 1975 mortgage contract, which was actually
real and chattel mortgage, militates against appellants’ posture. It should be noted
that the printed form used by appellant bank was mainly for real estate mortgages.
But reflective of the true intention of appellant PBCOM and appellee EVERTEX was
the typing in capital letters, immediately following the printed caption of mortgage,
of the phrase “real and chattel.” So also, the “machineries and equipment” in the
printed form of the bank had to be inserted in the blank space of the printed
contract and connected with the word “building” by typewritten slash marks. Now,
then, if the machineries in question were contemplated to be included in the real
estate mortgage, there would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the machineries
covered thereby. It would have sufficed to list them as immovables in the Deed of
Real Estate Mortgage of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond
question. It refers solely to chattels. The inventory list of the mortgaged properties
is an itemization of sixty-three (63) individually described machineries while the
schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics
and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to depart
therefrom.

Too, assuming arguendo that the properties in question are immovable by nature,
nothing detracts the parties from treating it as chattels to secure an obligation
under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631
(1963), an immovable may be considered a personal property if there is a
stipulation as when it is used as security in the payment of an obligation where a
chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as “Real
Estate Mortgage and Chattel Mortgage,” instead of just “Real Estate Mortgage” if
indeed their intention is to treat all properties included therein as immovable, and
(2) attached to the said contract a separate “LIST OF MACHINERIES &
EQUIPMENT.” These facts, taken together, evince the conclusion that the parties’
intention is to treat these units of machinery as chattels. A fortiori, the contested
after-acquired properties, which are of the same description as the units
enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must also be
treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court’s ruling
that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: “a chattel
mortgage shall be deemed to cover only the property described therein and not
like or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage
to the contrary notwithstanding.”
And, since the disputed machineries were acquired in 1981 and could not have
been involved in the 1975 or 1979 chattel mortgages, it was consequently an error
on the part of the Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed
in its favor. Consequently, the sale thereof to Tsai is also a nullity under the
elementary principle of nemo dat quod non habet, one cannot give what one does
not have.17
Petitioner Tsai also argued that assuming that PBCom’s title over the contested
properties is a nullity, she is nevertheless a purchaser in good faith and for value
who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court
that she is not a purchaser in good faith. Well-settled is the rule that the person
who asserts the status of a purchaser in good faith and for value has the burden
P r o p e r t y S e s s i o n 2 P a g e | 31
of proving such assertion.18 Petitioner Tsai failed to discharge this burden
persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai purchased the controverted
properties, she knew of respondent’s claim thereon. As borne out by the records,
she received the letter of respondent’s counsel, apprising her of respondent’s
claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite
her knowledge of respondent’s claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not
a purchaser in good faith.
Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale of
lands and not to sale of properties situated therein. Likewise, the mere fact that
the lot where the factory and the disputed properties stand is in PBCom’s name
does not automatically make PBCom the owner of everything found therein,
especially in view of EVERTEX’s letter to Tsai enunciating its claim.
Finally, petitioners’ defense of prescription and laches is less than convincing. We
find no cogent reason to disturb the consistent findings of both courts below that
the case for the reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches does not apply. Note
that upon petitioners’ adamant refusal to heed EVERTEX’s claim, respondent
company immediately filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure or neglect on its
part, for an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier. The doctrine of
stale demands would apply only where by reason of the lapse of time, it would be
inequitable to allow a party to enforce his legal rights. Moreover, except for very
strong reasons, this Court is not disposed to apply the doctrine of laches to
prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages,
and attorney’s fees.
As regards said actual compensation, the RTC awarded P100,000.00
corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on the
accepted practice in banking and finance, business and investments that the rental
price must take into account the cost of money used to buy them. The Court of

Appeals did not give full credence to Chua’s projection and reduced the award to
P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the
actual amount thereof.23 However, the allegations of respondent company as to
the amount of unrealized rentals due them as actual damages remain mere
assertions unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and
on the best evidence obtainable regarding the actual amount of loss.24 However,
we are not prepared to disregard the following dispositions of the respondent
appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record
warranting the said award of P5,200,000.00, representing monthly rental income
of P100,000.00 from November 1986 to February 1991, and the additional award
of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to
substantiate the actual damages allegedly sustained by appellees, by way of
unrealized rental income of subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on
what is claimed to be a practice in business and industry. But such a testimony
cannot serve as the sole basis for assessing the actual damages complained of.
What is more, there is no showing that had appellant Tsai not taken possession of
the machineries and equipments in question, somebody was willing and ready to
rent the same for P100,000.00 a month.
xxx
Then, too, even assuming arguendo that the said machineries and equipments
could have generated a rental income of P30,000.00 a month, as projected by
witness Mamerto Villaluz,’the same would have been a gross income. Therefrom
should be deducted or removed, expenses for maintenance and repairs. . . .
Therefore, in the determination of the actual damages or unrealized rental income
sued upon, there is a good basis to calculate that at least four months in a year,
the machineries in dispute would have been idle due to absence of a lessee or
while being repaired. In the light of the foregoing rationalization and computation,
We believe that a net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.25
P r o p e r t y S e s s i o n 2 P a g e | 32
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the
Court of Appeals deleted. But according to the CA, there was no clear showing that
petitioners acted malevolently, wantonly and oppressively. The evidence, however,
shows otherwise.
It is a requisite to award exemplary damages that the wrongful act must be
accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner.27 As previously stressed, petitioner
Tsai’s act of purchasing the controverted properties despite her knowledge of
EVERTEX’s claim was oppressive and subjected the already insolvent respondent
to gross disadvantage. Petitioner PBCom also received the same letters of Atty.
Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom’s act of taking all
the properties found in the factory of the financially handicapped respondent,
including those properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement with the RTC
that an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article
2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the
adjudication of exemplary damages, their assessment being left to the discretion
of the court in accordance with the circumstances of each case.29 While the
imposition of exemplary damages is justified in this case, equity calls for its
reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion
granted to the courts in the assessment of damages must always be exercised
wrtti balanced restraint and measured objectivity. Thus, here the award of
exemplary damages by way of example for the public good should be reduced to
P100,000.00.
By the same token, attorney’s fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC’s award of
P50,000.00 as attorney’s fees and expenses of litigation is reasonable, given the
circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution
of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH
MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai
are hereby ordered to pay jointly and severally Ever Textile Mills, Inc., the
following: (1) P20,000.00 per month, as compensation for the use and possession
of the properties in question from November 198631 until subject personal
properties are restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney’s fees and litigation expenses.
Costs against petitioners.
SO ORDERED.
 P r o p e r t y S e s s i o n 2 P a g e | 33

Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.

Petitions denied, judgment and resolution affirmed with modifications.

Notes.—One who deals with property subject of a notice of lis pendens

cannot invoke the right of a purchaser in good faith—neither can he acquire better
rights than those of his predecessor in interest. (Yu vs. Court of Appeals, 251 SCRA
509 [1995])

Where a purchases was fully aware of another person’s possession of the lot
he purchased, he cannot successfully pretend later to be an innocent purchaser
for value. (Heirs of Teodoro dela Cruz vs. Court of Appeals, 298 SCRA 172 [1998])