G.R. Nos.

L-10817-18

February 28, 1958

ENRIQUE LOPEZ, petitioner,

vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay
for respondent Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of
Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same
province, dropped at Lopez' house and invited him to make an investment in the theatre
business. It was intimated that Orosa, his family and close friends were organizing a corporation
to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez
expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for
the construction of the proposed theatre, and at Orosa's behest and assurance that the latter
would be personally liable for any account that the said construction might incur, Lopez further
agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to
said verbal agreement, Lopez delivered the lumber which was used for the construction of the
Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the
materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece of land with an
area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the
corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of
the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the
corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre.,
out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to
accede. Unknown to him, however, as early as November, 1946, the corporation already got a
loan for P30,000 from the Philippine National Bank with the Luzon Surety Company as surety,
and the corporation in turn executed a mortgage on the land and building in favor of said
company as counter-security. As the land at that time was not yet brought under the operation
of the Torrens System, the mortgage on the same was registered on November 16, 1946, under
Act No. 3344. Subsequently, when the corporation applied for the registration of the land under
Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa,
Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of
the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the
creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later became
R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced
to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the
action; that in case defendants fail to pay the same, that the building and the land covered by
OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be

applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza Theatre,
Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same
purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff also
caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying
that the materials were delivered to him as a promoter and later treasurer of the corporation,
because he had purchased and received the same on his personal account; that the land on
which the movie house was constructed was not charged with a lien to secure the payment of
the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre,
Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the 420 shares of stock
assigned and conveyed by the assignor and accepted by Lopez as direct security for the
payment of the amount of P41,771.35 were personal properties, plaintiff was barred from
recovering any deficiency if the proceeds of the sale thereof at public auction would not be
sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted
from the payment of any deficiency in case the proceeds from the sale of said personal
properties would not be enough to cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by
alleging that the building materials delivered to Orosa were on the latter's personal account; and
that there was no understanding that said materials would be paid jointly and severally by Orosa
and the corporation, nor was a lien charged on the properties of the latter to secure payment of
the same obligation. As special defense, defendant corporation averred that while it was true
that the materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff failed to claim
said materials within 30 days from the time of removal thereof from Orosa, lumber became a
different and distinct specie and plaintiff lost whatever rights he might have in the same and
consequently had no recourse against the Plaza Theatre, Inc., that the claim could not have
been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the
repair or reconstruction of something already existing and this concept did not include an
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14,
1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that
the complaint be dismissed; that said defendant be awarded the sum P 5,000 for damages, and
such other relief as may be just and proper in the premises.
The surety company, in the meantime, upon discovery that the land was already registered
under the Torrens System and that there was a notice of lis pendens thereon, filed on August
17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for
review of the decree of the land registration court dated October 18, 1947, which was made the
basis of OCT No. O-319, in order to annotate the rights and interests of the surety company
over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto
was offered by Enrique Lopez, asserting that the amount demanded by him constituted a
preferred lien over the properties of the obligors; that the surety company was guilty of
negligence when it failed to present an opposition to the application for registration of the
property; and that if any violation of the rights and interest of said surety would ever be made,
same must be subject to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court,
after making an exhaustive and detailed analysis of the respective stands of the parties and the

evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre,
Inc., were jointly liable for the unpaid balance of the cost of lumber used in the construction of
the building and the plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not extend to the land
on which the construction was made, the trial judge took into consideration the fact that when
plaintiff started the delivery of lumber in May, 1946, the land was not yet owned by the
corporation; that the mortgage in favor of Luzon Surety Company was previously registered
under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying
that refection credits are preferred could refer only to buildings which are also classified as real
properties, upon which said refection was made. It was, however, declared that plaintiff's lien on
the building was superior to the right of the surety company. And finding that the Plaza Theatre,
Inc., had no objection to the review of the decree issued in its favor by the land registration court
and the inclusion in the title of the encumbrance in favor of the surety company, the court a
quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre,
Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs
within 90 days from notice of said decision; that in case of default, the 420 shares of stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to
the payment of the amount due the plaintiff, plus interest and costs; and that the encumbrance
in favor of the surety company be endorsed at the back of OCT No. O-391, with notation I that
with respect to the building, said mortgage was subject to the materialman's lien in favor of
Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of
therein defendants was joint instead of solidary, and that the lien did not extend to the land, but
same was denied by order the court of December 23, 1952. The matter was thus appealed to
the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this
instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the
materials used in the construction of a building attaches to said structure alone and does not
extend to the land on which the building is adhered to; and (2) whether the lower court and the
Court of Appeals erred in not providing that the material mans liens is superior to the mortgage
executed in favor surety company not only on the building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of
the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of
P41,771.35, so We will not take up or consider anything on that point. Appellant, however,
contends that the lien created in favor of the furnisher of the materials used for the construction,
repair or refection of a building, is also extended to the land which the construction was made,
and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the
matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:
5. Credits for refection, not entered or recorded, with respect to the estate upon which
the refection was made, and only with respect to other credits different from those
mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building,
said article must be construed as to embrace both the land and the building or structure

adhering thereto. We cannot subscribe to this view, for while it is true that generally, real estate
connotes the land and the building constructed thereon, it is obvious that the inclusion of the
building, separate and distinct from the land, in the enumeration of what may constitute real
properties1 could mean only one thing that a building is by itself an immovable property, a
doctrine already pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co.,
37 Phil., 644. Moreover, and in view of the absence of any specific provision of law to the
contrary, a building is an immovable property, irrespective of whether or not said structure and
the land on which it is adhered to belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals that the law
gives preference to unregistered refectionary credits only with respect to the real estate upon
which the refection or work was made. This being so, the inevitable conclusion must be that the
lien so created attaches merely to the immovable property for the construction or repair of which
the obligation was incurred. Evidently, therefore, the lien in favor of appellant for the unpaid
value of the lumber used in the construction of the building attaches only to said structure and to
no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged
only to the building for which the credit was made or which received the benefit of refection, the
lower court was right in, holding at the interest of the mortgagee over the land is superior and
cannot be made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision appealed
from is hereby affirmed, with costs against appellant. It is so ordered.

G.R. Nos. L-10837-38

May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,

vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY
COMPANY. INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co.,
Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a
house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision
in Caloocan, Rizal, which they purchased on installment basis from the Philippine Realty
Corporation. On November 6, 1951, to enable her to purchase on credit rice from the NARIC,

Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by
the Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses
Valino executed an alleged chattel mortgage on the aforementioned house in favor of the surety
company, which encumbrance was duly registered with the Chattel Mortgage Register of
Rizal on December 6, 1951. It is admitted that at the time said undertaking took place, the
parcel of land on which the house is erected was still registered in the name of the Philippine
Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos
were able to secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an
indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot and the
house in favor of Isabel Iya, which was duly registered and annotated at the back of the
certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the
surety company demanded reimbursement from the spouses Valino, and as the latter likewise
failed to do so, the company foreclosed the chattel mortgage over the house. As a result
thereof, a public sale was conducted by the Provincial Sheriff of Rizal on December 26, 1952,
wherein the property was awarded to the surety company for P8,000.00, the highest bid
received therefor. The surety company then caused the said house to be declared in its name
for tax purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements thereon;
thus, said surety company instituted Civil Case No. 2162 of the Court of First Instance of Manila
naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint
prayed for the exclusion of the residential house from the real estate mortgage in favor of
defendant Iya and the declaration and recognition of plaintiff's right to ownership over the same
in virtue of the award given by the Provincial Sheriff of Rizal during the public auction held on
December 26, 1952. Plaintiff likewise asked the Court to sentence the spouses Valino to pay
said surety moral and exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed
her answer to the complaint alleging among other things, that in virtue of the real estate
mortgage executed by her co-defendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff of Rizal
as a result of the foreclosure of the chattel mortgage on the house was null and void for noncompliance with the form required by law. She, therefore, prayed for the dismissal of the
complaint and anullment of the sale made by the Provincial Sheriff. She also demanded the
amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her codefendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and
denied the others. They, however, prayed for the dismissal of the action for lack of cause of
action, it being alleged that plaintiff was already the owner of the house in question, and as said
defendants admitted this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety
company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to
the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter
undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month,
which indebtedness was payable in 4 years, extendible for only one year; that to secure

payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884
located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a party defendant because it claimed to have
an interest on the residential house also covered by said mortgage; that it was stipulated in the
aforesaid real estate mortgage that default in the payment of the interest agreed upon would
entitle the mortgagee to foreclose the same even before the lapse of the 4-year period; and as
defendant spouses had allegedly failed to pay the interest for more than 6 months, plaintiff
prayed the Court to order said defendants to pay the sum of P12,000.00 with interest thereon at
12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of
the total obligation as damages, and for costs. As an alternative in case such demand may not
be met and satisfied plaintiff prayed for a decree of foreclosure of the land, building and other
improvements thereon to be sold at public auction and the proceeds thereof applied to satisfy
the demands of plaintiff; that the Valinos, the surety company and any other person claiming
interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of
redemption in said properties; and for deficiency judgment in case the proceeds of the sale of
the mortgaged property would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building,
arguing that as the lot on which the house was constructed did not belong to the spouses at the
time the chattel mortgage was executed, the house might be considered only as a personal
property and that the encumbrance thereof and the subsequent foreclosure proceedings made
pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant
therefore prayed that said building be excluded from the real estate mortgage and its right over
the same be declared superior to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon, it
being contended that it was already encumbered in favor of the surety company before the real
estate mortgage was executed, a fact made known to plaintiff during the preparation of said
contract and to which the latter offered no objection. As a special defense, it was asserted that
the action was premature because the contract was for a period of 4 years, which had not yet
elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that
the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred
and superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was
ruled that as the Valinos were not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made, the building then was
still a personality and a chattel mortgage over the same was proper. However, as the
mortgagors were already the owner of the land at the time the contract with Isabel Iya was
entered into, the building was transformed into a real property and the real estate mortgage
created thereon was likewise adjudged as proper. It is to be noted in this connection that there
is no evidence on record to sustain the allegation of the spouses Valino that at the time they
mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of the
mortgaged property, i.e., the house, had previously been mortgaged to the surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by
Isabel Iya, although the latter could exercise the right of a junior encumbrance. So the spouses
Valino were ordered to pay the amount demanded by said mortgagee or in their default to have

the parcel of land subject of the mortgage sold at public auction for the satisfaction of Iya's
claim.
There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages; controversy
arise as to which of these encumbrances should receive preference over the other. The decisive
factor in resolving the issue presented by this appeal is the determination of the nature of the
structure litigated upon, for where it be considered a personality, the foreclosure of the chattel
mortgage and the subsequent sale thereof at public auction, made in accordance with the
Chattel Mortgage Law would be valid and the right acquired by the surety company therefrom
would certainly deserve prior recognition; otherwise, appellant's claim for preference must be
granted. The lower Court, deciding in favor of the surety company, based its ruling on the
premise that as the mortgagors were not the owners of the land on which the building is erected
at the time the first encumbrance was made, said structure partook of the nature of a personal
property and could properly be the subject of a chattel mortgage. We find reason to hold
otherwise, for as this Court, defining the nature or character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties (Art. 415, new
Civil Code) could only mean one thing that a building is byitself an immovable
property . . . Moreover, and in view of the absence of any specific provision to the
contrary, a building is an immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner. (Lopez vs.
Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on
which it is constructed belongs to another. To hold it the other way, the possibility is not remote
that it would result in confusion, for to cloak the building with an uncertain status made
dependent on the ownership of the land, would create a situation where a permanent fixture
changes its nature or character as the ownership of the land changes hands. In the case at bar,
as personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952) and
as obviously the structure in question is not one, the execution of the chattel mortgage covering
said building is clearly invalid and a nullity. While it is true that said document was
correspondingly registered in the Chattel Mortgage Register of Rizal, this act produced no effect
whatsoever for where the interest conveyed is in the nature of a real property, the registration of
the document in the registry of chattels is merely a futile act. Thus, the registration of the chattel
mortgage of a building of strong materials produce no effect as far as the building is concerned
(Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give any consideration to the
contention of the surety that it has acquired ownership over the property in question by reason
of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by
virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed
from holding the rights of the surety company, over the building superior to that of Isabel
Iya and excluding the building from the foreclosure prayed for by the latter is reversed

and appellant Isabel Iya's right to foreclose not only the land but also the building
erected thereon is hereby recognized, and the proceeds of the sale thereof at public
auction (if the land has not yet been sold), shall be applied to the unsatisfied judgment in
favor of Isabel Iya. This decision however is without prejudice to any right that the
Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and
Lucia Valino on account of the mortgage of said building they executed in favor of said
surety company. Without pronouncement as to costs. It is so ordered.

G.R. No. L-16218

November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA,

LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.
Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.
Ernesto Parol for defendants-appellees.
MAKALINTAL, J.:
This case is before us on appeal from the order of the Court of First Instance of Abra dismissing
the complaint filed by appellants, upon motion of defendants-appellate on the ground that the
action was within the exclude (original) jurisdiction of the Justice of the Peace Court of
Lagangilang, of the same province.
The complaint alleges in substance that appellants were the owners of the house, worth
P200.00, built on and owned by them and situated in the said municipality Lagangilang; that
sometime in January 1957 appealed forcibly demolished the house, claiming to be the owners
thereof; that the materials of the house, after it was dismantled, were placed in the custody of
the barrio lieutenant of the place; and that as a result of appellate's refusal to restore the house
or to deliver the material appellants the latter have suffered actual damages the amount of
P200.00, plus moral and consequential damages in the amount of P600.00. The relief prayed
for is that "the plaintiffs be declared the owners of the house in question and/or the materials
that resulted in (sic) its dismantling; (and) that the defendants be orders pay the sum of
P200.00, plus P600.00 as damages, the costs."
The issue posed by the parties in this appeal is whether the action involves title to real property,
as appellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par.
[b], R.A. 296, as amended), whether it pertains to the jurisdiction of the Justice of the Peace
Court, as stated in the order appealed from, since there is no real property litigated, the house
having ceased to exist, and the amount of the demand does exceed P2,000.00 (Sec. 88, id.)1
The dismissal of the complaint was proper. A house is classified as immovable property by
reason of its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This

classification holds true regardless of the fact that the house may be situated on land belonging
to a different owner. But once the house is demolished, as in this case, it ceases to exist as
such and hence its character as an immovable likewise ceases. It should be noted that the
complaint here is for recovery of damages. This is the only positive relief prayed for by
appellants. To be sure, they also asked that they be declared owners of the dismantled house
and/or of the materials. However, such declaration in no wise constitutes the relief itself which if
granted by final judgment could be enforceable by execution, but is only incidental to the real
cause of action to recover damages.
The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no
costs are adjudged.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon and Regala, JJ., concur.

G.R. No. L-11658

February 15, 1918

LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendantsappellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it
stood. The indebtedness secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the machinery company in satisfaction
of the mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company,
but this deed of sale, although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear to have been
executed for the purpose of curing any defects which might be found to exist in the machinery
company's title to the building under the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time when this sale took place, that is to
say, the month of December, 1913, and it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on which it stood, to secure
payment of the balance of its indebtedness to the plaintiff under a contract for the construction
of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness
secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon
the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its claim
of title and demanding the release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in
reliance upon which the sheriff sold the property at public auction to the plaintiff, who was the
highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the
machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor
of the machinery company, on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be
transfer to the person who may have the first taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real property in a chattel mortgage registry
cannot be given the legal effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the ricecleaning machinery was installed by the "Compaia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It follows that neither the original
registry in the chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any effect whatever so far
as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of
sale in his favor was made in good faith, and that the machinery company must be held to be
the owner of the property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that the building
and the land were sold to the machinery company long prior to the date of the sheriff's sale to
the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry, it
must be presumed that good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this contention. It could not
have been the intention of the legislator to base the preferential right secured under this article
of the code upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public records
cannot be converted into instruments of fraud and oppression by one who secures an inscription
therein in bad faith. The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights created by statute,
which are predicated upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in
its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference,
this provision must always be understood on the basis of the good faith mentioned in the
first paragraph; the legislator could not have wished to strike it out and to sanction bad
faith, just to comply with a mere formality which, in given cases, does not obtain even in
real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at
the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery
company had bought the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession at the time when the
sheriff executed his levy. The execution of an indemnity bond by the plaintiff in favor of the
sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at
the time of the levy and sale the building had already been sold to the machinery company by
the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of

course, the subsequent inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just
and righteous claims against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and in buying it at the
sheriff's sale, he considered that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he thought at that time that he
would be able to maintain his position in a contest with the machinery company. There was no
collusion on his part with the common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he
did hope, that the title of the machinery company would not stand the test of an action in a court
of law; and if later developments had confirmed his unfounded hopes, no one could question the
legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership
when he executed the indemnity bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took the risk and must stand
by the consequences; and it is in this sense that we find that he was not a purchaser in good
faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such notice of the defects as would have
led to its discovery had he acted with that measure of precaution which may reasonably be
acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given occasion, we
are necessarily controlled by the evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. So it is that "the honesty of intention," "the
honest lawful intent," which constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen
or touched, but rather a state or condition of mind which can only be judged of by actual or
fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

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

G.R. No. L-20329

March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo,
register of deeds of the City of Manila, to an original petition of the Standard Oil Company of
New York, seeking a peremptory mandamusto compel the respondent to record in the proper
register a document purporting to be a chattel mortgage executed in the City of Manila by
Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera,
was the lessee of a parcel of land situated in the City of Manila and owner of the house of
strong materials built thereon, upon which date she executed a document in the form of a
chattel mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold
interest in said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of
mortgage, the following described personal property, situated in the City of Manila, and
now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of lease
hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.
After said document had been duly acknowledge and delivered, the petitioner caused the same
to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila,
for the purpose of having the same recorded in the book of record of chattel mortgages. Upon
examination of the instrument, the respondent was of the opinion that it was not a chattel
mortgage, for the reason that the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law, and registration was refused on this
ground only.
We are of the opinion that the position taken by the respondent is untenable; and it is his duty to
accept the proper fee and place the instrument on record. The duties of a register of deeds in
respect to the registration of chattel mortgage are of a purely ministerial character; and no
provision of law can be cited which confers upon him any judicial or quasi-judicial power to
determine the nature of any document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the Chattel Mortgage
Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section
198 of the Administrative Code, where they are now found. There is nothing in any of these
provisions conferring upon the register of deeds any authority whatever in respect to the
"qualification," as the term is used in Spanish law, of chattel mortgage. His duties in respect to
such instruments are ministerial only. The efficacy of the act of recording a chattel mortgage
consists in the fact that it operates as constructive notice of the existence of the contract, and
the legal effects of the contract must be discovered in the instrument itself in relation with the
fact of notice. Registration adds nothing to the instrument, considered as a source of title, and
affects nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between
real property and personal property for purpose of the application of the Chattel Mortgage Law.
Those articles state rules which, considered as a general doctrine, are law in this jurisdiction;
but it must not be forgotten that under given conditions property may have character different
from that imputed to it in said articles. It is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property; and 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. Other situations are constantly arising,
and from time to time are presented to this court, in which the proper classification of one thing
or another as real or personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this
Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First
Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here added
to the observations contained in said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the point as
to whether a register of deeds has authority to deny the registration of a document
purporting to be a chattel mortgage and executed in the manner and form prescribed by
the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:
Based principally upon the provisions of section quoted the Attorney-General of the
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has
no authority to pass upon the capacity of the parties to a chattel mortgage which is
presented to him for record. A fortiori a register of deeds can have no authority to pass
upon the character of the property sought to be encumbered by a chattel mortgage. Of
course, if the mortgaged property is real instead of personal the chattel mortgage would
no doubt be held ineffective as against third parties, but this is a question to be
determined by the courts of justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held
that where the interest conveyed is of the nature of real, property, the placing of the document
on record in the chattel mortgage register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function of the register of deeds in placing
the document on record.
In the light of what has been said it becomes unnecessary for us to pass upon the point
whether the interests conveyed in the instrument now in question are real or personal;
and we declare it to be the duty of the register of deeds to accept the estimate placed
upon the document by the petitioner and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from the date of the
notification hereof, the respondent shall interpose a sufficient answer to the petition, the
writ of mandamus will be issued, as prayed, but without costs. So ordered.

G.R. No. L-40411

August 7, 1935

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

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court
and as set forth by counsel for the parties on appeal, involves the determination of the nature of
the properties described in the complaint. The trial judge found that those properties were

personal in nature, and as a consequence absolved the defendants from the complaint, with
costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted
belonged to another person. On the land the sawmill company erected a building which housed
the machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any
amount for said improvements and buildings; also, in the event the party of the second
part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the
properties now in question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out by the record made
by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant
herein having consummated the sale, proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale executed in its favor by the sheriff
of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from
the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
5. Machinery, liquid containers, instruments or implements intended by the owner of any
building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that while
not conclusive, the characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New Yorkvs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the expiration or abandonment
of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless such
person acted as the agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from
the point of view of the rights of Valdes and its nature and character from the point of
view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also attributes immovability in
some cases to property of a movable nature, that is, personal property, because of the
destination to which it is applied. "Things," says section 334 of the Porto Rican Code,
"may be immovable either by their own nature or by their destination or the object to
which they are applicable." Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: "Machinery, vessels, instruments or implements
intended by the owner of the tenements for the industrial or works that they may carry on
in any building or upon any land and which tend directly to meet the needs of the said
industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing machinery
placed in the plant it is plain, both under the provisions of the Porto Rican Law and of
the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result
would not be accomplished, therefore, by the placing of machinery in a plant by a tenant
or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not presumed by the law to have
applied movable property belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It follows that abstractly
speaking the machinery put by the Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express

provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.
xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable
property, it follows that they had the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right did not in a legal sense conflict with
the claim of Valdes, since as to him the property was a part of the realty which, as the
result of his obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.

G.R. No. L-15334

January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF

QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric
street railway and electric light, heat and power system in the City of Manila and its suburbs to
the person or persons making the most favorable bid. Charles M. Swift was awarded the said

franchise on March 1903, the terms and conditions of which were embodied in Ordinance No.
44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became
the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls,
Laguna and is transmitted to the City of Manila by means of electric transmission wires, running
from the province of Laguna to the said City. These electric transmission wires which carry high
voltage current, are fastened to insulators attached on steel towers constructed by respondent
at intervals, from its hydro-electric plant in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel towers within Quezon City, on land
belonging to it. A photograph of one of these steel towers is attached to the petition for review,
marked Annex A. Three steel towers were inspected by the lower court and parties and the
following were the descriptions given there of by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we deeper until it reached the bottom of the
post; at the bottom of the post were two parallel steel bars attached to the leg means of
bolts; the tower proper was attached to the leg three bolts; with two cross metals to
prevent mobility; there was no concrete foundation but there was adobe stone
underneath; as the bottom of the excavation was covered with water about three inches
high, it could not be determined with certainty to whether said adobe stone was placed
purposely or not, as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in
the first tower, the ground around one of the four legs was excavate from seven to eight
(8) feet deep and one and a half (1-) meters wide. There being very little water at the
bottom, it was seen that there was no concrete foundation, but there soft adobe beneath.
The leg was likewise provided with two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the second tower is made up of metal rods
joined together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to
a depth about two or three inches beyond the outside level of the steel bar foundation. It
was found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably
due to high humidity, looks like mud or clay. It was also found that the square metal
frame supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the
Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
Respondent paid the amount under protest, and filed a petition for review in the Court of Tax

Appeals (CTA for short) which rendered a decision on December 29, 1958, ordering the
cancellation of the said tax declarations and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The motion for reconsideration having been
denied, on April 22, 1959, the instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the
term "poles" which are declared exempt from taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the refund of the amount paid.
These are assigned as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature
and by whatsoever authority upon the privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or
timber, as typically the stem of a small tree stripped of its branches; also by extension, a similar
typically cylindrical piece or object of metal or the like". The term also refers to "an upright
standard to the top of which something is affixed or by which something is supported; as a
dovecote set on a pole; telegraph poles; a tent pole; sometimes, specifically a vessel's master
(Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of
Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co.
which are made of two steel bars joined together by an interlacing metal rod. They are called
"poles" notwithstanding the fact that they are no made of wood. It must be noted from paragraph
9, above quoted, that the concept of the "poles" for which exemption is granted, is not
determined by their place or location, nor by the character of the electric current it carries, nor
the material or form of which it is made, but the use to which they are dedicated. In accordance
with the definitions, pole is not restricted to a long cylindrical piece of wood or metal, but
includes "upright standards to the top of which something is affixed or by which something is
supported. As heretofore described, respondent's steel supports consists of a framework of four
steel bars or strips which are bound by steel cross-arms atop of which are cross-arms
supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles"
is not a novelty. Several courts of last resort in the United States have called these steel
supports "steel towers", and they denominated these supports or towers, as electric poles. In
their decisions the words "towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided
that wires shall be constructed upon suitable poles, this term was construed to mean either

wood or metal poles and in view of the land being subject to overflow, and the necessary
carrying of numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words
and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires alongside
public highways. The steel supports or towers were made of iron or other metals consisting of
two pieces running from the ground up some thirty feet high, being wider at the bottom than at
the top, the said two metal pieces being connected with criss-cross iron running from the bottom
to the top, constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n v. Compton,
8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top
of which extends above the surface of the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death
was built for the purpose of supporting a transmission wire used for carrying high-tension
electric power, but claimed that the steel towers on which it is carried were so large that their
wire took their structure out of the definition of a pole line. It was held that in defining the word
pole, one should not be governed by the wire or material of the support used, but was
considering the danger from any elevated wire carrying electric current, and that regardless of
the size or material wire of its individual members, any continuous series of structures intended
and used solely or primarily for the purpose of supporting wires carrying electric currents is a
pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat
the very object for which the franchise was granted. The poles as contemplated thereon, should
be understood and taken as a part of the electric power system of the respondent Meralco, for
the conveyance of electric current from the source thereof to its consumers. If the respondent
would be required to employ "wooden poles", or "rounded poles" as it used to do fifty years
back, then one should admit that the Philippines is one century behind the age of space. It
should also be conceded by now that steel towers, like the ones in question, for obvious
reasons, can better effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not
embraced within the term poles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law does
not provide for a definition of real property; but Article 415 of the Civil Code does, by stating the
following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx

xxx

xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object;
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 in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;
xxx

xxx

xxx

The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the soil. They
are not construction analogous to buildings nor adhering to the soil. As per description, given by
the lower court, they are removable and merely attached to a square metal frame by means of
bolts, which when unscrewed could easily be dismantled and moved from place to place. They
can not be included under paragraph 3, as they are not attached to an immovable in a fixed
manner, and they can be separated without breaking the material or causing deterioration upon
the object to which they are attached. Each of these steel towers or supports consists of steel
bars or metal strips, joined together by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing the same. These steel towers or supports
do not also fall under paragraph 5, for they are not machineries, receptacles, instruments or
implements, and even if they were, they are not intended for industry or works on the land.
Petitioner is not engaged in an industry or works in the land in which the steel supports or
towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund
the sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued
that as the City Treasurer is not the real party in interest, but Quezon City, which was not a
party to the suit, notwithstanding its capacity to sue and be sued, he should not be ordered to
effect the refund. This question has not been raised in the court below, and, therefore, it cannot
be properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City Treasurer)
whom had insisted that respondent herein pay the real estate taxes, which respondent paid
under protest. Having acted in his official capacity as City Treasurer of Quezon City, he would
surely know what to do, under the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.

G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.
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).
It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner 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 properly 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:
xxx xxx xxx
22. That defendant, Philippine National Bank, through its Branch Manager ... by
virtue of the request of defendant ... executed a document dated July 31, 1978,

entitled Amendment to Deed of Absolute Sale ... 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 21, 1977 ...;
23. That said defendant bank fraudulently mentioned ... 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 ... 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 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 Pretrial 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(l) 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.
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.

G.R. 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 BALUYUTMAGCALE, respondents.

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:
... 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:
l. 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 Identffied 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 Duration 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
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 P20,000.00. 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.
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. Iya, 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 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 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; Pena "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, 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.
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.

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:
... 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 was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino supra). ... (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 favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is
valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 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.

G.R. No. 137705

August 22, 2000

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,

vs.
PCI LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be considered as
personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 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 Court (RTC) of Quezon City (Branch
218)6 issued a Writ of Seizure.7 The March 18, 1998 Resolution8 denied petitioners Motion for
Special Protective Order, praying that the deputy sheriff be enjoined "from seizing immobilized
or other real properties in (petitioners) factory in Cainta, Rizal and to return to their original
place whatever immobilized machineries or equipments he may have removed."9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to
PCI Leasing after 5 days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory,
seized one machinery with [the] word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking
the power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.

"This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were]
still personal and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were] embodied [were] totally
sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled
that the "words of the contract are clear and leave no doubt upon the true intention of the
contracting parties." Observing that Petitioner Goquiolay was an experienced businessman who
was "not unfamiliar with the ways of the trade," it ruled that he "should have realized the import
of the document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition
whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of
the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both parties. The contract
is being enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine."
Hence, this Petition.11
The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"A. Whether or not the machineries purchased and imported by SERGS became real property
by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease."12
In the main, the Court will resolve whether the said machines are personal, not immovable,
property which may be a proper subject of a writ of replevin. As a preliminary matter, the Court
will also address briefly the procedural points raised by respondent.
The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being filed
under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds support in
the very title of the Petition, which is "Petition for Review on Certiorari."13
While Judge Laqui should not have been impleaded as a respondent,14 substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In this
light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from the
caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects of
the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.15 Section 3 thereof reads:
"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody."
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:
"ART. 415. The following are immovable property:
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

x x x"

In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become "immobilized by destination because
they are essential and principal elements in the industry."16 In that sense, petitioners are correct
in arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of
the Civil Code.17

Be that as it may, we disagree with the submission of the petitioners that the said machines are
not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.18After agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as
a personal property because it had been made the subject of a chattel mortgage. The Court
ruled:
"x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise."
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
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 Courts ruling are reproduced hereunder:
"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long
as the parties to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel
mortgage."
In the present case, the Lease Agreement clearly provides that the machines in question are to
be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:21
"12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in
any manner affixed or attached to or embedded in, or permanently resting upon, real property or
any building thereon, or attached in any manner to what is permanent."
Clearly then, petitioners are estopped from denying the characterization of the subject machines
as personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the contracting
parties are concerned.22 Hence, while the parties are bound by the Agreement, third persons
acting in good faith are not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party would be adversely
affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.24 Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity which
places in serious doubt the intention of the parties and the validity of the lease agreement
itself."25 In their Reply to respondents Comment, they further allege that the Agreement is
invalid.26
These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the case. Hence, they should be threshed out in the trial,
not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,27 the Court explained that the policy under Rule 60 was
that questions involving title to the subject property questions which petitioners are now
raising -- should be determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the
plaintiffs bond. They were not allowed, however, to invoke the title to the subject property. The
Court ruled:
"In other words, the law does not allow the defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put
at issue the matter of the title or right of possession over the specific chattel being replevied, the
policy apparently being that said matter should be ventilated and determined only at the trial on
the merits."28
Besides, these questions require a determination of facts and a presentation of evidence, both
of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for
review in this Court under Rule 45.29
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first
only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it
must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance 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 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.1wphi1 As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:
"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a
bond executed to the applicant, in double the value of the property as stated in the applicants
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

G.R. No. L-18456

November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,

vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married
to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable
6 months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776,
and Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house,
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro,
located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under
Motor Vehicle Registration Certificate No. A-171806. Both mortgages were contained in one
instrument, which was registered in both the Office of the Register of Deeds and the Motor
Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands made on
them, failed to pay. They, however, asked and were granted extension up to June 30, 1960,
within which to pay. Came June 30, defendants again failed to pay and, for the second time,
asked for another extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that in the remote event
he should fail to make good the obligation on such date (July 30, 1960), the defendant would no
longer ask for further extension and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights, under the said
mortgage contract. In spite of said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on
the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the
First Cause of Action which states that the defendants unreasonably failed and refuse to
pay their obligation to the plaintiff the truth being the defendants are hard up these days
and pleaded to the plaintiff to grant them more time within which to pay their obligation
and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to
pay their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that
the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per
annum as interest was agreed, upon failure to pay the principal when due and P500.00 as
liquidated damages; that the instrument had been registered in the Registry of Property and
Motor Vehicles Office, both of the province of Tarlac; that the only issue in the case is whether
or not the residential house, subject of the mortgage therein, can be considered a Chattel and
the propriety of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the
copy of this decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00
with 12% compounded interest per annum from June 14, 1960, until said principal sum
and interests are fully paid, plus P500.00 as liquidated damages and the costs of this
suit, with the warning that in default of said payment of the properties mentioned in the
deed of real estate mortgage and chattel mortgage (Annex "A" to the complaint) be sold
to realize said mortgage debt, interests, liquidated damages and costs, in accordance
with the pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14 of the
Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",
immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.
The above judgment was directly appealed to this Court, the defendants therein assigning only
a single error, allegedly committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages appended to the complaint
is valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was
made the subject of the chattel mortgage, for the reason that it is erected on a land that
belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building;
the fact that the land belongs to another is immaterial, it is enough that the house adheres to the
land; that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code
does not require that the attachment or incorporation be made by the owner of the land, the only
criterion being the union or incorporation with the soil. In other words, it is claimed that "a
building is an immovable property, irrespective of whether or not said structure and the land on
which it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb.

28, 1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants
argue that since only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952)
then the mortgage in question which is the basis of the present action, cannot give rise to an
action for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v.
Adriano Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely
on the ground that the house mortgaged was erected on the land which belonged to a third
person, but also and principally on the doctrine of estoppel, in that "the parties have
so expressly agreed" in the mortgage to consider the house as chattel "for its smallness and
mixed materials of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code
(corresponding to arts. 415 and 416, N.C.C.), for purposes of the application of the Chattel
Mortgage Law, it was held that under certain conditions, "a property may have a character
different from that imputed to it in said articles. It is undeniable that the parties to a contract
may by agreement, treat as personal property that whichby nature would be real property"
(Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a
building of mixed materials may be the subject of a chattel mortgage, in which case, it is
considered as between the parties as personal property. ... The matter depends on the
circumstances and the intention of the parties". "Personal property may retain its character as
such where it is so agreed by the parties interested even though annexed to the realty ...". (42
Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52
O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to
consider a house as personal property for the purposes of said contract, "is good only insofar as
the contracting parties are concerned. It is based partly, upon the principles of estoppel ..."
(Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on
a rented land, was held to be a personal property, not only because the deed of mortgage
considered it as such, but also because it did not form part of the land (Evangelista v. Abad
[CA];36 O.G. 2913), for it is now well settled that an object placed on land by one who has only
a temporary right to the same, such as a lessee or usufructuary, does not become immobilized
by attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v.
Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property is so stipulated in the
document of mortgage. (Evangelista v. Abad, supra.) It should be noted, however, that the
principle is predicated on statements by the owner declaring his house to be a chattel, a
conduct that may conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v.
C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been considered as a chattel
between them, has been recognized, it has been a constant criterion nevertheless that, with
respect to third persons, who are not parties to the contract, and specially in execution
proceedings, the house is considered as an immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts;
built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-1083738, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached
permanently to the soil. In these cases and in the Leung Yee case, supra, third persons
assailed the validity of the deed of chattel mortgages; in the present case, it was one of the
parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala, and Makalintal,
JJ., concur.

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

CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.

AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines)
Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists,
truck hoists, air compressors and tireflators. The city assessor described the said equipment
and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is erected, a
water tank if there is any is placed in one corner of the lot, car hoists are placed
in an adjacent shed, an air compressor is attached in the wall of the shed or at
the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug
deep about six feet more or less, a few meters away from the shed. This is done
to prevent conflagration because gasoline and other combustible oil are very
inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and
the gasoline pump is commonly placed or constructed under the shed. The
footing of the pump is a cement pad and this cement pad is imbedded in the
pavement under the shed, and evidence that the gasoline underground tank is
attached and connected to the shed or building through the pipe to the pump and
the pump is attached and affixed to the cement pad and pavement covered by
the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate
shed, the air compressor, the underground gasoline tank, neon lights signboard,
concrete fence and pavement and the lot where they are all placed or erected, all
of them used in the pursuance of the gasoline service station business formed
the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the tenement, it
is clear they are, for the tenement we consider in this particular case are (is) the
pavement covering the entire lot which was constructed by the owner of the
gasoline station and the improvement which holds all the properties under
question, they are attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all
the improvements, machines, equipments and apparatus are allowed by Caltex
(Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the
pump, so with the water tank it is connected also by a steel pipe to the pavement,
then to the electric motor which electric motor is placed under the shed. So to
say that the gasoline pumps, water pumps and underground tanks are outside of
the service station, and to consider only the building as the service station is
grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and equipment in good condition as when
received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become the owner of the
machines and equipment installed therein. Caltex retains the ownership thereof during the term
of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually
(p. 52, Rollo). The city board of tax appeals ruled that they are personalty. The assessor
appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community
Development Jose Roo, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that

the definitions of real property and personal property in articles 415 and 416 of the Civil Code
are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place)
in its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of
which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in
1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city
boards of assessment appeals had in mind the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the Real Property Tax Code has
appellate jurisdiction over decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the
receipt of its decision by the appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the review of the Board's decision
by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of
the Central Board of Assessment Appeals is the special civil action of certiorari, the recourse
resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated
are subject to realty tax. This issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in the Real Property Tax Code
which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.

m) Machinery shall embrace machines, mechanical contrivances, instruments,

appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment
Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas station would be useless, and which
have been attached or affixed permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant,
a usufructuary, or any person having only a temporary right, unless such person acted as the
agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding
machinery that becomes real property by destination. In the Davao Saw Mills case the question
was whether the machinery mounted on foundations of cement and installed by the lessee on
leased land should be regarded as real property forpurposes of execution of a judgment against
the lessee. The sheriff treated the machinery as personal property. This Court sustained the
sheriff's action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96
Phil. 70, where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject
to the realty tax. This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might
be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to
see things classed as real property for purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric
Co., 119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of
paragraph 9 of its franchise which exempts its poles from taxation. The steel towers were
considered personalty because they were attached to square metal frames by means of bolts
and could be moved from place to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the
repair shop of a bus company which were held to be personal property not subject to realty tax
(Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in
upholding the city assessor's is imposition of the realty tax on Caltex's gas station and
equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment
Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr. and Abad Santos, JJ., took no part.

G.R. No. L-19468

October 30, 1964

SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-appellants,

vs.
CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees.
Santiago F. Alidio for plaintiffs-appellants.
Marcos Mangubat in his own behalf and for co-defendant-appellee Conrado S. David.
CONCEPCION, J.:
This is an appeal from an order of the Court of First Instance of Manila in Civil Case No. 47664
thereof. The pertinent facts are set forth in said order from which we quote:
It appears from the complaint that on December 11, 1948, defendant herein Conrado S.
David received a loan of P3,000 with interest at 12% per annum from Claudia B. Vda. de
Uy Kim, one of the plaintiffs, and to secure the payment of the same, Conrado S. David
executed a chattel mortgage on a house situated at 1259 Sande Street, Tondo, Manila;
that the chattel mortgage was registered with the Register of Deeds of Manila on
December 19, 1948; that on February 10, 1953, the mortgaged house was sold at public
auction to satisfy the indebtedness to Claudia B. Vda. de Uy Kim, and the house was
sold to Claudia B. Vda. de Uy Kim in the said foreclosure proceedings; that on March 22,
1954, Claudia B. Vda. de Uy Kim sold the said house to Marcos Mangubat, and on
March 1, 1956. Marcos Mangubat filed a complaint against Conrado S. David, Civil Case
No. 29078, in the Court of First Instance of Manila, for the collection of the loan of
P2,000; that on March 24, 1956, the complaint was amended to include the plaintiffs
herein Salvador Piansay and Claudia B. Vda. de Uy Kim as party defendants and
praying that auction sale executed by the Sheriff on February 10, 1953, and the deed of
absolute sale executed by Claudia B. Vda. de Uy Kim in favor of Salvador Piansay be
annulled; that decision was rendered in Civil Case No. 29078 ordering Conrado S. David

to pay the plaintiff the sum of P2,000, damages and attorney's fees, and dismissing the
complaint with respect to Claudia B. Vda. de Uy Kim, Leonardo Uy Kim and Salvador
Piansay; that upon appeal, the Court of Appeals affirmed the decision but setting aside
the award of damages in favor of Claudia B. Vda. de Uy Kim; that in the execution of
Civil Case No. 29078, which was affirmed by the Court of Appeals in CA-G.R. No.
21797-R, the house, which had been bought by Uy Kim at the foreclosure proceedings
and sold by her to Salvador Piansay, was levied upon at the instance of the defendant
Marcos Mangubat; that to prevent the sale at public auction of the house here in
question, the plaintiffs herein filed a petition for certiorari andmandamus with preliminary
injunction in the Court of Appeals, CA-G.R. No. 28974-R, entitled Claudia B. Vda. de Uy
Kim and Salvador Piansay versus Hon. Judge Jesus Y. Perez, et al.; that acting upon
the said petition, the Court of Appeals in its order of April 28, 1961, denied the petition to
lift or discharge the writ of execution.
Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to as the
plaintiffs, instituted the present action which was docketed as Civil Case No. 47664 of the Court
of First Instance of Manila, against David and Mangubat, hereinafter referred to as the
defendants. In their complaint, plaintiffs, after averring the foregoing facts, allege that, in the
proceedings for the execution of the decision in Civil Case No. 29078. David demanded from
Piansay the payment of rentals for the use and occupation of the house aforementioned, which,
Piansay claims, is his property, and that the defendants are threatening to cause said house to
be levied upon and sold at public auction in violation of the alleged rights of the plaintiffs.
Accordingly plaintiffs prayed that a writ of preliminary injunction to restrain said levy and sale at
public auction be issued and that, after appropriate proceedings, judgment be rendered
declaring that Piansay is the true and lawful owner of said house sentencing the defendants to
pay damages and making the preliminary injunction permanent.
Mangubat moved to dismiss said complaint, upon the theory that the same is barred by the
principle of res adjudicata and that plaintiffs have no personality to bring this action or to
question the levy upon the house in question, because they have no interest therein. After due
hearing the lower court issued the order appealed from, granting said motion and dismissing the
complaint, with costs against the plaintiffs. A reconsideration of said order having been denied,
plaintiffs interposed the present appeal directly to this Court only questions of law being raised
in the appeal, namely: (1) applicability of the principle of res adjudicata; and (2) validity of the
chattel mortgage constituted in favor of Mrs. Uy Kim.
With reference to the first question, it should be noted that in case CA-G.R. No. 21797-R, the
Court of Appeals affirmed the decision in Case No. 29078 of the Court of First Instance of
Manila stating:
In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R, promulgated Sept.
23, 1952) this Court, thru Justice J. B. L. Reyes, said, among others:
Since it is a rule in our law that buildings and constructions are regarded as mere
accesories to the land (following the Roman maxim omne quod solo inaedificatur
solo credit) it is logical that said accessories should partaked of the nature of the
principal thing, which is the land forming, as they do, but a single object (res) with
it in contemplation of law.

... While it is true that said document was correspondingly registered in the
Chattel Mortgage Register of Rizal, this Act produced no effect whatsoever for
where the interest conveyed is in the nature of real property, the registration of
the document in the registry of chattels is merely a futile act. Thus the registration
of the chattel mortgage of a building of strong materials produced no effect as far
as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil. 644).
Nor can we give any consideration to that contention of the surety that it has
acquired ownership over the property in question by reason of the sale
conducted by the Provincial Sheriff of Rizal for as this court has aptly
pronounced:
A mortgage creditor who purchases real properties at an extra-judicial
foreclosure sale thereof by virtue of a chattel mortgage constituted in his
favor, which mortgage has been declared null and void with respect to
said real properties acquires no right thereto by virtue of said sale. (De la
Riva vs. Ah Kee, 60 Phil. 899).
Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage constituted in
her favor, because it was in reality a mere contract of an unsecured loan. It follows
that the Sheriff was not authorized to sell thehouse as a result of the foreclosure of such
chattel mortgage. And as Mrs. Uy Kim could not have acquired the house when the
Sheriff sold it at public auction, she could not, in the same token, it validly to Salvador
Piansay. Conceding that the contract of sale between Mrs. Uy Kim and Salvador
Piansay was of no effect, we cannot nevertheless set it aside upon instance of
Mangubat because, as the court below opined, he is not a party thereto nor has he any
interest in the subject matter therein, as it was never sold or mortgaged to him
(Emphasis supplied);
that, thereafter, the records of the case were remanded to the Court of First Instance of Manila,
which caused the corresponding writ of execution to be issued; that upon the request of
Mangubat, the house in question was levied upon; that Piansay filed with the trial court,
presided over by Hon. Jesus Y. Perez, Judge, a motion to set aside said levy; that this motion
was denied by said court, in an order dated February 4, 1961, upon the following ground:
Considering that the decision rendered by the Court of Appeals in this case when the
same was elevated to said Court recognizes that defendant Claudia B. de Uy Kim did
not acquire the house of defendant Conrado S. David and can therefore be executed by
the plaintiff to satisfy the judgment rendered against said defendant David in favor of the
plaintiff. The mere fact that the dispositive part of the decision states that the complaint
is dismissed with respect to defendants Claudia B. de Uy Kim, Leonardo Uy Kim and
Salvador Piansay is of no moment because the chattel mortgage executed by David in
favor of Claudia B. de Uy Kim might not be annulled but it did not transmit any right from
defendant David to Claudia B. de Uy Kim. The house in question can therefore be levied
upon because it had remained the property of defendant David(Emphasis supplied);
that a reconsideration of this order of February 4, 1961 having been denied by Judge Perez, on
February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-R of the Court of Appeals, for a
writ of certiorari and mandamusto annul said orders of Judge Perez and to compel him to
release said house from the aforementioned levy; and that on March 3, 1961, the Court of
Appeals denied said petition for certiorari and mandamus "insofar as it prays that the order of

respondent Judge denying the lifting and discharge of the writ of execution be set aside and
revoked."
In other words, in Civil Case No. 29078 of the Court of First Instance of Manila, Piansay
assailed the right of Mangubat to levy execution upon the house in question alleging that the
same belongs to him, he having bought it from Mrs. Uy Kim, who had acquired it at the auction
sale held in connection with the extrajudicial foreclosure of the chattel mortgage constituted in
her favor by David. This pretense was, however, overruled by Judge Perez, who presided at
said court, in its order of February 4, 1961, upon the theory that the chattel mortgage and sale in
favor of Mrs. Uy Kim had been annulled in the original decision in said case, as affirmed by the
Court of Appeals in CA-G.R. No. 21797-R. Regardless of whether this theory is accurate or not,
the fact is that said order became final and executory upon the denial of the petition for certiorari
and mandamus, to annul the same in CA-G.R. No. 28974-R of the Court of Appeals. Hence,
plaintiffs are now barred from asserting that the aforementioned chattel mortgage and sale are
valid.
At any rate, regardless of the validity of a contract constituting a chattel mortgage on a
house, as between the parties to said contract (Standard Oil Co. of N. Y. vs. Jaramillo, 44 Phil.
632-633), the same cannot and does not bind third persons, who are not parties to the
aforementioned contract or their privies (Leung Yee vs. Strong Machinery Co., 37 Phil. 644;
Evangelista vs. Alto Surety, G.R. No. L-11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L18456, November 30, 1963). As a consequence, the sale of the house in question in the
proceedings for the extrajudicial foreclosure of said chattel mortgage, is null and void insofar as
defendant Mangubat is concerned, and did not confer upon Mrs. Uy Kim, as buyer in said sale,
any dominical right in and to said house (De la Riva vs. Ah Yee, 60 Phil. 800), so that she could
not have transmitted to her assignee, plaintiff Piansay any such right as against defendant
Mangubat. In short plaintiffs have no cause of action against the defendants herein.
WHEREFORE, the others appealed from are hereby affirmed, with costs against plaintiffs
Salvador Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.

G.R. No. 155076

February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City,
Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, Respondents.

DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar, Regional Trial
Court (RTC), Makati City, Branch 150, which denied the "Motion to Quash (With Motion to Defer
Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative franchise to
render local and international telecommunication services under Republic Act No. 7082.2 Under
said law, PLDT is authorized to establish, operate, manage, lease, maintain and purchase
telecommunication systems, including transmitting, receiving and switching stations, for both
domestic and international calls. For this purpose, it has installed an estimated 1.7 million
telephone lines nationwide. PLDT also offers other services as authorized by Certificates of
Public Convenience and Necessity (CPCN) duly issued by the National Telecommunications
Commission (NTC), and operates and maintains an International Gateway Facility (IGF). The
PLDT network is thus principally composed of the Public Switch Telephone Network (PSTN),
telephone handsets and/or telecommunications equipment used by its subscribers, the wires
and cables linking said telephone handsets and/or telecommunications equipment, antenna, the
IGF, and other telecommunications equipment which provide interconnections.3 1avvphil.net
PLDT alleges that one of the alternative calling patterns that constitute network fraud and violate
its network integrity is that which is known as International Simple Resale (ISR). ISR is a
method of routing and completing international long distance calls using International Private
Leased Lines (IPL), cables, antenna or air wave or frequency, which connect directly to the local
or domestic exchange facilities of the terminating country (the country where the call is
destined). The IPL is linked to switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at the terminating country, or in
some instances, even those from the originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which sells "Bay
Super Orient Card" phone cards to people who call their friends and relatives in the Philippines.
With said card, one is entitled to a 27-minute call to the Philippines for about 37.03 per minute.
After dialing the ISR access number indicated in the phone card, the ISR operator requests the
subscriber to give the PIN number also indicated in the phone card. Once the callers identity
(as purchaser of the phone card) is confirmed, the ISR operator will then provide a Philippine
local line to the requesting caller via the IPL. According to PLDT, calls made through the IPL
never pass the toll center of IGF operators in the Philippines. Using the local line, the Baynet
card user is able to place a call to any point in the Philippines, provided the local line is National
Direct Dial (NDD) capable.5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its incoming
international long distance calls from Japan. The IPL is linked to switching equipment, which is
then connected to PLDT telephone lines/numbers and equipment, with Baynet as subscriber.
Through the use of the telephone lines and other auxiliary equipment, Baynet is able to connect
an international long distance call from Japan to any part of the Philippines, and make it appear
as a call originating from Metro Manila. Consequently, the operator of an ISR is able to evade
payment of access, termination or bypass charges and accounting rates, as well as compliance
with the regulatory requirements of the NTC. Thus, the ISR operator offers international

telecommunication services at a lower rate, to the damage and prejudice of legitimate operators
like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its ISR activities: lines, cables,
and antennas or equipment or device capable of transmitting air waves or frequency, such as
an IPL and telephone lines and equipment; computers or any equipment or device capable of
accepting information applying the prescribed process of the information and supplying the
result of this process; modems or any equipment or device that enables a data terminal
equipment such as computers to communicate with other data terminal equipment via a
telephone line; multiplexers or any equipment or device that enables two or more signals from
different sources to pass through a common cable or transmission line; switching equipment, or
equipment or device capable of connecting telephone lines; and software, diskettes, tapes or
equipment or device used for recording and storing information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls passing through
Baynets ISR network which bypass the IGF toll center, PLDT incurred an estimated monthly
loss of P10,185,325.96.9 Records at the Securities and Exchange Commission (SEC) also
revealed that Baynet was not authorized to provide international or domestic long distance
telephone service in the country. The following are its officers: Yuji Hijioka, a Japanese national
(chairman of the board of directors); Gina C. Mukaida, a Filipina (board member and president);
Luis Marcos P. Laurel, a Filipino (board member and corporate secretary); Ricky Chan Pe, a
Filipino (board member and treasurer); and Yasushi Ueshima, also a Japanese national (board
member).
Upon complaint of PLDT against Baynet for network fraud, and on the strength of two search
warrants10 issued by the RTC of Makati, Branch 147, National Bureau of Investigation (NBI)
agents searched its office at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City on
November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando J.
Villegas were arrested by NBI agents while in the act of manning the operations of Baynet.
Seized in the premises during the search were numerous equipment and devices used in its
ISR activities, such as multiplexers, modems, computer monitors, CPUs, antenna, assorted
computer peripheral cords and microprocessors, cables/wires, assorted PLDT statement of
accounts, parabolic antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a Resolution11 on
January 28, 2000, finding probable cause for theft under Article 308 of the Revised Penal Code
and Presidential Decree No. 40112 against the respondents therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati City
charging Matsuura, Miyake, Lacson and Villegas with theft under Article 308 of the Revised
Penal Code. After conducting the requisite preliminary investigation, the State Prosecutor filed
an Amended Information impleading Laurel (a partner in the law firm of Ingles, Laurel, Salinas,
and, until November 19, 1999, a member of the board of directors and corporate secretary of
Baynet), and the other members of the board of directors of said corporation, namely, Yuji
Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas, as accused for theft under Article 308
of the Revised Penal Code. The inculpatory portion of the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City, and within the jurisdiction
of this Honorable Court, the accused, conspiring and confederating together and all of them

mutually helping and aiding one another, with intent to gain and without the knowledge and
consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international long distance calls belonging to
PLDT by conducting International Simple Resale (ISR), which is a method of routing and
completing international long distance calls using lines, cables, antennae, and/or air wave
frequency which connect directly to the local or domestic exchange facilities of the country
where the call is destined, effectively stealing this business from PLDT while using its facilities in
the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said
amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the ground that
the factual allegations in the Amended Information do not constitute the felony of theft under
Article 308 of the Revised Penal Code. He averred that the Revised Penal Code, or any other
special penal law for that matter, does not prohibit ISR operations. He claimed that telephone
calls with the use of PLDT telephone lines, whether domestic or international, belong to the
persons making the call, not to PLDT. He argued that the caller merely uses the facilities of
PLDT, and what the latter owns are the telecommunication infrastructures or facilities through
which the call is made. He also asserted that PLDT is compensated for the callers use of its
facilities by way of rental; for an outgoing overseas call, PLDT charges the caller per minute,
based on the duration of the call. Thus, no personal property was stolen from PLDT. According
to Laurel, the P20,370,651.92 stated in the Information, if anything, represents the rental for the
use of PLDT facilities, and not the value of anything owned by it. Finally, he averred that the
allegations in the Amended Information are already subsumed under the Information for
violation of Presidential Decree (P.D.) No. 401 filed and pending in the Metropolitan Trial Court
of Makati City, docketed as Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed the motion,14 contending that the
movant unlawfully took personal property belonging to it, as follows: 1) intangible telephone
services that are being offered by PLDT and other telecommunication companies, i.e., the
connection and interconnection to their telephone lines/facilities; 2) the use of those facilities
over a period of time; and 3) the revenues derived in connection with the rendition of such
services and the use of such facilities.15
The prosecution asserted that the use of PLDTs intangible telephone services/facilities allows
electronic voice signals to pass through the same, and ultimately to the called partys number. It
averred that such service/facility is akin to electricity which, although an intangible property,
may, nevertheless, be appropriated and be the subject of theft. Such service over a period of
time for a consideration is the business that PLDT provides to its customers, which enables the
latter to send various messages to installed recipients. The service rendered by PLDT is akin to
merchandise which has specific value, and therefore, capable of appropriation by another, as in
this case, through the ISR operations conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and revenues constitute
personal property envisaged in Article 308 of the Revised Penal Code." Moreover, the intangible
telephone services/facilities belong to PLDT and not to the movant and the other accused,
because they have no telephone services and facilities of their own duly authorized by the NTC;
thus, the taking by the movant and his co-accused of PLDT services was with intent to gain and
without the latters consent.

The prosecution pointed out that the accused, as well as the movant, were paid in exchange for
their illegal appropriation and use of PLDTs telephone services and facilities; on the other hand,
the accused did not pay a single centavo for their illegal ISR operations. Thus, the acts of the
accused were akin to the use of a "jumper" by a consumer to deflect the current from the house
electric meter, thereby enabling one to steal electricity. The prosecution emphasized that its
position is fortified by the Resolutions of the Department of Justice in PLDT v. Tiongson, et al.
(I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which
were issued on August 14, 2000 finding probable cause for theft against the respondents
therein.
On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash the Amended
Information. The court declared that, although there is no law that expressly prohibits the use of
ISR, the facts alleged in the Amended Information "will show how the alleged crime was
committed by conducting ISR," to the damage and prejudice of PLDT.
Laurel filed a Motion for Reconsideration17 of the Order, alleging that international long distance
calls are not personal property, and are not capable of appropriation. He maintained that
business or revenue is not considered personal property, and that the prosecution failed to
adduce proof of its existence and the subsequent loss of personal property belonging to
another. Citing the ruling of the Court in United States v. De Guzman,18Laurel averred that the
case is not one with telephone calls which originate with a particular caller and terminates with
the called party. He insisted that telephone calls are considered privileged communications
under the Constitution and cannot be considered as "the property of PLDT." He further argued
that there is no kinship between telephone calls and electricity or gas, as the latter are forms of
energy which are generated and consumable, and may be considered as personal property
because of such characteristic. On the other hand, the movant argued, the telephone business
is not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants Motion for
Reconsideration. This time, it ruled that what was stolen from PLDT was its "business" because,
as alleged in the Amended Information, the international long distance calls made through the
facilities of PLDT formed part of its business. The RTC noted that the movant was charged with
stealing the business of PLDT. To support its ruling, it cited Strochecker v. Ramirez,20 where the
Court ruled that interest in business is personal property capable of appropriation. It further
declared that, through their ISR operations, the movant and his co-accused deprived PLDT of
fees for international long distance calls, and that the ISR used by the movant and his coaccused was no different from the "jumper" used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He alleged
that the respondent judge gravely abused his discretion in denying his Motion to Quash the
Amended Information.21 As gleaned from the material averments of the amended information,
he was charged with stealing the international long distance calls belonging to PLDT, not its
business. Moreover, the RTC failed to distinguish between the business of PLDT (providing
services for international long distance calls) and the revenues derived therefrom. He opined
that a "business" or its revenues cannot be considered as personal property under Article 308 of
the Revised Penal Code, since a "business" is "(1) a commercial or mercantile activity
customarily engaged in as a means of livelihood and typically involving some independence of
judgment and power of decision; (2) a commercial or industrial enterprise; and (3) refers to
transactions, dealings or intercourse of any nature." On the other hand, the term "revenue" is
defined as "the income that comes back from an investment (as in real or personal property);

the annual or periodical rents, profits, interests, or issues of any species of real or personal
property."22
Laurel further posited that an electric companys business is the production and distribution of
electricity; a gas companys business is the production and/or distribution of gas (as fuel); while
a water companys business is the production and distribution of potable water. He argued that
the "business" in all these cases is the commercial activity, while the goods and merchandise
are the products of such activity. Thus, in prosecutions for theft of certain forms of energy, it is
the electricity or gas which is alleged to be stolen and not the "business" of providing electricity
or gas. However, since a telephone company does not produce any energy, goods or
merchandise and merely renders a service or, in the words of PLDT, "the connection and
interconnection to their telephone lines/facilities," such service cannot be the subject of theft as
defined in Article 308 of the Revised Penal Code.23
He further declared that to categorize "business" as personal property under Article 308 of the
Revised Penal Code would lead to absurd consequences; in prosecutions for theft of gas,
electricity or water, it would then be permissible to allege in the Information that it is the gas
business, the electric business or the water business which has been stolen, and no longer the
merchandise produced by such enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza,25 where it
was ruled that the Revised Penal Code, legislated as it was before present technological
advances were even conceived, is not adequate to address the novel means of "stealing"
airwaves or airtime. In said resolution, it was noted that the inadequacy prompted the filing of
Senate Bill 2379 (sic) entitled "The Anti-Telecommunications Fraud of 1997" to deter cloning of
cellular phones and other forms of communications fraud. The said bill "aims to protect in
number (ESN) (sic) or Capcode, mobile identification number (MIN), electronic-international
mobile equipment identity (EMEI/IMEI), or subscriber identity module" and "any attempt to
duplicate the data on another cellular phone without the consent of a public telecommunications
entity would be punishable by law."26 Thus, Laurel concluded, "there is no crime if there is no
law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the petition.27 The appellate court
ruled that a petition for certiorari under Rule 65 of the Rules of Court was not the proper remedy
of the petitioner. On the merits of the petition, it held that while business is generally an activity
which is abstract and intangible in form, it is nevertheless considered "property" under Article
308 of the Revised Penal Code. The CA opined that PLDTs business of providing international
calls is personal property which may be the object of theft, and cited United States v. Carlos28 to
support such conclusion. The tribunal also cited Strochecker v. Ramirez,29 where this Court
ruled that one-half interest in a days business is personal property under Section 2 of Act No.
3952, otherwise known as the Bulk Sales Law. The appellate court held that the operations of
the ISR are not subsumed in the charge for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending that THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY
ALLEGEDLY STOLEN PER THE INFORMATION IS NOT THE "INTERNATIONAL
LONG DISTANCE CALLS" BUT THE "BUSINESS OF PLDT."

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS

PERSONAL PROPERTY WITHIN THE MEANING OF ART. 308 OF THE REVISED
PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an interlocutory
order of the trial court which was issued with grave abuse of discretion amounting to excess or
lack of jurisdiction. In support of his petition before the Court, he reiterates the arguments in his
pleadings filed before the CA. He further claims that while the right to carry on a business or an
interest or participation in business is considered property under the New Civil Code, the term
"business," however, is not. He asserts that the Philippine Legislature, which approved the
Revised Penal Code way back in January 1, 1932, could not have contemplated to include
international long distance calls and "business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General (OSG) maintains that the
amended information clearly states all the essential elements of the crime of theft. Petitioners
interpretation as to whether an "international long distance call" is personal property under the
law is inconsequential, as a reading of the amended information readily reveals that specific
acts and circumstances were alleged charging Baynet, through its officers, including petitioner,
of feloniously taking, stealing and illegally using international long distance calls belonging to
respondent PLDT by conducting ISR operations, thus, "routing and completing international
long distance calls using lines, cables, antenna and/or airwave frequency which connect directly
to the local or domestic exchange facilities of the country where the call is destined." The OSG
maintains that the international long distance calls alleged in the amended information should
be construed to mean "business" of PLDT, which, while abstract and intangible in form, is
personal property susceptible of appropriation.31 The OSG avers that what was stolen by
petitioner and his co-accused is the business of PLDT providing international long distance calls
which, though intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of the Revised
Penal Code comprehends intangible property such as electricity and gas which are valuable
articles for merchandise, brought and sold like other personal property, and are capable of
appropriation. It insists that the business of international calls and revenues constitute personal
property because the same are valuable articles of merchandise. The respondent reiterates that
international calls involve (a) the intangible telephone services that are being offered by it, that
is, the connection and interconnection to the telephone network, lines or facilities; (b) the use of
its telephone network, lines or facilities over a period of time; and (c) the income derived in
connection therewith.33
PLDT further posits that business revenues or the income derived in connection with the
rendition of such services and the use of its telephone network, lines or facilities are personal
properties under Article 308 of the Revised Penal Code; so is the use of said telephone
services/telephone network, lines or facilities which allow electronic voice signals to pass
through the same and ultimately to the called partys number. It is akin to electricity which,
though intangible property, may nevertheless be appropriated and can be the object of theft.
The use of respondent PLDTs telephone network, lines, or facilities over a period of time for
consideration is the business that it provides to its customers, which enables the latter to send
various messages to intended recipients. Such use over a period of time is akin to merchandise
which has value and, therefore, can be appropriated by another. According to respondent
PLDT, this is what actually happened when petitioner Laurel and the other accused below
conducted illegal ISR operations.34

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for certiorari is the proper
remedy of the petitioner in the Court of Appeals; (b) whether or not international telephone calls
using Bay Super Orient Cards through the telecommunication services provided by PLDT for
such calls, or, in short, PLDTs business of providing said telecommunication services, are
proper subjects of theft under Article 308 of the Revised Penal Code; and (c) whether or not the
trial court committed grave abuse of discretion amounting to excess or lack of jurisdiction in
denying the motion of the petitioner to quash the amended information.
On the issue of whether or not the petition for certiorari instituted by the petitioner in the CA is
proper, the general rule is that a petition for certiorari under Rule 65 of the Rules of Court, as
amended, to nullify an order denying a motion to quash the Information is inappropriate because
the aggrieved party has a remedy of appeal in the ordinary course of law. Appeal and certiorari
are mutually exclusive of each other. The remedy of the aggrieved party is to continue with the
case in due course and, when an unfavorable judgment is rendered, assail the order and the
decision on appeal. However, if the trial court issues the order denying the motion to quash the
Amended Information with grave abuse of discretion amounting to excess or lack of jurisdiction,
or if such order is patently erroneous, or null and void for being contrary to the Constitution, and
the remedy of appeal would not afford adequate and expeditious relief, the accused may resort
to the extraordinary remedy of certiorari.35 A special civil action for certiorari is also available
where there are special circumstances clearly demonstrating the inadequacy of an appeal. As
this Court held in Bristol Myers Squibb (Phils.), Inc. v. Viloria:36
Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where, despite
availability of appeal after trial, there is at least a prima facie showing on the face of the petition
and its annexes that: (a) the trial court issued the order with grave abuse of discretion
amounting to lack of or in excess of jurisdiction; (b) appeal would not prove to be a speedy and
adequate remedy; (c) where the order is a patent nullity; (d) the decision in the present case will
arrest future litigations; and (e) for certain considerations such as public welfare and public
policy.37
In his petition for certiorari in the CA, petitioner averred that the trial court committed grave
abuse of its discretion amounting to excess or lack of jurisdiction when it denied his motion to
quash the Amended Information despite his claim that the material allegations in the Amended
Information do not charge theft under Article 308 of the Revised Penal Code, or any offense for
that matter. By so doing, the trial court deprived him of his constitutional right to be informed of
the nature of the charge against him. He further averred that the order of the trial court is
contrary to the constitution and is, thus, null and void. He insists that he should not be
compelled to undergo the rigors and tribulations of a protracted trial and incur expenses to
defend himself against a non-existent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly every act or omission constituting
an offense38 and must allege facts establishing conduct that a penal statute makes
criminal;39 and describes the property which is the subject of theft to advise the accused with
reasonable certainty of the accusation he is called upon to meet at the trial and to enable him to
rely on the judgment thereunder of a subsequent prosecution for the same offense.40 It must
show, on its face, that if the alleged facts are true, an offense has been committed. The rule is

rooted on the constitutional right of the accused to be informed of the nature of the crime or
cause of the accusation against him. He cannot be convicted of an offense even if proven
unless it is alleged or necessarily included in the Information filed against him.
As a general prerequisite, a motion to quash on the ground that the Information does not
constitute the offense charged, or any offense for that matter, should be resolved on the basis of
said allegations whose truth and veracity are hypothetically committed;41 and on additional facts
admitted or not denied by the prosecution.42 If the facts alleged in the Information do not
constitute an offense, the complaint or information should be quashed by the court.43
We have reviewed the Amended Information and find that, as mentioned by the petitioner, it
does not contain material allegations charging the petitioner of theft of personal property under
Article 308 of the Revised Penal Code. It, thus, behooved the trial court to quash the Amended
Information. The Order of the trial court denying the motion of the petitioner to quash the
Amended Information is a patent nullity.
On the second issue, we find and so hold that the international telephone calls placed by Bay
Super Orient Card holders, the telecommunication services provided by PLDT and its business
of providing said services are not personal properties under Article 308 of the Revised Penal
Code. The construction by the respondents of Article 308 of the said Code to include, within its
coverage, the aforesaid international telephone calls, telecommunication services and business
is contrary to the letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is founded on the tenderness
of the law for the rights of individuals and on the plain principle that the power of punishment is
vested in Congress, not in the judicial department. It is Congress, not the Court, which is to
define a crime, and ordain its punishment.44 Due respect for the prerogative of Congress in
defining crimes/felonies constrains the Court to refrain from a broad interpretation of penal laws
where a "narrow interpretation" is appropriate. The Court must take heed to language,
legislative history and purpose, in order to strictly determine the wrath and breath of the conduct
the law forbids.45However, when the congressional purpose is unclear, the court must apply the
rule of lenity, that is, ambiguity concerning the ambit of criminal statutes should be resolved in
favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the fair meaning of the
language used; and may not be held to include offenses other than those which are clearly
described, notwithstanding that the Court may think that Congress should have made them
more comprehensive.47 Words and phrases in a statute are to be construed according to their
common meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the principle
that a case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime not enumerated in the
statute because it is of equal atrocity, or of kindred character with those which are
enumerated.48 When interpreting a criminal statute that does not explicitly reach the conduct in
question, the Court should not base an expansive reading on inferences from subjective and
variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft. Theft is committed by any person who, with intent to gain but
without violence, against or intimidation of persons nor force upon things, shall take personal
property of another without the latters consent.
The provision was taken from Article 530 of the Spanish Penal Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas ni fuerza en las
cosas, toman las cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal (animus furandi) personal
property, meaning the intent to deprive another of his ownership/lawful possession of personal
property which intent is apart from and concurrently with the general criminal intent which is an
essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements: (a) the taking of
personal property; (b) the said property belongs to another; (c) the taking be done with intent to
gain; and (d) the taking be accomplished without the use of violence or intimidation of person/s
or force upon things.51
One is apt to conclude that "personal property" standing alone, covers both tangible and
intangible properties and are subject of theft under the Revised Penal Code. But the words
"Personal property" under the Revised Penal Code must be considered in tandem with the word
"take" in the law. The statutory definition of "taking" and movable property indicates that, clearly,
not all personal properties may be the proper subjects of theft. The general rule is that, only
movable properties which have physical or material existence and susceptible of occupation by
another are proper objects of theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda
sustancia corporal, material, susceptible de ser aprehendida que tenga un valor cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only those movable properties
which can be taken and carried from the place they are found are proper subjects of theft.
Intangible properties such as rights and ideas are not subject of theft because the same cannot
be "taken" from the place it is found and is occupied or appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustraccin de cosas
inmuebles y la cosas incorporales (v. gr., los derechos, las ideas) no puede integrar este delito,
pues no es posible asirlas, tomarlas, para conseguir su apropiacin. El Codigo emplea la
expresin "cosas mueble" en el sentido de cosa que es susceptible de ser llevada del lugar
donde se encuentra, como dinero, joyas, ropas, etctera, asi que su concepto no coincide por
completo con el formulado por el Codigo civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised Penal Code should be distinguished
from the rights or interests to which they relate. A naked right existing merely in contemplation
of law, although it may be very valuable to the person who is entitled to exercise it, is not the
subject of theft or larceny.55 Such rights or interests are intangible and cannot be "taken" by
another. Thus, right to produce oil, good will or an interest in business, or the right to engage in
business, credit or franchise are properties. So is the credit line represented by a credit card.
However, they are not proper subjects of theft or larceny because they are without form or
substance, the mere "breath" of the Congress. On the other hand, goods, wares and
merchandise of businessmen and credit cards issued to them are movable properties with
physical and material existence and may be taken by another; hence, proper subjects of theft.

There is "taking" of personal property, and theft is consummated when the offender unlawfully
acquires possession of personal property even if for a short time; or if such property is under the
dominion and control of the thief. The taker, at some particular amount, must have obtained
complete and absolute possession and control of the property adverse to the rights of the owner
or the lawful possessor thereof.56 It is not necessary that the property be actually carried away
out of the physical possession of the lawful possessor or that he should have made his escape
with it.57 Neither asportation nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough.58
The essence of the element is the taking of a thing out of the possession of the owner without
his privity and consent and without animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent persons without any
felonious intent, as well as any mechanical device, such as an access device or card, or any
agency, animate or inanimate, with intent to gain. Intent to gain includes the unlawful taking of
personal property for the purpose of deriving utility, satisfaction, enjoyment and pleasure. 60
We agree with the contention of the respondents that intangible properties such as electrical
energy and gas are proper subjects of theft. The reason for this is that, as explained by this
Court in United States v. Carlos61 and United States v. Tambunting,62 based on decisions of the
Supreme Court of Spain and of the courts in England and the United States of America, gas or
electricity are capable of appropriation by another other than the owner. Gas and electrical
energy may be taken, carried away and appropriated. In People v. Menagas,63 the Illinois State
Supreme Court declared that electricity, like gas, may be seen and felt. Electricity, the same as
gas, is a valuable article of merchandise, bought and sold like other personal property and is
capable of appropriation by another. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or larger quantity and of
being transported from place to place. Electrical energy may, likewise, be taken and carried
away. It is a valuable commodity, bought and sold like other personal property. It may be
transported from place to place. There is nothing in the nature of gas used for illuminating
purposes which renders it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of Appeals of New York
held that electric energy is manufactured and sold in determinate quantities at a fixed price,
precisely as are coal, kerosene oil, and gas. It may be conveyed to the premises of the
consumer, stored in cells of different capacity known as an accumulator; or it may be sent
through a wire, just as gas or oil may be transported either in a close tank or forced through a
pipe. Having reached the premises of the consumer, it may be used in any way he may desire,
being, like illuminating gas, capable of being transformed either into heat, light, or power, at the
option of the purchaser. In Woods v. People,65 the Supreme Court of Illinois declared that there
is nothing in the nature of gas used for illuminating purposes which renders it incapable of being
feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like
other personal property, susceptible of being severed from a mass or larger quantity and of
being transported from place to place.
Gas and electrical energy should not be equated with business or services provided by
business entrepreneurs to the public. Business does not have an exact definition. Business is
referred as that which occupies the time, attention and labor of men for the purpose of livelihood
or profit. It embraces everything that which a person can be employed.66 Business may also
mean employment, occupation or profession. Business is also defined as a commercial activity

for gain benefit or advantage.67 Business, like services in business, although are properties, are
not proper subjects of theft under the Revised Penal Code because the same cannot be "taken"
or "occupied." If it were otherwise, as claimed by the respondents, there would be no juridical
difference between the taking of the business of a person or the services provided by him for
gain, vis--vis, the taking of goods, wares or merchandise, or equipment comprising his
business.68 If it was its intention to include "business" as personal property under Article 308 of
the Revised Penal Code, the Philippine Legislature should have spoken in language that is clear
and definite: that business is personal property under Article 308 of the Revised Penal Code.69
We agree with the contention of the petitioner that, as gleaned from the material averments of
the Amended Information, he is charged of "stealing the international long distance calls
belonging to PLDT" and the use thereof, through the ISR. Contrary to the claims of the OSG
and respondent PLDT, the petitioner is not charged of stealing P20,370,651.95 from said
respondent. Said amount of P20,370,651.95 alleged in the Amended Information is the
aggregate amount of access, transmission or termination charges which the PLDT expected
from the international long distance calls of the callers with the use of Baynet Super Orient
Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property
without the consent of the owner thereof, the Philippine legislature could not have contemplated
the human voice which is converted into electronic impulses or electrical current which are
transmitted to the party called through the PSTN of respondent PLDT and the ISR of Baynet
Card Ltd. within its coverage. When the Revised Penal Code was approved, on December 8,
1930, international telephone calls and the transmission and routing of electronic voice signals
or impulses emanating from said calls, through the PSTN, IPL and ISR, were still non-existent.
Case law is that, where a legislative history fails to evidence congressional awareness of the
scope of the statute claimed by the respondents, a narrow interpretation of the law is more
consistent with the usual approach to the construction of the statute. Penal responsibility cannot
be extended beyond the fair scope of the statutory mandate.70
Respondent PLDT does not acquire possession, much less, ownership of the voices of the
telephone callers or of the electronic voice signals or current emanating from said calls. The
human voice and the electronic voice signals or current caused thereby are intangible and not
susceptible of possession, occupation or appropriation by the respondent PLDT or even the
petitioner, for that matter. PLDT merely transmits the electronic voice signals through its
facilities and equipment. Baynet Card Ltd., through its operator, merely intercepts, reroutes the
calls and passes them to its toll center. Indeed, the parties called receive the telephone calls
from Japan.
In this modern age of technology, telecommunications systems have become so tightly merged
with computer systems that it is difficult to know where one starts and the other finishes. The
telephone set is highly computerized and allows computers to communicate across long
distances.71 The instrumentality at issue in this case is not merely a telephone but a telephone
inexplicably linked to a computerized communications system with the use of Baynet Cards sold
by the Baynet Card Ltd. The corporation uses computers, modems and software, among others,
for its ISR.72
The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang term for
the action of making a telephone system to do something that it normally should not allow by
"making the phone company bend over and grab its ankles"). A "phreaker" is one who engages

in the act of manipulating phones and illegally markets telephone services.73 Unless the phone
company replaces all its hardware, phreaking would be impossible to stop. The phone
companies in North America were impelled to replace all their hardware and adopted full digital
switching system known as the Common Channel Inter Office Signaling. Phreaking occurred
only during the 1960s and 1970s, decades after the Revised Penal Code took effect.
The petitioner is not charged, under the Amended Information, for theft of telecommunication or
telephone services offered by PLDT. Even if he is, the term "personal property" under Article
308 of the Revised Penal Code cannot be interpreted beyond its seams so as to include
"telecommunication or telephone services" or computer services for that matter. The word
"service" has a variety of meanings dependent upon the context, or the sense in which it is
used; and, in some instances, it may include a sale. For instance, the sale of food by
restaurants is usually referred to as "service," although an actual sale is involved.74 It may also
mean the duty or labor to be rendered by one person to another; performance of labor for the
benefit of another.75 In the case of PLDT, it is to render local and international
telecommunications services and such other services as authorized by the CPCA issued by the
NTC. Even at common law, neither time nor services may be taken and occupied or
appropriated.76A service is generally not considered property and a theft of service would not,
therefore, constitute theft since there can be no caption or asportation.77 Neither is the
unauthorized use of the equipment and facilities of PLDT by the petitioner theft under the
aforequoted provision of the Revised Penal Code.78
If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of
theft, it should have incorporated the same in Article 308 of the Revised Penal Code. The
Legislature did not. In fact, the Revised Penal Code does not even contain a definition of
services.
If taking of telecommunication services or the business of a person, is to be proscribed, it must
be by special statute79 or an amendment of the Revised Penal Code. Several states in the
United States, such as New York, New Jersey, California and Virginia, realized that their
criminal statutes did not contain any provisions penalizing the theft of services and passed laws
defining and penalizing theft of telephone and computer services. The Pennsylvania Criminal
Statute now penalizes theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for himself or for another which
he knows are available only for compensation, by deception or threat, by altering or tampering
with the public utility meter or measuring device by which such services are delivered or by
causing or permitting such altering or tampering, by making or maintaining any unauthorized
connection, whether physically, electrically or inductively, to a distribution or transmission line,
by attaching or maintaining the attachment of any unauthorized device to any cable, wire or
other component of an electric, telephone or cable television system or to a television receiving
set connected to a cable television system, by making or maintaining any unauthorized
modification or alteration to any device installed by a cable television system, or by false token
or other trick or artifice to avoid payment for the service.
In the State of Illinois in the United States of America, theft of labor or services or use of
property is penalized:

(a) A person commits theft when he obtains the temporary use of property, labor or services of
another which are available only for hire, by means of threat or deception or knowing that such
use is without the consent of the person providing the property, labor or services.
In 1980, the drafters of the Model Penal Code in the United States of America arrived at the
conclusion that labor and services, including professional services, have not been included
within the traditional scope of the term "property" in ordinary theft statutes. Hence, they decided
to incorporate in the Code Section 223.7, which defines and penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he knows are available only
for compensation, by deception or threat, or by false token or other means to avoid payment for
the service. "Services" include labor, professional service, transportation, telephone or other
public service, accommodation in hotels, restaurants or elsewhere, admission to exhibitions,
use of vehicles or other movable property. Where compensation for service is ordinarily paid
immediately upon the rendering of such service, as in the case of hotels and restaurants, refusal
to pay or absconding without payment or offer to pay gives rise to a presumption that the
service was obtained by deception as to intention to pay; (2) A person commits theft if, having
control over the disposition of services of others, to which he is not entitled, he knowingly diverts
such services to his own benefit or to the benefit of another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund v.
Commonwealth,80declaring that neither time nor services may be taken and carried away and
are not proper subjects of larceny, the General Assembly of Virginia enacted Code No. 18-2-98
which reads:
Computer time or services or data processing services or information or data stored in
connection therewith is hereby defined to be property which may be the subject of larceny under
18.2-95 or 18.2-96, or embezzlement under 18.2-111, or false pretenses under 18.2178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975
penalizes theft of services:
"A person commits the crime of theft of services if: (a) He intentionally obtains services known
by him to be available only for compensation by deception, threat, false token or other means to
avoid payment for the services "
In the Philippines, Congress has not amended the Revised Penal Code to include theft of
services or theft of business as felonies. Instead, it approved a law, Republic Act No. 8484,
otherwise known as the Access Devices Regulation Act of 1998, on February 11, 1998. Under
the law, an access device means any card, plate, code, account number, electronic serial
number, personal identification number and other telecommunication services, equipment or
instrumentalities-identifier or other means of account access that can be used to obtain money,
goods, services or any other thing of value or to initiate a transfer of funds other than a transfer
originated solely by paper instrument. Among the prohibited acts enumerated in Section 9 of the
law are the acts of obtaining money or anything of value through the use of an access device,
with intent to defraud or intent to gain and fleeing thereafter; and of effecting transactions with
one or more access devices issued to another person or persons to receive payment or any
other thing of value. Under Section 11 of the law, conspiracy to commit access devices fraud is
a crime. However, the petitioner is not charged of violation of R.A. 8484.

Significantly, a prosecution under the law shall be without prejudice to any liability for violation of
any provisions of the Revised Penal Code inclusive of theft under Rule 308 of the Revised
Penal Code and estafa under Article 315 of the Revised Penal Code. Thus, if an individual
steals a credit card and uses the same to obtain services, he is liable of the following: theft of
the credit card under Article 308 of the Revised Penal Code; violation of Republic Act No. 8484;
and estafa under Article 315(2)(a) of the Revised Penal Code with the service provider as the
private complainant. The petitioner is not charged of estafa before the RTC in the Amended
Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or imprisonment, as
follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a computer
system/server or information and communication system; or any access in order to corrupt,
alter, steal, or destroy using a computer or other similar information and communication
devices, without the knowledge and consent of the owner of the computer or information and
communications system, including the introduction of computer viruses and the like, resulting on
the corruption, destruction, alteration, theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of One hundred thousand pesos (P100,000.00)
and a maximum commensurate to the damage incurred and a mandatory imprisonment of six
(6) months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the
Regional Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE.
The Regional Trial Court is directed to issue an order granting the motion of the petitioner to
quash the Amended Information.
SO ORDERED.