1.

Leung Tee vs Strong Machinery (GR L-11657)

V.1
37 Phil. 644 Civil Law Law on Property Multiple Sale to Different Vendees Real vs
Personal Property
In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee and
Frank L. Strong Machinery Co. CAF purchased some rice cleaning machines from Strong
Machinery. CAF installed the machines in a building. As security for the purchase price, CAF
executed a chattel mortgage on the rice cleaning machines including the building where the
machines were installed. CAF failed to pay Strong Machinery, hence the latter foreclosed the
mortgage the same was registered in the chattel mortgage registry.
CAF also sold the land (where the building was standing) to Strong Machinery. Strong
Machinery took possession of the building and the land.
On the other hand, Yee, another creditor of CAF who engaged in the construction of the
building, being the highest bidder in an auction conducted by the sheriff, purchased the
same building where the machines were installed. Apparently CAF also executed a chattel
mortgage in favor Yee. Yee registered the sale in the registry of land. Yee was however aware
that prior to his buying, the property has been sold in favor of Strong Machinery evidence
is the chattel mortgage already registered by Strong Machinery (constructive notice).
ISSUE: Who is the owner of the building?
HELD: The SC ruled that Strong Machinery has a better right to the contested property. Yee
cannot be regarded as a buyer in good faith as he was already aware of the fact that there
was a prior sale of the same property to Strong Machinery.
The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for
chattel mortgages which only deal with personal properties. The fact that the parties dealt
the building as if its a personal property does not change the nature of the thing. It is still a
real property. Its inscription in the Chattel Mortgage registry does not modify its inscription
the registry of real property.

V.2
G.R. No. L -11658 (February 15, 1918)
LEUNG YEE vs. FRANK L. STRONG MACHINERY COMPANY and J.G. WILLIAMSON
Facts:

The Compania Agricola Filipina (CAF) bought rice-cleaning machines from Strong Machinery Company (SMC).
These machines were installed in one of the CAFs buildings, which was made out of strong materials.
A chattel mortgage was executed to secure payment of the purchase price. The chattel mortgage included the
building and the machines; the land on which it stood was not included. When CAF failed to pay their debt, the
property was sold by the sheriff and the same was bought by SMC. The mortgage was registered in the chattel
mortgage registry and the sale of the property to SMC was annotated on the same registry on December 29, 1913.
On January 14, 1913, CAF executed a deed of sale of the land, where the building stood, to SMC. The sale was in
the form of a public instrument, but the same was not registered. SMC went into possession of the building at or
about the same time when the sale took place.
At or about the same time when the chattel mortgage was executed in favor of SMC, CAF executed another
mortgage to herein plaintiff (Leung Yee) upon the building to secure payment of the balance of its indebtedness.
Upon CAFs failure to pay, Leung Yee secured judgment for the amount and levied execution upon the building,
bought it at the sheriffs sale on or about Dec 18, 1914 and had the sheriffs certificate of sale duly registered in the
land registry of Cavite.
At the time of the execution, SMC, who 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. Accordingly, an action to recover possession
of the building was filed by Leung Yee. RTC ruled in favor of SMC on the ground that the company had its title to
the building registered prior to the date of the registry of Leung Yees certificate. Thus, this appeal.
Issue: Who has a better right to the property?
Ruling: RTC ruling in favor of SMC is affirmed; ground modified.
Ratio Decidendi:
The building made out of strong materials is real property. The mere fact that the parties dealt with it as separate and
apart from the land (or as personal property) does not change its character as real property. In this case, it follows
that neither the original registry in the chattel mortgage of the building and the machinery installed therein, nor the
annotation in the registry of the sale of the mortgaged property had any legal effect.
However, since the facts disclose that the purchase by Leung Yee and the inscription on the sheriffs certificate of
sale were not made in good faith, it must be held that SMC is the owner of the property pursuant to the third (3 rd)
paragraph of Article 1473 of the NCC, 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.
V.3
FACTS
The Compania Agricola Filipina (CAF) purchased from Strong Machinery Co. ricecleaning machines which CAF
installed in one of its buildings. As security for the purchase price, CAF executed a chattel mortgage on
the machinesand the building on which they had been installed. When CEF failed to pay, the registered mortgage
was foreclosed and Strong Machinery Co. purchased the building. This sale was annotated in the Chattel Mortgage
Registry. Later, Strong Machinery Co. also purchased from Agricola the lot on which the building was constructed.
The sale wasn't registered in the Registry of Property BUT Strong Machinery Co. took possession of the building
and the lot. However, the same building had been previously purchased by Leung Yee, a creditor ofAgricola, at a
sheriff's sale despite his knowledge of the prior sale in favor of Strong Machinery Co.. The sale to Leung Yee was
registered in the Registry of Property.
ISSUES
1.

Was

the

property's

nature

changed

by

its

registration

in

the

Chattel

Mortgage

Registry?

2. Who has a better right to the property?

HELD
1. Where the interest conveyed is of the nature of real property, the placing of the document on record in the Chattel

Mortgage Registry is a futile act.

Chattel Mortgage refers to the mortgage of Personal Property executed in the manner and form prescribed in
the statute.
Since the building is REAL PROPERTY, its sale as annotated in the Chattel Mortgage Registry cannot be given
the legal effect of registration in the Registry of Real Property.
The mere fact that the parties decided to deal with the building as personal property does not change its character
as real property. Neither the original registry in the chattel mortgage registry, nor the annotation in said registry of
the sale of the mortgaged property had any effect on the building.
1. Art. 1473 of the New Civil Code provides the following rules on determining ownership of property which has
been sold to different vendees:

If Personal Property grant ownership to person who 1st possessed it in good faith

If Real Property grant ownership to person who 1st recorded it in the Registry
If no entry grant to person who 1st possessed in good faith
If no proof of possession grant to person who presents oldest title

Since Leung Yee purchased the property despite knowledge of the previous purchase of the same by Strong
Machinery Co., it follows that Leung Yee 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. 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. Good Faith, or the want of it, is
a state or condition of mind which can only be judged of by actual or fancied tokens or signs. (Wilder vs.
Gilman, 55Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromley, 119Mich., 8, 10, 17.)Honesty Of Intention is the honest lawful intent constituting good faith. It implies
afreedom from knowledge and circumstances which ought to put a person on inquiry.As such, proof of such
knowledge overcomes the presumption of good faith. Following the rule on possessory rights provided in Art.
1473, Strong Machinery Co. has a better right to the property since it first purchased the same ahead of Leung Yee,
the latter not being a purchaser in good faith.

2. Standard Oil Co. vs Jaramillo (44 Phil. 631)

44 PHIL 631 GR No. L-20329 March 16, 1923
FACTS
Gervasia de la Rosa, Vda. de Vera, who was renting a parcel of land in Manila,
constructed a building of strong materials thereon, which she conveyed to Standard
Oil Company of New York by way of chattel mortgage. When the mortgagee
presented the deed to the Register of Deeds of Manila for registration in the Chattel
Mortgage Registry, Joaquin Jaranillo, the Registrar refused to allow the registration on
the ground that the building was a real property, and therefore could not be the
subject of a valid chattel mortgage.
ISSUES
1. May the deed be registered in the chattel mortgage registry?
2. Whether the interests conveyed in the instrument are real or personal.
HELD
1. Yes. The Registrar's duty is MINISTERIAL in character. There is no legal provision
conferring upon him any judicial or quasi-judicial power to determine or qualify the
nature of the document presented before him. The determination of the nature of the
property lies with the courts of justice, and not by the Register of Deeds. Moreover,
the act of recording a chattel mortgage 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 and affects nobody's rights except as a speciefies of notice. As such,
the Registrar should therefore accept the legal fees being tendered, and place the
document on record.
2. Art.334 and 335 of the Civil Code do not supply an absolute criterion for
discriminating between real and personal property for the purpose of applying the
Chattel Mortgage Law. It should also be noted that under given conditions property
may have character different from that imputed in said articles. Parties to a contract
may, by agreement, treat as personal property that which by nature would be real
property. It is undeniable that the parties to a contract may by agreement treat
aspersonal property that which by nature would be a real property, as long as no
interest of third parties would be prejudiced thereby. However, it should be reiterated
that the determination of the nature of the property, with reference to the placing of
the document on record, is neither a function or an authority granted to the Registrar

of the Registry of Deeds.

3. Davao Saw Mill vs Castillo GR No. L-40411, August 7,1935

A tenant placed machines for use in a sawmill on the landlord's land.
FACTS
Davao Sawmill Co., operated a sawmill. The land upon which the business was conducted
was leased from another person. On the land, Davao Sawmill erected a building which
housed the machinery it used. Some of the machines were mounted and placed on
foundations of cement. In the contract of lease, Davo Sawmill agreed to turn over free of
charge all improvements and buildings erected by it on the premises with the exception of
machineries, which shall remain with the Davao Sawmill. In an action brought by the Davao
Light and Power Co., judgment was rendered against Davao Sawmill. A writ of execution was
issued and the machineries placed on the sawmill were levied upon as personalty by the
sheriff. Davao Light and Power Co., proceeded to purchase the machinery and other
properties auctioned by the sheriff.
ISSUE
Are the machineries real or personal property?
HELD
Art.415 of the New Civil Code provides that Real Property consists of:
(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner pf the
tenement for an industry ot 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;
Appellant should have registered its protest before or at the time of the sale of the property.
While not conclusive, the appellant's characterization of the property as chattels is indicative
of intention and impresses upon the property the character determined by the parties.

Machinery is naturally movable. However, machinery may be immobilized by destination or

purpose under the following conditions:
General Rule: The machinery only becomes immobilized if placed in a plant by the owner
of the property or plant.
Immobilization cannot be made by a tenant, a usufructuary, or any person having only
a temporary right.
Exception: The tenant, usufructuary, or temporary possessor acted as agent of the owner
of the premises; or he intended to permanently give away the property in favor of the owner.
As a rule, therefore, the machinery should be considered as Personal Property, since it was
not placed on the land by the owner of the said land.
V.2
FACTS:
Petitioner is the holder of a lumber concession. It operated a sawmill on a land, which it doesnt own. Part of the
lease agreement was a stipulation in which after the lease agreement, all buildings and improvements would pass to
the ownership of the lessor, which would not include machineries and accessories. In connection to this,
petitioner had in its sawmill machineries and other equipment wherein some were bolted in foundations of
cement.
Issue:
Whether or not the trial judge erred in finding that the subject properties are personal in nature.
HELD:
The machinery must be classified as personal property.
The lessee placed the machinery in the building erected on land belonging to another, with the understanding that
the machinery was not included in the improvements which would pass to the lessor on the expiration of the lease
agreement. The lessee also treated the machinery as personal
property in executing chattel mortgages in favor of third persons. The machinery was levied upon by the
sheriff as personalty pursuant to a writ of execution obtained without any protest being registered.
Furthermore, machinery only becomes immobilized when placed in a plant by the owner of the property or plant,
but not when so placed by a tenant, usufructuary, or any person having temporary right, unless such person
acted as the agent of the owner.

4. Berkenkotter v Co Unjieng GR L-41643, July 31, 1935

Berkenkotter v. Cu Unjieng Facts: On 26 April 1926,
Facts:
The Mabalacat Sugar Company obtained from Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on
2 parcels of land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus,
utensils and whatever forms part or is a necessary complement of said sugar-cane mill, steel railway, telephone line,
now existing or that may in the future exist in said lots. On 5 October 1926, the Mabalacat Sugar Company decided
to increase the capacity of its sugar central by buying additional machinery and equipment, so that instead of milling
150 tons daily, it could produce 250. Green proposed to the Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional
loan from the mortgagees, Cu Unjieng e Hijos, and that in case Green should fail to obtain an additional loan from
Cu Unjieng e Hijos, said machinery and equipment would become security therefore, said Green binding himself not
to mortgage nor encumber them to anybody until Berkenkotter be fully reimbursed for the corporation's
indebtedness to him. Having agreed to said proposition made in a letter dated 5 October 1926, Berkenkotter, on 9
October 1926, delivered the sum of P1,710 to Green, the total amount supplied by him to Green having been
P25,750. Furthermore, Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan
of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and
equipment. On 10 June 1927, Green applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said Green and installed in the sugar central after the
execution of the original mortgage deed, on 27 April 1927, together with whatever additional equipment acquired
with said loan. Green failed to obtain said loan. Hence, above mentioned mortgage was in effect.
Issue:
Are the additional machines also considered mortgaged?
Held:
Article 1877 of the Civil Code provides that mortgage includes all natural accessions, improvements, growing fruits,
and rents not collected when the obligation falls due, and the amount of any indemnities paid or due the owner by
the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the
declarations, amplifications, and limitations established by law, whether the state continues in the possession of the
person who mortgaged it or whether it passes into the hands of a third person. It is a rule, that in a mortgage of real
estate, the improvements on the same are included; therefore, all objects permanently attached to a mortgaged
building or land, although they may have been placed there after the mortgage was constituted, are also included.
Article 334, paragraph 5, of the Civil Code gives the character of real property to machinery, liquid containers,
instruments or implements intended by the owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.
The installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for
the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent
improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon.
V.2
Berkenkotter v. Cu Unjieng Facts:
1. On 26 April 1926, the Mabalacat Sugar Company obtained from Cu Unjieng e Hijos, a loan secured by a first
mortgage constituted on 2 parcels of land "with all its buildings, improvements, sugar-canemill, steel railway,
telephone line, apparatus, utensils and whatever forms part or is a necessarycomplement of said sugar-cane mill,
steel railway, telephone line, now existing or that may in thefuture exist in said lots
2. On 5 October 1926, the Mabalacat Sugar Company decided to increase the capacity of its sugar central by buying
additional machinery and equipment, so that instead of milling 150 tons daily, it could produce 250.
3. Green proposed to the Berkenkotter, to advance the necessary amount for the purchase of said machinery and
equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, Cu
Unjieng e Hijos, and that in case Green should fail to obtain an additional loan from Cu Unjieng e Hijos, said
machinery and equipment would become security therefore, said Green binding himself not to mortgage nor
encumber them to anybody until Berkenkotter be fully reimbursed for the corporation's indebtedness to him
4. Having agreed to said proposition made in a letter dated 5 October 1926, Berkenkotter, on 9 October 1926,
delivered the sum of P1,710 to Green, the total amount supplied by him to Green having been P25,750. Furthermore,
Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said

credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment.On 10 June
1927, Green applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering assecurity the additional
machinery and equipment acquired by said Green and installed in the sugar central after the execution of the original
mortgage deed, on 27 April 1927, together with whatever additional equipment acquired with said loan. Green failed
to obtain said loan. Hence, abovementioned mortgage was in effect
Issue:
Whether additional machinery and equipment also considered mortgaged executed in favor of Cu Unjieng e Hijos?
Held: Yes. The additional machinery and equipment are included.
RD:
Article 1877 of the Civil Code provides that mortgage includes all natural accessions, improvements,growing fruits,
and rents not collected when the obligation falls due, and the amount of any indemnities paid or due the owner by
the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the
declarations, amplifications, and limitations established by law, whether the state continues in the possession of the
person who mortgaged it or whether it passes into the hands of a third person It is a rule, that in a mortgage of real
estate, the improvements on the same are included; therefore, all objects permanently attached to a mortgaged
building or land, although they may have been placed there after the mortgage was constituted, are also included.
Article 334, paragraph 5, of the Civil Code gives the character of real property to machinery, liquid containers,
instruments or implements intended by the owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.
The installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for
the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent
improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon.
5. Manarang vs Ofilada and Esteban GR L-8133 May 18, 1956
V.1
FACTS:
Manarang secured a loan from Esteban guaranteed by a chattel mortgage over a house of mixed materials. Due
to failure to pay, the chattel mortgage was foreclosed. Before the sale of the property, Manarang tried to pay for
the property but the sheriff refused to accept tender unless there is payment for the publication of the notice of sale
in the newspapers.
This prompted Manarang to bring this suit to compel the sheriff to accept payment. He averred that the publication
was unnecessary as the house should be considered as personal property per agreement in the chattel
mortgage, and the publication for notice of sale is unnecessary.
ISSUE:
W/N the fact that the parties entering into a contract regarding a house gave said property the consideration of
personal property in their contract, binding the sheriff in advertising the property's sale at public auction as personal
property.
HELD:
There is no question that a building of mixed materials may be a subject of chattel mortgage, in which case it is
considered as between the parties as personal property.
The mere fact that a house was the subject of chattel mortgage and was considered as personal property by the
parties doesnt make the said house personal property for purposes of the notice to be given for its sale in public
auction. It is real property within the purview of Rule 39, Section 16 of the Rules of Court as it has become a
permanent fixture on the land, which is real property.
V.2
Facts:
Lucia Manarang obtained a loan of 200 pesos from Ernesto Esteban. She executed a chattel mortgage over a house
of mixed materials to secure its payment. When she failed to pay the loan, Esteban brought an action for the
recovery of the money he loaned to her. Judgment was rendered in favor of the former. Execution was issued
against the mortgaged property.
Before the property could be sold in a judicial sale, Manarang offered to pay the amount of 227 pesos representing
the amount of judgment, interest, costs, and sheriff fees. The sheriff refused the tender unless the amount of 260
pesos representing the payment of the publication of the notice of sale is paid also.

Manarang filed a petition to compel the sheriff to accept the amount of 227 pesos and to annul the notice of sale.
The contention of Manarang is that the house in question should be considered as personal property and publication
of notice of sale is not necessary. The Court of First Instance held that although sometimes real property may be
considered as personal property, the sheriff is duty bound to cause the publication of notice of sale to make the sale
valid and to prevent it from being declared void or voidable; and that the sheriff did not err in causing the
publication of the notice. Consequently, the petition was dismissed.
Issue:
Whether the house made of mixed materials and subject of a chattel mortgage is one of personal or real property.
Held:
The house is a real property.
The general principle of law is that a building permanently fixed to the freehold becomes part of it; that is, a house is
a real estate belonging to the owner of the land on which it stands, even though it was erected against his will or
without his consent. (Accessory follows the principal.)
However, where improvement is made with the consent of the landowner, it shall remain as personal property.
In determining whether property remains personal or real, the following must be considered: its annexation to the
soil, either actual or constructive and the intention of the parties.
The house was made subject of a contract but it does not give the character of one of personal property to it although
it is the intention of the parties when they executed the chattel mortgage.
This is because the rules on execution does not allow special consideration that the parties to a contract may have
desired to impart to real estate when they are not ordinarily so. When the rules speak of personal property, it means
a property which is ordinarily considered as such and when it speaks of real property, it means property which is
generally known as real property. The rules were never intended to suit the consideration that parties may have given
to the property levied upon.
The mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the
parties, it does not make the house a personal property for purposes of the notice to be given for its sale at public
auction. This is to prevent confusion and misunderstanding.

6.

GSIS vs. Calsons Inc. GR No. L-19867 May 29, 1968

MAKALINTAL., J.:
Appeal from the decision of the Court of First Instance of Manila..
On April 11, 1957 appellant CALSONS, INC. applied for a loan of P2,000,000.00 to appellee to
pay the balance of the purchase price of certain parcels of land situated at the corner of
Globo de Oro and Elizondo Streets, Quiapo, Manila, and to finance the construction of a twostorey textile market building on said land. The application was approved by appellee's
Board of Trustees on August 26, 1957. In connection with said loan appellants executed on
October 31, 1957 a promissory note binding themselves jointly and severally to pay appellee
the sum of P2,000,000.00, with interest at the rate of 7% per annum compounded monthly,
in 120 equal monthly installments of P23,221.69 each. Under said note "the first installment
shall be due and payable beginning the month following the last release and/or the month
following the expiration of the period for the construction of the textile market building,
whichever is earlier, and the rest on the 7th day of every month thereafter until the principal
of TWO MILLION PESOS (P2,000,000.00) and the interest shall have been fully paid." To
secure payment of the note "and/or the interest thereon and/or other obligations arising
thereunder", appellants executed on the same date a first mortgage in favor of appellee on
five (5) parcels of land particularly described in the mortgage contract, "together with all the
buildings and improvements now existing thereon or which may hereafter be constructed on
the mortgaged property (ies) of which MORTGAGOR is the absolute owner, free from all liens
and encumbrances." The aforementioned five (5) parcels of land were among the properties
acquired by appellant CALSONS, INC., from Tuason & Sampedro, Inc., for and in
consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1,100,000.00)
under a Deed of Assignment dated October 29, 1957.1vvphi1.nt
The conditions of the mortgage contract which are relevant to this case are the following:
2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber
the mortgaged property (ies) without the prior written consent of the MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of the amortizations
on the indebtedness, or the interest when due, or whatever other obligation herein
agreed, then all the amortizations and other obligations of the MORTGAGOR of any
nature, shall become due, payable and defaulted and the MORTGAGEE may
immediately foreclose this mortgage judicially or extrajudicially under Act 3135, as
amended and/or under C.A. 186, as amended, and/or Act No. 1508, as amended....
14. This mortgage shall furthermore be subject to the following ADDITIONAL
CONDITIONS:
1) That the applicant shall pay to the system P23,221.70 monthly, including
principal and interest.
2) That the first release of P819,000.00 on this loan shall be made only after:
xxx

xxx

xxx

b. The submission of evidence showing payment on realty taxes up to

and including that of the current year; .
c. The submission of evidence showing the reduction of applicant's
account on the lot to at least P819,000.00; .

d. The submission of the certificates of title in the name of the

applicant to the property offered as collateral for this loan; provided,
that if the said certificates of title could not be secured without paying
the balance of the purchase price, said balance shall be paid first from
the first release of this loan;
3) That the check covering the obligation of applicant on the lots offered as
collateral shall be drawn in favor of the vendor of said lots;
4) That subsequent releases on this loan shall be controlled in such manner
that the amount to be released shall depend on the progress of the work done
on the proposed building but in no case shall the amount to be released and
the amounts already released exceed 60% of the appraised value of the lots
and the existing improvements thereon as of every release;
xxx

xxx

xxx

6) That the proposed building shall be completed within twelve (12) months
from the date the first release of this loan is made;
The first release in the amount of P819,000.00 was made on November 7, 1957, while the
second (and last) release in the amount of P30,000.00 was made on May 15, 1958. The
checks covering both releases were drawn in favor of the vendor of the mortgaged
properties.
In accordance with the agreement between the parties, the old building standing on the
mortgaged properties was insured for P300,000.00 on December 1, 1959. Appellee
advanced the sum of P5,628.00 for the annual premium, but appellants failed to reimburse
the same.
Appellee filed a complaint for the foreclosure of the mortgage with the Court of First Instance
of Manila on August 11, 1958, alleging a number of violations of the mortgage contract, to
wit: (1) that the mortgaged properties had not been freed by the mortgagor from certain
liens and encumbrances other than the mortgage itself; (2) that without the prior written
consent of plaintiff defendants removed and disposed of the complete band sawmill and
filing machine which formed part of the properties mortgaged; (3) that defendant Calsons,
Inc., failed to submit to appellee evidence showing the reduction of defendant's account on
the lot to at least P819,000.00; (4) and that Calsons, Inc., failed to begin, much less
complete, the construction of the supermarket building on the mortgaged properties. On
August 11, 1959, plaintiff filed supplemental complaint, which was admitted without
opposition. Two additional grounds for the foreclosure of the mortgage were alleged, namely:
(1) that defendants failed, despite demands therefor, to pay the amortizations due and
payable, including accrued interest and surcharges, on the portion of the loan released to
them; and (2) that defendants failed to complete the construction of the textile market
building on the mortgaged properties within 12 months from November 7, 1957, the date of
the first release of P819,000.00.
Judgment was rendered on March 3, 1962 in favor of plaintiff, and defendants brought this
appeal directly to this Court in view of the amount involved.
In their brief, appellants make the following assignment of errors:
1. The Trial Court erred in holding that it is not true that defendants have not

defaulted in any of their obligations under the mortgage contract.

2. The Trial Court erred in ruling that with respect to the liens and encumbrances, the
defendants' failure to pay the balance of the purchase price of the mortgaged
properties from their original owners subjected the said properties to a vendor's lien.
3. The Trial Court erred in holding that the machineries on the mortgaged properties
are part of the mortgage and that the removal and subsequent disposal of the same
therefrom by the defendants violated the said mortgage contract.
4. The Trial Court erred in holding that defendant Calsons, Inc., has failed to reduce
its account on the loan to at least P819,000.00 and that such failure is a clear
violation of a contract of mortgage.
5. The Trial Court erred in holding that the defendants failed despite demand
therefor, to pay the amortization due and payable, including interests and surcharges
on the portion of the loan released to them.
6. The Trial Court erred in rendering judgment for plaintiff and against the defendants
ordering the latter to pay jointly and severally the plaintiff of the sum of (1)
P819,000.00 with interests at the rate of 7% per annum compounded monthly from
November 8, 1957 until the same is fully paid; (2) P30,000.00 with interests at the
rate of 7% per annum compounded monthly, from May 16, 1958 until the same is
fully paid; (3) P5,628.00 yearly insurance premium with interests of 7% per annum
compounded monthly, from December, 1959 until the same is fully paid; (4) the sum
equivalent to 10% of the foregoing sums as expenses of collection and attorney's
fees, plus the costs of this action.
7. The Trial Court erred in failing and/or neglecting to act and pass upon the
counterclaim of the defendants-appellants notwithstanding the fact that said
counterclaim is fully established by the evidence on records.
The second and fourth errors assigned are interrelated and will first be taken up. The two
certificates of title covering the mortgaged properties do not show any lien or encumbrance
thereon other than the mortgage itself. This is admitted by both parties. Appellee refers,
however, to the vendor's lien in favor of the former owners, representing the unpaid balance
of P280,000.00 on the purchase price of the lots mortgaged. The lien, appellee point out, is a
legal encumbrance and therefore effective, although not recorded. On the other hand,
appellants contend that appellee is estopped from invoking its right to have the mortgaged
properties free from the vendor's lien on two grounds, namely: (1) that appellant had
previous knowledge of said lien as evidenced by the two releases of P819,000 and P30,000
directly to the vendor of the mortgaged properties, and (2) that appellant committed itself to
pay to the said vendor the amount of P280,000.00, balance on the purchase price, within a
period of six (6) months from October 28, 1957.
The contention cannot be sustained on the first ground. One of the reasons why appellant
Calsons, Inc., applied for the P2,000,000.00 loan was precisely to use part thereof to pay the
balance of the purchase price of five (5) parcels of land it mortgaged to appellee. And to
assure itself that no vendor's lien attached to the said properties appellee caused the
following conditions to be added to the original terms of the mortgage contract:
2) That the first release of P819,000.00 on this loan shall be made only after:

e. The submission of evidence showing the reduction of applicant's account on

the lot to at least P819,000.00;
d. The submission of the certificates of title in the name of the applicant to the
property offered as collateral for this loan; provided, that if the said
certificates of title could not be secured without paying the balance of the
purchase price, said balance shall be paid first from the first release of this
loan;
3) That the check covering the obligation of applicant on the lots offered as collateral
shall be drawn in favor of the vendor of said lots;
Pursuant to the foregoing conditions the check covering the first release of P819,000.00 was
drawn in favor of the vendor of the properties, and the release was made upon submission
of the two transfer certificates of title already in the name of appellant Calsons, Inc., as
vendee, without any annotation thereon of any lien or encumbrance except the mortgage
itself in favor of appellee. It turned out, however, that appellants had failed to reduce their
account on the lot to P819,000.00, as stipulated in the mortgage contract, since there was
still a balance of P280,000 on the purchase price. With respect to the second release of
P30,000.00, the check was also drawn in favor of the vendor with the understanding that it
would be used to pay the real estate taxes due on said properties and thus remove the
corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it agreed to waive its right to have
the properties "free from all liens and encumbrances," as provided in the mortgage contract.
Estoppel is invoked by appellants on the basis of a letter dated October 28, 1957, sent by
the Manager of appellee's Real Estate Department to the vendor of the properties, to the
effect that the balance of the purchase price in the amount of P280,000.00 would be
released within six (6) months from the date of the said letter. The commitment of said
Manager was not recognized by the Board of Trustees of the appellee as shown by the fact
that it was not incorporated in the mortgage contract, which was executed on a later date
October 31, 1957. While the schedule of subsequent releases was clearly defined in the
mortgage contract, no mention was made about the said commitment. Thus, Paragraph 14
(4) of the mortgage contract states:
(4) .That subsequent releases on this loan shall be controlled in such manner that the
amount to be released shall depend in the progress of the work done on the proposed
building but in no case shall the amount to be released and the amounts already
released exceed 60% of the appraised value of the lots and the existing
improvements thereon as of every release;
Regarding the third error assigned, appellants do not deny the fact that they removed and
disposed of the machineries installed in the building which were standing on the mortgaged
properties. However, they contend that the said machineries were not included in the
mortgage. The contention is groundless.
The mortgage was on the lands "together with all the buildings and improvements now
existing or which may hereafter be constructed" thereon. And the machineries, as found by
the trial court, were permanently attached to the property, and installed there by the former
owner to meet the needs of certain works or industry therein. They were therefore part of
the immovable pursuant to Article 415 of the Civil Code, and need not be the subject of a
separate chattel mortgage in order to be deemed duly encumbered in favor of appellee.

Under the fifth assignment of error, appellants point out that there is no time specified in the
mortgage contract within which the amortizations on the loan should begin to be paid, and
conclude that they should begin only from the time the proposed building started earning
rentals. The provision of Paragraph 14 (13) of the mortgage contract is invoked, to wit:
That rentals from the proposed building equivalent to the monthly amortization on
this loan shall be assigned in favor of and made payable to the System.
As a corollary argument, appellants add that since the present action was instituted three
(3) months before the expiration of the twelve-month period (from November 7, 1957) within
which the construction of the supermarket building should be completed the premature
institution of the suit rendered the construction of said building impossible, and hence no
default in payment was incurred.
Again this contention of appellants is without merit. The promissory note executed by them
clearly provides when the first installment, as well as subsequent ones, would become due,
thus:
The first installment shall be due and payable beginning the month following the last
release and/or the month following the expiration of the period for the construction of
the textile market building, whichever is earlier, and the rest on the 7th day of every
month thereafter until the principal of TWO MILLION PESOS (P2,000,000.00) and the
interest shall have been fully paid.
As previously mentioned, the mortgage contract provides that the proposed building should
be completed within twelve (12) months from the date of the first release. Said release
having been made on November 7, 1957, the construction period of 12 months expired on
November 7, 1958; hence, the first installment became due one month thereafter or on
December 7, 1958, and the rest on the 7th day of every month thereafter. Appellants' failure
to pay the amortizations, interest and surcharges demanded of them by appellee, therefore,
constitutes a violation of the mortgage contract and is sufficient ground for the foreclosure
of the mortgage.
IN VIEW OF THE FOREGOING, the sixth and seventh assignments of error are without merit.
The judgment appealed from is hereby affirmed, with costs against appellants.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Fernando, J., is on leave.

7.

Mindanao Bus Co vs City Assessor and Treasurer GR No. L-17898

FACTS:
Petitioner is a public utility company engaged in the transport of passengers and cargo by motor vehicles.
Petitioner likewise owned a land where it maintains a garage, a repair shop and blacksmith or carpentry
shops. The machineries are placed thereon in wooden and cement platforms. The City Assessor of CDO
then assessed a P4,400 realty tax on said machineries and repair equipment. Petitioner appealed on the
ground that the same are not real properties.
ISSUE: Whether or not the machineries and equipment are considered immobilized and thus subject to a
realty tax
HELD:
NO. The Supreme Court held that said machineries and equipment are not subject to the assessment of real
estate tax. Art. 415 of the NCC classifies the following as immovable property 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;
Said equipment are not considered immobilized as they are merely incidental, not essential and principal to
the business of the petitioner. The transportation business could be carried on without repair or service
shops of its rolling equipment as they can be repaired or services in another shop belonging to another
Aside from the element of essentiality the Art.415 (5) also requires that the industry or works be carried on
in a building or on a piece of land. As such, the equipment in question are not deemed real property and not
subject to realty tax, because the transportation business is not carried on in a building or permanently on a
piece of land, as demanded by law.

8.

Ago vs Court of Appeals and Grace Park Engineering GR No. 17898 October 31, 1962

FACTS
Ago bought sawmill machineries and equipments from Grace Park Engineer Domineering,
Inc. (GPED) A chattel mortgage was executed over the said properties to secure the unpaid
balance of P32,000, which Ago agreed to pay in installment basis.
Because Ago defaulted in his payment, GPED instituted extra-judicial foreclosure
proceedings of the mortgage. To enjoin the foreclosure, Ago instituted a special civil case in
the CFI of Agusan. The parties then arrived at a compromise agreement.
However, a year later, Ago still defaulted in his payment. GPED filed a motion for execution
with the lower court, which was executed on September 23, 1959.
Acting upon the writ of execution, the Provincial Sheriff of Surigao levied upon and ordered
the sale of the sawmill machineries and equipment.
Upon being advised that the public auction sale was set on December 4, 1959, Ago filed a
petition for certiorari and prohibition on December 1, 1959 with the CA. He alleged that his
counsel only received the copy of the judgment on September 25, 1959 two days after the
execution of the writ; that the order of sale of the levied properties was in grave abuse of
discretion and in excess of jurisdiction; and that the Sheriff acted illegally by levying the
properties and attempting to sell them without prior publication of the notice of sale thereof
in some newspaper of general circulation as required by the Rules of Court.
The CA issued a writ of preliminary injunction against the Sheriff, but it turned out that the
properties were already sold on December 4, 1959. The CA ordered the Sheriff to suspend
the issuance of the Certificate of Sale until the decision of the case. The CA then rendered
its decision on November 9, 1960.
ISSUES
1. Is the fact that petitioner was present in open court as the judgment was rendered,
sufficient notice of the said judgment?
2. Was the Sheriff's sale of the machineries and equipment at a public auction valid despite
lack of publication of the notice of sale?
HELD
1) No. The mere pronouncement of the judgment in open court does not constitute a
rendition of judgment.
The filing of the judge's signed decision with the Clerk of Court constitutes the

rendition of a valid and binding judgment.

Sec. 1, Rule 35 of the Rules of Court require that all judgments be rendered in
writing, personally and directly prepared by the judge, and signed by
him, stating clearly and distinctly the facts and the law on which it is
based, filed with the clerk of the court.
Prior to the filing, the decision could still be subject to amendment and change and may not
constitute the real judgment of the court.
Moreover, the hearing of the judgment in open court does not constitute valid notice
thereof. No judgment can be notified to the parties unless it has previously been
rendered.
Sec.7 of Rule 27 expressly requires that final orders or judgments be served
either personally or by registered mail.
The signed judgment not having been served upon the petitioner, said judgment could not
be effective upon him who had not received it. As a consequence, the issuance of the writ of
execution is null and void, having been issued before petitioner was served a copy of the
decision, personally or by registered mail.
2) The subject sawmill machineries and equipment became real estate properties in
accordance with the provision of Art. 415 (5) of the NCC:
ART. 415 The following are immovable property:
xxxx
(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;
The installation of the sawmill machineries in the building of Gold Pacific Sawmill, Inc., for
use in the sawing of logs carried on in the said building converted them into Real
Properties as they became a necessary & permanent part of the building or real estate on
which the same was constructed.

And if they are judicially sold on execution without the necessary advertisement of sale by
publication in a newspaper as required in Sec.16 of Rule 39 of the Rules of Court,
the sale made by the sheriff would be null and void.

9.

Sergs Products v. PCI Leasing [GR No. 137705, 22 August 2000

FACTS:
On 13 February 1998, PCI Leasing and Finance, Inc. filed a complaint for sum of money, with an
application for a writ of replevin (Civil Case Q-98-33500). On 6 March 1998, upon an ex-parte application of PCI
Leasing, judge issued a writ of replevin 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 24 March 1998, the sheriff proceeded
to petitioner's factory, seized one machinery with word that the return for the other machineries. On 25 March 1998,
petitioners filed a motion for special protective order, 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. On 6 April 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 7
April 1998, they went to the CA via an original action for certiorari.
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; and ruled that the "words of the contract are
clear and leave no doubt upon the true intention of the contracting parties." It thus affirmed the 18 February 1998
Order, and the 31 March 1998 Resolution of the lower court, and lifted the preliminary injunction issued on 15 June
1998. A subsequent motion for reconsideration was denied on 26 February 1999. Hence, the petition for review on
certiorari.
ISSUES:
Whether or not the subject machines were personal property.
DECISION:
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals with costs against
petitioners.
Contracting parties may validly stipulate that a real property be considered as personal. After agreeing to
such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to
a contract is ordinarily precluded from denying the truth of any material fact found therein. Thus, said machines are
proper subjects of the Writ of Seizure (compare Tumalad v. Vicencio).
V.2
FACTS:
PCI filed a case for collection of a sum of money as well as a writ of replevin for
the seizure of machineries, subject of a chattel mortgage executed by petitioner in
favor of PCI. Machineries of petitioner were seized and petitioner filed a motion for
special protective order. It asserts that the machineries were real property and could not be
subject of a chattel mortgage.
Issue: Whether or not the machineries become real property by virtue of immobilization.
HELD:
The machineries in question have become immobilized by destination because they are
essential and principal elements in the industry, and thus have become immovable in
nature.
Nonetheless, they are still proper subjects for a chattel mortgage. Contracting parties may
validly stipulate that a real property be considered as personal. After agreement, they are
consequently estopped from claiming otherwise.

10. Tumalad vs Vicencio GR No. L-58469 September 30, 1971

FACTS: Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over
their house, which was being rented by Madrigal and company. This was executed to
guarantee a loan, payable in one year with a 12% per annum interest. The mortgage was
extrajudicially foreclosed upon failure to pay the loan. The house was sold at a public auction
and the plaintiffs were the highest bidder. A corresponding certificate of sale was issued.
Thereafter, the plaintiffs filed an action for ejectment against the defendants, praying that
the latter vacate the house as they were the proper owners.
ISSUE: W/N the chattel mortgage was null and void ab initio because only personal
properties can be subject of a chattel mortgage.
HELD: Certain deviations have been allowed from the general doctrine that buildings are
immovable property such as when through stipulation, parties may agree to treat as
personal property those by their nature would be real property. This is partly based on the
principle of estoppel wherein the principle is predicated on statements by the owner
declaring his house as chattel, a conduct that may conceivably stop him from subsequently
claiming otherwise.
In the case at bar, though there be no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property through chattel mortgage
could only have meant that defendant conveys 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.

11. Makati Leasing and Finance Corporation vs Wearever Textile Mills GR No. L-58469 May 16, 1993
V.1
FACTS:
To obtain financial accommodations from Makati Leasing, Wearever Textile discounted and
assigned several receivables under a Receivable Purchase Agreement with Makati Leasing.
To secure the collection of receivables, it executed a chattel mortgage over several raw
materials and a machinery Artos Aero Dryer Stentering Range (Dryer). Wearever defaulted
thus the properties mortgaged were extrajudicially foreclosed. The sheriff, after the
restraining order was lifted, was able to enter the premises of Wearever and removed the
drive motor of the Dryer. The CA reversed the order of the CFI, ordering the return of the
drive motor since it cannot be the subject of a replevin suit being an immovable bolted to
the ground. Thus the case at bar.
ISSUE: Whether the dryer is an immovable property
HELD: NO. The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong
materials can be the subject of a Chattel Mortgage as long as the parties to the contract
agree and no innocent 3rd party will be prejudiced then moreso that a machinery may
treated as a movable since it is movable by nature and becomes immobilized only by
destination. And treating it as a chattel by way of a Chattel Mortgage, Wearever is estopped
from claiming otherwise.
V.2
FACTS:
On 13 February 1998, PCI Leasing and Finance, Inc. filed a complaint for sum of money, with an
application for a writ of replevin (Civil Case Q-98-33500). On 6 March 1998, upon an ex-parte application of PCI
Leasing, judge issued a writ of replevin 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 24 March 1998, the sheriff proceeded
to petitioner's factory, seized one machinery with word that the return for the other machineries. On 25 March 1998,
petitioners filed a motion for special protective order, 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. On 6 April 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 7
April 1998, they went to the CA via an original action for certiorari.
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; and ruled that the "words of the contract are
clear and leave no doubt upon the true intention of the contracting parties." It thus affirmed the 18 February 1998
Order, and the 31 March 1998 Resolution of the lower court, and lifted the preliminary injunction issued on 15 June
1998. A subsequent motion for reconsideration was denied on 26 February 1999. Hence, the petition for review on
certiorari.
ISSUES:
Whether or not the subject machines were personal property.
DECISION:
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals with costs against
petitioners.
Contracting parties may validly stipulate that a real property be considered as personal. After agreeing to
such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to
a contract is ordinarily precluded from denying the truth of any material fact found therein. Thus, said machines are
proper subjects of the Writ of Seizure (compare Tumalad v. Vicencio).

12. Benguet Corporation vs Central Board of Assessment Appeal GR No. 106041 January 29, 1993
FACTS:
On 1985, Provincial Assessor of Zambales assessed the said properties in issue as taxable improvements.
The assessment was appealed to the Board of Assessment Appeals of the Province of Zambales. However, the
appeal was dismissed mainly on the ground of the petitioner's failure to pay the realty taxes that fell due during the
pendency of the appeal.
The petitioner elevated the matter to the Central Board of Assessment Appeals, one of the herein
respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, agreed that the
tailings dam and the lands submerged thereunder shall be subject to realty tax.
For purposes of taxation the dam is considered as real property as it comes within the object mentioned in
Article 415 of the New Civil Code, It is a construction adhered to the soil which cannot be separated or detached
without breaking the material or causing destruction on the land upon which it is attached. The immovable nature of
the dam as an improvement which determines its character as real property, hence taxable under Section 38 of the
Real Property Tax Code.
ISSUES:
1. Whether or not the tailings dam is subject to realty tax?
2. Whether or not it be considered as immovable property?
HELD:
Yes, it is subject to realty tax and it is considered an immovable property.
The petitioner does not dispute that the tailings dam may be considered realty within the meaning of Article
415. It insists, however, that the dam cannot be subjected to realty tax as a separate and independent property
because it does not constitute an "assessable improvement" on the mine although a considerable sum may have been
spent in constructing and maintaining it.
The Real Property Tax Code does not carry a definition of "real property" and simply says that the realty
tax is imposed on "real property, such as lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, applying Article 415 of the Civil Code, which states that the
following are considered immovables: Section No. 1 Lands, buildings and constructions of all kinds adhered to the
soil; Section no. 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.
Even without the tailings dam, the petitioner's mining operation can still be carried out because the primary
function of the dam is merely to receive and retain the wastes and water coming from the mine. There is no
allegation that the water coming from the dam is the sole source of water for the mining operation so as to make the
dam an integral part of the mine. In fact, as a result of the construction of the dam, the petitioner can now impound
and recycle water without having to spend for the building of a water reservoir.
And as the petitioner itself points out, even if the petitioner's mine is shut down or ceases operation, the
dam may still be used for irrigation of the surrounding areas.
From the definitions and the cases cited in relation to this case, it would appear that whether a structure
constitutes an improvement so as to partake of the status of realty would depend upon the degree of permanence
intended in its construction and use, The expression "permanent" as applied to an improvement does not imply that
the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has
been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is
annexed is still used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an "improvement" because it is
permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the immovable
nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it taxable
under Section 38 of the Real Property Tax Code.
Hence, petition was dismissed by the Supreme Court.

13. Meralco Securities Industrial Corporation vs Central Board of Assessment Appeal GR No. L-47943 May
31, 1982
Facts:
Pursuant to a pipeline concession issued under the Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed
from Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined together and buried not less than one meter
below the surface along the shoulder of the public highway.
The pipes are embedded in the soil while the valves are welded to the pipes so as to make the pipeline system one single piece
of property from end to end. Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of Laguna
treated the pipeline as real property and issued Tax Declarations.
Issues:
Whether or not the Meralco Securities Pipeline System in Laguna is a subject to a realty tax.
Held:
The Court ordered that CBAA did not with grave abuse and discretion and acted within its jurisdiction in sustaining the holding of
the provincial assessor that Meralco Securities Pipeline System in Laguna is subject to a realty tax for the following reasons that
the pipes are machinery or improvements and regarded as realty because they are constructions adhered to the soil. It is
attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which are welded to
the pipeline. In so far as the pipeline uses valves, pumps and control devices to maintain the flow of the oil, it is in a sense a
machinery within the meaning of the Real Property Tax Code.
Thus, the Court dismiss the petition and the questioned decision and resolution of the lower court is affirmed.
G.R. No. L-47943 May 31, 1982
This case is about the imposition of the realty tax on two oil storage tanks installed in 1969
by Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from
Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total
capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates welded and assembled on
the spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost
layer, a sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum
as the top layer. The bottom of each tank is in contact with the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to
Meralco, the tank is not attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of the foundation by bolts,
screws or similar devices. The tank merely sits on its foundation. Each empty tank can be
floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with earthen
dikes with electric steel poles on top thereof and is divided into two parts as the site of each
tank. The foundation of the tanks is elevated from the remaining area. On both sides of the
earthen dikes are two separate concrete steps leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick.
Pipelines were installed on the sides of each tank and are connected to the pipelines of the
Manila Enterprises Industrial Corporation whose buildings and pumping station are near Tank
No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself
and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land
while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal
treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial
assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period
from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board
required Meralco to pay the tax and penalties as a condition for entertaining its appeal from
the adverse decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local
Government and Community Development Jose Roo as members) in its decision dated
November 5, 1976 ruled that the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a
motion for reconsideration which the Board denied in its resolution of November 25, 1977, a
copy of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's
decision and resolution. It contends that the Board acted without jurisdiction and committed
a grave error of law in holding that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by destination nor by analogy. Stress is
laid on the fact that the tanks are not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the classification
of property where strong divergent opinions are inevitable. The issue raised by Meralco has
to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No.
470, and the Real Property Tax Code, Presidential Decree No. 464 which took effect on June
1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted in
section 3 thereof. This provision is reproduced with some modification in the Real Property
Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem
tax on real
property,
such as land,
buildings,
machinery and
other improvements affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an amelioration
in its condition, amounting to more than mere repairs or replacement of
waste, costing labor or capital and intended to enhance its value, beauty or
utility or to adapt it for new or further purposes.

We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for the considerable quantities of oil
needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic
City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which should generally
be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see
things classed as real property for purposes of taxation which on general principle might be
considered personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached to
any land or building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116
Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a
transportation company were held not subject to realty tax because they were personal
property.
WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are
affirmed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr., J., is on leave.
Justice Abad Santos, J., took no part.