property cases i

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G.R. No. L-17870 September 29, 1962

MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR &TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City,respondents.

Binamira, Barria and Irabagon for petitioner. Vicente E. Sabellina forrespondents.

LABRADOR, J .:

This is a petition for the review of the decision of the Court of Tax Appealsin C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company isliable to the payment of the realty tax on its maintenance and repair equipmenthereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400petitioner's above-mentioned equipment. Petitioner appealed the assessment tothe respondent Board of Tax Appeals on the ground that the same are not realty.The Board of Tax Appeals of the City sustained the city assessor, so petitionerherein filed with the Court of Tax Appeals a petition for the review of theassessment.

In the Court of Tax Appeals the parties submitted the following stipulationof facts:

Petitioner and respondents, thru their respective counsels agreed to thefollowing stipulation of facts:

1. That petitioner is a public utility solely engaged in transporting passengers andcargoes by motor trucks, over its authorized lines in the Island of Mindanao,collecting rates approved by the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. Itmaintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian,Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as realproperties are the following:

(a) Hobart Electric Welder Machine, appearing in the attached photograph,marked Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph, marked Annex"B";


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(c) Lathe machine with motor, appearing in the attached photograph, markedAnnex "C";

(d) Black and Decker Grinder, appearing in the attached photograph, markedAnnex "D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph, markedAnnex "E";

(f) Battery charger (Tungar charge machine) appearing in the attachedphotograph, marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, markedAnnex "G".

4. That these machineries are sitting on cement or wooden platforms as may be

seen in the attached photographs which form part of this agreed stipulation offacts;

5. That petitioner is the owner of the land where it maintains and operates agarage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops,and with these machineries which are placed therein, its TPU trucks are made;body constructed; and same are repaired in a condition to be serviceable in theTPU land transportation business it operates;

6. That these machineries have never been or were never used as industrialequipments to produce finished products for sale, nor to repair machineries, parts

and the like offered to the general public indiscriminately for business orcommercial purposes for which petitioner has never engaged in, todate.1awphl.nt

The Court of Tax Appeals having sustained the respondent city assessor'sruling, and having denied a motion for reconsideration, petitioner brought thecase to this Court assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents'contention that the questioned assessments are valid; and that said tools,equipments or machineries are immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of theNew Civil Code, and holding that pursuant thereto the movable equipments aretaxable realties, by reason of their being intended or destined for use in anindustry.

3. The Court of Tax Appeals erred in denying petitioner's contention that therespondent City Assessor's power to assess and levy real estate taxes on


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machineries is further restricted by section 31, paragraph (c) of Republic Act No.521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilizedby destination, in accordance with paragraph 5 of Article 415 of the New CivilCode which provides:

Art. 415. The following are immovable properties:

x x x x x x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner ofthe tenement for an industry or works which may be carried on in a building or ona piece of land, and which tend directly to meet the needs of the said industry or

works. (Emphasis ours.)

Note that the stipulation expressly states that the equipment are placed onwooden or cement platforms. They can be moved around and about inpetitioner's repair shop. In the case ofB. H. Berkenkotter vs. Cu Unjieng, 61 Phil.663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives thecharacter of real property to "machinery, liquid containers, instruments orimplements intended by the owner of any building or land for use in connectionwith any industry or trade being carried on therein and which are expressly

adapted to meet the requirements of such trade or industry."

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

be permanent. (Emphasis ours.)

So that movable equipments to be immobilized in contemplation of the lawmust first be "essential and principal elements" of an industry or works withoutwhich such industry or works would be "unable to function or carry on theindustrial purpose for which it was established." We may here distinguish,therefore, those movable which become immobilized by destination because theyare essential and principal elements in the industry for those which may not be


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so considered immobilized because they are merely incidental, not essential andprincipal. Thus, cash registers, typewriters, etc., usually found and used in hotels,restaurants, theaters, etc. are merely incidentals and are not and should not beconsidered immobilized by destination, for these businesses can continue orcarry on their functions without these equity comments. Airline companies use

forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which areincidentals, not essentials, and thus retain their movable nature. On the otherhand, machineries of breweries used in the manufacture of liquor and soft drinks,though movable in nature, are immobilized because they are essential to saidindustries; but the delivery trucks and adding machines which they usually ownand use and are found within their industrial compounds are merely incidentaland retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, bytheir nature, not essential and principle municipal elements of petitioner'sbusiness of transporting passengers and cargoes by motor trucks. They are

merely incidentals acquired as movables and used only for expediency tofacilitate and/or improve its service. Even without such tools and equipments, itsbusiness may be carried on, as petitioner has carried on, without suchequipments, before the war. The transportation business could be carried onwithout the repair or service shop if its rolling equipment is repaired or serviced inanother shop belonging to another.

The law that governs the determination of the question at issue is asfollows:

Art. 415. The following are immovable property:

x x x x x x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner ofthe tenement for an industry or works which may be carried on in a building or ona piece of land, and which tend directly to meet the needs of the said industry orworks; (Civil Code of the Phil.)

Aside from the element of essentiality the above-quoted provision alsorequires that the industry or works be carried on in a building or on a piece ofland. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery,liquid containers, and instruments or implements" are found in a buildingconstructed on the land. A sawmill would also be installed in a building on landmore or less permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only torepair or service the transportation business, which is not carried on in a buildingor permanently on a piece of land, as demanded by the law. Said equipmentsmay not, therefore, be deemed real property.


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Resuming what we have set forth above, we hold that the equipments inquestion are not absolutely essential to the petitioner's transportation business,and petitioner's business is not carried on in a building, tenement or on aspecified land, so said equipment may not be considered real estate within themeaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby setaside and the equipment in question declared not subject to assessment as realestate for the purposes of the real estate tax. Without costs.

So ordered.


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G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OFAPPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J .:

Petition for review on certiorari of the decision of the Court of Appeals (nowIntermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No.SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J.Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI,issued in Civil Case No. 36040, as wen as the resolution dated September 22,1981 of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitionerMakati Leasing and Finance Corporation, the private respondent WeareverTextile Mills, Inc., discounted and assigned several receivables with the formerunder a Receivable Purchase Agreement. To secure the collection of the

receivables assigned, private respondent executed a Chattel Mortgage overcertain raw materials inventory as well as a machinery described as an ArtosAero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicialforeclosure of the properties mortgage to it. However, the Deputy Sheriffassigned to implement the foreclosure failed to gain entry into privaterespondent's premises and was not able to effect the seizure of theaforedescribed machinery. Petitioner thereafter filed a complaint for judicialforeclosure with the Court of First Instance of Rizal, Branch VI, docketed as CivilCase No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ ofseizure, the enforcement of which was however subsequently restrained uponprivate respondent's filing of a motion for reconsideration. After several incidents,the lower court finally issued on February 11, 1981, an order lifting the restrainingorder for the enforcement of the writ of seizure and an order to break open thepremises of private respondent to enforce said writ. The lower court reaffirmed itsstand upon private respondent's filing of a further motion for reconsideration.


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On July 13, 1981, the sheriff enforcing the seizure order, repaired to thepremises of private respondent and removed the main drive motor of the subjectmachinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed

by herein private respondent, set aside the Orders of the lower court and orderedthe return of the drive motor seized by the sheriff pursuant to said Orders, afterruling that the machinery in suit cannot be the subject of replevin, much less of achattel mortgage, because it is a real property pursuant to Article 415 of the newCivil Code, the same being attached to the ground by means of bolts and theonly way to remove it from respondent's plant would be to drill out or destroy theconcrete floor, the reason why all that the sheriff could do to enfore the writ wasto take the main drive motor of said machinery. The appellate court rejectedpetitioner's argument that private respondent is estopped from claiming that themachine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having beendenied, petitioner has brought the case to this Court for review by writ ofcertiorari. It is contended by private respondent, however, that the instant petitionwas rendered moot and academic by petitioner's act of returning the subjectmotor drive of respondent's machinery after the Court of Appeals' decision waspromulgated.

The contention of private respondent is without merit. When petitioner returnedthe subject motor drive, it made itself unequivocably clear that said action waswithout prejudice to a motion for reconsideration of the Court of Appealsdecision, as shown by the receipt duly signed by respondent's representative. 1

Considering that petitioner has reserved its right to question the propriety of theCourt of Appeals' decision, the contention of private respondent that this petitionhas been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whetherthe machinery in suit is real or personal property from the point of view of theparties, with petitioner arguing that it is a personality, while the respondentclaiming the contrary, and was sustained by the appellate court, whichaccordingly held that the chattel mortgage constituted thereon is null and void, ascontended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143where this Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personalproperty, yet by ceding, selling or transferring a property by way of chattelmortgage defendants-appellants could only have meant to convey the house aschattel, or at least, intended to treat the same as such, so that they should notnow be allowed to make an inconsistent stand by claiming otherwise. Moreover,


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the subject house stood on a rented lot to which defendants-appellants merelyhad a temporary right as lessee, and although this can not in itself alonedetermine the status of the property, it does so when combined with other factorsto sustain the interpretation that the parties, particularly the mortgagors, intendedto treat the house as personality. Finally, unlike in the Iya cases, Lopez vs.

Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &Williamson, wherein third persons assailed the validity of the chattel mortgage, itis the defendants-appellants themselves, as debtors-mortgagors, who areattacking the validity of the chattel mortgage in this case. The doctrine ofestoppel therefore applies to the herein defendants-appellants, having treatedthe subject house as personality.

Examining the records of the instant case, We find no logical justification toexclude the rule out, as the appellate court did, the present case from theapplication of the abovequoted pronouncement. If a house of strong materials,like what was involved in the above Tumalad case, may be considered as

personal property for purposes of executing a chattel mortgage thereon as longas the parties to the contract so agree and no innocent third party will beprejudiced thereby, there is absolutely no reason why a machinery, which ismovable 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 soagreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, theCourt of Appeals lays stress on the fact that the house involved therein was builton a land that did not belong to the owner of such house. But the law makes nodistinction with respect to the ownership of the land on which the house is built

and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery aschattel by the private respondent is indicative of intention and impresses uponthe property the character determined by the parties. As stated in Standard OilCo. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to acontract may by agreement treat as personal property that which by nature wouldbe real property, as long as no interest of third parties would be prejudicedthereby.

Private respondent contends that estoppel cannot apply against it because it hadnever represented nor agreed that the machinery in suit be considered aspersonal property but was merely required and dictated on by herein petitioner tosign a printed form of chattel mortgage which was in a blank form at the time ofsigning. This contention lacks persuasiveness. As aptly pointed out by petitionerand not denied by the respondent, the status of the subject machinery asmovable or immovable was never placed in issue before the lower court and theCourt of Appeals except in a supplemental memorandum in support of thepetition filed in the appellate court. Moreover, even granting that the charge is


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true, such fact alone does not render a contract void ab initio, but can only be aground for rendering said contract voidable, or annullable pursuant to Article1390 of the new Civil Code, by a proper action in court. There is nothing onrecord to show that the mortgage has been annulled. Neither is it disclosed thatsteps were taken to nullify the same. On the other hand, as pointed out by

petitioner and again not refuted by respondent, the latter has indubitablybenefited from said contract. Equity dictates that one should not benefit at theexpense of another. Private respondent could not now therefore, be allowed toimpugn the efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that thequestioned machinery is real, not personal property, becomes very apparent.Moreover, the case ofMachinery and Engineering Supplies, Inc. v. CA , 96 Phil.70, heavily relied upon by said court is not applicable to the case at bar, thenature of the machinery and equipment involved therein as real properties neverhaving been disputed nor in issue, and they were not the subject of a Chattel

Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity withthe instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appealsare hereby reversed and set aside, and the Orders of the lower court are herebyreinstated, with costs against the private respondent.

SO ORDERED.


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April 23, 1958

G.R. No. L-11139 SANTOS EVANGELISTA, petitioner, vs. ALTOSURETY & INSURANCE CO., INC., respondent.

Gonzalo D. David for petitioner. Raul A. Aristorenas and BenjaminRelova for respondent.

Concepcion (Pedro), J.:

This is an appeal by certiorarifrom a decision of the Court of Appeals.

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos

Evangelista, instituted Civil Case No. 8235 of the Court of First,

Instance of Manila entitled Santos Evangelista vs. Ricardo Rivera,

for a sum of money. On the same date, he obtained a writ of

attachment, which levied upon a house, built by Rivera on a land

situated in Manila and leased to him, by filing copy of said writ and thecorresponding notice of attachment with the Office of the Register of

Deeds of Manila, on June 8, 1949. In due course, judgment was

rendered in favor of Evangelista, who, on October 8, 1951, bought the

house at public auction held in compliance with the writ of execution

issued in said case. The corresponding definite deed of sale was issued

to him on October 22, 1952, upon expiration of the period of

redemption. When Evangelista sought to take possession of the house,

Rivera refused to surrender it, upon the ground that he had leased the

property from the Alto Surety & Insurance Co., Inc. respondent

herein and that the latter is now the true owner of said property. Itappears that on May 10, 1952, a definite deed of sale of the same

house had been issued to respondent, as the highest bidder at an

auction sale held, on September 29, 1950, in compliance with a writ of

execution issued in Civil Case No. 6268 of the same court, entitled

Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario

Guevara and Ricardo Rivera, in which judgment, for the sum of

money, had been rendered in favor respondent herein, as plaintiff

therein. Hence, on June 13, 1953, Evangelista instituted the present

action against respondent and Ricardo Rivera, for the purpose of

establishing his (Evangelista) title over said house, securingpossession thereof, apart from recovering damages.

In its answer, respondent alleged, in substance, that it has a better

right to the house, because the sale made, and the definite deed of

sale executed, in its favor, on September 29, 1950 and May 10, 1952,

respectively, precede the sale to Evangelista (October 8, 1951) and

the definite deed of sale in his favor (October 22, 1952). It, also, made


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some special defenses which are discussed hereafter. Rivera, in effect,

joined forces with respondent. After due trial, the Court of First

Instance of Manila rendered judgment for Evangelista, sentencing

Rivera and respondent to deliver the house in question to petitioner

herein and to pay him, jointly and severally, forty pesos (P40.00) a

month from October, 1952, until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the

Court of Appeals, which absolved said respondent from the complaint,

upon the ground that, although the writ of attachment in favor of

Evangelista had been filed with the Register of Deeds of Manila prior to

the sale in favor of respondent, Evangelista did not acquire thereby a

preferential lien, the attachment having been levied as if the house in

question were immovable property, although in the opinion of the

Court of Appeals, it is ostensibly a personal property. As such, the

Court of Appeals held, the order of attachment . . . should have beenserved in the manner provided in subsection (e) of section 7 of Rule

59, of the Rules of Court, reading:

The property of the defendant shall be attached by the officer

executing the order in the following manner:

(e) Debts and credits, and other personal property not capable of

manual delivery, by leaving with the person owing such debts, or

having in his possession or under his control, such credits or other

personal property, or with, his agent, a copy of the order, and a notice

that the debts owing by him to the defendant, and the credits andother personal property in his possession, or under his control,

belonging to the defendant, are attached in pursuance of such order.

(Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion,

also, that the house of Rivera should have been attached in

accordance with subsection (c) of said section 7, as personal property

capable of manual delivery, by taking and safely keeping in his

custody, for it declared that Evangelists could not have . . . validly

purchased Ricardo Riveras house from the sheriff as the latter was not

in possession thereof at the time he sold it at a public auction.

Evangelista now seeks a review, by certiorari, of this decision of the

Court of Appeals. In this connection, it is not disputed that although

the sale to the respondent preceded that made to Evangelists, the

latter would have a better right if the writ of attachment, issued in his

favor before the sale to the respondent, had been properly executed or

enforced. This question, in turn, depends upon whether the house of


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Ricardo Rivera is real property or not. In the affirmative case, the

applicable provision would be subsection (a) of section 7, Rule 59 of

the Rules of Court, pursuant to which the attachment should be made

by filing with the registrar of deeds a copy ofthe order, together with

a description of the property attached, and a notice that it is attached,

and by leaving a copy of such order, description, and notice with theoccupant of the property, if any there be.

Respondent maintains, however, and the Court of Appeals held, that

Riveras house is personal property, the levy upon which must be

made in conformity with subsections (c) and (e) of said section 7 of

Rule 59. Hence, the main issue before us is whether a house,

constructed the lessee of the land on which it is built, should be dealt

with, for purpose, of attachment, as immovable property, or as

personal property.

It is, our considered opinion that said house is not personal property,much less a debt, credit or other personal property not capable of

manual delivery, but immovable property. As explicitly held, in

Laddera vs. Hodges (48 O.G. 5374), a true building (not merely

superimposed on the soil) is immovable or real property, whether it is

erected by the owner of the land or by usufructuary or lessee. This is

the doctrine of our Supreme Court in Leung Yee vs. Strong Machinery

Company, 37 Phil. 644. And it is amply supported by the rulings of the

French Court. . . .

It is true that the parties to a deed of chattel mortgage may agree toconsider a house as personal property for purposes of said contract

(Luna vs. Encarnacion, * 48 O.G. 2664; Standard Oil Co. of New York

vs. Jaramillo, 44 Phil. 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil.

464). However, this view is good only insofar as the contracting

parties are concerned. It is based, partly, upon the principle of

estoppel. Neither this principle, nor said view, is applicable to

strangers to said contract. Much less is it in point where there has

been no contract whatsoever, with respect to the status of the house

involved, as in the case at bar. Apart from this, in Manarang vs.

Ofilada (99 Phil. 108; 52 O.G. 3954), we held:

The question now before us, however, is: Does the fact that the

parties entering into a contract regarding a house gave said property

the consideration of personal property in their contract, bind the sheriff

in advertising the propertys sale at public auction as personal

property? It is to be remembered that in the case at bar the action

was to collect a loan secured by a chattel mortgage on the house. It is


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also to be remembered that in practice it is the judgment creditor who

points out to the sheriff the properties that the sheriff is to levy upon

in execution, and the judgment creditor in the case at bar is the party

in whose favor the owner of the house had conveyed it by way of

chattel mortgage and, therefore, knew its consideration as personal

property.

These considerations notwithstanding, we hold that the rules on

execution do not allow, and, we should not interpret them in such a

way as to allow, the special consideration that parties to a contract

may have desired to impart to real estate, for example, as personal

property, when they are, not ordinarily so. Sales on execution affect

the public and third persons. The regulation governing sales on

execution are for public officials to follow. The form of proceedings

prescribed for each kind of property is suited to its character, not to

the character, which the parties have given to it or desire to give it.When the rules speak of personal property, property which is ordinarily

so considered is meant; and when real property is spoken of, it means

property which is generally known as real property. The regulations

were never intended to suit the consideration that parties may have

privately given to the property levied upon. Enforcement of regulations

would be difficult were the convenience or agreement of private

parties to determine or govern the nature of the proceedings. We

therefore hold that the mere fact that a house was the subject of the

chattel mortgage and was considered as personal property by the

parties does not make said house personal property for purposes of

the notice to be given for its sale of public auction. This ruling is

demanded by the need for a definite, orderly and well defined

regulation for official and public guidance and would prevent confusion

and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon

on execution, although subject of a contract of chattel mortgage

between the owner and a third person, is real property within the

purview of Rule 39, section 16, of the Rules of Court as it has become

a permanent fixture of the land, which, is real property. (42 Am. Jur.

199-200; Leung Yee vs. Strong Machinery Co., 37 Phil. 644; Republicvs. Ceniza, et al., 90 Phil. 544; Ladera,, et al. vs. Hodges, et al., [C.A.]

O.G. 5374.) (Emphasis ours.)

The foregoing considerations apply, with equal force, to the conditions

for the levy of attachment, for it similarly affects the public and third

persons.


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It is argued, however, that, even if the house in question were

immovable property, its attachment by Evangelista was void or

ineffective, because, in the language of the Court of Appeals, after

presenting a Copy of the order of attachment in the Office of the

Register of Deeds, the person who might then be in possession of the

house, the sheriff took no pains to serve Ricardo Rivera, or othercopies thereof. This finding of the Court of Appeals is neither

conclusive upon us, nor accurate.

The Record on Appeal, annexed to the petition for Certiorari, shows

that petitioner alleged, in paragraph 3 of the complaint, that he

acquired the house in question as a consequence of the levy of an

attachment and execution of the judgment in Civil Case No. 8235 of

the Court of First Instance of Manila. In his answer (paragraph 2),

Ricardo Rivera admitted said attachment execution of judgment. He

alleged, however, by way a of special defense, that the title ofrespondent is superior to that of plaintiff because it is based on a

public instrument, whereas Evangelista relied upon a promissory

note which is only a private instrument; that said Public instrument

in favor of respondent is superior also to the judgment in Civil Case

No. 8235; and that plaintiffs claim against Rivera amounted only to

P866, which is much below the real value of said house, for which

reason it would be grossly unjust to acquire the property for such an

inadequate consideration. Thus, Rivera impliedly admitted that his

house had been attached, that the house had been sold to Evangelista

in accordance with the requisite formalities, and that said attachment

was valid, although allegedly inferior to the rights of respondent, and

the consideration for the sale to Evangelista was claimed to be

inadequate.

Respondent, in turn, denied the allegation in said paragraph 3 of the

complaint, but only for the reasons stated in its special defenses

namely: (1) that by virtue of the sale at public auction, and the final

deed executed by the sheriff in favor of respondent, the same became

the legitimate owner of the house in question; (2) that respondent

is a buyer in good faith and for value; (3) that respondent took

possession and control of said house; (4) thatthere was no validattachment by the plaintiff and/or the Sheriff of Manila of the property

in question as neither took actual or constructive possession or control

of the property at any time; and (5) that the alleged registration of

plaintiffs attachment, certificate of sale and final deed in the Office of

Register of Deeds, Manila, if there was any, is likewise, not valid as

there is no registry of transactions covering houses erected on land

belonging to or leased from another. In this manner, respondent


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claimed a better right, merely under the theory that, in case of double

sale of immovable property, the purchaser who first obtains possession

in good faith, acquires title, if the sale has not been recorded . . . in

the Registry of Property (Art. 1544, Civil Code of the Philippines), and

that the writ of attachment and the notice of attachment in favor of

Evangelista should be considered unregistered, as there is no registryof transactions covering houses erected on land belonging to or leased

from another. In fact, said article 1544 of the Civil Code of the

Philippines, governing double sales, was quoted on page 15 of the

brief for respondent in the Court of Appeals, in support of its fourth

assignment of error therein, to the effect that it has preference or

priority over the sale of the same property to Evangelista.

In other words, there was no issue on whether copy of the writ and

notice of attachment had been served on Rivera. No evidence

whatsoever, to the effect that Rivera had not been served with copiesof said writ and notice, was introduced in the Court of First Instance.

In its brief in the Court of Appeals, respondent did not aver, or even,

intimate, that no such copies were served by the sheriff upon Rivera.

Service thereof on Rivera had been impliedly admitted by the

defendants, in their respective answers, and by their behaviour

throughout the proceedings in the Court of First Instance, and, as

regards respondent, in the Court of Appeals. In fact, petitioner asserts

in his brief herein (p. 26) that copies of said writ and notice were

delivered to Rivera, simultaneously with copies of the complaint, upon

service of summons, prior to the filing of copies of said writ and notice

with the register deeds, and the truth of this assertion has not been

directly and positively challenged or denied in the brief filed before us

by respondent herein. The latter did not dare therein to go beyond

making a statement for the first time in the course of these

proceedings, begun almost five (5) years ago (June 18, 1953)

reproducing substantially the aforementioned finding of the Court of

Appeals and then quoting the same.

Considering, therefore, that neither the pleadings, nor the briefs in the

Court of Appeals, raised an issue on whether or not copies of the writ

of attachment and notice of attachment had been served upon Rivera;that the defendants had impliedly admitted-in said pleadings and

briefs, as well as by their conduct during the entire proceedings, prior

to the rendition of the decision of the Court of Appeals that Rivera

had received copies of said documents; and that, for this reason,

evidently, no proof was introduced thereon, we, are of the opinion,

and so hold that the finding of the Court of Appeals to the effect that

said copies had not been served upon Rivera is based upon a


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misapprehension of the specific issues involved therein and goes

beyond the range of such issues, apart from being contrary to the

aforementioned admission by the parties, and that, accordingly, a

grave abuse of discretion was committed in making said finding, which

is, furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby reversed,

and another one shall be entered affirming that of the Court of FirstInstance of Manila, with the costs of this instance against respondent,

the Alto Surety and Insurance Co., Inc. It is so ordered.


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G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILEMILLS, INC. and MAMERTO R VILLALUZ, respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURTOF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ,respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-

G.R. CV No. 32986, affirming the decision

2

of the Regional Trial Court of Manila,Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court'sresolution denying petitioners' motion for reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtaineda three million peso (P3,000,000.00) loan from petitioner Philippine Bank ofCommunications (PBCom). As security for the loan, EVERTEX executed in favorof PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No.372097, where its factory stands, and the chattels located therein as enumeratedin a schedule attached to the mortgage contract. The pertinent portions of theReal and Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of FirstMortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all thebuildings and improvements now existing or which may hereafter exist thereon,situated in . . .

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor ofPBCommunications continued)

LIST OF MACHINERIES & EQUIPMENT


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A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made inHongkong:

Serial Numbers Size of Machines

xxx xxx xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafter to exist onthe above-mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on theabove-mentioned lot located at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretionsto above properties.

xxx xxx xxx3


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On April 23, 1979, PBCom granted a second loan of P3,356,000.00 toEVERTEX. The loan was secured by a Chattel Mortgage over personalproperties enumerated in a list attached thereto. These listed properties weresimilar to those listed in Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage mentionedabove, EVERTEX purchased various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvencyproceedings docketed as SP Proc. No. LP-3091-P before the defunct Court ofFirst Instance of Pasay City, Branch XXVIII. The CFI issued an order onNovember 24, 1982 declaring the corporation insolvent. All its assets were takeninto the custody of the Insolvency Court, including the collateral, real andpersonal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the

latter commenced extrajudicial foreclosure proceedings against EVERTEX underAct 3135, otherwise known as "An Act to Regulate the Sale of Property underSpecial Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued onDecember 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBComemerged as the highest bidder and a Certificate of Sale was issued in its favor onthe same date. On December 23, 1982, another public auction was held andagain, PBCom was the highest bidder. The sheriff issued a Certificate of Sale onthe same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all theproperties in it. In November 1986, it leased the entire factory premises topetitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom soldthe factory, lock, stock and barrel to Tsai for P9,000,000.00, including thecontested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale,reconveyance, and damages with the Regional Trial Court against PBCom,alleging inter alia that the extrajudicial foreclosure of subject mortgage was inviolation of the Insolvency Law. EVERTEX claimed that no rights having beentransmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsaiacquired no rights over such assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis,appropriated the contested properties, which were not included in the Real andChattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,1979, and neither were those properties included in the Notice of Sheriff's Saledated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.


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The disputed properties, which were valued at P4,000,000.00, are: 14 InterlockCircular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 RaisinEquipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular

and illegal because they were not duly foreclosed nor sold at the December 15,1982 auction sale since these were not included in the schedules attached to themortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation andagainst the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank ofCommunications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as itaffects the personal properties listed in par. 9 of the complaint, and their return tothe plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for

disposition by the Insolvency Court, to be done within ten (10) days from finalityof this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation thesum of P5,200,000.00 as compensation for the use and possession of theproperties in question from November 1986 to February 1991 and P100,000.00every month thereafter, with interest thereon at the legal rate per annum until fullpayment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation thesum of P50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation thesum of P200,000.00 by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which

issued its decision dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplarydamages, and reduction of the actual damages, from P100,000.00 to P20,000.00per month, from November 1986 until subject personal properties are restored toappellees, the judgment appealed from is hereby AFFIRMED, in all otherrespects. No pronouncement as to costs.5


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Motion for reconsideration of the above decision having been denied in theresolution of April 28, 1995, PBCom and Tsai filed their separate petitions forreview with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the

respondent court:

I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED INEFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981

ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIESWITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGEOR 1979 DEED OF CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED INHOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REALPROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEARIMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREMECOURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED INDEEMING PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED INASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES ANDEXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGALBASIS.

V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN

HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION ANDLACHES.6

In G.R. No. 120098, PBCom raised the following issues:

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES


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LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW ASPERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATEMORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTYEXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION INTHE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE

LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, ANDDESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG ANDHEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGEDBY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REALESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES INQUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVERTEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD

SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTEDMACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILEMILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAIDMACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THATSITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questionedproperties in the foreclosed properties is proper. The secondary issue is whetheror not the sale of these properties to petitioner Ruby Tsai is valid.

For her part, Tsai avers that the Court of Appeals in effect made a contract for

the parties by treating the 1981 acquired units of machinery as chattels instead ofreal properties within their earlier 1975 deed of Real and Chattel Mortgage or1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent courterred in holding that the disputed 1981 machineries are not real properties.9Finally, she contends that the Court of Appeals erred in holding againstpetitioner's arguments on prescription and laches10 and in assessing petitioneractual damages, attorney's fees and expenses of litigation, for want of validfactual and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lowercourt's judgment decreeing that the pieces of machinery in dispute were not dulyforeclosed and could not be legally leased nor sold to Ruby Tsai. It furtherargued that the Court of Appeals' pronouncement that the pieces of machinery inquestion were personal properties have no factual and legal basis. Finally, itasserts that the Court of Appeals erred in assessing damages and attorney'sfees against PBCom.

In opposition, private respondents argue that the controverted units of machineryare not "real properties" but chattels, and, therefore, they were not part of the


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foreclosed real properties, rendering the lease and the subsequent sale thereofto Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find thepetitions devoid of merit and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition forreview on certiorari under Rule 45 of the Revised Rules of Court is limited toreviewing only errors of law, not of fact, unless the factual findings complained ofare devoid of support by the evidence on record or the assailed judgment isbased on misapprehension of facts.13 This rule is applied more stringently whenthe findings of fact of the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court ofAppeals that are decisive of the issues: (1) the "controverted machineries" arenot covered by, or included in, either of the two mortgages, the Real Estate and

Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries werenot included in the list of properties appended to the Notice of Sale, and neitherwere they included in the Sheriff's Notice of Sale of the foreclosed properties. 15

Petitioners contend that the nature of the disputed machineries, i.e., that theywere heavy, bolted or cemented on the real property mortgaged by EVERTEX toPBCom, make them ipso facto immovable under Article 415 (3) and (5) of theNew Civil Code. This assertion, however, does not settle the issue. Mere nutsand bolts do not foreclose the controversy. We have to look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal

of the contract of Real and Chattel Mortgage executed by the parties herein givesus a contrary indication. In the case at bar, both the trial and the appellate courtsreached the same finding that the true intention of PBCOM and the owner,EVERTEX, is to treat machinery and equipment as chattels. The pertinent portionof respondent appellate court's ruling is quoted below:

As stressed upon by appellees, appellant bank treated the machineries aschattels; never as real properties. Indeed, the 1975 mortgage contract, whichwas actually real and chattel mortgage, militates against appellants' posture. Itshould be noted that the printed form used by appellant bank was mainly for realestate mortgages. But reflective of the true intention of appellant PBCOM andappellee EVERTEX was the typing in capital letters, immediately following the

printed caption of mortgage, of the phrase "real and chattel." So also, the"machineries and equipment" in the printed form of the bank had to be inserted inthe blank space of the printed contract and connected with the word "building" bytypewritten slash marks. Now, then, if the machineries in question werecontemplated to be included in the real estate mortgage, there would have beenno necessity to ink a chattel mortgage specifically mentioning as part III ofSchedule A a listing of the machineries covered thereby. It would have sufficed to


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list them as immovables in the Deed of Real Estate Mortgage of the land andbuilding involved.

As regards the 1979 contract, the intention of the parties is clear and beyondquestion. It refers solely to chattels. The inventory list of the mortgaged

properties is an itemization of sixty-three (63) individually described machinerieswhile the schedule listed only machines and 2,996,880.50 worth of finishedcotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous oruncorroborated by the evidence on record, we find no compelling reason todepart therefrom.

Too, assuming arguendo that the properties in question are immovable bynature, nothing detracts the parties from treating it as chattels to secure anobligation under the principle of estoppel. As far back as Navarro v. Pineda, 9

SCRA 631 (1963), an immovable may be considered a personal property if thereis a stipulation as when it is used as security in the payment of an obligationwhere a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "RealEstate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" ifindeed their intention is to treat all properties included therein as immovable, and(2) attached to the said contract a separate "LIST OF MACHINERIES &EQUIPMENT". These facts, taken together, evince the conclusion that theparties' intention is to treat these units of machinery as chattels. A fortiori, thecontested after-acquired properties, which are of the same description as the

units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," mustalso be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's rulingthat inasmuch as the subject mortgages were intended by the parties to involvechattels, insofar as equipment and machinery were concerned, the ChattelMortgage Law applies, which provides in Section 7 thereof that: "a chattelmortgage shall be deemed to coveronly the property described therein and notlike or substituted property thereafter acquired by the mortgagor and placed inthe same depository as the property originally mortgaged, anything in themortgage to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not havebeen involved in the 1975 or 1979 chattel mortgages, it was consequently anerror on the part of the Sheriff to include subject machineries with the propertiesenumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid titlepassed in its favor. Consequently, the sale thereof to Tsai is also a nullity under


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the elementary principle ofnemo dat quod non habet, one cannot give what onedoes not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contestedproperties is a nullity, she is nevertheless a purchaser in good faith and for value

who now has a better right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trialcourt that she is not a purchaser in good faith. Well-settled is the rule that theperson who asserts the status of a purchaser in good faith and for value has theburden of proving such assertion.18 Petitioner Tsai failed to discharge this burdenpersuasively.

Moreover, a purchaser in good faith and for value is one who buys the propertyof anotherwithout notice that some other person has a right to or interest in such

propertyand pays a full and fair price for the same, at the time of purchase, or

before he has notice of the claims or interest of some other person in theproperty.19 Records reveal, however, that when Tsai purchased the controvertedproperties, she knew of respondent's claim thereon. As borne out by the records,she received the letter of respondent's counsel, apprising her of respondent'sclaim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21Despite her knowledge of respondent's claim, she proceeded to buy thecontested units of machinery on May 3, 1988. Thus, the RTC did not err infinding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where thedisputed properties are located is equally unavailing. This defense refers to sale

of lands and not to sale of properties situated therein. Likewise, the mere factthat the lot where the factory and the disputed properties stand is in PBCom'sname does not automatically make PBCom the owner of everything foundtherein, especially in view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing.We find no cogent reason to disturb the consistent findings of both courts belowthat the case for the reconveyance of the disputed properties was filed within thereglementary period. Here, in our view, the doctrine of laches does not apply.Note that upon petitioners' adamant refusal to heed EVERTEX's claim,respondent company immediately filed an action to recover possession andownership of the disputed properties. There is no evidence showing any failure orneglect on its part, for an unreasonable and unexplained length of time, to do thatwhich, by exercising due diligence, could or should have been done earlier. Thedoctrine of stale demands would apply only where by reason of the lapse of time,it would be inequitable to allow a party to enforce his legal rights. Moreover,except for very strong reasons, this Court is not disposed to apply the doctrine oflaches to prejudice or defeat the rights of an owner.22


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As to the award of damages, the contested damages are the actualcompensation, representing rentals for the contested units of machinery, theexemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00

corresponding to the unpaid rentals of the contested properties based on thetestimony of John Chua, who testified that the P100,000.00 was based on theaccepted practice in banking and finance, business and investments that therental price must take into account the cost of money used to buy them. TheCourt of Appeals did not give full credence to Chua's projection and reduced theaward to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must notonly be capable of proof but must actually be proven with reasonable degree ofcertainty, premised upon competent proof or best evidence obtainable of theactual amount thereof.23 However, the allegations of respondent company as to

the amount of unrealized rentals due them as actual damages remain mereassertions unsupported by documents and other competent evidence. Indetermining actual damages, the court cannot rely on mere assertions,speculations, conjectures or guesswork but must depend on competent proofand on the best evidence obtainable regarding the actual amount of loss. 24However, we are not prepared to disregard the following dispositions of therespondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on recordwarranting the said award of P5,200,000.00, representing monthly rental incomeof P100,000.00 from November 1986 to February 1991, and the additional award

of P100,000.00 per month thereafter.

As pointed out by appellants, the testimonial evidence, consisting of thetestimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessaryto substantiate the actual damages allegedly sustained by appellees, by way ofunrealized rental income of subject machineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based onwhat is claimed to be a practice in business and industry. But such a testimonycannot serve as the sole basis for assessing the actual damages complained of.What is more, there is no showing that had appellant Tsai not taken possessionof the machineries and equipments in question, somebody was willing and readyto rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipmentscould have generated a rental income of P30,000.00 a month, as projected bywitness Mamerto Villaluz, the same would have been a gross income. Therefrom


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should be deducted or removed, expenses for maintenance and repairs . . .Therefore, in the determination of the actual damages or unrealized rentalincome sued upon, there is a good basis to calculate that at least four months ina year, the machineries in dispute would have been idle due to absence of alessee or while being repaired. In the light of the foregoing rationalization and

computation, We believe that a net unrealized rental income of P20,000.00 amonth, since November 1986, is more realistic and fair.25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX whichthe Court of Appeals deleted. But according to the CA, there was no clearshowing that petitioners acted malevolently, wantonly and oppressively. Theevidence, however, shows otherwise.It is a requisite to award exemplarydamages that the wrongful act must be accompanied by bad faith,26 and theguilty acted in a wanton, fraudulent, oppressive, reckless or malevolentmanner.27 As previously stressed, petitioner Tsai's act of purchasing thecontroverted properties despite her knowledge of EVERTEX's claim was

oppressive and subjected the already insolvent respondent to grossdisadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz,responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all theproperties found in the factory of the financially handicapped respondent,including those properties not covered by or included in the mortgages, is equallyoppressive and tainted with bad faith. Thus, we are in agreement with the RTCthat an award of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive.Article 2216 of the Civil Code provides that no proof of pecuniary loss isnecessary for the adjudication of exemplary damages, their assessment being

left to the discretion of the court in accordance with the circumstances of eachcase.29 While the imposition of exemplary damages is justified in this case, equitycalls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicialdiscretion granted to the courts in the assessment of damages must always beexercised with balanced restraint and measured objectivity. Thus, here the awardof exemplary damages by way of example for the public good should be reducedto P100,000.00.

By the same token, attorney's fees and other expenses of litigation may berecovered when exemplary damages are awarded.30 In our view, RTC's award ofP50,000.00 as attorney's fees and expenses of litigation is reasonable, given thecircumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolutionof the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITHMODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L.Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. thefollowing: (1) P20,000.00 per month, as compensation for the use and


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possession of the properties in question from November 198631 until subjectpersonal properties are restored to respondent corporation; (2) P100,000.00 byway of exemplary damages, and (3) P50,000.00 as attorney's fees and litigationexpenses. Costs against petitioners.

SO ORDERED.


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[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY,

pet i t ioners, vs . PCI LEASING AND FINANCE, INC.,respondent.

D E C I S I O N

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovableproperty be considered as personal or movable, a party is estoppedfrom subsequently claiming otherwise. Hence, such property is aproper subject of a writ of replevin obtained by the other contracting

party.

The Case

Before us is a Petition for Review on Certiorari assailing theJanuary 6, 1999 Decision[1] of the Court of Appeals (CA)[2] in CA-GRSP No. 47332 and its February 26, 1999 Resolution[3] denyingreconsideration. The decretal portion of the CA Decision reads asfollows:

WHEREFORE, premises considered, the assailed Order dated February 18,

1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 arehereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 ishereby 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 March18, 1998 Resolution[8] denied petitioners Motion for SpecialProtective Order, praying that the deputy sheriff be enjoined fromseizing immobilized or other real properties in (petitioners) factory inCainta, Rizal and to return to their original place whatever immobilizedmachineries or equipments he may have removed.[9]

The Facts

The undisputed facts are summarized by the Court of Appeals asfollows:[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI


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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 deliverthe machineries and equipment to PCI Leasing after 5 days and upon thepayment of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff proceeded topetitioners factory, seized one machinery with [the] word that he [would] returnfor 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 officersand amend and control its processes, praying for a directive for the sheriff to

defer enforcement of the writ of replevin.

This motionwas opposed by PCI Leasing (Annex F), on the ground that theproperties [were] still personal and therefore still subject to seizure and a writ ofreplevin.

In their Reply, petitioners asserted that the properties sought to be seized[were] immovable as defined in Article 415 of the Civil Code, the partiesagreement to the contrary notwithstanding. They argued that to give effect to theagreement would be prejudicial to innocent third parties. They further stated thatPCI 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 takepossession of the remaining properties. He was able to take two more, but wasprevented 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 thatthe subject machines were personal property, and that they had onlybeen leased, not owned, by petitioners. It also ruled that the words ofthe contract are clear and leave no doubt upon the true intention of thecontracting parties. Observing that Petitioner Goquiolay was anexperienced businessman who was not unfamiliar with the ways of


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the trade, it ruled that he should have realized the import of thedocument he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial courtin ruling upon the case below, since the merits of the whole matter are laid downbefore 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 Orderand Resolution. The issues raised herein are proper subjects of a full-blown trial,necessitating presentation of evidence by both parties. The contract is beingenforced by one, and [its] validity is attacked by the other a matter x x x whichrespondent court is in the best position to determine.

Hence, this Petition.[11]

The Issues

In their Memorandum, petitioners submit the following issues forour consideration:

A. Whether or not the machineries purchased and imported by SERGSbecame 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 arepersonal, not immovable, property which may be a proper subject of awrit 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 Quest ions

Respondent contends that the Petition failed to indicate expresslywhether it was being filed under Rule 45 or Rule 65 of the Rules of

Court. It further alleges that the Petition erroneously impleadedJudge 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 isPetition for Review on Certiorari.[13]

While Judge Laqui should not have been impleaded as a


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respondent,[14] substantial justice requires that such lapse by itselfshould not warrant the dismissal of the present Petition. In this light,the Court deems it proper to remove, motu proprio, the name of JudgeLaqui from the caption of the present case.

Main Issue: Nature of the Sub ject Machinery

Petitioners contend that the subject machines used in theirfactory 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 areissued for the recovery of personal property only.[15] Section 3 thereofreads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, thecourt shall issue an order and the corresponding writ of replevin describing thepersonal property alleged to be wrongfully detained and requiring the sheriffforthwith to take such property into his custody.

On the other hand, Article 415 of the Civil Code enumeratesimmovable or real property as follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

(5) Machinery, receptacles, instruments or implements intended by the owner ofthe tenement for an industry or works which may be carried on in a building or ona piece of land, and which tend directly to meet the needs of the said industry orworks;

x x x....................................x x x....................................x x x

In the present case, the machines that were the subjects of theWrit of Seizure were placed by petitioners in the factory built on theirown land. Indisputably, they were essential and principal elements oftheir chocolate-making industry. Hence, although each of them was

movable or personal property on its own, all of them have becomeimmobilized by destination because they are essential and principalelements in the industry.[16] In that sense, petitioners are correct inarguing that the said machines are real, not personal, propertypursuant to Article 415 (5) of the Civil Code.[17]

Be that as it may, we disagree with the submission of thepetitioners that the said machines are not proper subjects of the Writ


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of Seizure.

The Court has held that contracting parties may validly stipulatethat a real property be considered as personal.[18] After agreeing tosuch stipulation, they are consequently estopped from claimingotherwise. Under the principle of estoppel, a party to a contract is

ordinarily precluded from denying the truth of any material fact foundtherein.

Hence, in Tumalad v. Vicencio,[19] the Court upheld the intentionof the parties to treat a house as a personal property because it hadbeen made the subject of a chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house aspersonal property, yet by ceding, selling or transferring a property by way ofchattel mortgage defendants-appellants could only have meant to convey thehouse 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 FinanceCorp. v. Wearever Textile Mills[20]also held that the machinery usedin a factory and essential to the industry, as in the present case, was aproper subject of a writ of replevin because it was treated as personalproperty in a contract. Pertinent portions of the Courts ruling arereproduced hereunder:

x x x. If a house of strong materials, like what was involved in the aboveTumalad case, may be considered as personal property for purposes ofexecuting 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 absolutelyno reason why a machinery, which is movable in its nature and becomesimmobilized 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 theexistence of the chattel mortgage.

In the present case, the Lease Agreement clearly provides thatthe 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, orhereafter become, in any manner affixed or attached to or embedded in, orpermanently resting upon, real property or any building thereon, or attached inany manner to what is permanent.

Clearly then, petitioners are estopped from denying thecharacterization of the subject machines as personal property. Underthe circumstances, they are proper subjects of the Writ of Seizure.


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It should be stressed, however, that our holding -- that themachines should be deemed personal property pursuant to the Lease

Agreement is good only insofar as the contracting parties areconcerned.[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 adverselyaffected.

Validi ty of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement isa loan and not a lease.[24] Submitting documents supposedly showingthat they own the subject machines, petitioners also argue in theirPetition that the Agreement suffers from intrinsic ambiguity whichplaces in serious doubt the intention of the parties and the validity of

the lease agreement itself.[25] In their Reply to respondentsComment, they further allege that the Agreement is invalid.[26]

These arguments are unconvincing. The validity and the natureof the contract are the lis mota of the civil action pending before theRTC. A resolution of these questions, therefore, is effectively aresolution of the merits of the case. Hence, they should be threshedout in the trial, not in the proceedings involving the issuance of the Writof Seizure.

Indeed, in La Tondea Distillers v. CA,[27] the Court explainedthat the policy under Rule 60 was that questions involving title to thesubject property questions which petitioners are now raising --should be determined in the trial. In that case, the Court noted that theremedy of defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiffs bond. They werenot allowed, however, to invoke the title to the subject property. TheCourt ruled:

In other words, the law does not allow the defendant to file a motion to dissolveor discharge the writ of seizure (or delivery) on ground of insufficiency of thecomplaint or of the grounds relied upon therefor, as in proceedings onpreliminary attachment or injunction, and thereby put at issue the matter of the

title or right of possession over the specific chattel being replevied, the policyapparently being that said matter should be ventilated and determined only at thetrial on the merits.[28]

Besides, these questions require a determination of facts and apresentation of evidence, both of which have no place in a petition forcertiorari in the CA under Rule 65 or in a petition for review in thisCourt under Rule 45.[29]


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Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely onthe Lease Agreement, for nothing on record shows that it has been

nullified or annulled. In fact, petitioners assailed it first only in the RTCproceedings, which had ironically been instituted by respondent.Accordingly, it must be presumed valid and binding as the lawbetween the parties.

Makati Leasing and Finance Corporation[30] is also instructive onthis point. In that case, the Deed of Chattel Mortgage, whichcharacterized the subject machinery as personal property, was alsoassailed because respondent had allegedly been required to sign aprinted form of chattel mortgage which was in a blank form at the timeof 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 notrender a contract void ab initio, but can only be a ground for rendering saidcontract 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 mortgagehas been annulled. Neither is it disclosed that steps were taken to nullify thesame. x x x

Al leged Injust ice Committed o n the Part of Pet i t ioners

Petitioners contend that if the Court allows these machineries tobe seized, then its workers would be out of work and thrown into thestreets.[31] They also allege that the seizure would nullify all efforts torehabilitate the corporation.

Petitioners arguments do not preclude the implementation of theWrit. As earlier discussed, law and jurisprudence support itspropriety. Verily, the above-mentioned consequences, if they cometrue, should not be blamed on this Court, but on the petitioners forfailing 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 ofthe applicants bond, or of the surety or sureties thereon, he cannot immediatelyrequire the return of the property, but if he does not so object, he may, at anytime before the delivery of the property to the applicant, require the returnthereof, by filing with the court where the action is pending a bond executed tothe applicant, in double the value of the property as stated in the applicantsaffidavit for the delivery thereof to the applicant, if such delivery be adjudged, andfor the payment of such sum to him as may be recovered against the adverse


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party, and by serving a copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decisionof the Court of AppealsAFFIRMED. Costs against petitioners.

SO ORDERED.


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G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner, vs. HON. SANTIAGO O. TAADA, etc., andGOULDS PUMPS INTERNATIONAL (PHIL.), INC., respondents.

Paterno P. Natinga for private respondent.

NARVASA, J .:

The petition for review on certiorari at bar involves two (2) Orders of respondentJudge Taada 1 in Civil Case No. 10984. The first, dated September 16, 1970,denied petitioner Yap's motion to set aside execution sale and to quash alias writof execution. The second, dated November 21, 1970, denied Yap's motion forreconsideration. The issues concerned the propriety of execution of a judgment

claimed to be "incomplete, vague and non-final," and the denial of petitioner'sapplication to prove and recover damages resulting from alleged irregularities inthe process of execution.

The antecedents will take some time in the telling. The case began in the CityCourt of Cebu with the filing by Goulds Pumps International (Phil.), Inc. of acomplaint 2 against Yap and his wife 3 seeking recovery of P1,459.30representing the balance of the price and installation cost of a water pump in thelatter's premises. 4 The case resulted in a judgment by the City Court onNovember 25, 1968, reading as follows:

When this case was called for trial today, Atty. Paterno Natinga appeared for theplaintiff Goulds and informed the court that he is ready for trial. However, none ofthe defendants appeared despite notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidenceex-parte.

After considering the evidence of the plaintiff, the court hereby renders judgmentin favor of the plaintiff and against the defendant (Yap), ordering the latter to payto the former the sum of Pl,459.30 with interest at the rate of 12% per annumuntil fully paid, computed from August 12, 1968, date of the filing of the

complaint; to pay the sum of P364.80 as reasonable attorney's fees, which isequivalent " to 25% of the unpaid principal obligation; and to pay the costs, if any.

Yap appealed to the Court of First Instance. The appeal was assigned to the salaof respondent Judge Taada. For failure to appear for pre-trial on August 28,1968, this setting being intransferable since the pre-trial had already been oncepostponed at his instance, 5 Yap was declared in default by Order of JudgeTaada dated August 28, 1969, 6 reading as follows:


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When this case was called for pre-trial this morning, the plaintiff and counselappeared, but neither the defendants nor his counsel appeared despite the factthat they were duly notified of the pre-trial set this morning. Instead he filed anEx-Parte Motion for Postponement which this Court received only this morning,and on petition of counsel for the plaintiff that the Ex-Parte Motion for

Postponement was not filed in accordance with the Rules of Court he asked thatthe same be denied and the defendants be declared in default; .. the motion forthe plaintiff being well- grounded, the defendants are hereby declared in defaultand the Branch Clerk of Court ..is hereby authorized to receive evidence for theplaintiff and .. submit his report within ten (10) days after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered thefollowing day by Judge Taada requiring Yap to pay to Goulds (1) Pl,459.30representing the unpaid balance of the pump purchased by him; (2) interest of12% per annum thereon until fully paid; and (3) a sum equivalent to 25% of theamount due as attorney's fees and costs and other expenses in prosecuting the

action. Notice of the judgment was served on Yap on September 1, 1969.

7

On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insistedthat his motion for postponement should have been granted since it expressedhis desire to explore the possibility of an amicable settlement; that the courtshould give the parties time to arrive at an amicable settlement failing which, heshould be allowed to present evidence in support of his defenses (discrepancy asto the price and breach of warranty). The motion was not verified or accompaniedby any separate affidavit. Goulds opposed the motion. Its opposition 9 drewattention to the eleventh-hour motion for postponement of Yap which hadresulted in the cancellation of the prior hearing of June 30, 1969 despite Goulds'

vehement objection, and the re-setting thereof on August 28, 1969 withintransferable character; it averred that Yap had again sought postponement ofthis last hearing by another eleventh-hour motion on the plea that an amicablesettlement would be explored, yet he had never up to that time ever broached thematter, 10 and that this pattern of seeking to obtain last-minute postponementswas discernible also in the proceedings before the City Court. In its opposition,Goulds also adverted to the examination made by it of the pump, on instructionsof the City Court, with a view to remedying the defects claimed to exist by Yap;but the examination had disclosed the pump's perfect condition. Yap's motion forreconsideration was denied by Order dated October 10, 1969, notice of whichwas received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Taada issued an Order granting Goulds' Motion forIssuance of Writ of Execution dated October 14, 1969, declaring the reasonstherein alleged to be meritorious. 12 Yap forthwith filed an "Urgent Motion forReconsideration of Order" dated October 17, 1969, 13 contending that the

judgment had not yet become final, since contrary to Goulds' view, his motion forreconsideration was not pro forma for lack of an affidavit of merit, this not beingrequired under Section 1 (a) of Rule 37 of the Rules of Court upon which his


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motion was grounded. Goulds presented an opposition dated October 22, 1969.14 It pointed out that in his motion for reconsideration Yap had claimed to have avalid defense to the action, i.e., ".. discrepancy as to price and breach of seller'swarranty," in effect, that there was fraud on Goulds' paint; Yap's motion forreconsideration should therefore have been supported by an affidavit of merit

respecting said defenses; the absence thereof rendered the motion forreconsideration fatally defective with the result that its filing did not interrupt therunning of the period of appeal. The opposition also drew attention to the failureof the motion for reconsideration to specify the findings or conclusions in the

judgment claimed to be contrary to law or not supported by the evidence, makingit apro forma motion also incapable of stopping the running of the appeal period.On October 23, 1969, Judge Taada denied Yap's motion for reconsiderationand authorized execution of the jud

property cases i

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