property cases tranch 1

5/21/2018 Property Cases Tranch 1

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-4637 June 30, 1952

JOSE A. LUNA,petitioner,vs.DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and THEPROVINCIAL SHERIFF OF RIZAL,respondents.

Jose S. Fineza for petitioner.

BAUTISTA ANGELO, J .:

On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna in

favor of Trinidad Reyes whereby the former conveyed by way of first mortgage to the latter a certainhouse of mixed materials stated in barrio San Nicolas, municipality of Pasig, Province of Rizal, tosecure the payment of a promissory note in the amount of P1,500, with interest at 12 per cent perannum. The document was registered in the office of the register of deeds for the Province of Rizal.The mortgagor having filed to pay the promissory note when it fell due, the mortgage requested thesheriff of said province to sell the house at public auction so that with its proceeds the amountindebted may be paid notifying the mortgagor in writing of the time and place of the sale as requiredby law. The sheriff acceded to the request and sold the property to the mortgagee for the amountcovering the whole indebtedness with interest and costs. The certificate of sale was issued by thesheriff on May 28, 1949. After the period for the redemption of the property had expired without themortgagor having exercised his right to repurchase, the mortgagee demanded from the mortgagorthe surrender of the possession of the property, but the later refused and so on October 13, 1950,

she filed a petition in the Court of First Instance of Rizal praying that the provincial sheriff beauthorized to place her in possession of the property invoking in her favor the provisions of Act No.3135, as amended by Act No. 4118.

When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, themortgagor, opposed the petition on the following grounds: (1) that Act No. 3135 as amended by ActNo. 4118 is applicable only to a real estate mortgage; (2) that the mortgage involved herein is achattel mortgage; and (3) that even if the mortgage executed by the parties herein be considered asreal estate mortgage, the extra-judicial sale made by the sheriff of the property in question was validbecause the mortgage does not contain an express stipulation authorizing the extra-judicial sale ofthe property. After hearing, at which both parties have expressed their views in support of theirrespective contentions, respondent judge, then presiding the court, overruled the opposition andgranted the petition ordering the provincial sheriff of Rizal, or any of this disputives, to immediately

place petitioner in possession of the property in question while at the same time directing themortgagor Jose A. Luna to vacate it and relinquish it in favor of petitioner. It is from this order thatJose A. Luna desires now to obtain relief by filing this petition for certioraricontending that therespondent judge has acted in excess of his jurisdiction.

The first question which petitioner poses in his petition for certiorariis that which relates to thevalidity of the extra-judicial sale made by the provincial sheriff of Rizal of the property in question inline with the request of the mortgagee Trinidad Reyes. It is contended that said extra-judicial salehaving been conducted under the provisions of Act No. 3135, as amended by Act No. 4118, is


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invalid because the mortgage in question is not a real estate mortgage and, besides, it does notcontain an express stipulation authorizing the mortgagee to foreclose the mortgage extra-judicially.

There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties(Annex "C"), the understanding executed by them is a chattel mortgage, as the parties have soexpressly designated, and not a real estate mortgage, specially when it is considered that the

property given as security is a house of mixed materials which by its very nature is considered aspersonal property. Such being the case, it is indeed a mistake for the mortgagee to consider thistransaction in the light of Act No. 3135, as amended by Act No. 4118, as was so considered by herwhen she requested to provincial sheriff to sell it extra-judicially in order to secure full satisfaction ofthe indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended, onlycovers real estate mortgages and is intended merely to regulate the extra-judicial sale of theproperty mortgaged if and when the mortgagee is given a special power or express authority to doso in the deed itself, or in a document annexed thereto. These conditions do not here obtain. Themortgage before us is not a real estate mortgage nor does it contain an express authority or powerto sell the property extra-judicially.

But regardless of what we have heretofore stated, we find that the validity of the sale in question

may be maintained, it appearing that the mortgage in question is a chattel mortgage and as such it iscovered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of this Act allows themortgagee through a public officer in almost the same manner as that allowed by Act No. 3135, asamended by Act No. 4118, provided that the requirements of the law relative to notice andregistration are complied with. We are not prepared to state if these requirements of the law hadbeen complied with in the case for the record before us is not complete and there is no showing tothat effect. At any rate, this issue is not how important because the same can be treshed out whenthe opportunity comes for its determination, nor is it necessary for us to consider it in reaching adecision in the present case. Suffice it to state that for the present we are not expressing any opinionon this matter which concerns the validity of the sale in question for the reason that this opinion willonly be limited to a matter of procedure relative to the step taken by the mortgagee in securing thepossession of the property involved.

In the supposition that the sale of the property made by the sheriff has been made in accordancewith law, and the question he is confronted is how to deliver the possession of the property to thepurchaser in case of refusal to surrender its possession on the part of the debtor or mortgagor, theremedy of the purchaser according to the authorities, is to bring an ordinary action for recovery ofpossession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14 C.J.S., pp. 1027, 1028).The purchaser cannot take possession of the property by force either directly or through the sheriff.

And the reason for this is "that the creditor's right of possession is conditioned upon the fact ofdefault, and the existence of this fact may naturally be the subject of controversy" (Bachrah MotorCo. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a writ of possession aswas done by Trinidad Reyes in this case. Her remedy is to file an ordinary action for recovery ofpossession in ordered that the debtor may be given an opportunity to be heard not only in regardingpossession but also regarding the obligation covered by the mortgage. The petition she has filed inthe lower court, which was not even docketed, is therefore improper and should be regarded.

Wherefore, the order subject of the present petition for certiorariis hereby set aside, with costsagainst respondent Trinidad Reyes.

Bengzon, Tuason, Padilla and Pablo, JJ.,concur in the result.


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Manila

EN BANC

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,vs.FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery

company from the defendant machinery company, and executed a chattel mortgage thereon tosecure payment of the purchase price. It included in the mortgage deed the building of strongmaterials in which the machinery was installed, without any reference to the land on which it stood.The indebtedness secured by this instrument not having been paid when it fell due, the mortgagedproperty was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and wasbought in by the machinery company. The mortgage was registered in the chattel mortgage registry,and the sale of the property to the machinery company in satisfaction of the mortgage wasannotated in the same registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"executed a deed of sale of the land upon which the building stood to the machinery company, butthis deed of sale, although executed in a public document, was not registered. This deed makes no

reference to the building erected on the land and would appear to have been executed for thepurpose of curing any defects which might be found to exist in the machinery company's title to thebuilding under the sheriff's certificate of sale. The machinery company went into possession of thebuilding at or about the time when this sale took place, that is to say, the month of December, 1913,and it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery company,the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon thebuilding, separate and apart from the land on which it stood, to secure payment of the balance of itsindebtedness to the plaintiff under a contract for the construction of the building. Upon the failure ofthe mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured

judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on orabout the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the

land registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery company,which was in possession, filed with the sheriff a sworn statement setting up its claim of title anddemanding the release of the property from the levy. Thereafter, upon demand of the sheriff, theplaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance uponwhich the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at thesheriff's sale.


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This action was instituted by the plaintiff to recover possession of the building from the machinerycompany.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of themachinery company, on the ground that the company had its title to the building registered prior tothe date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transferto the person who may have the first taken possession thereof in good faith, if it should bepersonal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it in theregistry.

Should there be no entry, the property shall belong to the person who first took possession ofit in good faith, and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.

The registry her referred to is of course the registry of real property, and it must be apparent that theannotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot begiven the legal effect of an inscription in the registry of real property. By its express terms, theChattel Mortgage Law contemplates and makes provision for mortgages of personal property; andthe sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattelmortgages," that is to say, mortgages of personal property executed in the manner and formprescribed in the statute. The building of strong materials in which the rice-cleaning machinery wasinstalled by the "Compaia Agricola Filipina" was real property, and the mere fact that the partiesseem to have dealt with it separate and apart from the land on which it stood in no wise changed itscharacter as real property. It follows that neither the original registry in the chattel mortgage of the

building and the machinery installed therein, not the annotation in that registry of the sale of themortgaged property, had any effect whatever so far as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the groundassigned by the trial judge. We are of opinion, however, that the judgment must be sustained on theground that the agreed statement of facts in the court below discloses that neither the purchase ofthe building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was madein good faith, and that the machinery company must be held to be the owner of the property underthe third paragraph of the above cited article of the code, it appearing that the company first tookpossession of the property; and further, that the building and the land were sold to the machinerycompany long prior to the date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"

in express terms, in relation to "possession" and "title," but contain no express requirement as to"good faith" in relation to the "inscription" of the property on the registry, it must be presumed thatgood faith is not an essential requisite of registration in order that it may have the effectcontemplated in this article. We cannot agree with this contention. It could not have been theintention of the legislator to base the preferential right secured under this article of the code upon aninscription of title in bad faith. Such an interpretation placed upon the language of this section wouldopen wide the door to fraud and collusion. The public records cannot be converted into instrumentsof fraud and oppression by one who secures an inscription therein in bad faith. The force and effectgiven by law to an inscription in a public record presupposes the good faith of him who enters such


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inscription; and rights created by statute, which are predicated upon an inscription in a publicregistry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person whothus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in itssentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the firstparagraph; therefore, it having been found that the second purchasers who record theirpurchase had knowledge of the previous sale, the question is to be decided in accordancewith the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance ofownership of the real property that is first recorded in the registry shall have preference, thisprovision must always be understood on the basis of the good faith mentioned in the firstparagraph; the legislator could not have wished to strike it out and to sanction bad faith, justto comply with a mere formality which, in given cases, does not obtain even in real disputes

between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the LaRevista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at thesheriff's sale and inscribed his title in the land registry, was duly notified that the machinery companyhad bought the building from plaintiff's judgment debtor; that it had gone into possession long prior tothe sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. Theexecution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery companyhad filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in thebuilding at the sheriff's sale with full knowledge that at the time of the levy and sale the building hadalready been sold to the machinery company by the judgment debtor, the plaintiff cannot be said tohave been a purchaser in good faith; and of course, the subsequent inscription of the sheriff'scertificate of title must be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of saleto the plaintiff was not made in good faith, we should not be understood as questioning, in any way,the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." Thetruth is that both the plaintiff and the defendant company appear to have had just and righteousclaims against their common debtor. No criticism can properly be made of the exercise of the utmostdiligence by the plaintiff in asserting and exercising his right to recover the amount of his claim fromthe estate of the common debtor. We are strongly inclined to believe that in procuring the levy ofexecution upon the factory building and in buying it at the sheriff's sale, he considered that he wasdoing no more than he had a right to do under all the circumstances, and it is highly possible andeven probable that he thought at that time that he would be able to maintain his position in a contestwith the machinery company. There was no collusion on his part with the common debtor, and no

thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.He may have hoped, and doubtless he did hope, that the title of the machinery company would notstand the test of an action in a court of law; and if later developments had confirmed his unfoundedhopes, no one could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of ownership when heexecuted the indemnity bond and bought in the property at the sheriff's sale, and it appearing furtherthat the machinery company's claim of ownership was well founded, he cannot be said to have been


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an innocent purchaser for value. He took the risk and must stand by the consequences; and it is inthis sense that we find that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claimthat he has acquired title thereto in good faith as against the true owner of the land or of an interesttherein; and the same rule must be applied to one who has knowledge of facts which should have

put him upon such inquiry and investigation as might be necessary to acquaint him with the defectsin the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonableman upon his guard, and then claim that he acted in good faith under the belief that there was nodefect in the title of the vendor. His mere refusal to believe that such defect exists, or his willfulclosing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make himan innocent purchaser for value, if afterwards develops that the title was in fact defective, and itappears that he had such notice of the defects as would have led to its discovery had he acted withthat measure of precaution which may reasonably be acquired of a prudent man in a like situation.Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention bywhich one is actuated on a given occasion, we are necessarily controlled by the evidence as to theconduct and outward acts by which alone the inward motive may, with safety, be determined. So it isthat "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a"freedom from knowledge and circumstances which ought to put a person on inquiry," and so it isthat proof of such knowledge overcomes the presumption of good faith in which the courts alwaysindulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangiblefact that can be seen or touched, but rather a state or condition of mind which can only be judged ofby actual or fancied tokens or signs." (Wilder vs.Gilman, 55 Vt., 504, 505; Cf. Cardenas LumberCo. vs.Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs.Bromley, 119 Mich., 8, 10, 17.)

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

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ.,concur.Torres, Avancea and Fisher, JJ.,took no part.


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Manila

EN BANC

G.R. No. L-26278 August 4, 1927

LEON SIBAL ,plaintiff-appellant,vs.EMILIANO J. VALDEZ ET AL.,defendants.EMILIANO J. VALDEZ,appellee.

J. E. Blanco for appellant.Felix B. Bautista and Santos and Benitez for appellee.

JOHNSON, J .:

The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th dayof December 1924. The facts are about as conflicting as it is possible for facts to be, in the trialcauses.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff ofthe Province of Tarlac, by virtue of a writ of execution issued by the Court of First Instance ofPampanga, attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by theplaintiff and his tenants on seven parcels of land described in the complaint in the third paragraph ofthe first cause of action; that within one year from the date of the attachment and sale the plaintiffoffered to redeem said sugar cane and tendered to the defendant Valdez the amount sufficient tocover the price paid by the latter, the interest thereon and any assessments or taxes which he mayhave paid thereon after the purchase, and the interest corresponding thereto and that Valdez

refused to accept the money and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez wasattempting to harvest the palay planted in four of the seven parcels mentioned in the first cause ofaction; that he had harvested and taken possession of the palay in one of said seven parcels and inanother parcel described in the second cause of action, amounting to 300 cavans; and that all ofsaid palay belonged to the plaintiff.

Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J.Valdez his attorneys and agents, restraining them (1) from distributing him in the possession of theparcels of land described in the complaint; (2) from taking possession of, or harvesting the sugarcane in question; and (3) from taking possession, or harvesting the palay in said parcels of land.Plaintiff also prayed that a judgment be rendered in his favor and against the defendants orderingthem to consent to the redemption of the sugar cane in question, and that the defendant Valdez becondemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the twoparcels above-mentioned ,with interest and costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the bond forP6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint.


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The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically eachand every allegation of the complaint and step up the following defenses:

(a) That the sugar cane in question had the nature of personal property and was not,therefore, subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of thecomplaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminaryinjunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de cana dulce) palayin said parcels of land, representing a loss to him of P8,375.20 and that, in addition thereto, hesuffered damages amounting to P3,458.56. He prayed, for a judgment (1) absolving him from allliability under the complaint; (2) declaring him to be the absolute owner of the sugar cane in question

and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum ofP11,833.76, representing the value of the sugar cane and palay in question, including damages.

Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearingthe evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgmentagainst the plaintiff and in favor of the defendants

(1) Holding that the sugar cane in question was personal property and, as such, was notsubject to redemption;

(2) Absolving the defendants from all liability under the complaint; and

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and MarcosSibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;

(c) 646.00, the value of palay harvested by plaintiff;

(d) 600.00, the value of 150 cavans of palay which the defendant was not able toraise by reason of the injunction, at P4 cavan. 9,439.08 From that judgment the

plaintiff appealed and in his assignments of error contends that the lower court erred:(1) In holding that the sugar cane in question was personal property and, therefore,not subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7and 8, and that the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce);


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(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant wasunable to raise palay on the land, which would have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ ofexecution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co.,Inc. vs.Leon Sibal),levied an attachment on eight parcels of land belonging to said LeonSibal, situated in the Province of Tarlac, designated in the second of attachment as parcels1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at theauction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid forthe said parcels separately as follows (Exhibit C, and 2-A):

Parcel

1 ..................................................................... P1.00

2 ..................................................................... 2,000.00

3 ..................................................................... 120.93

4 ..................................................................... 1,000.00

5 ..................................................................... 1.00

6 ..................................................................... 1.00

7 with the house thereon .......................... 150.00

8 ..................................................................... 1,000.00==========

4,273.93

(3) That within one year from the sale of said parcel of land, and on the 24th day ofSeptember, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc.,for the account of the redemption price of said parcels of land, without specifying theparticular parcels to which said amount was to applied. The redemption price said eight

parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit Cand 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Provinceof Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga(Emiliano J. Valdez vs.Leon Sibal 1. the same parties in the present case), attached the


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personal property of said Leon Sibal located in Tarlac, among which was included the sugarcane now in question in the seven parcels of land described in the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personalproperties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paidtherefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, alsoattached the real property of said Leon Sibal in Tarlac, including all of his rights, interest andparticipation therein, which real property consisted of eleven parcels of land and a house andcamarin situated in one of said parcels (Exhibit A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin,were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200.Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and11. The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12,

and 13, were released from the attachment by virtue of claims presented by AgustinCuyugan and Domiciano Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J.Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it atpublic auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203 ofthe Court of First Instance of Manila, as stated above. Said amount represented the unpaidbalance of the redemption price of said eight parcels, after payment by Leon Sibal of P2,000on September 24, 1923, fro the account of the redemption price, as stated above. (Exhibit Cand 2).

The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels ofland described in the first cause of action of the complaint at public auction on May 9 and 10,1924, for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of landsituated in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923,Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of saidparcels.

(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rightsand interest in the said eight parcels of land.

(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest whichLeon Sibal had or might have had on said eight parcels by virtue of the P2,000 paid by thelatter to Macondray.

(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is personal or realproperty. It is contended that sugar cane comes under the classification of real property as


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"ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334enumerates as real property the following: Trees, plants, and ungathered products, while they areannexed to the land or form an integral part of any immovable property." That article, however, hasreceived in recent years an interpretation by the Tribunal Supremo de Espaa, which holds that,under certain conditions, growing crops may be considered as personal property. (Decision of March18, 1904, vol. 97, Civil Jurisprudence of Spain.)

Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the CivilCode, in view of the recent decisions of the supreme Court of Spain, admits that growing crops aresometimes considered and treated as personal property. He says:

No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocantea la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuentecon la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El TribunalSupremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato dearrendamiento de un predio rustico, resuelve que su terminacion por desahucio no extinguelos derechos del arrendario, para recolectar o percibir los frutos correspondientes al aoagricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su

vez el importe de la renta integra correspondiente, aun cuando lo haya sido por preceptolegal durante el curso del juicio, fundandose para ello, no solo en que de otra suerte se dariaal desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestroproposito, la consideracion de inmuebles que el articulo 334 del Codigo Civil atribuge a losfrutos pendientes, no les priva del caracter de productos pertenecientes, como tales, aquienes a ellos tenga derecho, Ilegado el momento de su recoleccion.

x x x x x x x x x

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 dediciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca,salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y formade la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en

que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungatheredproducts may be sold and transferred as personal property; (2) that the Supreme Court of Spain, in acase of ejectment of a lessee of an agricultural land, held that the lessee was entitled to gather theproducts corresponding to the agricultural year, because said fruits did not go with the land butbelonged separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909, asamended, the mortgage of a piece of land does not include the fruits and products existing thereon,unless the contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some light on thequestion which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to

paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees notgathered, and trees before they are cut down, are likewise immovable, and are considered as part ofthe land to which they are attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases"standing crops" may be considered and dealt with as personal property. In the case of Lumber Co.vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the CivilCode it is provided that 'standing crops and the fruits of trees not gathered and trees before they arecut down . . . are considered as part of the land to which they are attached, but the immovability


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provided for is only one in abstracto and without reference to rights on or to the crop acquired byothers than the owners of the property to which the crop is attached. . . . The existence of a right onthe growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering thecrop movable quoad the right acquired therein. Our jurisprudence recognizes the possiblemobilization of the growing crop." (Citizens' Bankvs.Wiltz, 31 La. Ann., 244; Porche vs.Bodin, 28La., Ann., 761; Sandel vs.Douglass, 27 La. Ann., 629; Lewis vs.Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761)that "article 465 of the Revised Code says that standing crops are considered as immovable and aspart of the land to which they are attached, and article 466 declares that the fruits of an immovablegathered or produced while it is under seizure are considered as making part thereof, and incurredto the benefit of the person making the seizure. But the evident meaning of these articles, is wherethe crops belong to the owner of the plantation they form part of the immovable, and where it isseized, the fruits gathered or produced inure to the benefit of the seizing creditor.

A crop raised on leased premises in no sense forms part of the immovable. It belongs to thelessee, and may be sold by him, whether it be gathered or not, and it may be sold by his

judgment creditors. If it necessarily forms part of the leased premises the result would be that

it could not be sold under execution separate and apart from the land. If a lessee obtainsupplies to make his crop, the factor's lien would not attach to the crop as a separate thingbelonging to his debtor, but the land belonging to the lessor would be affected with therecorded privilege. The law cannot be construed so as to result in such absurdconsequences.

In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:

If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would bedestructive of the very objects of the act, it would render the pledge of the crop objects of theact, it would render the pledge of the crop impossible, for if the crop was an inseparable partof the realty possession of the latter would be necessary to that of the former; but such is notthe case. True, by article 465 C. C. it is provided that "standing crops and the fruits of trees

not gathered and trees before they are cut down are likewise immovable and are consideredas part of the land to which they are attached;" but the immovability provided for is onlyone in abstracto and without reference to rights on or to the crop acquired by other than theowners of the property to which the crop was attached. The immovability of a growing crop isin the order of things temporary, for the crop passes from the state of a growing to that of agathered one, from an immovable to a movable. The existence of a right on the growing cropis a mobilization by anticipation, a gathering as it were in advance, rendering the cropmovable quoad the right acquired thereon. The provision of our Code is identical with theNapoleon Code 520, and we may therefore obtain light by an examination of the

jurisprudence of France.

The rule above announced, not only by the Tribunal Supremo de Espaa but by the Supreme Court

of Louisiana, is followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states we find thatthe settle doctrine followed in said states in connection with the attachment of property andexecution of judgment is, that growing crops raised by yearly labor and cultivation are consideredpersonal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329:Raventas vs.Green, 57 Cal., 254; Norris vs.Watson, 55 Am. Dec., 161; Whipple vs.Foot, 3 Am.Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs.Lampley, 31 Ala., 526; Crinevs.Tifts and


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Co., 65 Ga., 644; Gillitt vs.Truax, 27 Minn., 528; Preston vs.Ryan, 45 Mich., 174; Freeman onExecution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually inexistence, is reasonably certain to come into existence as the natural increment or usual incident ofsomething already in existence, and then belonging to the vendor, and then title will vest in the buyer

the moment the thing comes into existence. (Emerson vs.European Railway Co., 67 Me., 387;Cutting vs.Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have apotential existence. A man may sell property of which he is potentially and not actually possessed.He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field maygrow in a given time; or the milk a cow may yield during the coming year; or the wool that shallthereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or fruits togrow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold,however, must be specific and identified. They must be also owned at the time by the vendor.(Hull vs.Hull, 48 Conn., 250 [40 Am. Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has beenmodified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel

Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may besubjected to execution. The pertinent portion of said section reads as follows: "All goods, chattels,moneys, and other property, both real and personal, * * * shall be liable to execution. Said section450 and most of the other sections of the Code of Civil Procedure relating to the execution of

judgment were taken from the Code of Civil Procedure of California. The Supreme Court ofCalifornia, under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held,without variation, that growing crops were personal property and subject to execution.

Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property.Section 2 of said Act provides: "All personal property shall be subject to mortgage, agreeably to theprovisions of this Act, and a mortgage executed in pursuance thereof shall be termed a chattelmortgage." Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain anagreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop

while growing.

It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that"growing crops" are personal property. This consideration tends to support the conclusionhereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned insaid article of the Civil Code have the nature of personal property. In other words, the phrase"personal property" should be understood to include "ungathered products."

At common law, and generally in the United States, all annual crops which are raised byyearly manurance and labor, and essentially owe their annual existence to cultivation byman, . may be levied on as personal property." (23 C. J., p. 329.) On this question Freeman,

in his treatise on the Law of Executions, says: "Crops, whether growing or standing in thefield ready to be harvested, are, when produced by annual cultivation, no part of the realty.They are, therefore, liable to voluntary transfer as chattels. It is equally well settled that theymay be seized and sold under execution. (Freeman on Executions, vol. p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified bysection 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose ofattachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products"


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have the nature of personal property. The lower court, therefore, committed no error in holding thatthe sugar cane in question was personal property and, as such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated, relate to questions of factonly. Before entering upon a discussion of said assignments of error, we deem it opportune to takespecial notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by

the defendant. His absence from the trial and his failure to cross-examine the defendant have lentconsiderable weight to the evidence then presented for the defense.

Coming not to the ownership of parcels 1 and 2 described in the first cause of action of thecomplaint, the plaintiff made a futile attempt to show that said two parcels belonged to AgustinCuyugan and were the identical parcel 2 which was excluded from the attachment and sale of realproperty of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description ofparcel 2 in the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 ofthe complaint will readily show that they are not the same.

The description of the parcels in the complaint is as follows:

1. La caa dulce sembrada por los inquilinos del ejecutado Leon Sibal 1. en una parcela deterreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban,Tarlac, de unas dos hectareas poco mas o menos de superficie.

2. La caa dulce sembrada por el inquilino del ejecutado Leon Sibal 1., Ilamado AlejandroPolicarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap,Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." Thedescription of parcel 2 given in the certificate of sale (Exhibit A) is as follows:

2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadradosde superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. conFrancisco Dizon, Felipe Mau and others; al S. con Alejandro Dayrit, Isidro Santos and

Melecio Mau; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vadoramillarado P4,200 pesos.

On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of thecomplaint were included among the parcels bought by Valdez from Macondray on June 25, 1924,and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included amongthe parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924, andcorresponded to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The description ofparcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:

Parcels No. 4. Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F.de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio ofCulubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Mao y Canuto

Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990.Tax No. 2856.

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4(Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at thetrial when the defendant offered his evidence, we are inclined to give more weight to the evidenceadduced by him that to the evidence adduced by the plaintiff, with respect to the ownership ofparcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the complaint


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belong to the defendant, having acquired the same from Macondray & Co. on June 25, 1924, andfrom the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of thecrop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only,

at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.

As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds toparcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in thecertificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as abovestated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interestof both Macondray and Sibal in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the secondcause of action, it appears from the testimony of the plaintiff himself that said parcel corresponds toparcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed ofsale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of

said parcel, having acquired the interest of both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached undersaid execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923.Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on theredemption of said parcels of land. (See Exhibits B and C ).

Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including thesugar cane in question. (Exhibit A) The said personal property so attached, sold at public auctionMay 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in favor of

Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).

June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction onthe 30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows thatthe sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); thatsaid area would have yielded an average crop of 1039 picos and 60 cates; that one-half of thequantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; thatduring the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant,as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence also showsthat the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas decana) and not 1,170,000 as computed by the lower court. During the season the shoots were selling

at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 fromsugar-cane shoots and not P1,435.68 as allowed by the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190cavans, one-half of said quantity should belong to the plaintiff, as stated above, and the other half tothe defendant. The court erred in awarding the whole crop to the defendant. The plaintiff shouldtherefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 asallowed by the lower court.


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The evidence also shows that the defendant was prevented by the acts of the plaintiff fromcultivating about 10 hectares of the land involved in the litigation. He expected to have raised about600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The lowercourt has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have nettedhim P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and hissureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to thedefendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lowercourt, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;

323.00 for the palay harvested by plaintiff in parcels 1 and 2;

600.00 for the palay which defendant could have raised.

8,900.80============

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.

Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.


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Manila

EN BANC

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 OroCity,respondents.

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

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on itsmaintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appealson the ground that the same are not realty. The Board of Tax Appeals of the City sustained the cityassessor, so petitioner herein 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 stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following stipulationof facts:

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

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains BranchOffices 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 real properties are thefollowing:

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

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

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

(f) Battery charger (Tungar charge machine) appearing in the attached photograph,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 theattached photographs which form part of this agreed stipulation of facts;

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

6. That these machineries have never been or were never used as industrial equipments toproduce finished products for sale, nor to repair machineries, parts and the like offered to thegeneral public indiscriminately for business or commercial purposes for which petitioner hasnever engaged in, to date. 1awphl.nt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied

a motion for reconsideration, petitioner brought the case to this Court assigning the following errors:

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

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New CivilCode, and holding that pursuant thereto the movable equipments are taxable realties, byreason of their being intended or destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent CityAssessor's power to assess and levy real estate taxes on 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 immobilized by destination, inaccordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. The following are immovable properties:


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x x x x x x x x x

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

Note that the stipulation expressly states that the equipment are placed on wooden or cementplatforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of realproperty to "machinery, liquid containers, instruments or implements intended by the ownerof any building or land for use in connection with any industry or trade being carried ontherein 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 central of the MabalacatSugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,

converted them into real property by reason of their purpose, it cannot be said that theirincorporation therewith was not permanent in character because, as essential and principleelements of a sugar central, without them the sugar central would be unable to function orcarry on the industrial purpose for which it was established. Inasmuch as the central ispermanent in character, the necessary machinery and equipment installed for carrying on thesugar industry for which it has been established must necessarily be permanent. (Emphasisours.)

So that movable equipments to be immobilized in contemplation of the law must first be "essentialand principal elements" of an industry or works without which such industry or works would be"unable to function or carry on the industrial purpose for which it was established." We may heredistinguish, therefore, those movable which become immobilized by destination because theyare essential and principal elementsin the industry for those which may not be so consideredimmobilized because they are merely incidental, not essential and principal. Thus, cash registers,typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentalsand are not and should not be considered immobilized by destination, for these businesses cancontinue or carry on their functions without these equity comments. Airline companies use forklifts,

jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thusretain their movable nature. On the other hand, machineries of breweries used in the manufacture ofliquor 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 own and use and arefound within their industrial compounds are merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not essentialand principle municipal elements of petitioner's business 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, its business may becarried on, as petitioner has carried on, without such equipments, before the war. The transportationbusiness could be carried on without the repair or service shop if its rolling equipment is repaired orserviced in another shop belonging to another.

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

Art. 415. The following are immovable property:


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x x x x x x x x x

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

Aside from the element of essentiality the above-quoted provision also requires that the industry orworks be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. CuUnjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in abuilding constructed on the land. A sawmill would also be installed in a building on land more or lesspermanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service thetransportation business, which is not carried on in a building or permanently on a piece of land, asdemanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely

essential to the petitioner's transportation business, and petitioner's business is not carried on in abuilding, tenement or on a specified land, so said equipment may not be considered real estatewithin the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipmentin question declared not subject to assessment as real estate for the purposes of the real estate tax.Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.Regala, Concepcion and Barrera JJ., took no part.


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Manila

EN BANC

G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER,plaintiff-appellant,vs.CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA,defendants-appellees.

Briones and Martinez for appellant.Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.No appearance for the other appellees.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of FirstInstance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in itsdecision in question which will be discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error,is whether or not the lower court erred in declaring that the additional machinery and equipment, asimprovement incorporated with the central are subject to the mortgage deed executed in favor of thedefendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugarcentral situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loansecured by a first mortgage constituted on two parcels and land "with all its buildings, improvements,sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or isnecessary complement of said sugar-cane mill, steel railway, telephone line, now existing or thatmay in the future exist is said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co.,Inc., decided to increase the capacity of its sugar central by buying additional machinery andequipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of saidadditional machinery and equipment was approximately P100,000. In order to carry out this plan,

B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advancethe necessary amount for the purchase of said machinery and equipment, promising to reimbursehim as soon as he could obtain an additional loan from the mortgagees, the herein defendants CuUnjieng e Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (ExhibitE), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green,president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Greenhaving been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against saidcorporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the MabalacatSugar Co., Inc., purchased the additional machinery and equipment now in litigation.


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On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng eHijos for an additional loan of P75,000 offering as security the additional machinery and equipmentacquired by said B.A. Green and installed in the sugar central after the execution of the originalmortgage deed, on April 27, 1927, together with whatever additional equipment acquired with saidloan. B.A. Green failed to obtain said loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, andrents not collected when the obligation falls due, and the amount of any indemnities paid ordue the owner by the insurers of the mortgaged property or by virtue of the exercise of thepower of eminent domain, with the declarations, amplifications, and limitations established bylaw, whether the estate continues in the possession of the person who mortgaged it orwhether it passes into the hands of a third person.

In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited withapproval in the case of Cea vs. Villanueva(18 Phil., 538), this court laid shown the followingdoctrine:

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS ANDFIXTURES. It is a rule, established by the Civil Code and also by the Mortgage Law, withwhich the decisions of the courts of the United States are in accord, that in a mortgage ofreal estate, the improvements on the same are included; therefore, all objects permanentlyattached to a mortgaged building or land, although they may have been placed there afterthe mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law,and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal InsuranceCo. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may beunderstood that the machinery and other objects placed upon and used in connection with amortgaged estate are excluded from the mortgage, when it was stated in the mortgage thatthe improvements, buildings, and machinery that existed thereon were also comprehended,it is indispensable that the exclusion thereof be stipulated between the contracting parties.

The appellant contends that the installation of the machinery and equipment claimed by him in thesugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch asB.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear inthe letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from thedefendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, saidB.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fullyreimbursed for the corporation's indebtedness to him.

Upon acquiring the machinery and equipment in question with money obtained as loan from the

plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter becameowner of said machinery and equipment, otherwise B.A. Green, as such president, could not haveoffered them to the plaintiff as security for the payment of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquidcontainers, instruments or implements intended by the owner of any building or land for use inconnection with any industry or trade being carried on therein and which are expressly adapted tomeet the requirements of such trade or industry.


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If the installation of the machinery and equipment in question in the central of the Mabalacat SugarCo., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted theminto real property by reason of their purpose, it cannot be said that their incorporation therewith wasnot permanent in character because, as essential and principal elements of a sugar central, withoutthem the sugar central would be unable to function or carry on the industrial purpose for which it wasestablished. Inasmuch as the central is permanent in character, the necessary machinery and

equipment installed for carrying on the sugar industry for which it has been established mustnecessarily be permanent.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold saidmachinery and equipment as security for the payment of the latter's credit and to refrain frommortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, isnot incompatible with the permanent character of the incorporation of said machinery and equipmentwith the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green fromgiving them as security at least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they hadbeen permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the

mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right ofredemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machineryand equipment had been incorporated, was transferred thereby, subject to the right of thedefendants Cu Unjieng e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of amachinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for thepurpose of carrying out the industrial functions of the latter and increasing production, constitutes apermanent improvement on said sugar central and subjects said machinery and equipment to themortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of thenew machinery and equipment has bound himself to the person supplying him the purchase moneyto hold them as security for the payment of the latter's credit, and to refrain from mortgaging orotherwise encumbering them does not alter the permanent character of the incorporation of said

machinery and equipment with the central; and (3) that the sale of the machinery and equipment inquestion by the purchaser who was supplied the purchase money, as a loan, to the person whosupplied the money, after the incorporation thereof with the mortgaged sugar central, does not vestthe creditor with ownership of said machinery and equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to theappellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.

]


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Manila

EN BANC

G.R. No. L-17898 October 31, 1962

PASTOR D. AGO,petitioner,vs.THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of FirstInstance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARKENGINEERING, INC.,respondents.

Jose M. Luison for petitioner.Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorarito review the decision of respondent Court of Appeals in CA-G.R. No. 26723-Rentitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorariand prohibition with preliminary injunction, it appears from therecords that the respondent Judge of the Court of First Instance of Agusan rendered

judgment (Annex "A") in open court on January 28, 1959, basing said judgment on acompromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or hiscounsel, did not receive a formal and valid notice of said decision, which motion forreconsideration was denied by the court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in renderingthe execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law betweenthem. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is

not appealable and is immediately executory, unless a motion is filed on the ground fraud,mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. Thejudgment on the compromise agreement rendered by the court below dated January 28,1959, was given in open court. This alone is a substantial compliance as to notice. (De losReyes vs. Ugarte, supra)


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IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdictionin ordering the execution of the judgment. The petition for certiorariis hereby dismissed andthe writ of preliminary injunction heretofore dissolved, with costs against the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago boughtsawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,executing a chattel mortgage over said machineries and equipments to secure the payment ofbalance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on installmentbasis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc.instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure,petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance of Agusan. Theparties to the case arrived at a compromise agreement and submitted the same in court in writing,signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge ofthe Court of First Instance of Agusan, then presiding, dictated a decision in open court on January

28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, soGrace Park Engineering, Inc. filed with the lower court a motion for execution, which was granted bythe court on August 15, 1959. A writ of execution, dated September 23, 1959, later followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by thelower court, levied upon and ordered the sale of the sawmill machineries and equipments inquestion. These machineries and equipments had been taken to and installed in a sawmill buildinglocated in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom,petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of the lowercourt but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959,petitioner, on December 1, 1959, filed the petition for certiorariand prohibition with preliminaryinjunction with respondent Court of Appeals, alleging that a copy of the aforementioned judgmentgiven in open court on January 28, 1959 was served upon counsel for petitioner only on September25, 1959 (writ of execution is dated September 23, 1959); that the order and writ of execution havingbeen issued by the lower court before counsel for petitioner received a copy of the judgment, itsresultant last order that the "sheriff may now proceed with the sale of the properties leviedconstituted a grave abuse of discretion and was in excess of its jurisdiction; and that the respondentProvincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution by levyingthe same upon the sawmill machineries and equipments which have become real properties of theGolden Pacific sawmill, Inc., and is about to proceed in selling the same without prior publication ofthe notice of sale thereof in some newspaper of general circulation as required by the Rules of

Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against thesheriff but it turned out that the latter had already sold at public auction the machineries in question,on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was the onlybidder for P15,000.00, although the certificate sale was not yet executed. The Court of Appealsconstructed the sheriff to suspend the issuance of a certificate of sale of the said sawmillmachineries and equipment sold by him on December 4, 1959 until the final decision of the case. OnNovember 9, 1960 the Court of Appeals rendered the aforequoted decision.


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Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition ofjudgment on compromise in open court on January 1959 was a sufficient notice; and (2) in notresolving the other issues raised before it, namely, (a) the legality of the public auction sale made bythe sheriff, and (b) the nature of the machineries in question, whether they are movables orimmovables.

The Court of Appeals held that as a judgment was entered by the court below in open court upon thesubmission of the compromise agreement, the parties may be considered as having been notified ofsaid judgment and this fact constitutes due notice of said judgment. This raises the following legalquestion: Is the order dictated in open court of the judgment of the court, and is the fact the petitionerherein was present in open court was the judgment was dictated, sufficient notice thereof? Theprovisions of the Rules of Court decree otherwise. Section 1 of Rule 35 describes the manner inwhich judgment shall be rendered, thus:

SECTION 1. How judgment rendered. All judgments determining the merits of cases shallbe in writing personally and directly prepared by the judge, and signed by him, stating clearlyand distinctly the facts and the law on which it is based, filed with the clerk of the court.

The court of first instance being a court of record, in order that a judgment may be considered asrendered, must not only be in writing, signed by the judge, but it must also be filed with the clerk ofcourt. The mere pronouncement of the judgment in open court with the stenographer taking notethereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signeddecision with the clerk of court that constitutes rendition. While it is to be presumed that the

judgment that was dictated in open court will be the judgment of the court, the court may still modifysaid order as the same is being put into writing. And even if the order or judgment has already beenput into writing and signed, while it has not yet been delivered to the clerk for filing it is still subject toamendment or change by the judge. It is only when the judgment signed by the judge is actually filedwith the clerk of court that it becomes a valid and binding judgment. Prior thereto, it could still besubject to amendment and change and may not, therefore, constitute the real judgment of the court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment

in open court, is not a valid notice of said judgment. If rendition thereof is constituted by the filingwith the clerk of court of a signed copy (of the judgment), it is evident that the fact that a party or anattorney heard the order or judgment being dictated in court cannot be considered as notice of thereal judgment. No judgment can be notified to the parties unless it has previously been rendered.The notice, therefore, that a party has of a judgment that was being dictated is of no effect becauseat the time no judgment has as yet been signed by the judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or byregistered mail. Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. Final orders or judgments shall be servedeither personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the judgmentmerely because he heard the judgment dictating the said judgment in open court; it is necessary thathe be served with a copy of the signed judgment that has been filed with the clerk in order that hemay legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment inopen court, is not sufficient to constitute the service of judgement as required by the above-quotedsection 7 of Rule 2 the signed judgment not having been served upon the petitioner, said judgment


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could not be effective upon him (petitioner) who had not received it. It follows as a consequence thatthe issuance of the writ of execution null and void, having been issued before petitioner her wasserved, personally or by registered mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals,concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and

equipments at public auction with a notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineriesand equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of hissubscription to the shares of stock of said corporation. Thereafter the sawmill machinery andequipments were installed in a building and permanently attached to the ground. By reason of suchinstallment in a building, the said sawmill machineries and equipment became real estate propertiesin accordance with the provision of Art. 415 (5) of the Civil Code, thus:

ART. 415. The following are immovable property:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements tended by the owner of the tenementfor an industry or works which may be carried on in a building or on a piece of land, andwhich tend directly to meet the needs of the said industry or works;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. CuUnjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the central ofthe Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the company,converted the said machinery and equipment into real estate by reason of their purpose.Paraphrasing language of said decision we hold that by the installment of the sawmill machineries inthe building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried on in said building,the same became a necessary and permanent part of the building or real estate on which the same

was constructed, converting the said machineries and equipments into real estate within themeaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00appear to have been sold without the necessary advertisement of sale by publication in anewspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. Before the sale of property onexecution, notice thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice particularly describing the property fortwenty days in three public places in the municipality or city where the property is situated,and also where the property is to be sold, and, if the assessed value of the property exceedsfour hundred pesos, by publishing a copy of the notice once a week, for the same period, insome newspaper published or having general circulation in the province, if there be one. Ifthere are newspapers published in the province in both the English and Spanish languages,then a like publication for a like period shall be made in one newspaper published in theEnglish language, and in one published in the Spanish language.


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the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside andWe declare that the issuance of the writ of execution in this case against the sawmill machineriesand equipments purchased by petitioner Pastor D. Ago from the Grace Park Engineering, Inc., aswell as the sale of the same by the Sheriff of Surigao, are null and void. Costs shall be against the

respondent Grace Park Engineering, Inc.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala andMakalintal, JJ.,concur.Padilla, J.,took no part.

property cases tranch 1

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